COMMERCIAL TAXES DEPARTMENT OF

KERALA - # AN OVERVIEW

CHAPTER-I1

COMMERCIAL TAXES DEPARTMENT OF KERALA -

AN OVERVIEW

Commercial Taxes Department cf Kerala, which administers the Sales Tax

Laws of the State, is under the control and general supervision of the

Commissioner, Commercial Taxes Department. He is assisted in his functions

by the Joint commissioners, Deputy Commissioners. Inspecting Assistant

Commissioners and Sales Tax 0 'ficers. There are I5 Deputy Co~nmissioners

at the district level and 26 Inspecting Assistant Cornmissioners at the sub

divisional level. Each district is divided into several circles. A Circle is the

smallest administrative unit in the Department. There are Departmental

Tribunals and Appellate Authorities. The Department also controls 44

permanent check posts.

Altogether there are 4579 employees working in the 296 offices of the

Departinent in the State. The major work of the Department constitutes

registration of dealers, assessment and collection of sales tax and agricultural

income tax, recovery of' arrears of tax, prevention and detection of tax evasion

and disposal of appeals and revi:.ion petitions.

'The Figure 1 . I shows thc orgarrizationtll srructurc and the I ahle 2.1 shows the

organizational strength ol'the Comlncrcial 'rases Department of Kerala as on

31" March 2005.

Figure 2.1

COMMISSIONER

COMMISSIONER

DY COMMISSIONER

I- I Totai -- 4579

Organizational Strength oi'the Commercial Taxes Department of

Kerala ~

Name of post

126

5. 1 Finance Officer -- -- -

I I ~- - . - . . ~ ~ + ~ 1

- - -

12. Fair Copy Superintendert

Source: Compiledfrom the records maintained at the office ( f t h e Commissioner ofCo1nmercia1 Taxes Department. Government ofKeralu

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

- -- U.D. Compiler --- I

1

Head Clerks I - --

180

Upper Division Clerks 682 I

Upper Division Typist pp --

ILower Division Clerks --- Lower Division Typist -

Lower Division Compil~:rs

Confidential Assistants

23. Roneo Operators ~ ~ -- 1 - I 1

180

- 1 72

- 24.

25.

26.

754 Peons . . - . 1 4 1 2 Boat Driver-Curn-Srang,

- Night WatcheriJeep CltanerlLascarlBoat Cleaner 12

I

- -- Drivers

Clerical Attenders

130

2 15

2.1.0. Functions of the Commc?rcial Taxes Department

The functions exercised by the C'ommercial Taxes Department are broadly

classified as follows:

2.1.1. Head Office

Commissioner of Commercial Taxes exercises general control of the

Department and over all authoriq- under the Acts administered by it. As a part

of this, the Commissioner inspects or causes inspection of sub-ordinate

offices. Apart from the general control exercised by the Commissioner as

Head of the Department, he is a s o vested with powers of revision under the

various Acts, suo motu as well as on application.

2.1.2. Assessment

This function is exercised through the Sales Tax Officers!AgriculturaI Income

Tax and Sales Tax OfficersiAssistant Co~nmissioners. Inspecting Assistant

Commissioners at sub Ilistrict level and Deputy Co~nmissioners at district

level supervises the officers of the Assessment Wing. The assessing

authorities also function as Registering Authorities under the KGST Act, CST

Act and Tax on Luxuries Act.

2.1.3. Appeals

Appellate Assistant Cornmiss~oners and Deputy Commissioners (Appeals) are

the first appellate authorities in respect of the orders issued by officers in the

cadre of Sales Tax Officers and Assistant Commissioners respectively.

Second appeals against orders issued by the first appellate authority vest with

the Appellate Tribunal except in the case of Kerala Money Lenders Act and

the Kerala Tax on Luxuries Act.

3 5

2.1.4. Intelligence

This function includes inspection of business places and vehicles,

investigation and detection of' frauds and evasion. These functions are

exercised by the Intelligence Squads\Investigation Squads normally headed

by an officer in the cadre of Sales Tax officer. Their work is supervised

by Inspecting Assistant Comn~issioners (intelligence/investigation), Deputy

Commissioners (intelligence) artd Joint Commissioner (Enforcement).

2.1.5. Revision

The power of Revision is exercised by Deputy Commissioner's suo motu and

on application, under the various Acts. Revision on application is provided

against orders, which are not appealable. Suo motu power is exercised in

order to correct any il1egali.y in the orders issued by the subordinate

authorities.

