VAT panel exempts defence canteens

The empowered committee of state finance ministers on value-added tax, which met here on Saturday, has decided to allow states and union territories to exempt canteen service department outlets from value added tax.

The committee also decided that states would be allowed to tax a commodity at 4 per cent if at least 50 per cent of it was used as an input for production.

Earlier, the states had been asked to include canteen service department in value added tax, but some states, like Punjab had continued to exempt canteen service department from the tax. The defence ministry had also taken up the issue with the empowered committee.

Officials told Business Standard that the committee also identified certain exceptions to the treatment of deviations from the approved value-added tax design. Now, while revenue loss due to deviations would not be compensated, some exceptions would be allowed.

According to the exceptions, industrial or agricultural inputs can be taxed at 4 per cent even if they were inadvertently being placed at the 12.5 per cent category earlier.

Regarding the threshold for small dealers, it has been decided that if any state or union territory fixes a threshold above the agreed amount of Rs 500,000, the loss of revenue on that account would be borne by the state or the territory concerned.

The committee has also decided that in the wake of Maharashtra and Andhra Pradesh projecting losses under the new regime, the states would undertake inspections to check issuance of cash-memos by traders.

Earlier, the committee had decided not to inspect cash-memos during the first quarter to allow traders to adapt to the new regime.

"Now it has, been decided that the inspection will be carried out only after permission is granted by an official not lower than the rank of a Deputy Commissioner," an official said. Compensation would be paid to the states on a monthly basis in the form of a special grant-in-aid.

The empowered committee has asked the states to adopt the uniform floor rates (of 20 per cent) for petrol, diesel and aviation turbine fuel by September 1.  Similarly, for gold and bullion the value added tax rate of 1 per cent is to be implemented by 1 August.

Deviations beyond the due dates could invoke stringent action in the form of the committee recommending the withholding of plan-grants to the errant states, officials said.