vat & entry tax

8/2/2019 Vat & Entry Tax

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Salient features of Madhya Pradesh Vat & Entry Tax(Amendment) Act 2010

By CA. P.D. Nagar &R.S. Goyal,

VAT (Amendment) Act 20 10 No. 11 of 20 101) Amendment in Sect ion 2 ( Definit ion) :-

i) Insertion of Sub section (ha) (effective from 01.0 4.2 01 0)Since th e "Cooked food" was not defined in the Vat Act and th e rate ofTax on cooked food has been reduced from 12.50% to 5% by insertionof entry no. 71, in part II of schedule II, hence the term "Cooked food"has been in serted by adding a sub section (ha) in section 2 of M.P.Vat Act. The defini t ion of "Cooked food" is as under :-

(ha) " Cooked food " means meal prepared andserved by hotels, restaurants and the like,including tea and prepared coffee".

Definition of cooked food has been inserted and the same has beendefined as meal prepared and served by hotel, restaurant and like.Such cooked food wi ll now be taxable @ 5% in stead of 13%. Earl ier allsweets and namk in s were taxable @ 5% vide ent ry no.84A of Part -I I ofSchedule-II. Though the definition is not properly worded and maycreate controversies but common parlance meaning should prevailand all kinds of meals whether prepared by hotel, restaurant orserved by caterers or by Tiffins shou ld be covered.

i i) Subst it ut ion of explanat ion of section 2(u)(d) :-

(effective from 01 .08 .09 )

INTER UNIT TRANSFER :-The Explanation was inserted earlier w.e.f. 01.08.2009 whereby Interunit transfers between two industrial units of same company werecovered as deemed sale. Such Explanat ion has been sui tablyworded to remove the controversies pointed out with retrospectiveeffect. Now inter unit transfer will be deemed to be sale only if boththe units are separately registered and such transfer is of Schedule-IIgoods only. Transfer of goods to another unit having separateregistration but manufacturing tax free goods will not be considered

as sale under the Explanation.

2) Subst it ut ion of Sect ion 1 0-A (Purchase Tax on Wheat ):-(effective from 01 .08 .2009)The wheat has been define for levy of Purchase Tax U/ s 10-A from26.11.2009, but there are certain anomaly in the provisions of wheatwhich was rectified by replacing th e provisions of purchase tax U/ s10-A from the date of insertion of section 10-A. Now the liability ofpu rchase tax on wh eat is as under:-


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i) There wil l be no liabili ty of pur chase tax i f th e wheat purchased by adealer has been used in the manufacturing of notified goods (probably Atta, Maida, Rawa, Suji etc. ) The manufacture of thenot ified goods, have to apply & obtain recognit ion cer t ifi cate fromth e comm ercial Tax department to get th e ent it lement to pur chasenot ified goods.

ii) There will be no liability of purchase tax on wheat purchased by adealer fr om a another registered dealer by whom Tax u / s 10-A ispayable.iii) The liability of purchase tax will start only after thepurchases of wheat exceed Rs. 5 Crores.

iii) For determining the purchase value of wheat liable for purchasetax, the following purchases shall not be included in the aggregatepurchase valu e:-

a) Purchases made from outside the state of M.P.

b) Purchase valu e of goods sold on declarat ion.

c) Purchases of wheat before 26.11.09.

d) Purchases of wheat which was used in the manufacture ofother goods.

v) Once th e liabi lit y U/ s 10-A occurs on a dealer t hen the liabi lit y topay purchase tax shall continue un-till the expiry of the twoconsecutive year.

vi) If a registered dealer who has purchase the wheat for themanufacturing of notified goods and he has disposed of such goodsin any other manner then he shall be liable to pay purchase tax @4%.

vii) If the wheat sold in the course of Interstate Trade or Commerceand the same have already been subject to tax u / s 10-A th en t hereshall be no liabili ty of CST if the sale is supported with C form.

viii) In case the manufacturer who purchases the wheat for use thesame in the manufacturing of Notified goods, then he is liable forpurchase tax on such purchases, but he disposed off the same inother manner th en he shall be liable for purchase TAX @4% th ecorr esponding pu rchase valu e.

ix) The State Governm ent may exempt any tr ansaction from levy ofPurchase tax u / s 10-a for any period.


