Karnataka State Budget Amendments to the various Commercial Tax Laws for the year 2014-15

A note on various amendments to Commercial Taxes in the State of Karnataka the amendments to the Karnataka VAT Act, 2003 are applicable with effect from 01.03.2014.

Whereas the amendments to other Commercial Taxes Laws like Entry tax and Luxury tax shall be applicable w.e.f. 01.04.2014.  

Karnataka VAT Act, 2003:

Rate of Tax:
Sl. No.	Notification ref. / date		With effect from
1	No. FD 21 CSL 2014 – Notification (I) dated 28.02.2014	Exempts tax payable on sale of paddy, rice, wheat, pulses, Flour and soji of rice & wheat, Maida of wheat	01.04.2014 to 31.03.2015
2	Serial no. 59 in the Third Schedule to the KVAT No. FD 21 CSL 2014 – Notification (II) dated 28.02.2014	VAT is levied at the rate of 5.5 % on the sale of Liquor and alcoholic drinks including beer, fenny and wine by a dealer holding licenses in holding CL - 9 (Bars & restaurants) / CL - 4 (clubs & associations) / CL - 6A (Star Hotels) or CL - 7 (Lodging houses) licenses issued under the Karnataka Excise (sale of Indian and foreign liquors) Rules, 1968. Exempts tax payable on sale of liquor including beer, fenny, liqueur, and wine by a dealer other than a person holding CL-9, CL-4, CL-6A & CL-7 license issued under the Karnataka Excise (sale of Indian and foreign liquors) Rules, 1968.	01.03.2014 01.03.2014
3	No. FD 21 CSL 2014 – Notification (III) dated 28.02.2014	Reduces the tax payable to 5.5 % on sale of scented, sweetened and crushed arecanut but excluding Arecanut mixed with pan masala & also Arecanut mixture containing all or any among copra, saunf, tobacco, lime. Kaththa, dates sesame and sugar confectionery	01.03.2014
Other amendments: Applicable with effect from 01.03.2014:
	Issue	Amended provisions	Earlier provisions
4	Sec. – 22 (2) - Threshold limit of annual taxable turnover for claiming exemption from registration under Section 22(2) of KVAT Act increased	Annual threshold limit for obtaining registration under the KVAT Act, is increased to Rs.  7.5 lakhs	The earlier annual threshold  limit of taxable turnover was at Rs. 5 lakhs
5	Sec. – 22 (3) - Threshold limit of monthly taxable turnover for claiming exemption from registration under Section 22(3) of KVAT Act increased	Monthly threshold limit for obtaining registration under KVAT Act, is increased to Rs.  62,500 per month.	The earlier monthly threshold limit for obtaining registration was Rs. 40,000/-
6	Omission of Section 22  (9-A) Exemption from compulsory registration for dealers executing works contracts	Dealer executing works contract have brought on par with others dealers and shall be required to register only if their taxable turnover exceeds prescribed limit of Rs. 7.5 lakhs per annum or Rs. 62,500 per month	Under provisions of section 22(9-A) all the works contract dealers were mandated to get registered under KVAT Act, irrespective of their turnover
7	Sec. 27 (1) (c): Threshold limit of taxable turnover for de-registration under Section 27(1)(c) of KVAT  Act increased	The earlier limit of Rs. 5 Lakhs is increased to Rs. 7.5 Lakhs	Registered dealers whose taxable turnover had not exceeded Rs.  5 Lakhs during any period of 12 consecutive months, could seek cancellation of registration under KVAT Act
8	Insertion of sub-section (5) to section 31:  Submission of annual statements u/s. 31 (5) of the KVAT Act	Subsequent to this amendment, dealers are required to file the annual statement to confirm the values declared by them in the monthly returns filed electronically
9	Insertion of proviso to section 63 (4): Filing of single appeal before the Hon’ble Tribunal u/s. 63 of the KVAT Act for various tax periods in a financial year	Procedure simplified enabling dealer to file single appeal for more than one tax periods in a financial year.	Separate appeal had to be filed for each tax period i.e. month or quarter as may be applicable
10	Proviso to Section 72(1) Waiver of Penalty on non filling of returns in certain cases	Penalty for non filling of returns is waived subject to cases where : ·         The dealer is not liable for registration and ·         there is no tax liability and ·         Dealer has applied for de- registration. Implication: The amendment avoids the dealer from unnecessary burden by way of penalty on small dealers who have no liability to remit but were made to pay penalties for non filling of returns within due dates.	Penalty was liable to be paid even at the time of de-registration, despite the dealer have no tax due and was not liable to be registered under the KVAT, if dealer had failed to submit the returns
11	Section 74 (4): Amended to for levy of penalty for a dealer who fails to submit Annual statement u/s. 31 (5) of the KVAT Act	Levy of penalty at Rs. 5,000/- plus Rs. 50 per day for each day of default in submission of Annual statement u/s. 31 (5) of the KVAT Act