2.1.6. Audit and inspection

This includes audit of assessments. performance audit and inspection of

offices. The objective is aclhieved through Sales Tau Officers (Audit) at

district level. whose work is supervised by Inspecting Assistant

Commissioners (Audit) and Dzputy Commissioners (Audit).

2.1.7. Check Posts

Check posts conduct inspection of vehicles at notified areas with a view to

prevent evasion of Tax under the KGST ActICST Act, and collect primary

information regarding transport of goods in and out of the State. Check posts

also collect entry tax undzr the Kerala Tax on Entry of Goods into

Local Areas Act. Major check po:,ts are headed by Assistant Commissioners

and others by sales tax Officers/Sales Tax Inspectors.

2.1.8. Licensing under the Keralk~ money Lenders Act

Inspecting Assistant Commission,:rs at Sub-District level act as Licensing

Authorities under the Kerala M o n q Ixnders Act and also watch compliance

of the provisions of the Act by the Money Lenders.

2.2. Brief History of Sales Tax in Kerala

The history of sales tax in India kcgins in 1938. The levy of taxes on sale of

goods and advertisements was auti~orised as per Entry 48 in List I1 of the ~ 1 1 ' ~

Schedule of the Government of India Act. 1935 which empowered the

provinces in British India to levy sales tax. The first province in India to levy

tax on sale of goods under the above Act was Central Provinces and Bearar

(renamed as Madhya Pradesh after independence), which in 1938 levied a tax

on the retail sale of motor spirit and lubricants.

A general sales tax levy on goods was first made in the State of Madras in

1938, while Shri. C. Rajagopalachari was in power. The State of Kerala was

formed by the integration of the: princely States of Travancore and Cochin

with the Malabar District and Icasargode Taluk of the State of Madras. In the

princely State of Cochin, sales tex was introduced on the I " day of Chingom

1 122 (1 7'h August 1946) and in 7'ravancore on I s ' day of Edavam 1 124. In the

erstwhile Cochin area the administration of the Sales Tax Law was under

the control of the Income Tax Department and in the Travancore area the

Sales Tax administration was in the hands of the Excise Department.

On the integration of the two Slates on is' July 1949 the Travancore General

Sales Tax Act, was extended to Cochin. This was later extended to the whole

Kerala with the name the Gen,:ral Sales 'Tax Act, 1125. After the Federal

Financial Integration as per G.P No.SR11-4611149lRD dated 1 2 ' ~ May 1950, a

separate Agricultural Income Tax and Sales Tax Department with the Board

of Revenue at its head was formed in May 1950 to administer the General

Sales Tax Act, 1125 and Agricultural Income Tax Act 1950.

The present statute, the Kerala General Sales Tax Act, 1963 was enacted

after repealing the General 5,ales Tax Act, 1125 on the basis of the

recommendations of the High Level Sales Tax Committee headed by

Shri. P.S. Nataraja Pillai, former Finance Minister. Consequent to the

abolition of the Board of Revenue as per the Kerala Board of Revenue

Abolition Act 1998 in July 1988: the Department was renamed as the

Department of' Commercial Taxes and the Member Board of Revenue in

charge was redesignated as the (:ommissioner of Commercial Taxes.

In the Constitution, the power to levy tax on the sale or purchase of goods

other than newspapers rests wi.:h the State 1.egislature by virtue of entry 54,

List I1 of the Seventh Schedule. These powers are regulated by Articles 286

and 301 to 304 of the Constitution. But as per item 92A of' list I1 taxes on sale

or purchase of goods other than news papers, where such sale or purchase

takes place in the course of inter state trade or commerce, will come under the

purview of the power of the Central Government. As per the scheme of

taxation in India, Central Salts Tax is levled oy the Central Government

while Local Sales Tax is levied by the State Government. Though Central

sales tax is levied by the Central Government, it is administered by the

State Governments and tax collc:cted in each state is retained by that State

Government

2.3.0. Statutes Administered and Monitored by the Commercial

Taxes Department of Kerala

The main revenue oriented statutes such as the Kerala General Sales Tax Act

1963 (Act 15 of 1963), Kerala Agricultural income Tax Act (Act 15 of 1991),

Central Sales Tax Act 1956 act 74 of 1956), Keraia Money Lenders

Act1958 (Act 35 of 1958), Kerala Surcharge on Txxes Act1957 (Act 11 Of

1957), Kerala Tax on Luxuries Act(Act 32 Of 1976), Kerala Tax on Entry of

Goods in to Local Areas Act1994 (Act 15 Of 1994) are at present

administered and monitored by the Commercial Taxes Department. Besides,

The Kerala Value Added Tax Act 2003(Act 30 of 2004) which came in to

force on 1'' April 2005 is also administered and monitored by the Commercial

Taxes Department.

