ARE THESE STATUTORY DUE DATES REALLY PAINFUL?
Our Government’s bonhomie towards taxpayer with respect to Tax compliance is generally felt very less by many of us. There are numerable due dates for reporting and payment of taxes and duties. This article is presented keeping in mind especially those assessees who can actually achieve faster Invoicing on setting up business, but not cash flows. Needless to say, many MNC branches in India might fall in this category. With our market not saturated, some of these entities would have crossed the SSI threshold exemption limits under various acts in the same financial year of inception. It intends to discuss whether the due dates set for the three taxes namely; Excise duty, VAT and Service tax are generally rational for these categories. Corporation Tax is not considered, as it is only an annual affair. Also SSIs do carry the grace of our Government. The following are the popular due dates for these tax payments
Excise Duty: 5th of the succeeding month
Service tax: 5th of the succeeding month
VAT : 20th of the succeeding month
Excise Duty is a Duty on Manufacture. Thereby liability of the assessee is as and when the finished product is manufactured. Since there is no linkage with the Sales, the Government need not be the least perturbed with the Revenue cycle of the Taxpayer. There is no stipulated condition under the law that the assessee can take credit of an Invoice only after payment of the Excise duty to the supplier. Receipt of Input/Capital Goods into the factory is the only condition. Thus the assessee owes the credit to CBEC when he sets off the Purchase Invoices against Sales Invoices. If the assessee is a loss maker in the initial stages then probably he has got lot of accumulated Capital goods duty credits and no net liability. An exception could be a fast growing and aggressive company which normally invests for excellent infrastructure i.e. Buildings, plinth and foundations. But unfortunately the Cenvat credit rule has got amended in 7.7.2009 (Notification No.16.2009) to exclude ‘Cements, angles, bars, Channels and other items used for foundation of capital goods or Construction of Factory shed’ from the scope of Cenvat Credit. Assuming that they have a very efficient input-output ratio, they would actually start paying ED ‘By Cash’ quite early in business. But barring the above exception, the chances of cash payments in most cases could be less. Hence the due date of 5th of the next month looks reasonable/ sustainable for any taxpayer. No harm either if the due date is 31st March. The Government is blemish less.
The assessee is liable to the Service tax on provision of his Taxable service. This does not mean he is spared on receiving advance payment i.e. he has to collect service tax and pay appropriately. As far as liability to actually pay Service tax is considered, the Service provider is required to remit only those taxes actually collected by him. Similarly, to avail credit he should have paid the value of the Bill on the Input service, if not, at least the service tax portion. The only exception being now that the CBEC has allowed taking credit of Service tax on payments to associated enterprises ‘even if these Royalty payments have not been actually made (Circular No.122/2010). The due date of 5th is not probably what a nascent service provider who is unstable in terms of cash flow would desire. He might not have huge machineries purchase like a manufacturer to take credit of ED/VAT paid on them. Another Hitch is when he makes advance payments towards Input service with Service tax but does not have an Invoice to claim credit. Here…. May be the due date could have been more leniently around 15th or 20th of the succeeding month to justify everybody.
Value Added Tax:
VAT is the tax on Sale, again not dependent on Revenue earnings of the manufacturer. Here also, the manufacturer can take credit of the Invoices which are remaining unpaid to the supplier. But being a state subject, it is not to mingle with the Central taxes. Whereas in the case of Excise Duty there is some supplementing support in the form of Service tax credit on Input services. Hence the only tender point is in the initial stages when he expends a lot on construction of factory paying huge VAT, and only has imported machineries and Raw Materials (where there is no VAT). We know that VAT paid on Building materials is not creditable unless he is a works contractor. This is under the pretext that the expenditure is not related to sale of ‘Goods’. If there are lots of interstate Material purchases at this moment, they too add a pinch as the CST (Central Sales Tax) is not adjustable against VAT/ED. Therefore the Due date of 20th of next month seems reasonable as well.
Overall, we find that the current due dates do have some ‘raison d’être’, excepting a few circumstances.
It is all up to the taxpayer to negotiate better terms of Sale, purchase and delivery to smoothen the tax outgo.