Date:14/07/2005 URL: http://www.thehindubusinessline.com/2005/07/14/stories/2005071402031900.htm

Back 'Of sweets and value-added tax'

K.V. Kurmanath

Hyderabad , July 13

WILL corporates get input tax credit on purchases of sweets and dry fruits meant for distribution as gifts to its staff and customers?

Almond House, a leading sweet vendor in the city, has raised this question before the Advance Ruling Authority in the State. Incidentally, this was the first query before the authority after the introduction of VAT in the State on April 1.

The applicant argued that this was important for him to know as one-third of sales turnover came from corporate customers.

"They buy sweets and dry fruits from his shop for gifting to their customers and employees during festivals and other occasions like closure of financial year, target achievements, product launches and dealer meets," he contested.

"Distribution of sweets and dry fruits as gifts is a normal business practice linked closely with the Indian culture. It is an ethical practice, too," he argued.

Moreover, as a VAT dealer he needed to collect 12.5 per cent tax from the customers. On the other hand, TOT (Turnover Tax) dealers charged just one per cent.

The applicant argued that this anomaly could result in shift in the business in favour of TOT dealers. It was not just the sweet vendor, the Government also would lose revenues in this process, the applicant pointed out.

In this backdrop, the applicant sought a ruling allowing his corporate customers to enjoy input tax credit.

The Advance Ruling Authority, however, turned down his plea, saying that there was no dispute on the applicant's tax liability. It felt that he had no locus standi in the matter, saving commercial interest.

The questions and doubts raised by the applicant had no bearing on his tax liability. It went on to say that the VAT dealers who purchased sweets could seek input tax credit. "It needs a case-by-case approach," it added in the order.

Mr T. Vivek, Joint Commissioner (Commercial Taxes Department, Andhra Pradesh), said the authority had so far received 200 applications seeking orders and clarifications on tax rates. "Of this, 150 were answered," he said.