Salient features of Madhya Pradesh Vat & Entry Tax (Amendment) Act 2010

By CA. P.D. Nagar & R.S. Goyal, VAT (Amendment) Act 2010 No. 11 of 2010 1) Amendment in Section 2 ( Definition) :i) Insertion of Sub section (ha) (effective from 01.04.2010) Since the "Cooked food" was not defined in the Vat Act and the rate of Tax on cooked food has been reduced from 12.50% to 5% by insertion of entry no. 71, in part II of schedule II, hence the term "Cooked food" has been inserted by adding a sub section (ha) in section 2 of M.P. Vat Act. The definition of "Cooked food" is as under :(ha) " Cooked food " means meal prepared and served by hotels, restaurants and the like, including tea and prepared coffee". Definition of cooked food has been inserted and the same has been defined as meal prepared and served by hotel, restaurant and like. Such cooked food will now be taxable @ 5% instead of 13%. Earlier all sweets and namkins were taxable @ 5% vide entry no.84A of Part-II of Schedule-II. Though the definition is not properly worded and may create controversies but common parlance meaning should prevail and all kinds of meals whether prepared by hotel, restaurant or served by caterers or by Tiffins should be covered. ii) Substitution of explanation of section 2(u)(d) :(effective from 01.08.09) INTER UNIT TRANSFER :The Explanation was inserted earlier w.e.f. 01.08.2009 whereby Inter unit transfers between two industrial units of same company were covered as deemed sale. Such Explanation has been suitably worded to remove the controversies pointed out with retrospective effect. Now inter unit transfer will be deemed to be sale only if both the units are separately registered and such transfer is of Schedule-II goods only. Transfer of goods to another unit having separate registration but manufacturing tax free goods will not be considered as sale under the Explanation. 2) Substitution of Section 10-A (Purchase Tax on Wheat):(effective from 01.08.2009) The wheat has been define for levy of Purchase Tax U/s 10-A from 26.11.2009, but there are certain anomaly in the provisions of wheat which was rectified by replacing the provisions of purchase tax U/s 10-A from the date of insertion of section 10-A. Now the liability of purchase tax on wheat is as under:1

i) There will be no liability of purchase tax if the wheat purchased by a dealer has been used in the manufacturing of notified goods ( probably Atta, Maida, Rawa, Suji etc. ) The manufacture of the notified goods, have to apply & obtain recognition certificate from the commercial Tax department to get the entitlement to purchase notified goods. ii) There will be no liability of purchase tax on wheat purchased by a dealer from a another registered dealer by whom Tax u/s 10-A is payable.iii) The liability of purchase tax will start only after the purchases of wheat exceed Rs. 5 Crores. iii) For determining the purchase value of wheat liable for purchase tax, the following purchases shall not be included in the aggregate purchase value:a) Purchases made from outside the state of M.P. b) Purchase value of goods sold on declaration. c) Purchases of wheat before 26.11.09. d) Purchases of wheat which was used in the manufacture of other goods. v) Once the liability U/s 10-A occurs on a dealer then the liability to pay purchase tax shall continue un-till the expiry of the two consecutive year.

vi) If a registered dealer who has purchase the wheat for the manufacturing of notified goods and he has disposed of such goods in any other manner then he shall be liable to pay purchase tax @ 4%. vii) If the wheat sold in the course of Interstate Trade or Commerce and the same have already been subject to tax u/ s 10-A then there shall be no liability of CST if the sale is supported with C form. viii) In case the manufacturer who purchases the wheat for use the same in the manufacturing of Notified goods, then he is liable for purchase tax on such purchases, but he disposed off the same in other manner then he shall be liable for purchase TAX @4% the corresponding purchase value. ix) The State Government may exempt any transaction from levy of Purchase tax u/s 10-a for any period. 2