A brief summary of important revenue oriented statutes at present

administered and monitored by the ~ e ' ~ a r t m e n t is given below.

2.3.1. The Central Sales Tax Act, 1956

Item 92-A of the list I1 of the seventh scheduie of tile constitution of India,

empowers the central governnent to levy sales tax in respect of sale or

purchase of goods other than nexvspapers where such sale or purchase

taken place in the course of inter state trade or commerce. In 1953 the Central

Government appointed the Taxation Enquiq Commission to study the

incidence of taxation with reference to different states. In the light of several

recommendations made by the Taxation Enquiry Commission, the Central

Sales Tax Act was enacted in ~marliament in 1956 to lev?. tax on inter state

sale or purchase.

The Central Sales Tax Act came in tc. force with effect from Jan 5, 1956 and

it extends to the whole of India ir~cluding the Srate of Jammu and Kashmir.

The Act has been enacted to fom~ulate the principles regarding the following:

1 . To formulate principles for determining when sales or purchases of

goods taken place:

(a) In the course of inter -state trade or commerce or

(b) Outside a state or

(c) In the course of import to or export from India.

2. To provide for the levy and collection of tax and distribution of taxes

on sales of goods in the course of inter-state trade or commerce.

3. To declare certain goods ..o be c~f special importance in inter state trade

or commerce.

4. To specify the restrictions and conditions to which State Laws

imposing taxes on the sales or purchase of goods of special importance

in the course of inter-statt: trade and commerce shall be subjected to.

The central sales tax is Payzble only in respect of purchases or sales in the

course of inter state trade or commerce. As per section 3 of the CST Act a

sales or purchase of goods shs.ll be deemed to take place in the course inter

state trade or commerce if the sales or purchase:

(a) Occasions the movements of goods from one state to another or

(b) Is effected by a transfer to the document of title to the goods during

their movement from one State to another.

A dealer shall be liable to pay tax under this Act on sale of goods effected by

him in the course of inter state. trade or commerce. As Per section 8(1), every

dealer who sells any goods to the Government or to a registered dealer shall

be liable to pay tax @ 4% on his turnover provided;

(a) The selling dealer must obtain Form I) from the Government

Department, which pur:hased goods.

(b) That the goods are eligible as per section 8(3) and the selling dealer

obtain Form C from the dealer, if sales are made to any registered dealer.

Central sales tax is levied by the Government of India but tax so levied will

be collected by the State Ciovernment from where the movement of goods

commenced.

Article 286(3) (a) of constitl~tion of India empowers Parliament to restrict

power of the State <?ovemrne~~ts to r i , Y or; sales or purchase of declared goods.

Section 2(c) of'thc C'SI' Act defines declared goods as those declared under

section 14 of the CS-I' Act as goods af special importance in inter state trade

or commerce. Section 14 of the CST' Act gives list of goods of special

importance often called declared goods.

(1) Cereals i.e., paddy, rice, mower. bajra, maize, ragi, kutki, kodan, barley

(2) Coal and coke in all forms e:tcluding charccal

(3) Cotton in its unmanufact~~retl form

(4) Cotton fabrics, cotton yarn

(5) Crude oil

(6) Hides and skins whether in a raw cr dressed state

(7) Iron and steel

(8) Jute

(9) Oilseeds

(10) Pulses

(1 1) Man made fabrics

( 12) Sugar

(13) Unmanufactured tobacco. cigars etc

(14) Woven fabrics of wool

Section 15 of the CST' Act imposes following restrictions and conditions in

regard to powers of State Govenment ;o tax declared goods inside the State.

(a) The tax payable on sales or purchase of declared goods in side the State

shall not exceed 4 percent of ).he sales or purchase price. Such tax can be

levied only at one stage.

