The industries in Karnataka represented by the Bangalore Chamber of Industry and Commerce (BCIC) in its pre-Budget memorandum on state taxes submitted to the Chief Minister D V Sadananda Gowda, have expressed concern over several key issues of the industry.
On the important issue of new e-Sugam notification, the chamber has stated that it is not cost effective, entails deployment of additional manpower and as such regressive in nature. Therefore, the chamber has suggested that the notification be withdrawn with immediate effect or alternatively, at least part C of the notification be deleted. The least is to keep the new notification in abeyance till such time the dealers are educated.
As far as procedural issues - assessments, penalties and appeals are concerned the industry believes that payment of 50 per cent of tax and other amounts either for seeking stay or for getting the appeal admitted is an extremely onerous condition.
There are a few states in India where such a mandatory condition is not traceable to the provisions of law and the appellate authorities are vested with adequate powers to administer the provision of law while considering the application for staying the recovery of taxes or for admission of appeals. In certain other states, the quantum of mandatory payments of taxes and other amounts is as low as 10 per cent. Considering the balance of convenience the pre-deposit should be lowered to 10 per cent so that finance hardship is removed. It is also a huge burden on the taxpayer to make pre-deposit of taxes to pursue a legal remedy.
In this backdrop, BCIC has recommended that the government should not resort to recovery of taxes and other amounts until the expiry of the due date of filing an appeal before the appropriate authority by amending Section 42 of the KVAT Act, 2003.
On the issues faced by Software Service Providers BCIC has highlighted that this segment carries the burden of huge tax demands on their entire service revenue on grounds that the same pertains to sale of software liable to VAT. While there is a circular issued by the Commissioner of Commercial Taxes, Karnataka on July 24, 2006, the same is not being followed. Any transaction connected with software is being treated as sale of “goods”, such as implementation services, manpower supply services (i.e. of software engineers), etc. These transactions would have suffered service tax.
| KEY DEMANDS * Chamber seeks scrapping of e-Sugam notification * No uniformity in VAT laws across states * Seeks same VAT rates across states in respect of similar goods * Requests for uniform rate of 5% tax levied on food and food preparations irrespective of place of consumption * Seeks abolition of Central Sales Tax * Seeks removal of entry tax on oil and lubricants, which are presently taxed at 5% * Seeks uniform sales tax on petrol and diesel. As a result of disparity in the rate of tax on petrol and diesel is causing diversion of trade to neighbouring states * The chamber demands no tax be levied on the service transactions of software companies |
BCIC recommends a specific instruction be issued to the field officers to follow the circular above in it’s right spirit and no tax be sought to be levied on these service transactions. On the aspect of Acceptance of Revised Monthly Returns, under Section 35 (4) of the KVAT Act 2003, revised monthly returns for the period up to 6 months from the end of the month to which the tax relates is accepted. But, the Commissioner of Commercial Taxes in Circular No 5-08-09, dated 7-7-2008 under point 2 (iii) has clarified that the VAT officer can accept revised return for the period beyond 6 months only if there is additional tax liability. Further, the Karnataka High Court in the case of Federal Mogul Goetze (I) V/s The A C CT & Others, has held that the limitation of 6 months has only discretionary value and not mandatory. Considering that, a longer period for the revised returns should be allowed.
Another important aspect raised by BCIC is related to tax levy on industrial canteens run by various industrial and other establishments, which are dealers under the KVAT laws.
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There has been a spate of inspection conducted by the departmental authorities levying taxes on industrial canteens run as an amenity or welfare measure for its employees. BCIC recommends that as these are welfare measures for the employees of the industrial or other establishments, the question of levy of tax does not arise.
BCIC has also raised concerns on receipt of Form C. The introduction of Notification GSR 588(E) dated September 16, 2005 in respect of collection of statutory forms [C, H, I, EI & EII] on quarterly basis has created a lot of difficulties in the trade and industry in recent times. Obtaining the statutory forms from Eastern and Western region is very difficult and the same is delayed. In this backdrop, BCIC has suggested that in case of non-submission of statutory forms, the assessee must be permitted to go for an appeal without depositing 50 per cent of the taxes along penalty and interest due.