Disharmony in the State VAT Acts

In regard to the term ‘dealer’ there is widespread difference in the definition. The definitions are reproduced below:

Dealer

(i) Model Definition

"Dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, executing works contract, delivering any goods on hire-purchase or any system of payment by installments; transferring the right to use any goods or supplying by way of or as part of any service, any goods directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and includes:

1. a. a casual trader;

2.  

3. b. a common agent, a broker or a delcredere agent or an auctioneer or any other mercantile agent, by whatever name called,

4.  

5. c. a non-resident dealer or an agent of a non-resident dealer, or a local branch of a firm or company or association or body of persons whether incorporated or not, situated outside the State;

6.  

7. d. a person who, whether in the course of business or not,-

8.  

1. i. sells goods produced by him by manufacture, agriculture, horticulture or otherwise; or

2.  

3. ii. transfers any goods, including controlled goods whether in pursuance of a contract or not, for cash or for deferred payment or for other valuable consideration;

4.  

5. iii. supplies, by way of or as part of any service or in any other manner whatsoever, goods, being food or any other articles for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration.

Dealer (ii) Karnataka Definition

1. an industrial, commercial or trading undertaking of the Government, the Central Government, a State Government of any State other than the State, a local authority, company, a Hindu undivided family, an Aliyasanthana Family, a partnership firm, a society, a club or an association which carries on such business;

2. a casual trader, a person who has, whether as principal, agent or in any other capacity, occasional transactions of a business nature involving the buying, selling, supply or distribution of goods in the State, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration;

3. a commission agent, a broker or del credere agent or an auctioneer or any other mercantile agent by whatever name called, who carries on the business of buying, selling , supplying or distributing goods on behalf of any principal;

4. a non-resident dealer or an agent of a non-resident dealer, a local branch of a firm or company or association situated outside the State ;

5. a person who sells goods produced by him by manufacture or otherwise;

6. a person engaged in the business of transfer otherwise than in pursuance of a contract of property in any goods for cash deferred payment or other valuable consideration.

7. a person engaged in the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

8. a person engaged in the business of delivery of goods on hire purchase or any system of payment by installments;

9. a person engaged in the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

Explanations - (1) A society (including a cooperative society), club or firm or an association which, whether or not in the course of business, buys, sells, sale of goods or distributes goods from or to its members for cash, or for deferred payment or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act.

(2) The Central Government or a State Government or a local authority or a statutory body which whether or not, in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash or deferred payment or for commission, remuneration or other valuable consideration shall be deemed to be a dealer for the purposes of this Act.

(3) In respect of the transfer of the right to use feature films, the person who transfers such right to the exhibitor and from whom the exhibitor derives the right to make such use shall be deemed to be the dealer under this clause.

(4) (a) An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally or a person who is exclusively engaged in poultry farming and sells the products of such poultry farm shall not be deemed to be a dealer within the meaning of this clause;

(b) Where the agriculturist is a company and is selling pepper, cardamom, rubber, timber, wood, raw cashew or coffee grown on land cultivated by it personally, directly or otherwise, such company, shall be deemed to be a dealer in respect of turnovers relating to sales of such produce.

‘Dealer’ (iii) West Bengal Definition

1. "Dealer" means any person who carries on the business of selling or purchasing goods in West Bengal and includes

2. an occupier of a jute-mill or shipper of jute;

3. Government, local authority, a statutory body, a trust or other body corporate which, or a liquidator or a receiver appointed by a court in respect of a person, being a dealer as defined in this clause, who, whether or not in the course of business, sells, supplies or distributes directly or otherwise goods for cash or for deferred payment or for commission, remuneration or other valuable consideration.

Explanation:

4. A co-operative society or a club or any association that sells goods to its members is a dealer.

5. A factor, a broker a commission agent, a del credere agent, an auctioneer, an agent for handling or transporting of goods or handling of document of title to goods or any other mercantile agent, by whatever name called, and whether of the same description as herein before mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals, is a dealer;

6. A person engaged exclusively in the business of –

any transfer of property in goods in execution of a works contract in West Bengal;

any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

selling lottery tickets; and

shall not be a dealer under this Act.