(b) Where a person has paid the State sales tax on the sales or purchase of

declared goods inside a state and subsequently he sells the same goods, in the

course of inter state trade or ccmmerce and also pays CST thereon, then the

tax levied on sale within the Sta e should be r-~mbursed to him.

2.3.2. The Kerala General S:ales Tax Act, 1963

The Kerala General Sales Tax Act 1963, which extends to the whole state of

Kerala, came in to force on lAl1ri11963. The Act has 9 chapters, 61 sections,

number of sub sections and fihe schedules. They keep changing every year

with additions and deletions. ?or its governance, Kerala Government has

framed more than 70 rules under the title Kerala General Sales Tax Rules

which in turn have hundreds 'of sub rules. Many supplementary laws like

Kerala Sales Tax Appellate Tribunal Regulations Rules 1966 and notifications

and circulars have also been enacted to administer the Act. The salient

features of KGST Act 1963 are:

1 . The definitions of the tmns 'sale' or 'purchase' of goods have been

very comprehensively given.

2. The goods are classified in to different categories.

3. Different rates of taxes are charged for different categories of goods.

4. Mainly the pattern of tax is to levy tax at single point.

5. Registration of dealers whose total turnover exceeds a certain limit is

compulsory.

6. The assessees are. requirc:d to file returns.

7. The mode of assessment of tax has been comprehensively prescribed.

8. The mode of appeal and penalties has been prescribed.

9. Prescriptions about the maintenance of books of accounts for purpose

of sales tax.

10. Certain goods are exempted from sales tax

11. Sales tax exemption is granted for SSI units.

12. The mode of inspection of shops by sales tax authorities has been given.

13. The definitions of terms dealer and business have been given.

Section 5 to 12 of the Kerala General Sales Tax Act deals with various modes

of charging sales tax on sale or purchase of different kinds of goods in Kerala.

Generally the tax rates are higher for luxury goods than the goods of

necessaries or goods used by common man .The various modes of charging

sales tax are given here under.

Every dealer other than a casual trader or agent of a non resident dealer whose

total turnover for a year is not less than two lakh rupees and every casual

trader or agent of a non resident dealer whatever his total turnover is for the

year shall pay tax on his turnover for that year:

i. In case of goods specified in the First or Second Schedule at the

rates and only at the psints specified against such goods in the said

Schedules.

. . 11. In the case of transfer c ~ f the right to use any goods for any purpose at

the rate of 6 percent zrt all points of such transfer on an aggregate

turnover of 2 lakh rupezs and above.

. . . 111. In the case of transfer of goods involved in the execution of works

contract, where the transfer is in the form of goods, at the rates and at

the points specified against such goods in the First. Second or Fifth

Schedule.

iv. In the case of goods specified in the Fifth schedule at the rates and at

the two points specifie8i against such goods in the said Schedule.

Section 7 of the Act, provides for the payment of tax at compounded rates

in the following cases:

a. Any dealer in gold c'r silver ornaments

b. Any mechanized cnrshing unit producing granite metals

c. Contractors in civil work of construction of building, bridges,

canals including any repair or maintenance of such civil work.

A registered dealer can, subject to the provision of sec 22 (2), collect the tax

payable by him on the sale of an) goods tiom the person to whom he sells the

goods and pay over the same to the Government in the manner prescribed.

2.3.3. The Kerala Tax on Entry of Goods in to Local Areas Act 1994

The Kerala Tax on Entry of Goods into Local Areas Act 1994, which extends

to the whole state of Kerala. cam(: in to force on I" April 1994

As per section 3 of the Act, en t~y tax is levied on the purchase value of the

goods which enters into any local area for use or sale therein and payable by

the importer of such goods. But the rate of'tax should not exceed the rate of

sales tax payable for the goods as provided in the First schedule to the KGST

Act 1963. Purchase value means the value of the goods, as ascertained from

the original invoice and includes insurance, excise duties, countervailing

duties, sales tax, transport fee, freight charges, and all other charges

incidentally levied on the purch:ise of the goods and in the case of a vehicle

include the value of accessories fitted in the vehicle. As per this section, tax is

leviable in respect of the following goods:

