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Determination of disputed questions under VAT law - Prevalent diversity

By Ashish Karundia and Isha Modi

Consistency in the provisions of laws across states will lead to uniformity in interpretation resulting in hassle free trading.
 
Earlier, business entities were mostly operating within a state and with limited exposure to inter-state transactions. However, with the opening up of the economy, businesses have spread considerably with inter-state dealings across the length and breadth of the country. Thus, it has become crucial to maintain uniformity in the state sales tax laws to ensure easy and simple mechanisms to trading entities. The objective of introducing VAT was to bring simplicity and transparency in the operation of the levy, making compliance easy and leading to growth in revenue of the states. As per the ‘White Paper on State-level VAT’ by the Empowered Committee of State Finance Ministers, the aim was also to avoid double taxation resulting in the cascading effect of tax along with harmonizing the rate of tax in order to help reduce cost and make business more efficient. VAT was introduced in India almost 8-10 years back with uniform rates on similar goods. However, within a short span of its existence, the rates were changed as per states’ requirements thereby defeating the very purpose of uniformity as envisaged by the law makers.

As VAT was a fairly new concept in India, need for a mechanism was acutely felt whereby questions like product classification, rate of tax and taxability of a transaction could be answered. Accordingly, various states introduced specific provisions to enable assessees to seek clarification from VAT authorities in respect of specific issues as provided in the respective state VAT laws. However, there is no uniformity in such provisions as regards the grounds on which clarification can be sought, the authority before whom application can be made, and time limit for giving the ruling. Further, in Maharashtra there are separate provisions for advance ruling and for determination of disputed questions, whereas in Karnataka there is a single provision for clarification and advance ruling.

As a result of this widespread disparity, dealers operating on pan-India basis are not able to follow a uniform process to seek answers to common questions confronting business in different states. Therefore it is imperative that there is uniformity in the grounds on the basis of which clarifications can be sought. This will reduce litigation and create a hassle free environment for assessees to freely trade in goods across India.

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[The authors are Associates, Lakshmikumaran & Sridharan, New Delhi]
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