The definitions in the Acts of other states are also dissimilar to each other and also different from the model definition.

‘Dealer’ (iv) Maharashtra Definition

"Dealer" means any person who, for the purposes of or in connection with or incidental to or in the course of his business buys or sells, supplies or distributes directly or indirectly goods in the State whether for commission, remuneration or otherwise and includes,-

1. a factor , broker, commission agent, del credere agent or any other mercantile agent, by whatever name called, who for the purposes of or in connection with or incidental to or in the course of the business, buys, sells, supplies or distributes goods belonging to any principal or principals whether disclosed or not;

2. an auctioneer, who sells or auctions goods belonging to any principal whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;

3. a manager or an agent residing in the State, of a non-resident dealer who buys or sells goods in the State for the purpose of or in connection with or incidental to or in the course of the business;

4. (a) any department of the Central Government and any department of any State Government if it buys or sells goods;

2. any society, club or other association of persons which buys goods from or sells goods to its members for price, fee or subscription;

Explanation- For the purposes of this clause,

(i) each of the following persons, bodies and entities who dispose of any goods including goods as unclaimed or confiscated or as unserviceable or as scrap, surplus, old, obsolete or discarded material or waste products whether by auction or otherwise, directly or through an agent for cash, or for deferred payment, or for any other valuable consideration, shall, notwithstanding anything contained in clause (5) or any other provision of this Act, be deemed to be a dealer, to the extent of such disposals, without prejudice to any liability which may accrue on account of the other provisions of this Act, namely :-

1. Advertising agencies;

2. Air transport companies and Airlines;

3. Customs Department of the Government of India administering the Customs Act, 1962;

4. Incorporated or unincorporated societies, clubs or other associations of persons;

5. Insurance and financial corporations, institutions or companies and Banks included in the Second Schedule to the Reserve Bank of India Act, 1934;

6. Local authorities including Zilla Parishads, Municipal Corporations, Municipal Councils and Cantonement Boards;

7. Maharashtra State Road Transport Corporation constituted under the Road Transport Corporation Act, 1950;

8. Port Trusts,

9. Railway administration as defined under the Indian Railways Act _____;

10. Shipping, and construction companies;

11. Transporters, holding permit for transport vehicles granted under the Motor Vehicles Act, 1939, or as the case may be, the Motor Vehicles Act, 1988, which are used or adopted to be used for hire;

12. any other Corporation, company, body or Authority owned or set up by, or subject to administrative control, of the Central Government, or any State Government;

Exception I - An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally, shall not be deemed to be a dealer within the meaning of this clause;

Exception II - An educational institution carrying on the activity of manufacturing, buying, selling or supplying goods, in the performance of its functions for achieving its objects, shall not be deemed to be a dealer within the meaning of this clause;

‘Dealer’ (v) Haryana Definition

"Dealer" means any person including a department of Government who carries on, whether regularly or otherwise, business, directly or otherwise, in the course of which or incidental or ancillary thereto, whether regularly, casually, occasionally or otherwise, whether for cash, deferred payment, commission, remuneration or other valuable consideration, such person purchases, sells, supplies or distributes any goods in the State, or imports into, or exports out of, the State, any goods, irrespective of the fact that the main place of business of such person is outside the State and where the main place of business of such person is not in the state, includes the local manager or agent of such person in the State in respect of such business:

Explanations – For the purpose of this clause,-

1. a cooperative society or a club or any association which carries on business for and on behalf of its members is a dealer;

2. a factor, a broker, a commission agent, a del credere agent, a dealer’s agent, an auctioneer or any other mercantile agent by whatever name called and whether of the same description as hereinbefore mentioned or not, who carries on any trade as principal, agent or in any other capacity, is a dealer;

3. any person or body of persons including a department of Government who disposes of any goods including goods as unclaimed or confiscated or as unserviceable or as scrap, surplus, old, obsolete or discarded material or waste products whether by auction or otherwise, directly or through an agent for cash or for deferred payment or for any other valuable consideration, shall, notwithstanding anything contained in clause(f) or any other provision of this Act, be deemed to be a dealer, to the extent of such disposals, without prejudice to any liability which may accrue on account of the other provisions of this Act;

4. "Government" shall include the Central or any State Government;

‘Dealer’ (vi) Uttar Pradesh definition

‘Dealer’ means any person who carries on in Uttar Pradesh (whether regularly or other wise) the business of buying, selling, supplying or distributing goods directly or indirectly, for cash or deferred payment or for commission, remuneration or other valuable consideration and includes:

1. A local authority, body corporate, company any cooperative society or other society, club, firm, Hindu undivided family or other association or persons which carries on such business.