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Chart Showing Liabili ty of Purchase Tax u/ s 10-Aon Purchases/ disposal of Wheat during F.Y. 2 009-10

S.No. Particulars Deductions Situation Where theDealer is Not Liablefor Purchase Tax

U/s 10-A of M.P.Vat Act onPurchases ofWheat

Situation Where theDealer is Liable forPurchase Tax U/s

10-A of M.P. Vat Acton Purchases ofWheat

1 Total Purchases ofWheat & other GoodsDuring F.Y. 09-10

19,00,00,000 22,00,00,000

Purchas value of goodsother then Wheat DuringF.Y. 09-10

1,00,00,000

2 Purchases value of

Wheat from outside thestate of M.P. after26.11.09.

3,75,00,000

3 Purchases value ofWheat sold to the dealeragainst declaration after26.11.09

3,75,00,000

4 Purchases value ofWheat purchased before26.11.09

5,75,00,000

5 Total Deductions 14,25,00,000 14,25,00,000 14,25,00,0006 Balance Amount 4,75,00,000 7,75,00,0007 Deduction of wheat of

Rs. 5 Crores allowablewhen the liability occursfirst time

5,00,00,000 5,00,00,000

8 Total Value of WheatLiable for Purchase TaxU/s 10-A of M.P. Vat Act

Not Liable forPurchase Tax

U/s 10 -A

2,75,00,000

9 Deduction of PurchaseValue of Wheat sufferedPurchase Tax U/s 10-A

1,25,00,000

10 Net Value of WheatLiable for Purchase Taxu/s 10-A of M.P. Vat Act

1,50,00,000

11 Purchase Tax 4%

payable U/s 10-A of

M.P. Vat Act6,00,000


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3) Amendment in Section 20 (4) :-(effective from 0 1.04.201 0)Section 20 (4) (a) has been amended to empower the Commissioner forissuance of notice to the dealer who are not eligible for deemedassessment u / s 20-A (1A) in addit ion to the dealers u/ s 20-A(1).

4) Amendment in Section 20-A(Self Assessment) :-(effective from 0 1.04.201 0)It is a condition precedent that for getting the benefit of selfassessment a dealer had to submi t retur ns/ revised r etu rn s along withtax & in terest du e th ereon, up to th e prescribed date. The Govt. h asbeen empowered to extend the last date for fu rn ishing retur ns/ revisedretu rn s by deposit ing in terest @ 0.5% per m onth in addit ion to th ein terest payable u/ s18(4)(a) of M.P. Vat Act.

5) Amendment in Section 39 (5) :-(effective from 0 1.04.201 0)

A mistake in sub-section 5 of section 39 with regard to thementioning of sub-section (1) instead of sub-section (2) has beenrectified.

6) Amendment in Section 42 :-(effective from 0 1.04.200 6)A New Sub-Section is inserted in section 42 to to empower theComm issioner for t ransfer of appeal cases to Appellate Authori ty u / s3-A to other Appellate Authority.

7) Amendment in Section 71 :-(effective from 01 .04 .201 0 )

A New Sub-Section (eb) is inserted in section 71 to empower the StateGovt. to mak e ru le to obtain & issue th e declaration u/ s 10-A (5) (6)by the manu factu rer of noti fied goods .

8) Change in Rate of VAT :-(effective from 0 1.04.201 0)

a) Exemption from VAT :- Isabgol has been added as Entry No. 84Parts & Accessories of Att a Chakki has been added in theEntry of Atta Chakki ( Entry No. 77) , Products of Research &Training Instit utes up to the sale limit of Rs. 25 Lacs. ( Entry No.85 )

b) Reduction of Rate of Vat :-i) The rate of Vat on Cooked Food & Saw Dust has been redu ced

from 12.50% to 5%. by insert ing No. 71 & 75 in Schedule IIpart II of M.P. Vat Act.


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ii) The rate of Vat on Raw opium has been reduced from 23% to13%. by amending entry no 4 of part II of Schedule II of M.P.Vat Act.

iii) Rate of tax on capital goods other than Plant & Machinery andMotor Vehicle (which was purchased after payment of tax andno ITR was allowable on such purchases) has been reduced to1.5% by insert ion of Entr y No. 10 in part III of Schedu le II. Thu son re-sale of old capital assets such as air condioner, furniture

etc. other than plant & machinery and motor vehicles will nowbe taxable @ 1.5%.

