Simplifying Delhi Value Added Tax – Legal & Procedural
Relaxations Expected
By CA Ankit Gulgulia (Jain)
ankitgulgulia@gmail.com
Delhi Value added tax
simplification has been one of major agendas of all state governments. It has
been largely felt and outlined that procedural relaxation is a must to ensure
smooth trade in the city or outside. At the same time it is well understood that
blanket relaxations would have the other side of the coin also and can lead to
undesirable situation for the government including unethical revenue leakages.
Considering the upcoming
Delhi budget, few of the relaxations on both legal and procedural ends can be
as under:-
A) Procedural Changes
1) 2A-2B Mismatch
Assessment
Mismatch assessments
based on 2A-2B filed by purchasers and sellers have been a major obstacle for
traders in Delhi. One needs to keep a check literally on the all vendors he
deals with and even enquire on his tax filing status and tax paid by his
vendor. The situation is clearly undesirable as even the bonafide purchasers
are being made to suffer on non-compliances by selling dealers.
Even the law backs this
undesirable situation as the input tax credit can be disallowed to purchasing
dealer if the selling dealer has not paid tax and not filed his return
correctly allocating buyer’s TIN in his returns.
A simple solution to
this can be linking 2A-2B on invoice based mechanism. Once individual
invoices can be generated and linked directly from dvat system this hassle can
be neutralized effectively. Though making such infrastructure can be
challenging.
2) T-2 Relaxation
Currently Form T-2 is
required to be filed for all the goods entering in Delhi except in few cases
including GTO being less than 1 Crore. It is noteworthy that recently even
Haryana government abolished its similar transit form VAT D-3 in light of its
cumbersomeness. T-2 can be either abolished and state tracking can be maintained
at border level or the limits can be raised to say a GTO of 5 Crores or more.
3) Hard Copy filing of
DVAT-56
Currently in Delhi, if
you have filed a return without using digital signature then one must deposit
the hard filed copy of dvat-56 within prescribed time to avoid the late fees.
This hard filing can be eliminated to move to paperless concept on similar
track of ACES (Service tax and Central Excise return filing).
4) WCT Certificates hard
copy submission
In case of contractee
WCT returns, normally the wct certificate issued to contractors are also seeked
at the hard copy. This can be dispensed away.
5) Comprehensive DVAT
System – Need of the day
It is crucial the dvat
systems evolves into a system which is transparent and user friendly at the
same time. Department has done commendable efforts to improve its systems. As a
part of further evolving process, the system can be made to :-
- Generate TIN based linked invoices
- Automate Returns (subject to manual
adjustments, if any) based on generated and punched invoices and credit
notes
- Email Notifications for mismatches based on
2A-2B.
- Maintenance of all statutory registers on
the portal itself. This would allow real time access to the information to
both the dealer / officials, which in turn can reduce departmental
interventions in routine course of dealer.
6) Registration
The registration
processes have been simplified to a great extent by the department. Further,
the process can be streamlined further on following aspects:-
- Randomization of inspection officials.
- Closure of RC Issuance or notice for
cancellation within 48 Hours (for example)
- To ensure more smooth registration, the TIN
shall be provided along with RC only. The time gap between TIN number
issuance and RC issuances may result in several transactions in the
intervening period which have its effects.
7) Amendment in
Registration
This can be further
simplified. Currently, the complete DP-1 / DVAT-07 has to be filed for
amendment. As a process, the amendments can be identified in different
categories viz, change in name, constitution, contact details, items etc. If
only that amended portion is seeked and filed online, it can radically reduce
the time frame and hassles.
8) Ward Change – Based
on Address Change
In my view, this
requires thought process at the strategical level. In an ideal sense, where the
address has changed and ward jurisdiction shall change accordingly or not
cannot be a blanket decision. In normal cases and subject to outgoing
jurisdictional VATO confirmation it can be allowed straight away.