Chart Showing Liability of Purchase Tax u/s 10-A on Purchases/disposal of Wheat during F.Y. 2009-10
S.No. Particulars Deductions Situation Where the Dealer is Not Liable for Purchase Tax U/s 10-A of M.P. Vat Act on Purchases of Wheat 19,00,00,000 Situation Where the Dealer is Liable for Purchase Tax U/s 10-A of M.P. Vat Act on Purchases of Wheat 22,00,00,000

5 6 7

10

11

Total Purchases of Wheat & other Goods During F.Y. 09-10 Purchas value of goods 1,00,00,000 other then Wheat During F.Y. 09-10 Purchases value of 3,75,00,000 Wheat from outside the state of M.P. after 26.11.09. Purchases value of 3,75,00,000 Wheat sold to the dealer against declaration after 26.11.09 Purchases value of 5,75,00,000 Wheat purchased before 26.11.09 Total Deductions 14,25,00,000 Balance Amount Deduction of wheat of Rs. 5 Crores allowable when the liability occurs first time Total Value of Wheat Liable for Purchase Tax U/s 10-A of M.P. Vat Act Deduction of Purchase Value of Wheat suffered Purchase Tax U/s 10-A Net Value of Wheat Liable for Purchase Tax u/s 10-A of M.P. Vat Act Purchase Tax 4% payable U/s 10-A of M.P. Vat Act

14,25,00,000 4,75,00,000 5,00,00,000

14,25,00,000 7,75,00,000 5,00,00,000

Not Liable for Purchase Tax U/s 10 -A

2,75,00,000

1,25,00,000

1,50,00,000

6,00,000

3) Amendment in Section 20 (4) :(effective from 01.04.2010) Section 20 (4) (a) has been amended to empower the Commissioner for issuance of notice to the dealer who are not eligible for deemed assessment u/s 20-A (1A) in addition to the dealers u/s 20-A(1). 4) Amendment in Section 20-A(Self Assessment) :(effective from 01.04.2010) It is a condition precedent that for getting the benefit of self assessment a dealer had to submit returns/revised returns along with tax & interest due thereon, up to the prescribed date. The Govt. has been empowered to extend the last date for furnishing returns/revised returns by depositing interest @ 0.5% per month in addition to the interest payable u/ s18(4)(a) of M.P. Vat Act. 5) Amendment in Section 39 (5) :(effective from 01.04.2010) A mistake in sub-section 5 of section 39 with regard to the mentioning of sub-section (1) instead of sub-section (2) has been rectified. 6) Amendment in Section 42 :(effective from 01.04.2006) A New Sub-Section is inserted in section 42 to to empower the Commissioner for transfer of appeal cases to Appellate Authority u/s 3-A to other Appellate Authority. 7) Amendment in Section 71 :(effective from 01.04.2010) A New Sub-Section (eb) is inserted in section 71 to empower the State Govt. to make rule to obtain & issue the declaration u/s 10-A (5) (6) by the manufacturer of notified goods . 8) Change in Rate of VAT :(effective from 01.04.2010) a) Exemption from VAT:- Isabgol has been added as Entry No. 84 Parts & Accessories of Atta Chakki has been added in the Entry of Atta Chakki ( Entry No. 77) , Products of Research & Training Institutes up to the sale limit of Rs. 25 Lacs. ( Entry No. 85 ) b) Reduction of Rate of Vat :i) The rate of Vat on Cooked Food & Saw Dust has been reduced from 12.50% to 5%. by inserting No. 71 & 75 in Schedule II part II of M.P. Vat Act.