2. A factor, broker, arhati, commission agent, del credere agent, or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of buying, selling, supplying or distributing goods belonging to any principal, whether disclosed or not.

3. An auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not, and whether the offer of the intending purchaser is accepted by him or the principal or nominee of the principal.

4. A Government which, whether in the course of business or otherwise, buys, sells, supplies or distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration;

5. Every persons who acts within the state as an agent of a dealer residing outside the state, and buys, sells, supplies or distributes goods in the state or acts on behalf of such dealer as-

1. a mercantile agent as defined in the Sale of Goods Act, 1930, or

2. an agent for handling of goods or documents of title relating to goods, or

3. an agent for the collection or the payment of the sale price of goods or as a guarantor for such collection or such payment.

6. A firm or a company or other body corporate, the principal office or headquarter whereof is outside the State, having a branch or office in the State, in respect of purchases or sales, supplies or distribution of goods through such branch or office;

Provided that a person who sells agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant, or otherwise, or who sells poultry or dairy products from fowls or animals kept by him shall not, in respect of such goods, be treated as a dealer;

7. Every person who carries on the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

8. Every person who carries on the business of transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

9. A casual dealer, who has whether as principal or agent or in any other capacity, carries on occasional transactions of a business, in the nature involving buying, selling supplying or distribution of goods, in the State, whether for cash or for deferred payment or for commission, remuneration or other valuable considerations, who does not reside or has no fixed place of business within the State;

10. Any person who carries on business of transporting goods or bailee or carrier will be deemed to be a dealer for the purposes of this act, if he is unable to disclose in a verifiable manner or a liability is created on him under any provision of this Act;

‘Dealer’ (vii) Andhra Pradesh Definition – no definition is there

Similarly let us examine the definition of capital goods:

"Capital goods" – Model definition: Capital goods means, plant, machinery and equipment used in the process of manufacturing excluding civil structures as may be prescribed;

Karnataka Definition: ‘Capital goods’ means plant, including cold storage and similar plant, machinery, goods vehicles and equipment or any other goods, whose total cost is not less than a figure to be notified by the Government or the Commissioner, and used in the course of business other than for sale

Haryana Definition: ‘Capital goods’ means plant, machinery and equipment purchased for the purpose of manufacturing of goods in the State for sale, where the purchase thereof has been capitalized and includes purchase of right to use such goods, whether such purchase is capitalized or not;

Delhi Definition: ‘Capital goods’ means plant, machinery and equipments used in the process of manufacturing.

Uttar Pradesh Definition: ‘Capital goods’ means plant, machinery, equipment, apparatus, component, moulds required for use in manufacturing of goods or processing of goods or packing of manufactured goods for sale whether directly or indirectly excluding generator, captive power plant, and other equipment necessary under some statutory obligation.

West Bengal – There is no definition

Maharashtra – There is no definition.

Madhya Pradesh – There is no definition

Andhra Pradesh – There is no definition

Goa – There is no definition

Charging Section: - The charging sections in the acts of the different states have been differently worded. I have compared the charging sections in the Model Act, Maharashtra, West Bengal, Andhra Pradesh and Karnataka and I have found the following differences:

1. The method of calculating the gross turnover is different in the Model Bill from that of Maharashtra and West Bengal. The Andhra Pradesh and Karnataka have not discussed this matter at all.

2. Some states have used different expressions such as taxable turnover, gross turnover, taxable quantum, etc.

3. The charging sections in Karnataka and Andhra Pradesh are very short whereas those in West Bengal, Maharashtra and in the Model Bill are very long.

