ISSUES IN ASSESSMENT OF RICE EXPORTERS

INDEX to Note regarding VAT assessments being made in the case of Rice Exporters
Column No	Summary
1.1	The department is quoting case of Khushi Ram Behari Lal for taxing closing stock which is irrelevant and not applicable. Haryana Tax Tribunal has already held in the case of KRBL Ltd that closing stock of paddy for export can not be taxed. There is no section in Punjab Vat Act, 2005 wherein closing stock of a continuing dealer can be taxed.
1.2	The department is taking stand that each year is an independent year and therefore closing stock has to be taxed. Such words are not there in the law and this intention is against the rules of interpretation. Further Indirect tax laws are different in concept from Direct Tax laws due to constitutional provisions.
1.3	Output tax is being calculated and then ITC is being claimed by dealer to comply with guidelines issued in tax payer Guide and as a matter of prevalent practice. It has no tax impact.
1.4	Taxing of 15% of value of paddy milled when tax has already been calculated on domestic sales is nothing but double taxation
1.5	Case of M/s Monga Rice Mills decided by Supreme Court has been discussed wherein the historical background of purchase tax on paddy has been discussed in detail with reference to various amendments to stop taxation of exporters. It has been held that purchase tax can not be demanded from miller cum exporter.
1.6	Public Notice dated 30.9.2010 which required payment of purchase tax by exporters and then to refund was quashed by Punjab & Haryana High court.
1.7	As per Taxpayer’s guide Vat system will remove tax costs from exports to make goods more competitive in international markets.
1.8	As regards pre deposit of 25% of additional demand before hearing the case on merits, it has been held by Punjab VAT Tribunal in the case of M/s Larsen & Toubro Limited, Mohali that the notification issued on 2.11.2011 does not have retrospective effect.
1.9	As regards penalty proceedings, there is no mens rea. More over department is also ready to give ITC/ refund the tax if collected. Therefore the question of evasion does not arise. Therefore there can be no penalty. The historical case of M/s Hindustan Steels has been quoted.

Note regarding VAT assessments being made in the case of Rice Exporters

1.1	1.1.1 The department is levying tax on closing stock of paddy purchased in the course of extracting rice for export, quoting Punjab & Haryana High Court “that the dealer is bound to deposit the tax on the goods lying in the closing stock”. For this purpose the case of Khushi Ram Behari Lal (41 PHT 168) is being quoted. 1.1.2 It is hereby important to note that no where in the above case it is written “that the dealer is bound to deposit the tax on the goods lying in the closing stock”. Copy of judgment is enclosed herewith. 1.1.3 Further, the above case deals with a situation where paddy was sent as branch transfer. The case has noting to do with closing stock or purchase made in the course of export. Thus an irrelevant case is being quoted to tax closing stock. 1.1.4 It is further important to note that Haryana Tax Tribunal has already dealt with the matter of taxing of closing stock in case of KRBL Ltd (37 PHT 578) and has held that closing stock of paddy is not taxable if it is purchased in course of export. Copy of judgment is enclosed herewith. 1.1.5 Also, it will not be out of context to mention here that Paddy is a seasonal crop which has to be procured within a limited period of few months i.e. October to January mainly and the same is stored for milling purposes throughout the year and export is made regularly throughout the year to foreign buyers. Thus closing stock of paddy can not be Nil at year end.  1.1.6 In continuation of above, Section 78 in the Punjab Vat Act, 2005 is the only section dealing with Taxation of closing stock and that too only on cancellation of registration. There is no section which authorizes taxation of closing stock of exporters.
