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TREATMENT OF EXPELLERS / OIL SEEDS CRUSHING UNITS UNDER VAT

Expeller units or units engaged in crushing of oil seeds in Punjab would either purchase the raw material from within the State of Punjab which would be VAT paid or would import from outside the State of Punjab. The units engaged in the business of crushing oil seeds produce oil & oil cake while solvent extraction units are engaged in the extraction of rice bran oil from rice bran. Various combinations of the sale / purchase activities under taken by these units & their liabilities under the VAT Act are discussed as under: -

Situation 1

An expeller / crushing unit imports raw material i.e. oil seeds from outside the State and after crushing: -

i. Sells oil & cakes in the course of Inter-State trade. There is no VAT liability. The units shall have to pay CST under the CST Act.

ii. Sells oil & cakes in Punjab. The unit would be liable to pay VAT in Punjab. In the above situation, the units is not entitled to any Input Tax Credit under VAT Act as the purchase of raw material is from outside the State of Punjab.

Situation 2

An expeller / crushing unit purchases raw material i.e. oil seeds from a dealer registered under VAT Act other than Kacha Aarhtiya-

i. Sells oil & cake within the State of Punjab. The unit would be liable to Pay VAT & would be entitled to Input Tax Credit on purchases like other VAT dealers.

ii. Sells oil & cakes in the course of Interstate Trade. The unit would be liable to pay CST under Central Sales Tax Act & would get Input Tax Credit on purchases under the VAT Act.

iii. Sends oil & cakes on consignment basis or branch transfer to outside Punjab. The unit would be entitled to get Input Tax Credit only to the extent by which the amount of tax paid in the State exceeds 4%. Therefore, the unit would not be entitled to claim any Input Tax Credit as the rate of Tax on purchases would not excess @ 4%.

Situation 3

A unit i.e. expeller / crushing unit purchases raw material i.e. oil seeds from a person other than a taxable person or registered person meaning, thereby, that oil seeds if purchased directly from farmers or from commission agents on which no VAT has been charged.

i. Makes branch transfer of consignment sale.

ii. Mixes or uses these taxable goods in the manufacture of tax free goods.

iii. Uses these goods for manufacture of taxable goods & sells in Punjab.

The unit will be liable to pay VAT on taxable turnover of the purchases i.e. oil seeds or rice bran @ 4% u/s 20(1) of VAT Act. The unit paying tax u/s 20(1) on purchases shall also be eligible for set off in respect of such purchase tax paid in situation 3 above. Where the goods are used for manufacturing of tax free goods, no set off of purchase tax paid would be available. Similarly in case of branch transfer & consignment sales. ITC beyond 4% only would be available.

Situation 4

A unit which purchases from within as well outside the State & no separate identity of such purchases is maintained and the sale made are local, Inter-State sale, as well as on consignment basis, the liability of such unit under VAT shall be determined as under :-

i. The unit would be entitled to Input Tax Credit on VAT paid purchases on the basis of set formula as per this calculation:-

Unit A

Purchase @ 4% Input Tax

Local 5,00,000 20,000

Inter State 5,00,000 Nil

Total Purchase 10,00,000 20,000

Sales @ 4% Output Tax

Local 4,00,000 16,000

Interstate

Oil 3,00,000 @ 1 % 3,000

Khal 3,00,000 @ 4 % 12,000

6,00,000 15,000

Branch Transfer 5,00,000

Total 15,00,000 31,000

The Formula LPXBTX4

(GT+BT)X100

(Input Purchase) (Branch Transfer)

5,00,000 X 5,00,000 X 4

10,00,000 + 5,00,000) X 100 = 6,666

ITC to be allowed 20,000 6,666 = 13,334

Liability VAT payable = 16,000

Less ITC = 13,334

2,666

ii. The input Tax Credit in this situation is to be worked out on the basis of the ration of branch transfer to total sales. Input Tax Credit would stand reduced in accordance with formula.