Karnataka Tax on Entry of Goods Act, 1979 (Entry tax):

Rate of Tax:
Sl. No.	Notification ref. / date		With effect from
12	No. FD 21 CSL 2014 – Notification (IV) dated 28.02.2014	Exempts entry tax payable on ethyl alcohol brought into a local area for mixing with petrol	01.03.2014
Other amendments: Substantial amendments have been introduced with effect from 01.04.2014 in the provisions of the KTEG Act, as regards the system of assessment, limitation for assessments, submission of returns, interest and penalty provisions and the same is brought on par with the provisions existing under the KVAT Act. However, for the periods up to 31.03.2014 the provisions as existing in the KTEG Act, prior to the aforesaid amendments shall be applicable. The salient features of the amended provisions applicable with effect from 01.04.2014 are as follows:
	Issue	Amended provisions	Earlier provisions
13	Monthly return – sec. 5 (1)	Online monthly returns have to be submitted	Monthly statements were to be submitted in Form 3 and annual return was required to be submitted in Form 5
14	Time limit for filing of monthly return – sec. 5 (1)	Within twenty days or fifteen days after the end of preceding month or any other tax periods as may be prescribed	Within twenty days from end of month of quarter in case the turnover of dealer under the KST or KVAT Act less than Rs. 7.5 lakhs per annum
15	Due date for payment of tax – sec. 5 (2)	Tax becomes payable on expiry of the time limit for filing monthly return	Earlier tax paid with monthly return was considered as advance payment of tax
16	Time limit for revision of monthly return – sec. 5 (4)	Latest within six months from the relevant tax period subject to permission by assessing authority	No time limit prescribed & return could have amended any time before the assessment
	Rate of Interest on short-payment of delay in payment of tax - sec. 5-C	At the rate of 1.5 % per month or part thereof	Earlier interest was charged at 2 % per month
17	Self-assessment provisions introduced – sec. 5-D	A dealer is deemed to have been assessed on basis of returns submitted for a tax period and re-assessments shall be taken up in case of notified dealers	There were no deemed assessment provisions
18	Time limit for re-assessment u/s. 5-D or re-assessments u/s. 6 – sec. 7	For the periods on or after 01.04.2014: Within five years from end of prescribed tax periods In case of fraudulent evasion of taxes is involved the within period of eight years  from end of relevant tax periods	Please note the amended provisions shall not apply for the tax periods upto 31.03.2014.
19	Insertion of proviso to section 14 (3): Filing of single appeal before the Hon’ble Tribunal u/s. 14 of the KKTEG Act, for various tax periods in a financial year	Procedure simplified enabling dealer to file single appeal for more than one tax periods in a financial year.	Earlier one appeal had to be filed for each assessment year
20	Rectification of apparent mistakes on records on basis of court order – sec. 17 (5)	If an order of any authority other than a Tribunal or Court is found to be erroneous in so far as it is prejudicial to interest of revenue by a judgment or an order of any Court, then notwithstanding anything contained in this Act, such authority may proceed to rectify such order within a period of three years from date of such judgment or order Thus the period of limitation for concluding assessment / reassessment shall stand extended as stated above if the assessment / appeal / revision proceedings are found to be erroneous and prejudicial to interest of revenue by a court order