1 . Motor vehicles

2. Cement

3. Refrigerator

4. Washing Machine

5. Marble slabs, marble tiles

6. Cudappah stones and slabs

7. Mosaic tiles and mosaic: chips

8. Glazed tiles, ceramic tiles and all types of wali or floor tiles

9. Iron and steel

10. Granite slab

1 1 . Air conditioner and

12. Sodium silicate

Every person liable to pay tax under this Act shall furnish returns in such

form, for such periods, by such dates and to such authority, as may be

prescribed. If the assessing authority is satisfied that the return submitted by a

person liable to pay tax is correct and complste. he shall assess the amount of

tax due from the person on the basis of sucl-, return. Otnemise, the assessing

authority shall, after making such enquiry as it may consider necessary and

after taking in to account all relevant materials gathered by it, assess the

person on the best of his judgmeni

Payment and recovery of tax are dealt in Section 10 of the Act. The amount of

tax should be paid in to the Government treasury along with the return in

form no. 1 or form no.2.

2.3.4. The Kerala Agricultur:al Income Tax Act 1991

The Kerala Agricultural Income Tax Act 1991, which extends to the whole

state of Kerala. came in to force on 1st April 1991. This Act contains

15 chapters, 100 sections and a i~umher of' sub- sections. The salient features

of the Act are:

I . Compounding system of payment of tax is permitted for holdings up to

five hundred hectares.

2. Holdings up to Five hectxres are completely exempted from payment

of Agricultural income ta?:.

3. Income from sugarcane artd few other crops is completely exempted.

4. In the case of mixed farming, tax is payable only for principal crop

exempting the subsidiary crops.

5. Compounded tax is payable only for cultivated area and not in relation

to production or receipt o:fincome.

6. The assessment procedure made simplified.

7. Tax relief for advanced study in agriculture.

8. Liberal deductions for re- plantations and infilling expenses.

9. General parity in the rate of tax for individuals with the Central Income

Tax Act.

As per section 3 of the Act, tax at the rate or rates specified in the schedule

to this Act shall be charged for each assessment year in accordance with

and subject to the provisions of this Act, on previous year's total

agricultural income of every person.

Section 13 provides for the compounding of tax by any person who holds

landed property within the state extending to not more than 500 hectares.

The compounded rate of tax for the assessment year 2004-2005 is given in

Compounded Rale of Agricultural Income Tax

Name of crop

Rubber

Coffee

Pepper

Areca nut

Coconut

Cocoa

Tea

Cardamom A Zone

Cardamom B Zone

Cardamom C Zone

On the On the first 5 next 3 Hectares Hectares 1 (5 to 8)

Nil 750

550 1 300 Nil

Nil 700

Nil 400

Nil 750

Nil 1 500

Rate per Rate per Rate per Hectare Hectare Hectare

Nil

Nil

Source: Finance bill 2003-2004

500

?SO

2.3.5. The Kerala Surcharge on Taxes Act, 1957

The Kerala Surcharge on Taxes /\ct 1957, which extends to the whole state of

Kerala, came in to force on 1" April 1957.

The agricultural income tax paqable by any person (other than a company)

assessed to such tax under the iigricultural Income Tax Act, 1950, shall be

increased by a surcharge at the rate of ten percent of the tax payable each

year, and the provisions of the Agricultural Income Tax Act, 1950 shall apply

in relation to the said surcharge as they apply in relation to the agricultural

income tax payable under said A:t.

The tax payable under the Kerala General Sales Tax Act, 1963, shall, in the

case of a dealer whose turnover-

a) Is not less than one lakh rupees but does not exceed ten lakhs rupees in

a year, be increased by a surcharge at the rate of five percent, and

b) Exceeds ten lakh rupees in a year, be increased by a surcharge at the

rate of eight percent, of the tax payable for that year. and the provision

of the Kerala General Sales Tax Act, 1963 shall apply in relation to the

tax payable under the said Act.

The Government may, by notification in the gazette, make rules for carrying

out the purpose of this Act.

2.3.6. The Kerala Tax on Luxuries Act, 1976

The Kerala tax on luxuries Act, 1976, which extends to the whole state of

Kerala, came in to force on 1" .4pril 1976. The objective of the Act is to levy

tax on luxuries provided in a hotel or in a house boat and in respect of

commodities included in the schedule.

As per section 4B of the Act, every proprietor of a hotel having not less than

five rooms to be rented for accornniodation for residence. shall get his hotel

registered and the registration renv:wed annually. Similarly every proprietor of

a house boat rented for accommodation for residence or leisurely cruising

shall get his house boat registered and renewed annually.