4. The wordings of the charging sections are so different that it is very difficult to compare them and even come to a conclusion whether they are same.

Even if the definitions were materially the same, it would have been far better for the administration of tax through the country that they were similarly worded. If they are differently worded it will be easy for the lawyers to dig out differences in them and create litigation.

Anomalies in the above definitions:

(a) Definitions of dealers are widely different.

(b) Some states have definition and some do not have definition of ‘capital goods’. In fact, it is not necessary to have a definition of capital goods. The reason is that all inputs and capital goods should be treated equally for the purpose of input credit. By having a definition of capital goods, states will be tempted to treat capital goods differently from other inputs, which will be highly illogical. At present, in CENVAT this distinction between input and capital goods is continuing and it is creating serious problems.

(c) The model definition of capital goods includes the expression ‘manufacture’. There will be detrimental consequences if the concept of manufacture is once again brought in VAT. Manufacture has been always a very controversial subject and the uncertainty about what is manufacture has been a source of litigation for decades. In fact, in the 1994 Report of the NIPFP on VAT, which is a basic work in India before the introduction of VAT was started, there is one full page box containing all the controversies about manufacture. VAT is a tax on value added and not on manufacture. The taxable event is the addition of value and not the act of manufacture. Therefore, the taxable amount should not be defined in terms of manufacture. And the taxable event should not be related to the concept of manufacture. For that will lead to innumerable litigations, which is one of the reasons for which VAT is regarded as a better tax and was recommended by the NIPFP.

(d) The Department of Customs has been mentioned as a dealer in the Maharashtra definition. But no other definition includes it. The background is that there was a court case in Maharashtra where the decision was that the Customs Department is a dealer. But if it is included only the Maharashtra definition and not in other states, then it will an appearance that it is only in Maharashtra it is a dealer. So the definition has to be worded in a general way to cover all the states.

(e) An "occupier of a jute mill or shipper of jute" has been included in the definition of dealer in West Bengal. This also gives the appearance that occupies in other factories and shippers of the products producing those factories are not dealers in other states. Here also the definition has to be generalized to make it uniformed.

(f) Service Tax brought into the purview unwittingly

Another important point to note here is that in the definition of dealer the words "supplying or distributing" has come in the model definition and also in the definitions of U.P., Maharashtra, Madhya Pradesh, Delhi, Goa and Haryana. The only exception is West Bengal, which has omitted the expression "supplying or distributing". I must point out that the West Bengal definition is correct. All the other definitions have unwittingly included service tax by incorporating the word "supplying or distributing". The act of "supplying or distributing" is not an act of sale. Any tax on "supplying or distributing" will be tax on the service of supplying and distributing, which is not acts of sale. Therefore, these expressions "supplying or distributing" must be excluded from the expression of dealer, which has been done by West Bengal.

(g) Charging Section:- The definitions of the charging section are also different. There is some material difference also. Karnataka has made the tax leviable on a ‘registered dealer or a dealer liable to be registered’. However, in the charging sections of the other states, there is no clear mention of this. Even when there is no material difference, it is much better than the sections are worded similarly and not differently. For different wordings can be interpreted by lawyers to mean different things.

Conclusion

VAT is being introduced in India in an imperfect manner mainly because it is a compromise between the interests of different states, because it has to be a consensus and also because not enough thought has got into working out the Acts, which have so far been drafted. There is lack of harmony in respect of almost all the definitions of the different states compared to the model definition and also compared between them. I have here only taken the definitions of ‘dealer’ and ‘capital goods’. However, almost all the definitions are dissimilar. Such disharmonious definitions will lead to innumerable litigations and create a complete chaos. Even if the definition of one state is substantially the same with the definition of other states, the wordings must be made same. Otherwise a person who is a dealer in Maharashtra may not be a dealer in West Bengal or some other states. At least the lawyers will have a field day in arguing such intricacies. The very purpose of having a VAT will be destroyed if the acts are so dissimilar and lead to litigations throughout the country. It is therefore, very important that immediate action is taken to make all the definitions, important sections and even important procedures the same before VAT is introduced in all the states. Once we are able to pinpoint where exactly the effort has gone wrong, it would not be difficult to put the acts together.