ii) The rate of Vat on Raw opium has been reduced from 23% to 13%. by amending entry no 4 of part II of Schedule II of M.P. Vat Act. iii) Rate of tax on capital goods other than Plant & Machinery and Motor Vehicle (which was purchased after payment of tax and no ITR was allowable on such purchases) has been reduced to 1.5% by insertion of Entry No. 10 in part III of Schedule II. Thus on re-sale of old capital assets such as air condioner, furniture etc. other than plant & machinery and motor vehicles will now be taxable @ 1.5%. However, subsequent sale of such old capital asset will not be taxable again since the entry of capital goods has been inserted in part III of schedule II. c) Increase in Rate of Vat :i) The rate of Vat on residuary Entry No II/IV/1 has been increased, consequently All the goods liable @ 12.50% shall be liable @ 13% wef 1.4.2010. ii) The rate of Vat on Natural Gas including Compressed Natural Gas II/III/6 and timber II/III/7 d) Notifications granting exemption/concessions under Vat Act :The rate of composition fees payable under section 11 on manufacturing of cooked food has been reduced from 4% to 3% vide Noti. No. 45 dated 01.04.10. Entry Tax (Amendment) Act 2010 No. 10 of 2010 1. The section 3-B has been amended consequently special provisions for collection of Entry Tax is now also attracts on goods specified u/s 3(2). . 2. The benefits of composition U/s 55-A was not available under Entry Tax Act because the section 13 of Entry Tax Act did not contain section 55-A. Now the benefit of composition will be available because section 55-A has been added in section 13 of Entry Tax Act. 3. Change in Rate of Entry Tax :a) Exemption from Entry Tax:i) Cotton (ginned or un-ginned) when the entry is effected in to a local area for use in the manufacture of cotton yarn, ii) Cotton Yarn, Man Made Yarn, iii) Components and spare parts of motor vehicle including two wheelers & three wheelers when the entry is effected in to a local area for use as input in automobile industries, 5

iv) v)

all kind of foot wears chappals & straps thereof (upto MRP of Rs. 250), optical goods (upto MRP of Rs. 250)

In case of cotton and components and spare parts of vehicles, the exemption is conditonal i.e. when used as raw material for manufacture. Therefore, if such goods are purchased by an industrial unit from another registered dealer who had already paid Entry tax thereon, the manufacturing unit may not be eligible for claiming set off u/s 4 of the Act. Judgment in the case of M/s. Siddharth Soya Products Ltd (2000) 25 TLD 222 (MP Bd.) may be helpful to claim such set off. In Schedule III of Entry tax Act explosives & tendu patta are taxable @ 2% whereas flour, atta, maida, suji, besan, rawa etc will be taxable @ 1% on consumption and not for sale. b) Increase in Rate of Entry Tax :i) The liability of Entry Tax has been increased on many goods from 0% to 2% and from 1% to 2%. ii) All the goods specified in Entry No. 3 of Schedule III, on which the liability of Entry Tax was restricted to consumption & use, will now be liable to tax even if the entry of such goods is made for resale. Now there is no specific entry for goods liable for Entry tax @ 1% and such goods are covered under residuary entry. 4. Liability of Entry Tax U/s 3 (2) :a) Noti. No. 40 & 41 dated 31.03.2010 have been issued by the state Govt. now the person bringing or causing to be brought into a local area the goods of schedule II of M.P. vat Act by a person, in whose hands such goods have not born tax under M.P. Vat Act for constructing 5 or more residential houses/flats or commercial building of more than 5000 square feet for sales or for letting out on rent or lease, shall be liable to pay Entry Tax at the same rate as specified under Vat Act i.e. @ 5% or 13% as the case may be. b. Noti. No. 42 & 43 dated 31.03.2010 have been issued by the state Govt. whereby any person who is not registered under M.P. Vat Act causing entry of Marble and Granite into a local area of Madhya Pradesh shall be liable tax @ 2% on purchase value of such goods. There is no threshold limit and even if an ordinary person bringing such goods worth Rs. One lac from outside State will be liable to tax. How such tax will be collected and at what stage is not known. 5. Notifications granting exemption/concessions under ET Act :(Noti. No. 47 dated 01.04.10.) 6