Luxury tax at the rate varying from seven and a half percent to fifteen percent

is payable by the person residing in a hotel depending on the amenities

provided and the rate charged in the hotel. Similarly the luxury tax is payable

by the proprietor of the house boat at the rate of four percent of the rent

received on all the amenities and servi:es provided in the house boat. It shall

be collected by the proprietor and should be paid to the government treasury.

1,uxury tax is also payable in respect of a commodity included in the schedule

at the rates specified and calculated on the basis of the vaiue of commodity.

by the person who uses the same.

Every person liable to pay luxuty tax under this Act should submit return

under section 5 in the manner prescribed. Section 5A provides for

compounding of tax.

On receipt of a return under seciion 5, if the assessing authority is satisfied

that the return is correct and complete, he shall assess the proprietor on the

basis of that return. If the propriztor fails to submit the return in due time

or if the return submitted by h ~ m appears to be incorrect or incomplete,

the assessing authority shall, after making such enquiry as it may consider

necessary and after taking into a:count all relevant materials gathered by it,

assess the proprietor to the best of' his judgement.

2.3.7. The Kerala Money Lenders Act, 1958

The Kerala Money Lenders Act, 1958, was enacted to provide for the

regulation and control of the business of money lenders in the state.

Money lender means a person whose main or subsidiary occupation is the

business of advancing and realising loans or acceptance of deposits in the

course of such business and includes any person appointed by him in to be in

charge of a branch office or branch offices or a liaison office or any other

office by whatever name called, of his principal place of business and a pawn

broker, but does not include:

1. A bank or a co-operative society; or

2. The life insurance corporation of India; or

3. The industrial credit and investr?ent ccrporation of India; or

4. The industrial finance corporation of India; or

5. The state financial corporation; or

6. Any institution estab1ishc.d by or under an Act of parliament or the

legislature of a state, which grants any advance in pursuance of the

provisions of that Act; or

7. Any other institution in the public sector, whether incorporated or not,

exempted by the government by notification.

As per section 3 of the Act, any person, firm, or joint family carries on or

continues the business as a mont:y lender at zny place in the State should

obtain a license under this Act. Application fbr a money lender's license shall

be in writing and shall be made to the licensing authority in the manner

prescribed under this Act and he is liable to pay license fee at the rate

prescribed below:

1. A licensee who lends less than

one lakh rupees in a year.

2. A licensee who lends one lakh

rupees or above but less than five

lakh rupees in a year.

3. A licensee who lends five akh rupees

or above but less than ten lakh rupees

In a year.

4. A licensee who lends ten lakh rupees or

above but less than twenty five lakh

rupees in a year. Orte lakh rupees

5. A licensee who lends twenty five lakh

rupees or above but less than fifty lakh One lakh and fifty

rupees in a year. thousand rupees

6, A licensee who lends fift), lakh rupees

or above in a year.

Five thousand rupees

Ten thousand rupees

Fifty thousand rupees

Two lakh rupees

2.3.8. The Kerala Value Addetl Tax Act, 2003

The purpose of the Act is to consolidate and amend the law related to the levy

of tax on the sale or purchase of goods based on the concept of Value Added

Tax in the state of Kerala. The va ue added tax is a tax on the value added at

each stage of production of goods and services. The Act extends to the whole

of the State of Kerala and came in to force on 1" April 2005.

Value Added Tax Act, 2003 ha:; the following important features:

i. Business receives adequate credit for all tax paid by it on purchases

while it is assessed for sales tax.

ii. Goods are classified under four schedules.

iii. No multiplicity of tax rates, taxes are charged only at 4 rates i.e.

zero percent (I schedule) 1 percent (I1 schedule and presumptive tax),

4 percent (111 schedule) and 12.5 percent (Unclassified goods).

iv. No cascading effect.

v. Minimizes scope for disputes on classification of goods.

vi. Minimizes exemptionslr~ductions.

vii. Encourages voluntary conpliance, self-assessment and self-policing.

viii. Zero rates for exports enable refund of input tax.

ix. No tax incentives.

x. Reduces scope for under-billinglunder-valuation.

xi. A reliable tax information system, tax payer education and tax payer

assistance.

xii. An effective VAT Audit System to encourage voluntary compliance

and correct tax payment.

