RITC on credit notes, gifts,freedistribution,goods lost, destroyed or ...

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NATIONAL TAX NEWS AND VIEWSNTNA FORTNIGHTLY VAT/GST LAW REPORTERFirst Journal in Uttar Pradesh and Uttarakhand Providingonline Serviceswww.ntnonline.net or www.upvatonline.comBy section 21(14), Government is getting the double tax for getting credit noteissued mandatorily by the seller. Since the Government has got Rs. 10/- morein the first transaction of sale, though the actual sale price was lower, henceinstead of directing the seller to issue the credit note, Government must itselfissue the certificate for payment of excess tax to the seller which should begiven by the seller to its purchaser, or, like the TDS certificate under theIncome Tax Act seller should issue the certificate for excess payment of taxto its purchaser, from which benefit of set off of tax can be claimed by thepurchaser from its future tax liability. By this method, the anomaly ofcascading tax could be done away with.Example: In the first transaction there was excess tax realized anddeposited by the seller of Rs. 10/- (50-40) after realizing from the purchaser.Thus, if instead of issuing credit note, seller issues the certificate for excesspayment of tax of Rs.10/- to the purchaser, then the aforesaid secondtransaction would change as follows:-Sale value : Rs. 100/-Full purchase amount to be given by the purchaser in absenceof credit note : Rs. 100/-Tax amount @ 10% would be equal to Rs. 10/-, which would be set off from thecertificate for payment of tax issued to the purchaser. Hence purchaser is notliable to deposit any amount of tax.Therefore, now seller is getting full Rs.100/-. Purchaser is paying sameamount of Rs.100/-, and the Government is not getting the tax of Rs.10/-again, which was the position while issuing the credit note under section21(14).Thus, by virtue of section 21(14) Government is encouraging cascading effect oftax in the garb of directing seller to issue credit note and eating into the profitsof the seller. Thus, section 21(14) is unreasonable and against the very objectfor which VAT Act has been enacted, i.e. to remove the cascading effect of tax,hence it should be suitably amended as proposed aforesaid to avoid loss to theselling dealer. Since the credit note issued by the seller is his loss insubsequent transaction, and Government is directing seller to issue credit notefor excess tax received by the Government.Until section 21(14) is amended or its validity is struck down, modus operandiof giving the benefits by way of rebate/gifts through various schemes by thesellers have to be changed. Benefits should be given in the beginning byadjusting/lowering the sale-price itself instead of showing higher sale-priceand then giving the benefit of schemes, for which credit note has to be given. Ifthere is target based incentive scheme, whose benefit is ascertainable only infuture, then its benefit should be deducted from the sale value beforepreparing the subsequent tax invoice, as section 21(14) will apply only whenexcess tax is both realized and also shown in the tax invoice. Thus, by tax©: National Law Book Publications, B-2, Modern Plaza BuildingAmbedkar Road, Ghaziabad -201001-U.P. Phone Nos. (0120) 4128197,2793852,Email : nlh_ntn@rediffmail.com or ntnalerts@gmail.com
NATIONAL TAX NEWS AND VIEWSNTNA FORTNIGHTLY VAT/GST LAW REPORTERFirst Journal in Uttar Pradesh and Uttarakhand Providingonline Serviceswww.ntnonline.net or www.upvatonline.complanning seller should refrain from the situation of issuing credit note, by notfalling within the ambit of section 21(14).Rule 21(1)(af) denies the benefit of ITC with respect to the goods which aregifted, or otherwise distributed free of cost or lost, destroyed or stolen. Section3 of the VAT Act is the charging section which levies the tax on taxableturnover of sale. Sale is defined in section 2(ac) of the Act as transfer ofproperty in goods for cash, deferred payment or for any other valuableconsideration. The expression valuable consideration has been explained bythe Apex Court in the case of Devi Das Gopal Krishna Vs. State of Punjab,reported in Vol. 20 STC page 430 as the expression ‘valuable consideration’takes colour from the preceding expression “cash or deferred payment”. If so, itcan only mean some other monetary payment in the nature of cash ordeferred payment. The Division Bench of Allahabad High Court in the case ofSales Tax Commissioner vs. Ram Kumar Agrawal, reported in Vol. 19 STCpage 400, has held that the words other valuable consideration at best can beinterpreted on the basis of rule of ejusdem generis to mean payment i.e. bycheque, bills of exchange or any other negotiable instrument, but they cannotpossibly cover a case where no price is paid.ITC under section 13 is available on resale or sale after manufacture of goods,which event canot happen in the case of making of gifts, free distribution orthe goods getting lost, destroyed or stolen. But in the eventualitiescontemplated under rule 21(1)(af) no valuable consideration is involved, henceit is not a sale as per section 2(ac). Thus, benefit of ITC is not available undersection 13 of the Act. Hence, when ITC cannot be claimed under the Act/Rule,and it is not claimed as such, by the dealer, on the happening of the aforesaideventualities, there is no question of any <strong>RITC</strong>. But if dealer has wronglyclaimed the ITC , then <strong>RITC</strong> is bound to happen under section 14(2) of the Act.Tax which has been paid earlier on the happening of a taxable event, withrespect to the goods which have been subsequently stolen/lost/destroyed, itsITC would be available only when those goods are sold to remove the cascadingeffect of tax, which would be impossible. If ITC is allowed on the goods whichare subsequently gifted, stolen, lost or destroyed, then it would amount togiving refund of tax for the earlier concluded transaction, wherein the taxableevent has already occurred. Under the eventualities contemplated under rule21(1)(af) the same goods cannot again be sold. Hence, there is no question ofremoving the cascading effect of tax, and hence ITC is not admissible to thedealer, which if he had claimed erroneously is bound to be reversed. Further asper rule 21(1)(l) benefit of ITC is not available when sale of goods is not liable totax in the hands of the purchaser, on the similar analogy that when there is nosubsequent tax liability, benefit of set off of ITC to remove the cascading effectof tax cannot be given.---------------------------------------©: National Law Book Publications, B-2, Modern Plaza BuildingAmbedkar Road, Ghaziabad -201001-U.P. Phone Nos. (0120) 4128197,2793852,Email : nlh_ntn@rediffmail.com or ntnalerts@gmail.com
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