However, subsequent sale of such old capital asset will not betaxable again since the entry of capital goods has been insertedin part III of schedu le II.

c) Increase in Rate of Vat :-

i) The rate of Vat on residuary Ent ry No II/ IV/ 1 has beenincreased, consequent ly All t he goods liable @ 12.50% shall be

liable @ 13% wef 1.4 .2010.

ii) The rate of Vat on Natural Gas including Compressed NaturalGas II/ I II / 6 and t imber I I / I II / 7

d) Not ificat ions grant ing exempt ion/ concessions under Vat Act :-

The rate of composition fees payable under section 11 onmanufacturing of cooked food has been reduced from 4% to 3%vide Noti. No. 45 dated 01.04.10.

Entry Tax (Amendment) Act 2010 No. 10 of 20 10

1. The section 3-B has been amended consequently special provisions forcollection of Ent ry Tax is now also att racts on goods specified u / s3(2). .

2. The benefits of composit ion U/ s 55-A was not available under Ent ryTax Act because the section 13 of Entry Tax Act did not containsection 55-A. Now the benefit of composition will be available becausesection 55-A has been added in section 13 of Entry Tax Act.

3. Change in Rate of Entry Tax :- a) Exemption from Entry Tax:-

i) Cott on (ginned or u n-ginned) when th e ent ry is effected into a local area for u se in th e manufactu re of cott on yarn,

ii) Cott on Yarn , Man Made Yarn ,iii) Components and spare parts of motor vehicle including

two wheelers & three wheelers when the entry is effectedin to a local area for use as input in automobileindustries,


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iv) all kind of foot wears chappals & str aps th ereof (uptoMRP of Rs. 250),

v) optical goods (upto MRP of Rs. 250)

In case of cotton and components and spare parts of vehicles, theexemption is conditonal i.e. when used as raw material formanufacture. Therefore, if such goods are purchased by anindustrial unit from another registered dealer who had alreadypaid Entry tax thereon, t he manu factu ri ng uni t m ay not be eligible

for claiming set off u/ s 4 of th e Act. J udgment in th e case of M/ s.Siddharth Soya Products Ltd (2000) 25 TLD 222 (MP Bd.) may behelpful to claim such set off.

In Schedule III of Entry tax Act explosives & tendu patta aretaxable @ 2% whereas flou r, at ta, maida, suj i, besan, r awa etc wi llbe taxable @ 1% on consumpt ion an d not for sale.

b) Increase in Rat e of Entry T ax :-

i) The liabil it y of Ent ry Tax has been increased on many goods

from 0% t o 2% and from 1% to 2%.

ii) All the goods specified in Ent ry No. 3 of Schedu le III, on wh ichthe liability of Entry Tax was restricted to consumption & use,will now be liable to tax even if the entry of such goods is madefor resale. Now there is no specific entry for goods liable forEnt ry t ax @ 1% and such goods are covered under r esidu aryentry.

4. Liabilit y of Ent ry Tax U/ s 3 (2) :-

a) Noti. No. 40 & 41 dated 31.03.2010 have been issued by the stateGovt. now th e person br inging or causin g to be brought in to a localarea the goods of schedule II of M.P. vat Act by a person, in whosehands such goods have not born tax under M.P. Vat Act forconst ru ctin g 5 or more residential houses/ flats or commercialbuilding of more than 5000 square feet for sales or for letting outon rent or lease, shall be liable to pay Entry Tax at the same rateas specified under Vat Act i.e. @ 5% or 13% as the case may be.

b. Noti. No. 42 & 43 dated 31.03.2010 have been issued by the stateGovt. whereby any person who is not registered under M.P. Vat Actcausing entry of Marble and Granite into a local area of MadhyaPradesh shall be liable tax @ 2% on pu rchase value of such goods.There is no threshold limit and even if an ordinary personbringing such goods worth Rs. One lac from outside State willbe liable to tax. How such tax will be collected and at whatstage is not known.

5. Not ificat ions grant ing exempt ion/ concessions under ET Act :-(Noti. No. 47 dated 01.04.10.)


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a) Timber has been exempted from Entry Tax when entered for use orconsu mption in manufactu re of goods inside th e state of M.P.,

b) Metal has been exempted from Entry Tax when entered for use orconsumption in manufacture of Coins inside the state of M.P.,

c) Leather has been exempted from Entry Tax when entered for useor consumption in manufactu re of goods inside th e state of M.P.

d) Rate of Tax on Iron Steel has been reduced from 2% to 1% on entryfor use or consumption as raw material in manufacture inside the

state of M.P.

