VAT: CII urges TN to address transition issues

The Tamil Nadu chapter of the Confederation of Indian Industry (CII) has urged the state government to look into certain key issues raised by industry in Tamil Nadu to facilitate a smooth transition to VAT.

A key demand of the CII is that components, spare parts and accessories should be defined as capital goods since these products are primarily inputs which fall under the category of consumables.

In the case of capital goods, credit is presently allowed or granted only after the commencement of commercial production following purchase of machinery and setting up of the plant. This would create disputes and would be difficult to track except in the case of new industries, CII said.

The industrial body suggested that for older industries, credit be allowed at the time of purchase. CII also noted that for goods sold to unregistered dealers in other states, the manufacturing unit is not eligible for input tax credit. This would break the VAT chain, it said. VAT is due to be implemented in Tamil Nadu from January 1, 2007.

Often, products are sold to the end-consumers who cannot issue 'C' Forms. As per the CST Act, the transaction already attracts a higher rate of tax, and hence, a further reversal of input credit on capital goods cannot be justified, CII contended.

Pointing out that in states where VAT has already been introduced, the entry tax for industrial units was permitted to be offset against output tax, CII sought a clarification whether the same would be applicable in Tamil Nadu under the VAT regime.

CII noted that unlike Special Economic Zones (SEZs), sales by export-oriented units and free trade zones were not exempted from input tax credit. Calling for extending exemptions to these units, CII also sought a shorter refund period for input taxes for SEZ exports from the present 180 days.

Besides, the VAT Act in its present form says that all credit availed shall be provisional and the assessing authority has the power to revoke it at any point of time.