The various modes of charging Sales tax on the sale or purchase of different

kinds of goods and services in the state are given in Sections 5 to 19 of the

Kerala Value Added Tax Act 200:i. It is given here under:

1. Every dealer whose total turnover for a year is not less than ten lakh rupees

and every importer or casual trader or agent of a non-resident dealer, whatever

be his turnover for the year, shall be liable to pay tax on his sales or purchases

of goods as provided in this Act. ?-he liability to pay shall be,-

a. In the case of goods specified in the second and third schedules at the

rates specified therein and at all points of sale of such goods within the

State;

b. Goods specified in the Fotuth schedule shall be outside the purview of

this act:

c. In the case of transfer of the right to use any goods for any purpose

whether or not for a specified period, at the rate of 4 percent at all

points of such transfer;

d. In the case of goods not falling under clauses (a) (b) or (c), at the rate of

12.5% at all points of sale of such goods within the state;

e. In the case of transfer o ' goods involved in the execution of works

contract where transfer is in the form of goods, at the rates specified for

such goods in clause (a) (I.)) (c) or (d) above, as the case may be;

f. In the case of transfer of goods involved in the execution of works

contract, where the transfer is not in the form of goods but in some

other form. at the rate of 12.5% at all points of sale,

2. Every dealer who purchase taxable goods from any person other than a

registered dealer shall pay tax on :he purchase turnover of the goods at the rate

mentioned in the schedules to this Act. But a dealer other than importer, casual

trader or an agent of a non-resident dealer shall not be liable to tax under this

sub-section if his total turnover for a year is less than five lakh rupees.

3. Goods specified in the first schedule shall be exempted from tax

4. Any registered dealer other than an importer or a dealer liable to pay tax

under sub-section (2) or a dealer effecting the first taxable sale of goods

within the state, whose total turn over for a year is below rupees fifty lakhs,

may at his option, pay tax at the rate of one percent of the turnover of taxable

goods as presumptive tax instead of paying tax under sub-section (1). But a

dealer who has been paying tax under sub-section (1 j Shall not be entitled to

opt for payment of tax under lhis sub-sections unless his total turnover

continue to be within the limit specified in this sub section consecutively for

three years.

Compounding of Tax

Section 8 of the Act, provides for the payment of tax at compounded rates in

the following cases:

1 . Any works contractor who is not an importer or a dealer effecting first

taxable sale in the state.

2. Any dealer producing g ra i t e metals with the aid of mechanized

crushing machines.

3. Any dealer in cooked food and beverages.

4. Any dealer who transfers the right to use video cassette or computer disc.

Input Tax Credit

The greatest advantage offered by Value Added Tax scheme is the unique

facility of claiming input tax crecit in all input tax paid at the time of purchase

on all output tax collected at the time of' sale. Section 1 1 of the Act provides

for 'input tax credit'. Any r~zgistered dealer, other than those paying

presumptive tax under sub- section (5) of section 6 or those paying

compounded tax under section 8, who makes purchases from a registered

dealer, of taxable goods within the state fbr resale or for use by him in the

manufacture of taxable goods otner than those coming under fourth schedule,

for sale or for use in the execution of works contract or for use as containers

or as packing materials for the packing of taxable goods in the state for sale,

shall be eligible for input tax credit. No input tax credit shall be allowed for

the purchases;

a. from an unregistered dealer or from a dealer not liable to pay tax under

section 6 or from a dealer whose registration has been cancelled ;

b. from a dealer paying presumptive tax under subsection 5 of section 6 ;

c. from a dealer paying compounded tax under section 8:

d. of goods from outside the state in the course of interstate trade or

commerce or other wise in respect of tax paid on such purchase ;

e. of goods which are used in the manufacture, processing or packing of

goods specified in the fir:;t schedule and fourth schedule;

f. of goods specified in the fourth schedule;

g. of goods which are used as fuel in motor vehicles or vessels or stores;

h. which relates to goods soltl by a principal through his agent in respect

of which the principal has claimed input tax credit or vice versa;

i. of goods remaining unsold at the time of closure of business;

j. of goods which are used ir the manufacture, processing or packing of

goods, where such man~f~~c tu red , processed or packed goods remain

unsold at the time of the clcsure of business;

k. of goods where tax invoice in the prescribed form is not available with

the dealer or there is evidence that the same has not been issued by the

selling dealer;

1. by a dealer who is exempted from payment of tax.