a) Timber has been exempted from Entry Tax when entered for use or consumption in manufacture of goods inside the state of M.P., b) Metal has been exempted from Entry Tax when entered for use or consumption in manufacture of Coins inside the state of M.P., c) Leather has been exempted from Entry Tax when entered for use or consumption in manufacture of goods inside the state of M.P. d) Rate of Tax on Iron Steel has been reduced from 2% to 1% on entry for use or consumption as raw material in manufacture inside the state of M.P. Probable Issues :1. Set off u/s 4(1) It is to be noted that on many products rate of Entry tax has been increased to 2% and such products are being used for manufacture of other goods as raw material. In case of purchases from Regd. Dealers incidence of Entry tax will be @ 2% because no declaration has been prescribed as in case of iron & steel. The manufacturers will therefore be eligible to claim set off on all such goods other than coal and iron steel equal to the amount of the difference between the amount of tax at full rate and tax at 1% as per 2nd proviso to section 4(1). Such set off shall be limited to 90% of the purchase value of the raw material provided declaration in form II duly signed by selling Regd. Dealer and is furnished at the time of assessment. 2. Stock held on 31.03.2010 :An important question arises for consideration relates to purchases effected prior to 31.03.2010 of various commodities by a trader. The incidence of tax would be as under :i) In case of importer of Schedule-II goods, Entry tax will be payable @ 1% only even if the same has been increased to 2% from 01.04.2010 because entry of such goods was affected prior to 01.04.2010 and rate of tax prevailing on that date will be applicable. A dealer having purchased Schedule-III goods when it was not taxable on resale, hence stock held on 31.03.2010 will not be liable for Entry tax in his hands. Goods covered in Schedule-III purchased from a dealer after 01.04.2010 cannot be taxed in the hands of buyer on the ground that the same had not offered tax prior to 31.03.2010.

ii)

iii)

3. Cotton has been exempted conditionally i.e. when use as raw material for manufacture of cotton yarn. However, if after manufacturing cotton yarn the dealer manufactured cloth also, such cotton will be exempt from Entry tax because though the ultimate product is cloth but cotton has gone into manufacturing process of yarn. 7

4. Floor and wall tiles of all verities including granite, marble and other tiles are taxable @ 2% along with black stone specified therein. The question may arise whether green or red stone will be taxable @ 2% ?. It can safely be claimed that green and red stone are not covered in the main heading in all verities of tiles hence such stone will be taxable @ 1% vide residuary entry of part-III of Schedule-II. 5. Vide entry 17, food preparation are taxable @ 2%. The question may arise whether dairy products such as ghee, mawa etc. will be taxable @ 2% under this entry. In common parlance these products cannot be treated as food preparation hence it will not be liable to tax @ 1%. 6. In entry no.11 toilet soap and washing soap have not been specified in the list of cosmetic and toilet articles hence one view may be that toilet soap and washing soap have been intentionally omitted from the category of higher taxation hence it is taxable at 1% only. The judgment in the case of Ponds India Ltd, Vs. CCT (2003) 2 STJ 80 (MP Bd.) may be referred. However words toilet articles including __ ___ ___ may be interpreted in its wider sense and may be held to the taxable @ 2% under this entry. 7. Vide entry no12 components and spare parts of motor vehicles are tax free. The question may arise whether tyre and tubes of motor vehicles will be exempt under this entry. Reference can be made to an order u/s 70 of the Act in the case of Taifee Motors & Tractors Ltd (2007) 11 STJ 333 wherein the CCT (MP) held that tyre and tubes of Tractors are tax free being parts of Tractors. However, the Commissioner of Commercial tax, Chhatish Garh in the case of M/s. CEAT Ltd 9 STJ 789 had held that tyre and tubes are not covered within the meaning of parts thereof. Professional Tax Act Section 2 has been amended under Professional Tax Act so as to include services given for valuable consideration by any person. Such tax is payable on gross receipts of service provider. Such receipts are taxable vide entry no.9A in the Schedule of the Act. By insertion of definition of service and entry in Schedule of the Act, service providers which are not specifically covered in entry no.3 of the Schedule have been now covered. Please note that such amendment has no relation with the employees who are drawing salary or wages under entry no.1 of the Schedule. Thus the employees have not been benefited in any manner by the aforesaid amendment. The basic exemption limit of professional tax for employees continuous to be Rs.1,20,000/per annum as it was in Financial year 2009-10. 8