ARTICLES
Purchase Tax under HVAT Act - An analysis & Implication thereof
Under certain circumstances, the dealer is liable to pay tax (known as purchase tax) on the value of goods purchased by him. The said circumstances and the relevant provisions in this regard have been contained under sub section 3 of section 3 of Haryana Value Added Tax Act, 2003 (HVAT Act). The similar provisions have been made under section 10 of Model Value Added Sales Tax Bill, 2003 prepared by Prof. Atre, Consultant to Ministry of Finance. In this respect a clarification has also been issued by the Government on 11.03.2004 on the application of M/s KRBL Limited, Distt. Kaithal, Haryana. The Government of Haryana has erred in correctly interpreting provisions contained in Section 3(3) of HVAT Act. As these provisions have got far reaching implications, an analysis in detail of the said provisions and its impact in particular reference to clarification issued in this respect by Government have been made in the following article.
Sub section 3 of Section 3 of HVAT Act
“If a dealer liable to pay tax under sub-section (1) or sub-section (2) purchases any taxable goods in the State from any source in the circumstances that no tax is levied or paid under this Act on their sale to him and he either exports them out of State or uses or disposes them of in the circumstances in which no tax is payable under this Act or the Central Act by him to the State on them or the goods manufactured therefrom, then, he shall, subject to the provisions of sub-section (4), be liable to pay tax on the purchase thereof:
Provided that where such goods (except those specified in Schedule F) or the goods manufactured therefrom are sold in the course of export of the goods out of the territory of India, no tax shall be levied on their purchase:
Provided further that where the goods purchased are used or disposed of partly in the circumstances mentioned in the foregoing provisions of this sub-section and partly otherwise, the tax leviable on such goods shall be computed pro rata.”
The words “ Exports out of State” has been defined in Section 2(1)(q) as “ transfer of goods by a dealer to any other place of his business or to his agent or principal, as the case may be, outside the State otherwise otherwise than by reason of sale of such goods ………………… “
Thus following general conditions should be satisfied before purchase tax liability could be fastened on any registered dealer under HVAT Act.
1. He should have purchased any taxable goods in the State.
2. No tax under HVAT Act should have been levied or paid on sale of such goods to him.
3. He should have exported such goods or goods manufactured therefrom out of State OR
4. He should have used or disposed of such goods or goods manufactured therefrom in the manner that no tax is payable under HVAT Act or CST Act, 1956
There is an exception provided to the above general rule that in case the said goods or the goods manufactured therefrom are exported out of territory of India the purchase tax will not be leviable.
It should be noted that the general conditions mentioned at (3) and (4) above are mutually exclusive i.e. any one of these two will be applicable at any point of time.
Example : In case goods are exported out of State, condition mentioned at point (4) need not be checked for applicability of purchase tax. In case goods are not exported out of State only in that case applicability of point (4) need to be checked to arrive at the liability of purchase tax.
Meaning and interpretation of “Proviso”
The exception to the general rule of purchase tax to export of goods out of territory of India has been included in the Act by way of a proviso. Therefore, understanding the meaning, function and its interpretation becomes very significant.
In the case of Shah Bhojraj Kuverji Oil mills and ginning factory V Subash Chandra Yog Raj Sinha AIR 1961 SC 1596 P 1690, the Hon’ble Supreme Court observed that the proper function of a proviso is to except and to deal with a case which would otherwise fall within the general langauage of the main enactment and its effect is confined to that case. The general rule has been stated by Justice Hidayattullah in the following words “ As a general rule a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily a provisio is not interpreted as stating a general rule. The proper function of a provisio is that it qualifies the generality of the main enactment by providing an exception and taking out as it were from the main enactment a portion which but for the provisio would fall within the main enactment”
In the case of Commsisioner of Sales Tax V Halari Store (1997) 107 STC 579 (SC), Hon’ble Supreme Court observed in this respect as Normally a provisio is enacted to carve out something special out of the general enactment or to qualify what is in the enactment.
Thus, provision of exception to goods exported out of the territory of the country can be said to be attached to the general rule of use or disposal of such goods or goods manufactured therefrom in the manner that no tax is payable under HVAT Act or CST Act, 1956. In other words, it can be said that there is no exception to the general rule of Export of goods out of State in reference to liability of Purchase tax.
