The Government of Tamil Nadu has brought out certain amendments to the Tamil Nadu Value Added Tax Act 2006 (‘the Act’) and the Tamil Nadu Value Added Tax Rules, 2007 (‘the Rules’), with effect from 29th January, 2016 [see end note 1]. From a holistic reading of the amendments it is clear that the legislature has taken a strict position on eligibility of input tax credit, punishment for wrongful availment, etc. Though the assessees may have some teething troubles in acclimatising with the changes in law, it seems to be in tune with the process of streamlining the law to be more GST ready. An analysis of the important amendments is presented below.
Change in eligibility of availment of Input Tax Credit
Section 19 allows dealers to take Input Tax Credit (ITC) of local taxable purchases made by him. Previously, ITC was allowed of the amount of tax paid or payable under the Act. Now, this has been changed to ‘paid’. The impact of this amendment is that until the purchasing dealer has paid the tax component to the selling dealer, the tax component charged in the seller’s invoice cannot be considered as ‘input tax’. Further, there has been another amendment in Section 19(1), by way of insertion of a proviso, which puts the burden of proof on the purchasing dealer to establish that (i) the tax, due on such purchases, has actually been paid by the seller and (ii) the goods have actually been delivered to the buyer. The former has been made to neutralise the effect of various judgments, like Althaf Shoes (P.) Ltd.  50 VST 179 (Mad), which have held that non-payment of tax by the seller cannot be a reason to deny ITC to the purchaser, so long as the seller’s invoice shows the tax amount. This is in line with the proposed GST law, wherein credit of GST paid can be availed only where the supplier has paid the tax, and the burden to establish the same will be on the purchaser.
Restriction on benefits for sales to SEZs in the State
As per Section 18(1)(ii), sale of goods to registered dealers in SEZs in the state is zero rated. After the amendment, this benefit has been limited to ‘for the purpose of use in manufacture, trading, production, processing, assembling, packing or for use as packing material or packing accessories’. It has also been clarified that (i) sales made to dealers for setting up, operation and maintenance of SEZ unit are not zero rated and (ii) sales made to SEZ developers for development, operation and maintenance of an SEZ are merely exempted from payment of tax.
Works Contract - Restriction relating to benefit of compounded rates
Section 6 gives the benefit of payment of tax at compounded rates for dealers engaged in works contract. The restriction previously was that the dealer cannot purchase goods from outside the state or import them. The restriction ‘purchases goods from outside the state’, which was there all along in the provision, encompasses both interstate purchases as well as local purchases which are stock transferred from outside the state. Now, the amendment restricts the dealer from availing the benefit even where the dealer receives goods from outside the state. In other words, even receipt of goods on stock transfer basis will bar the dealer from availing the benefit under Section 6.
Restriction on 1% benefit for dealers involved in second and subsequent sales
As per Section 3(4), dealers who effect second and subsequent sales of goods purchased within the state, whose turnover of taxable goods is less than Rs. 50 lakhs, are required to pay tax only @ 1%, so long as the tax is not collected from the customer. After the amendment, this provision is applicable only to such dealers who purchase goods from registered dealers in the state. In other words, a dealer who purchases only from unregistered dealers, will not be eligible for this benefit. Conversely, even if he makes even a single purchase from a registered dealer, the benefit under the provision is eligible.
There is no restriction in the provision to the effect that to avail the 1% benefit, sales have to be of purchases from registered dealers. That is to say, even if such dealer purchases from unregistered dealers (as long as at least some purchases were, actually, made from registered dealers), he will still be required to pay tax only @ 1% on all second / subsequent sales, not just those sales out of purchases from registered dealers. There appears to be an incongruity in the way the provision is worded, as the intention would have been to restrict the benefit only to those second / subsequent sales which emanate from purchases from registered dealers.
Increase in maximum penalty in certain cases
In assessment proceedings under Section 27(2) of the TN VAT Act, the corresponding penalty imposable has been increased to 300% (previously, it was 50% penalty on the first detection and 100% thereafter). This appears to be an extremely onerous condition on the assessee, as the provision for reassessment under Section 27(2) is very wide, and is not limited to any act of malafide or suppression, unlike Section 27(1). Even in the case of Section 27(1), (prerequisite is the dealer having escaped assessment to tax), the corresponding penalty provision, i.e., Section 27(3) does not go beyond 150%. Due to this, there is a clear anomaly in the provision.
Registration, maintenance of records and filing returns
Registration procedure has been computerised and both application for registration and payment of registration fee have been made online. TIN and RC will now be issued electronically in Form D within two working days of the application, if the application is properly made. Amendment to the RC also needs to be done electronically. A dealer is deemed to be registered if he does not receive either the RC or any notice from the authority within two working days. TIN shall be automatically assigned to the dealer. Dealers maintaining the records electronically are to maintain and furnish electronic Form G1. Name and version of ERP software is required to be provided in the form, along with the service provider maintaining the software and details of the computer systems in which the software is installed.
Filing of returns and payment of tax are to be made electronically. Substantial changes have been made in the forms for filing returns. Dealers exclusively dealing with goods exempt under the Fourth Schedule should also file the return in Form I-1 (which was previously applicable only for dealers who were making exempt sales in terms of Section 30). If, after filing the returns, the dealer realises that it had failed to claim the ITC (other than by way instance of the assessing authority), revised returns can be filed within the later of (i) end of the financial year or (ii) ninety days from date of purchase. This is also in line with the time limit for availment of ITC as prescribed as per Section 19(11).
Documentation required during movement of goods
Another major amendment is the documentation required during movement of goods in the State. Previously, the documents required were (i) Bill of Sale / Delivery Note in Form JJ (ii) Goods Vehicle Record / Trip Sheet / Log Book. The amendment stipulates the additional documents as (i) the transporter’s waybill in Form MM (ii) if the movement is by a C&F agent, a declaration by him in Form KK. Specific documentation requirements have also been given for movement of goods in cases where the (i) export is made from the state, (ii) export is made from outside the state (iii) goods are cleared by Customs on import. Further, where certain notified goods [see end note 2] are coming from other state, an advance inward waybill is required to be furnished.
Certain other changes like increase in time period for maintenance of books accounts has been increased from 5 years to 6 years, assessment of casual dealers based on scrutiny of returns and procedures for filing appeals, revisions and reviews have been made.
While processes like registration, payment and filing of returns are sought to be relaxed by reducing interface with the tax administration and opting for electronic mode, measures like increase in penalty and restrictions in respect of sales to dealers in SEZ are not in line with impending GST eco-system. But the extensive amendments at least point to the seriousness of the administration in addressing certain issues under TN VAT.
[The author is a Senior Associate, Lakshmikumaran & Sridharan, Chennai]
- Notification IV No. G.O. MS.No. 15, dated 29-1-2016
- As notified in G.O. MS. No. 15 dated 29-1-2016