Probable Issues :-1. Set off u/ s 4(1)It is to be noted that on many products rate of Entry tax has beenincreased to 2% and such produ cts are being used for manu factu re ofother goods as raw mater ial. In case of pu rchases from Regd. Dealersin cidence of Ent ry tax wil l be @ 2% because no declarat ion has beenprescribed as in case of iron & steel. The manufacturers will thereforebe eligible to claim set off on all such goods other than coal and ironsteel equal to the amount of the difference between th e amount of tax

at full rate and tax at 1% as per 2nd proviso to section 4(1). Such setoff shall be limited to 90% of the purchase value of the raw materialprovided declaration in form II du ly signed by selli ng Regd. Dealer andis fu rn ished at th e time of assessment .

2. Stock held on 31.03 .201 0 :-An important question arises for consideration relates topurchases effected pr ior t o 31.03.2010 of various comm odities by atr ader. The incidence of tax would be as under :-

i) In case of importer of Schedule-II goods, Entry tax will be

payable @ 1% only even if t he same has been in creased to2% from 01.04.2010 because entry of such goods wasaffected prior to 01.04.2010 and rate of tax prevailing onth at date will be applicable.

i i) A dealer having purchased Schedule-III goods when it wasnot taxable on resale, hence stock held on 31.03.2010 wil lnot be liable for En tr y tax in h is hands.

i i i) Goods covered in Schedule-III purchased from a dealerafter 01.04.2010 cannot be taxed in th e hands of buyer onthe ground that the same had not offered tax prior to31.03.2010.

3. Cotton has been exempted conditionally i.e. when use as rawmaterial for manufacture of cotton yarn. However, if aftermanufacturing cotton yarn the dealer manufactured cloth also,such cotton will be exempt from Entry tax because though theultimate product is cloth but cotton has gone into manufacturingprocess of yarn.


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4. Floor and wall tiles of all verities including granite, marble andother ti les are taxable @ 2% along with black stone specifiedtherein. The question may arise whether green or red stone will betaxable @ 2% ?. It can safely be claimed t hat green and red stoneare not covered in the main heading in all verities of tiles hencesuch stone wil l be taxable @ 1% vide residuary ent ry of par t -III ofSchedule-II.

5. Vide ent ry 17, food preparat ion are taxable @ 2%. The questi onmay arise whether dairy products such as ghee, mawa etc. will betaxable @ 2% under thi s ent ry. In comm on parl ance th eseproducts cann ot be tr eated as food preparation hence it wil l not beliable to tax @ 1%.

6. In entry no.11 toilet soap and washing soap have not beenspecified in the list of cosmetic and toilet articles hence one viewmay be that toilet soap and washing soap have been intentionallyomitted from the category of higher taxation hence it is taxable at

1% only. The judgment in the case of Ponds India Ltd, Vs. CCT(2003) 2 STJ 80 (MP Bd.) may be referred. However words toiletart icles in cluding __ ___ ___ may be in terpreted in it s wider senseand m ay be held to the taxable @ 2% under thi s ent ry.

7. Vide entry no12 components and spare parts of motor vehicles aretax free. The question may arise whether tyre and tubes of motorvehicles will be exempt under this entry. Reference can be made toan order u / s 70 of th e Act in the case of Taifee Motors &Tractors Ltd (2007) 11 STJ 333 wherein the CCT (MP) held thattyre and tu bes of Tractors are tax free bein g parts of Tractors.

However, the Commissioner of Commercial tax, Chhatish Garh inthe case of M/ s. CEAT Ltd 9 STJ 789 had held that tyre andtu bes are not covered within th e meaning of parts t hereof.

Professional Tax Act

Section 2 has been amended under Professional Tax Act so as toinclude services given for valuable consideration by any person.Such tax is payable on gross receipts of service provider. Suchreceipts are taxable vide entry no.9A in the Schedule of the Act. Byinsertion of definition of service and entry in Schedule of the Act,service providers which are not specifically covered in entry no.3 ofthe Schedule have been now covered.

Please note that such amendment has no relation with the employees who are

drawing salary or wages under entry no.1 of the Schedule. Thus the employeeshave not been benefited in any manner by the aforesaid amendment. The basic

exemption limit of professional tax for employees continuous to be Rs.1,20,000/-per annum as it was in Financial year 2009-10.

vat & entry tax

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