Section 10 of Model Value Added Sales Tax Bill, 2003
The provisions in respect of purchase tax in model Value Added Sales Tax Bill, 2003 have been incorporated in Section 10 as under :
“Every dealer who in the course of his business purchases any goods.
1. from a registered dealer in the circumstances in which no tax under Section 9 is payable by that registered dealer on the sale price of such goods, or
2. from any other person,
shall be liable to pay tax on the purchase price of such goods, if after such purchase, the goods are not sold within the State of …………………. Or in the course of inter state trade and commerce or in the course of export out of the territory of India, but are –
a. sold or disposed of otherwise,
b. consumed or used in the manufacture of goods declared to be exempt from tax under this Act, or
c. after their use or consumption in the manufacture of goods, such manufactured goods are disposed of otherwise than by way of sale in the State of ……………….. or in the course of inter state trade and commerce or export out of the territory of India; or
d. used or consumed otherwise,
and such tax shall be levied at the same rate at which tax under section 9 would have been levied on the sale of such goods within the State on the date of such purchase.”
Thus it can be seen that the intention of the legislature is to charge tax on all purchases made without payment of tax and then stock transferred out of State.Clarification issued on dated 11.03.2004 (2004) 24 PHT 13 (JS)
The facts in the above clarifications are
1. The dealer is a Rice Sheller having its factory at Ghaziabad (U.P) and its office at various places in the State of Haryana.
2. The dealer is registered under respective State Sales tax Acts and also under Central Sales Tax Acts in Haryana and U.P.
3. Dealer has regular export orders of rice.
4. Dealer purchases paddy from Kacha Arhatia from the State of Haryana against form VAT – D2.
5. Dealer exports this paddy to its factory in Ghaziabad.
6. The brokens and inferior paddy rice milled from this paddy are sold in India and good rice procured from milling of above paddy are exported out of India.
On the above facts, Government in its above clarification has ruled as under :-
1. No purchase tax will be leviable on paddy proportionate to rice exported. It has been ruled that “ the transfer of paddy to Ghaziabad in other State for milling and export from there shall not make any difference to the character of the export sale and the purchase of paddy made, after and for the purpose of compliance with the export order (of rice) is to be treated as a purchase in the course of export out of India and hence shall be exempt from levy of tax.”
2. In respect of sale of broken rice and inferior quality rice, the purchase tax shall be leviable on that part of paddy so purchased as the paddy was purchased without payment of tax and rice produced therefrom has not been exported out of country.
Interpretation of Section 3(3) in reference to Model Act
Section 3(3) of HVAT Act read with its proviso can be interpreted to mean that the Purchase tax under the said section will not be leviable on purchase of taxable goods from the State of Haryana without payment of tax only in the event of satisfaction of any of the following conditions.
1. Sale of such goods in the State of Haryana.
2. Sale of such goods in the inter state trade.
3. Export of such goods from the State of Haryana.
Alternatively, it can be interpreted that the purchase tax will be leviable in all cases of purchase of taxable goods in the State of Haryana without payment of tax and then stock transferred out of the State of Haryana.
Conclusion
I am in agreement with the clarification in respect of levy of purchase tax on the paddy proportionate to inferior quality or broken rice sold in the domestic market but I am not in agreement with the basis on which it has ruled to levy such tax. It has ruled that the tax should be levied in this condition because the rice procured from paddy has not been exported. I am of the opinion that purchase tax on this paddy became payable on export of such paddy out of State of Haryana. The condition mentioned at (4) and the relevant proviso are not attracted on satisfaction of condition of export of paddy out of State of Haryana.
I have difference of opinion with the clarification issued in respect of non applicability of purchase tax on paddy relating to export of rice. I am of the view that the purchase tax became applicable at the time of export of paddy from the State of Haryana. The other condition mentioned at point (4) supra and the related provision should not have been considered on satisfaction of first condition i.e condition of export of paddy from the State of Haryana.
I invite the contrary views of the readers in the above matteSanjeev Malhotra