B) Legal Changes
9) Very Heavy Late
Return filing fees
It is noteworthy that
per day of delay in filing a return attracts a late fees of Rs 500/- day in
Delhi. If you are registered in both VAT / CST then late fees would be Rs 1,000/-
per day (VAT & CST Return are separate returns). This quantum of per day
late fees can be re-considered in light of many dealers including small
retailers filing very low tax returns or even nil returns.
10) Works Contract
Composition Scheme
· Composition scheme
currently is sub-distributed based on category of works contracts and
modalities of operation choosed by the dealer into three parts and two
sub-schemes.
· Further, a specific
clause or clarification can be issued on applicability of scheme in case of non
monetary consideration agreements of works contract like in case of area
sharing agreements.
11) Flat rate of tax
i.e. 12.5% in works contract can be revisited
In Delhi, if the
material is sold pursuant to the works contract then the rate of tax shall be
always 12.5% unless in case of printing contracts or declared goods. Such a
provision can be relooked and the items shall be made taxable as per their
listing in the schedules to DVAT Act to bring parity between tax cost of normal
sales and deemed sales of works contract.
Similar provisions of
taxing the items as per schedule rates even if transferred pursuant to works
contract exists in states like Haryana & Uttar Pradesh as well.
12) Rule 3 of DVAT Rules
As per proviso to Rule
3(2),
“PROVIDED that where
amount of charges towards labour, services and other like charges are not
ascertainable from the books of accounts of the dealer, the amount of
such charges shall be calculated at the percentages specified in the following
table”
The above provision
instead of being a second resort to department (where the books of accounts
cannot be utilized for computation of labour and service charges) can be made
optional at dealer’s end. This can reduce litigation largely and provide
certainty to works contract valuation.
13) Limitation period
for filing objection against mismatch assessments
The Section 74 of the
Act provides a deadline of 2 months from the date of service of notice and
further condonation of delay of 2 months. In cases of mismatch assessments
being newly implemented and required immense external documentation since
demand / objection of purchasing dealer will depend on documents / returns /
invoices and challans of selling dealer is always a time consuming effort.
In view of the above,
the mismatch assessments objections can be separately dealt with in the Act,
may be vide a proviso insertion to this effect.
14) Input tax credit
hindrance
The biggest problem the
dealers are facing today is undoubtedly the 2A-2B mismatches. As per section 9,
the input tax credit can be denied to the purchasing dealer if:-
“ to the dealers or
class of dealers unless the tax paid by the purchasing dealer has
actually been deposited by the selling dealer with the Government or
has been lawfully adjusted against output tax liability and correctly
reflected in the return filed for the respective tax period”
This provision requires
a revisit in all means. Where the purchasing dealer in all bonafide
intention has paid his tax to the selling dealer and selling dealer has then
not discharged his obligations of tax payments and return filing, the
purchasing dealer shall be not be denied the input tax credit. The tax shall be
recovered from the selling dealer only.
Traders cannot be
expected to obtain return copies of each and every vendor they transact with.
15) Composition scheme
for retailers
The threshold limit of
composition dealer can be revisited and if required further increased. A
suitable rate and threshold turnover for eligibility would prompt more tax compliance
from small retail dealers much to the benefit of economics and sentiments.
16) Audits & Search
– Seizure related matters
For audits and search /
seizure / survey matters, it is essential to note that these matters are to
play a balancing roles between avoiding harassment to tax paying dealers and
making tax evading dealers to comply the law of the state. Though no blanket
provisions can be introduced to this effect, audits can be exempted to a
suitable threshold gross turnover and it is can made once in three / five years
for certain class of dealers.
Before parting…
The Delhi VAT department
has evolved in very significant manner over a period of time. Further evolving
is always the desired route for both state government and Delhi dealers. The above
can be few areas among many where the processes and rules require a revisit and
the interest in large of dealers and revenue both needs a equivalent safeguard.
--
About the Author:
Author is Practicing
Chartered Accountant in New Delhi/NCR and his area of interest includes
Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at
ankitgulgulia@gmail.com.
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