GUEST COLUMN

 

Intra-state transfer of goods within units having same PAN amounts to sale under Kerala VAT Act

 

By Jigar S Doshi

 

In India, Value Added Tax (VAT) is applicable on sale of goods within the state. Each state has formulated its own VAT provisions for levy and collection of VAT. Accordingly, to determine VAT applicability on products, threshold limit, exemptions, etc the VAT provisions pertaining to the state from where the sale originates/dealer is located needs to be referred. Once the applicability of VAT and threshold limit is crossed, registration needs to be taken unless the dealer opts for voluntary registration. VAT charged by a seller in a particular state goes to the revenue of the respective state government. Typically for units having more than one location in a state, only one registration number needs to be obtained to reduce compliance burden and due to revenue neutrality in case there is movement of goods within the units.

 

However we would like to refer the recent clarification (attached as annexure) under Kerala VAT wherein the Joint Commissioner (JC) of Kerala VAT in relation to the application made by Malabar Regional Co-operative Milk Producers’ Union (MRCMPU) stated that the transfer of goods between the own units of a dealer having different VAT registrations (TIN) and the same PAN, is subject to VAT. We have discussed below the facts of the case and the clarification given by JC as below:

 

Facts of the case:-

·         MRCMPU  filed an application with the JC of  commercial tax  as to whether transaction between own units of MRCMPU having different TIN and same PAN is taxable under Kerala VAT.

·         The applicant is a dairy farmers' organization under the Kerala Cooperative Societies Act., located in the six northern districts of Kerala.

·         MRCMPU have various dairy units which hold different TIN for administrative convenience, all of them are owned and managed by MRCMPU, having a single PAN card, having a single board of directors.

·         In the instant case, the dealer voluntarily filed the application for taking out separate registrations for each place of business under Section 20(3) of the Kerala Value Added Tax Act, 2003.

Held:-

·         JC referred Section 20(3) of Kerala VAT which is reproduced as below:-

 

 “The Commissioner may, on application by the dealer, treat each of such places of business as a separate unit for the purposes of levy, assessment and collection of tax, and thereupon all the provisions of this Act regarding registration, filing of     returns, assessment and collection of tax shall apply, as if each of such places of business were a separate unit except for considering the eligibility for payment of tax under sub-section (5) of section 6.”

 

·         It is interpreted by JC that if separate registrations is obtained by units having same PAN under the aforesaid provisions then the general rules applicable under the Act will not be applicable and general principle that one cannot transfer ownership to himself will not be applicable.

·         JC stated that as per the law each unit acquires the character of a separate legal entity and as per the statute, for the purpose of levy, assessment and collection of tax, each unit is to be treated as a separate one, and the transfer among such units can only be treated as a sale and not as stock transfer.

·         Application filed by the dealer, cannot turnaround later and raise the claim that only a part of the said provision is applicable to them and not the whole provision.

·         Accordingly transaction of goods between own units of MRCMPU having different TINs should be subject to VAT.

 

Our Comments:-

Considering the clarifications given by the authorities on levy of VAT within units having same PAN, it is imperative that entities operating on similar lines reviews their tax position with regard to movement of goods within units. Also as per respective State VAT provisions it needs to be checked whether there is a requirement for holding separate registrations for multiple units within same state. It may be noted that there is a specific clause under Kerala VAT basis which each unit is considered as separate legal person and accordingly separate registrations could be taken.

 

It should be noted that the clarification sought is applicable only to the dealer; however authorities and other dealers may draw inference from the same with regard to the intention of the authorities in such transactions.

 

Author is Partner - SKP Business Consulting LLP

 

SKP has won the ‘India Tax Firm of the Year’ in International Tax Review’s Asia Tax Awards, 2016. This award is a reflection of the firm’s approach that has always aimed at not simply informing our clients of the tax aspects but towards finding a solution that suits the business case. SKP is a long established, rapidly growing professional services group and has become a renowned tax firm in India with a portfolio of over 1200 clients across more than 45 countries, most of which are foreign-based MNCs; they have several Indian MNCs as clients as well. While tax is one of their core areas of operation, they also render supplementary services such as business advisory, transaction support, M&A advisory, due diligence, finance and accounting solutions, business process management etc., all under one roof. Their team is dedicated to ensuring clients receive continuity of support, right across the business lifecycle. With offices in Mumbai, Pune, Hyderabad, New Delhi, Gurgaon, Chennai and Bengaluru, they offer customised solutions to businesses across the world.

 

Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose, it doesn’t constitute professional advice or recommendation.