Goods And Service Tax India

The Supreme Court has upheld the decision of the Andhra Pradesh High Court in the L&T case.

The Andhra Pradesh Commercial Tax Authorities had demanded VAT from the main contractor on the value sub contracts. The sub contractors were registered dealers and had paid VAT on the value of sub contracts executed by them. The plea of the main contractor that this will result in double taxation was not accepted by the Authorities. The Andhra Pradesh High Court vide its decision dated 12 Oct 2006 upheld the plea of the main contractor. The Andhra Pradesh Government had filed an appeal in the Supreme court against this decision.

This Section was inserted to help works contractors who had applied for compounding after the due date for submitting the application. The Kerala Finance Bill, 2008 had restricted the benefit to “pending cases”, but this restriction is seen removed in the Act.

But the question is whether this will help the dealers. The Department seems to have decided that this benefit will not be given to those dealers whose assessments have been completed and demand raised on them. This will automatically exclude a large number of dealers as the department has completed assessment in many cases, especially that of dealers having high turnover.

We have a peculiar problem in Kerala. Work contractors in Kerala, who do not opt for compounding, are not allowed to deduct the value of sub-contracts given to registered dealers while calculating their taxable turnover. However those contractors who opt for compounding are allowed to deduct the value of sub-contracts given to registered dealers.

This in effect results in both the main contractor and the sub-contractor paying value added tax on the same turnover, if the main contractor does not opt for compounding.

Several newspapers have reported today that rate of CST against C Forms has been reduced to 2% with effect from 1st June 2008.

However, the relevant notification is not available yet in the website of the Finance Ministry.

The road map to GST in India envisages the reduction in CST rate from 4% to 0% by 1st April 2010 and accordingly, the CST rate should have been reduced to 2% from 1st April 2008. However, the Cental Government has not issued any notification reducing the rate so far.

Therefore, till the notification is issued, the rate of CST will continue to be 3%.

It appears that the question of compensation of the loss to the State Governments on account of the reduction has not been resolved yet and the notification will be issued on after an agreement is reached between the Central and State Governments in this regard.

Excerpt from the speech of Sri P Chidambaraam, Union Finince Minister, Government of India while presenting the Union Budget, 2007-2008

“I wish to record my deep appreciation of the spirit of cooperative federalism displayed by State Governments and especially their Finance Ministers. At my request, the Empowered Committee of State Finance Ministers has agreed to work with the Central Government to prepare a roadmap for introducing a national level Goods and Services Tax (GST) with effect from April 1, 2010.”

With this, the initial step in implementing the Goods & Service Tax in India has been taken

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