Registration of Dealers

As per sec 15 of the Act, eve0 dealer whose total turnover in a year is

not less than two lakh rupees shill, and any other dealer may, get himself

registered under this Act. For getting registrat~on under the Act, an

application for registration shall be made to such authority, in such manner

and within such period as may be prescribed and shall be accompanied

by a specified fee.

Section 20(1) provides that every registered dealer and every dealer liable to

be registered under this Act shs.11 submit to the assessing authority such

return or returns before such dates and in such manner and accompanied by

such documents as may be prescribed. Where the return submitted under

57

sub section ( I ) of section 20 is in the prescribed manner accompanied by the

prescribed documents, the assessment related to the return period shall,

subject to the provisions of sections 22,24 and section 25, be deemed to have

been completed on the receipt of such return.

Items exempted from VAT

With the commencement of Kerala Value Added Tax Act w.e.f 1'' April 2005,

The Kerala General Sales Tax Act 1963 has only limited applications in

respect of the following goods mentioned in the fourth schedule to the Kerala

Value Added Tax Act 2005.

1) Petroleum products

2) Foreign liquor

3) Ganja and opium

2.4.0. Recent Trends in Sale:; Tax Collection

During the past two decades revenue from Sales Tax Department has

increased manifold and has come to occupy a pivotal place in tax armory of

State administration. Currently over 60 percent of the total revenue of the

Kerala state is derived from the different taxes and duties levied and collected

by the Government of Kerala. Out of the total tax revenue collected by the

State Government, sales tax co~~stitutes more than 70 percent. The Table 2.3

given below shows the percentage of different tax income on the total tax

revenue collected by the state Government during the year 2004-05.

Table-2.3

Percentage of different tax irrcomes on the state's total tax revenue

Source: Compiled from the r.ecords maintained at the office of' the commissioner ofcommercial taxes Department, Government of Kerala.

SI.No.

1

2

3

4

5

6

7

8

From the Table 2.3 it is evident that sales tax revenue is the most important

source of revenue to the State Government and it had contributed 73.19

percent of the State Government's total tax revenue for the year 2004-05.

Figure 2.2 shows the proportion of different tax incomes on the state's total

tax revenue.

Agricultural Income Tax

Land Revenue

Stamp and Registration

State Excise Duties

Sales Tax

Tax From Vehicles

Taxes and Duties on Electricity

Other Taxes or Duties 1 8 3 6 v 1 3 Total 945561

2.4.1. Share of sales tax contril~ution to state's exchequer

The Table 2.4 given below shows the share of Sales Tax to State's Exchequer

during 1997-98 to 2003-2004.

'Table-2.4

Share of sales tax cor~tribution to state's exchequer

Source. Cornpiled jrom the records maintained at the office of the commissioner of commercial tax,?s Department. Government of Kerala

%of sales Tax

Revenue on

State's Total

Revenue

68.52

72.41

74.20

74.01

74.97

73.17

72.24

73.19

:a1 tax

(Rs. in Crc'res)

State's sales

Tax Revenue

(Rs.in Crores)

3084.09

3366.54

3853.54

4344.33

4440.85

5343.15

5991.40

687 1.36

It is evident from the Table 2.4 that the percentage of Sales Tax Revenue to

State's own Tax Revenue has consistently increased from 68.52 percent

in 1997-98 to 73.19 percent in 2004-05.

2.4.2. Annual Growth Rate in Collection of Sales Tax

The Table 2.5 given below shows the annual growth rate in collection of sales

tax during the past 10 years and Figure 2.3 shows its graphical representation.

Table -2.5

Annual Growth Rate in Collection of sales Tax

Source: Cornpiledfrom the records maintained at the oflce of the commissioner of commercial taxes Department, Government o f Kerala.

62

Year

1995-96

1996-97

1997-98

Collectiorl (Rs. In 1,akhs )

2,28,596

2,77,228

3,08,409

Annual growth rate in collection of sales tax

( in percentage )

23

20

I I

2.4.3. Commodity wise collection of sales tax

The Table 2.6 given below showli the commodity wise collection of Sales Tax

in Kerala during 2002-03 and 2003-04.

Ta ble-2.6

Commodity-wise Sales tax collection (Including CST & KGST)

lulninurn & Allied

Source: Compiledfrom the records maintained at the office ofthe commissioner of commercial tares Department, Government of Kerala