1.2	1.2.1 The department takes stand “Further it is settled law that every year is independent year and the person is entitled to take the benefit of the export made during the year under assessment and not on the closing stock of the paddy.” 1.2.2 The words “every year is an independent year” are nowhere in the legislature. Law can not be changed merely by adding some words by the Assessing authority. As per Rule of Literal interpretation, words of an enactment are to be given their ordinary and natural meaning. Further taxing statutes have to be strictly construed. Intention of the legislature to tax must be gathered from the natural meaning of the words by which it has expressed itself. Any kind of intendment or presumption as to tax does not exist.   1.2.3 There is no concept of Financial year in Indirect Tax Law unlike Direct Tax law, where assessee is required to pay tax on income or wealth. This basic difference arises due to provisions of constitution: Entry for Income Tax under Constitution Entry 82 of Union List of Constitution: Taxes on Income other than agricultural income. As per charging section 4 of Income Tax Act,1961 “…… Where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions (including provisions for the levy of additional income tax) of the Act in respect of total income of previous year of every person…………. Hence the point of tax under Direct taxes is income and concept of financial year is inbuilt in the charging section for calculation of income and that is the reason for the concept “every year is an independent year” under Direct Taxes. Entry for Sales Tax in Constitution Entry 54 of State List: Taxes on Sale or Purchase of Goods ……. As per charging section 6 of Punjab Vat Act, 2005 “(1) Every person …… whose gross turnover during the year immediately preceding ….. exceeded the taxable quantum ….., shall be liable to pay tax under this Act by way of VAT on the taxable turnover.” Hence the point of tax under VAT is taxable turnover i.e. Sale or Purchase. Turnover of preceding year only settles the eligibility for coming under the net of VAT.  But so far as levy or point of tax is concerned, each and every transaction of sale or purchase is independent in itself authorizing the legislature to collect tax as per its convenience, though actual collection has been deferred till expiry of certain period i.e. Tax Period (monthly or quarterly) for administrative convenience. The tax period as per Punjab VAT Act, 2005 is not a year. VAT 20 is only annual statement and not a return as per Tax payer guide issued by department. Thus there is no such concept of “every year is an independent year” under Punjab VAT Act, 2005. Hence importing the concept of financial year under VAT for making it a point of taxation is nothing but obliterating the basic provisions of the Constitution of India.
1.3	1.3.1 The department says that output tax is being calculated but is being claimed as ITC without milling of paddy for export. 1.3.2 It is submitted that paddy has been purchased in course of export and is not taxable u/s 84. 1.3.3 Further, the said calculations are being made as per the guidelines issued by the Excise and Taxation Commissioner at the time of implementation of PVAT Act and is also based on the practice generally being followed where the said figure is first calculated as purchase tax and thereafter the same is reduced as input tax credit.  It has no impact whatsoever on the final tax liability which is duly discharged while filing returns.
1.4	1.4.1 The department is taxing 15% of the value of paddy as sale of by products. 1.4.2 It is submitted that when output tax on Balance taxable sales has already been calculated, then how it can be calculated again at 15% value. It is nothing but double taxation which is strictly against law. 1.4.3 Further, no basis is being provided to arrive at the ratio of 15%. This ratio will vary from case to case based on its facts and figures. 1.4.4 Also, when figures as per books of account are available, then how self assumed ratio can be taken by the Assessing authority without establishing that the person has made sales which are unaccounted in the books of account.