21	Rectification of apparent mistakes on records on basis of court order wherein the judgment or order specifies that tax should have been assessed to under a different provision– sec. 17 (6)	Where any court makes on order or judgment to the effect that tax should have been assessed under a different provision of law from which it has been assessed, then in consequence of such judgment  or order such turnover may be assessed or re-assessed to tax, as the case may be within a period of five years from the date of such judgment or order, notwithstanding any period of limitation periods otherwise applicable under the law for assessment or reassessment
22	Penalty for failure to apply for registration – sec. 20-A:	Penalty of ` 2,000 in addition to applicable interest on tax payable for failure to apply for registration.
23	Penalty relating to furnishing returns and payment of tax – sec. 20-B	Non-filing of returns: Default less than 5 days – Rs. 50 for each day of default Default more than 5 days and tax due is less than Rs. 250 - Shall not exceed Rs.250                  Default more than 5 days and tax due is more than Rs.250 – Rs. 50 for each day of default subject to ceiling of tax due In addition to the above further penalty of: Default not more than 10 days - 5% of the tax due or Rs. 50 whichever is higher Default more than 10 days - 10% of the tax due	Penalty brought on par with the provisions of section 72 of the KVAT Act
24	Other Issues: (a)           Prior to the aforesaid amendments the assessment was concluded on yearly basis under the KTEG Act. However, it appears that after the aforesaid amendments the tax period shall be one month i.e. as under the KVAT Act or such other prescribed tax period. However, we await further clarity on ‘other prescribed tax period’ and also on dealers who are liable to file returns within 15 days from end of preceding month or other prescribed tax periods, as the case may be. (b)         A dealer is required to remit 50 % of disputed tax and other amounts and provide adequate security for balance amounts for obtaining stay of recovery of tax u/s. 13 (3) 9b) of the KTEG Act as against the requirement to remit only 30 % of disputed tax and other amounts due under the KVAT Act. (c)          After the amendments, the appeal u/s. 13 of the KTEG Act, shall have to be filed for each month or prescribed tax period and not single appeal for an assessment year as applicable earlier. (d)         Similarly, 50 % of disputed tax and other amounts need to be remitted for admission of appeal before the Hon’ble Tribunal u/s. 14 (3) of the KTEG Act, as against requirement of  30 % of disputed taxes and other amounts for admission of appeals before the Hon’ble Tribunal u/s. 63 (4) of the KVAT Act.

Karnataka Tax on Luxuries Act, 1979:

 

	Issue	Amended provisions	Earlier provisions
25	Section 3 (1) – Exemption limit on the daily charges for lodging in a hotel under Sec. 3 (1) increased to from Rs. 500 to Rs. 750  with effect from 01.04.2014	the charges for lodging provided in a hotel shall be liable for tax at the rate of       4 %, if such charges are not less than Rs. 750/- per room per day but not more than Rs. 1,000/- per room per day	Earlier luxury tax was payable if the charges for lodging provided in a hotel was not less than Rs. 500/- per room per day thus basic exemption limit increased to Rs. 749 per room per day.

Karnataka Sales Tax Act, 1957: 

Sl. No.	Notification ref. / date		With effect from
26	No. FD 21 CSL 2014 – Notification (V) dated 28.02.2014	Exempts tax on sale of diesel u/s. 5 of the KST Act to fishermen for use in fishing activities not exceeding 1,50,000 kilo litres  as per the indents issued on monthly basis by the Director of Fisheries	01.04.2014 to 31.03.2015

Note:- Thanks to my friend Mr.Gurudatta Shenoy, Advocate, Bangalore, Karnataka