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To
cope with the technological advancements and economic
development, new terms and phrases need to be defined from
time to time. It is possible that a new phraseology or
terms takes time to settle. But what is unfortunate is
that in every new law written, the terminology that is
already defined in some other law, is seldom referred to .
Every time raw knowledge is used to redefine the term.
Every time the wheel is reinvented to claim invention.
The
definition of the term Capital Goods has traveled quite a
long distances since 1994 when it was first introduced
under Central Excise Rules, 1944(Rule 57Q to Rule 57U).
The liquidity of the definition of Capital Goods in
Central Excise Law has hardened over the years and now it
appears that it is almost settled. Undoubtedly, the
definition does not cover entire gamut of capital items
but still it has a wide amplitude to bring about a
substantial reduction in cascading effect of tax, the
purpose it is meant for.
If
we go through the draft Value Added Sales Tax Act of
different states, we would see that no lesion is learnt
from the past experiences of the Modvat/Cenvat Credit Law.
If we simply take the definition of "Capital
Goods", we would find that different states have
different meaning for it. What are Capital Goods for one
state may not be a capital goods for another. If we go
through the Draft Value Added Sales Tax Act of Gujarat we
find the draftsman has tried to steer the definition very
close to the definition of "Capital Goods" as
defined under the Cenvat Credit Rules, thus giving a tinge
of maturity and far sightedness in dealing with a very
litigatious issue. The definition reads as follows-
"Capital
Goods" means-
-
all
goods falling under Chapter 82,84,85,90 and heading
no.68.02 and
sub-heading
no.6801.10 of the First Schedule of the Central
Excise Tariff Act, 1985( 5 of 1986);
-
components,
spares and accessories of the goods specified at (i)
above ;
-
moulds
and dies ;
-
refractories
and refractory materials ;
-
tubes
and pipes and fittings thereof ;
-
pollution
control equipments ; and
-
storage
tank, meant for use in the factory of manufacture
and includes the equipment and appliances meant for
use in an office.
The
definition of "Capital Goods" as defined in Rule
2(b) of Cenvat Credit Rules, 2002 reads as follows –
"Capital
Goods" means,-
-
all
goods falling under Chapter 82, Chapter 84,
Chapter 85, Chapter 90, heading No.68.02 and
sub-heading no.6801.10 of the First Schedule to
the Tariff Act ;
-
Components,
spares and accessories of the goods specified at (i)
above ;
-
Moulds
and dies ;
-
Refractories
and refractory materials ;
-
Tubes
and pipes and fittings thereof ;
-
Pollution
control equipments; and
-
Storage
tank,
Used
in the factory of the manufacturer of the final
products, but does not include any equipment or
appliance used in an office.
Thus,
we see that the definition of "Capital Goods" as
defined under the Gujrat VAST Act and the Cenvat Credit
Rules is almost the same while the former is wider in
amplitude.
The
State of Gujarat, the country’s industrial leader,
undoubtedly has set a right precedent for other states to
follow. It is not a matter of doubt that gradually the
definition of the term "capital goods" would
converge to a definition which would be very similar to
the one defined under Gujarat Value Added Sales Tax
Act(Draft) for the solitary reason that it truly falls in
line with the object and reasons of the VAT philosophy.
If
we look at the definition of Capital Goods embodied in the
draft VAST Act of the state of Uttarpradesh, we would see
that there is a serious lacuna in the body of the
definition itself. The definition reads as follows –
"Capital
Goods- means plant, machinery, equipments, apparatus,
components, Moulds required by a dealer for use in
manufacture or processing of his own goods
for sale by a dealer or for use in packing of such
manufactured goods by such dealer whether sales of
manufactured goods are made directly by the dealer or
otherwise. "(emphasis added by author).
A
close examination of the definition reveals that capital
goods credit is allowed only to those dealers who are
engaged in the manufacture of their own goods. A works
contractor is not entitled to capital goods credit nor the
manufacturer who has engaged the works contractor. It is
the dealer who is entitled to the credit not the factory
of the dealer. Had the factory of the dealer been made
entitled, works carried out by the work contractor and any
capital goods brought in use by him would have been
entitled to tax credit either by the manufacturer or the
works contractor himself provided it is used in
manufacture.
In
a particular situation, any capital goods bought out by
the works contractor for execution of works contract of
the manufacturer, where the "Tax Invoice" is in
the name of the works contractor, the entitlement to
"Tax Credit" would be lost.
Orissa,
Kerala and Pondicherry have laid down monetary ceiling to
further define capital goods. Capital goods costing less a
certain amount would not be treated as capital goods.
State
of Madhya Pradesh and Orissa prefers to treat only those
capital goods as capital goods which are used directly in
the process of manufacture while Uttranchal and
Pondicherry remains bit liberal and allows "Tax
Credit" even on those capital goods which are not
directly used in manufacture. Some of the states have
allowed Tax Credit on capital goods only if it is used in
manufacture while some of the them have allowed tax credit
even when it is used in processing of goods. There are yet
another who allowed tax credit even on packing of goods.
There
are certain state that has added additional condition that
only those capital goods that are capitalized are entitled
for "Tax Credit". Once we compare the definition
of capital goods as given by Gujarat we would find that
the definition as given by other States is blurred and
would lead to litigations as is patent from the definition
itself.
The
new vistas of approach taken by different states to define
different terms and phrases would keep "cut throat
competition" among states alive and the killer
instinct would prevail. Development of one state at the
cost of other is likely to go hard so long as there is no
attitudinal change in the approach taken by the draftsman.
Homogeneous growth of states would remain a distant dream.
There
is no fun reinventing the wheel.
16/02/2003
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