Haryana VAT Notification Illegal?
RECENTLY the Haryana Government amended Schedule E of the Haryana Value Added Tax Act to restrict the admissibility of input tax as follows:
(i) when the goods are sold as such in the course of inter-state trade or commerce; or (ii) when the goods are used in the manufacture of goods and the manufactured goods are sold in the course of inter-state trade or commerce | Input Tax to the extent of the amount of tax actually paid on the purchase of such goods in the State under the Act or tax payable on sale of such goods under the Central Sales Tax Act, 1956, whichever is lower. |
(iii) when sold at a sale price lower than the purchase price. | To the extent of output tax liability, if any, on the sale of such goods. |
We received this mail from a concerned Netizen.
This is discriminatory legislation and against the Article 301 of Constitution of India which requires to be challenged as was done earlier in case of Entry Tax which was struck down by the Supreme Court of India.
Under VAT law, a dealer is entitled to avail input credit on the purchases made by him locally in the state of registration. After the value addition, he can utilize the input credit to offset against his output tax liability whether the sale is intra-state or inter-state though intra-state is governed by the local VAT laws and the inter-state is governed by CST law. The revenue under VAT or CST accrues to the state government only. The tax paid under CST cannot be availed as input credit by the recipient dealer and concessional rate of 2% is available only on issuance of C form and evidencing the movement of goods inter-state on documents. So in normal circumstances, the dealer procuring the goods locally and selling them inter-state will end up with accrued input credit. This unutilized input credit is being sought as refund in some of States periodically till now. Many of the States have imposed restrictions on the availment of input credit in case of stock transfers, as the goods stock transferred will suffer local VAT in the State to which they were transported and the originating State will not levy tax on receipt of Form F. This was accepted by all dealers across India as the justifiable reason is that the output tax is not accruing to the originating State in case of stock transfer. However, in case of inter-state sales, the output tax payable under CST laws accrues to the originating State only however at a lower value. By this amendment, this anomaly was set right but this will be a trade barrier and will act as a deterrent to undertake inter-state sales. Hence this needs to be challenged before the other States in India copy the legislation into their respective Acts. When GST is round the corner, we fail to understand the rationale of bringing in this kind of legislative changes creating artificial trade barriers to the detriment of trade and industry.
Earlier some of the States have brought in this kind of legislation in an attempt to augment their tax revenues and later rolled back succumbing to the demands of the trade.