1.5	Case of M/s Monga Rice Mills (Supreme Court) decided on 13-4-2004: NO PURCHASE TAX TO BE PAID BY EXPORTER ON PADDY PURCHASE As held by the Apex Court: “Now coming to the question of single point tax, it is important to bear in mind that in law every transaction has two ends  sale end and purchase end…..Hence, the legislature had all along treated rice and paddy as two separate taxable items for all purposes till 28.9.1996 when clause (ca) was introduced to get over the effect of the judgment of the High Court in the case of United Riceland Ltd. & Anr. v. State of Haryana & Ors. reported in [(1997) 104 STC 362]. In that case, it was held that paddy and rice, both being declared goods under section 14 of the 1956 Act, are different taxable commodities subject to tax under sections 6 and 17 read with schedule-D of the 1973 Act and consequently, the exporter who buys paddy, converts it to rice and exports it, is liable to pay tax on purchase of paddy under the said 1973 Act. This resulted in cost plus effect on exports, which made the exports very costly as the exporter had to pay the purchase tax. In order to make exports more competitive, globally, clause (ca) was inserted in section 15 of the 1956 Act, under which rice and paddy are equated by a deeming fiction for the purposes of section 5(3) of the said 1956 Act. The effect of clause (ca) was two fold. Firstly, both the commodities were equated so that the State cannot tax them at multiple stages. Secondly, in view of the said equation by a deeming fiction, the last purchase of paddy for sale of rice to be exported could not be taxed in view of section 5(3) of the said 1956 Act. But for clause (ca) of section 15, the exporter was liable to pay purchase tax on the last purchase. Hence, clause (ca) has nullified the effect of the judgment in United Riceland's case (supra). …… The sale by the exporter is, however, exempt under section 5(1) and the purchase of paddy by the miller-cum-exporter is covered under section 5(3) of 1956 Act.”
1.6	Public Notice dated 30.9.2010 regarding collection of Purchase Tax from exporters quashed by Punjab & Haryana High Court C.W.P. No. 19366 of 2010 decided on 14.01.2011 Public notice was issued by the department stating that some of the dealers who are exporting rice, out of India, are not paying purchase tax on paddy on the pretext of exporting rice. Such dealers are advised to deposit the tax at the time of purchase of paddy. They can claim refund as per rule 52 of the Punjab VAT Rules, after they export the rice procured out of this paddy. Held “… It cannot be held that irrespective of legislative competence of the Legislature, tax could be recovered leaving the remedy of refund being sought…… In the present case, the impugned notice being omnibus, even to cover cases where production of paddy may be relatable to transaction in the course of export not attracting any State tax on sale or purchase under Entry 54 of List-II, the said notice cannot, thus be sustained. Accordingly, we allow this petition and quash the impugned notice ….”
1.7	The department has issued Taxpayer’s guide. As per point 6(f) of its Chapter Two “Competitive advantage for exporters – Exporters have to compete in world markets with dealers of other countries, which follow VAT system.  Such system removes all tax costs from export goods.  The sales tax system earlier prevalent in India did not remove all sales related tax costs from the cost of goods. Some such costs got added to the cost, resulting in higher prices in international trade which made Indian exports less competitive. VAT system, ideally leads to removal of such tax costs from prices making goods more competitive in international markets.”
1.8	1.8.1 As regards hearing of appeals on merits, the department insists on pre deposit of 25% of amount. 1.8.2 As held in the case of Larsen & Toubro Limited, Mohali (20 STM 362) decided on 10.9.2012 “It is apt to be borne in mind that the case in hand, relates to the assessment of the dealer for the year 2006-07. The notification issued on 2nd of November, 2011 would come into operation with prospective effect unless otherwise provided therein. If there had been legislative intention to enforce it with retrospectively, the legislature would have so recorded in it. This notification being absolutely silent about its commencements with retrospective effect, it cannot be applied to the assessment year in question.”   1.8.3 Further, it is to mention that exorbitant and illegal demands are being created and to deposit even 25% of the amount will create financial havoc for the dealer.
1.9	1.9.1 As regards penalty proceedings, it is hereby important to note that there is no uniformity in the assessments made by different assessing authorities e.g. some are levying tax on closing stock and some are not. Thus there is difference of opinion within department itself regarding taxation of closing stock and by products. 1.9.2. There is no mens rea involved in filing returns as these have been filed as per prevalent laws and practices. 1.9.3 The department is itself ready to give ITC/ refund the tax when collected. Therefore there is no evasion involved. 1.9.4 As held by Apex court in the famous case of Hindustan Steel Ltd. v. The State of Orissa [1970] 25 STC 211 “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligations. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”