EXTRACT OF THE KERALA FINANCE ACT, 2008.

ACT 21 of 2008

NOTIFICATION No. 5012/Leg. A2/2008/Law. Dated,29th July, 2008

The following Act of the Kerala State Legislature is hereby published for General information. The Bill as passed by the Legislative Assembly Received the assent of the Governor on the 28th day of July, 2008.

By order of the Governor,

V. G. KUMARI GIRIJA,

Special Secretary (Law).

An Act to give effect to certain financial proposals of the Government of Kerala for the Financial year 2008-2009.

Preamble.-WHEREAS, it is expedient to give effect to certain financial proposals of the Government of Kerala for the Financial year 2008-2009;

BE it enacted in the Fifty-ninth Year of the Republic of India as follows:-

1. Short title and commencement.-

(1) This Act may be called the Kerala Finance Act, 2008.

(2) Save as otherwise provided in this Act,-

(a) clause (b) of sub-section (6), sub-section (16), sub-section (17), sub-section (20), item (iii) and serial No. 60 inserted by item (iv) of clause (a) of sub-section (22) of section 5 shall be deemed to have come into force on the Ist day of April, 2005;

(b) 3rd proviso to clause (ii) of sub-section (3) of section 5 shall be deemed to have come into force on the 24th day of April, 2007;

(c) items (v), (vi) and (vii) of clause (b) of sub-section (22) of section 5 shall be deemed to have come into force on the 22nd day of October, 2007;

(d) the remaining provisions of this Act shall be deemed to have come into force on the 1st day of April, 2008;

(5) Amendment of Act 30 of 2004.- the Kerala Value Added Tax Act, 2003 (30 of 2004),-

(1) in section 2, after clause(xv), following clause shall be inserted namely:-

(xva) "declared goods" means goods declared by section 14 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) to be of special importance in Interstate trade and commerce.

(2) in section 4, in sub-section (1), after the words " as many other members as they think fit" the words "and such additional Appellate Tribunal, as they think fit, with such members" shall be inserted.

(3) In section 6, in sub section (1),

(i) for the seventh proviso, the following proviso shall be substituted, namely;

"Provided also that where sale of goods other than petroleum products, manufacturerd in the State is to Railways, Kerala State Electricity Board, Kerala State Road Transport Corporation or Kerala Water Authority, the tax payable under clause (d) above shall, subject to such conditions and restrictions as may be prescribed, be at four percent."

(ii) after the seventh proviso, the following provisos shall be inserted, namely;

"provided also that sculptural statues of national leaders and social reformers shall be exempted from tax payable under clause (e) and (f) of sub-section (1) of section 6:

Provided also that the tax payable under clause (f), in respect of transfer of declared goods not in the form of goods but in some other form, shall be at the rate prescribed under the respective Schedules:

Provided also that the rate of tax on the sale of used motor vehicles shall be at 0.5 percent and that no tax is payable under sub-section (2):

Provided also that, in respect of cinematographic films, turnover relating to sale of "copyright" under clause (a) and transfer of right to use under clause (c) shall be exempted."

(4) In section (8),

(a) for clause (a), the following clause shall be substituted, namely;

" (a)(i) any works contractor not being a dealer registered under the provisions of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), and who is not an importer may, at his option, instead of paying tax in accordance with the provisions of the said section, pay tax at three per cent of the whole contract amount:

"(ii) any works contractor not falling under clause (i) above may, at his option, instead of paying tax in accordance with the provisions of the said sections, pay tax at eight per cent of the whole contract amount:

Provided that notwithstanding anything contained in sub clause (ii) above, the compounded tax payable by any works contractor under this clause in respect of works contracts awarded by Government of Kerala, Kerala Water Authority or Local Authorities shall be four percent of the whole contract amount:

Provided further that the provisions of this clause shall not apply to any works contract in which the transfer of material is in the form of goods.

Provided also that notwithstanding anything contained elsewhere in this Act, a works contractor who intends to pay tax at compounded rate in accordance with clause in respect of all the works undertaken by him during a year, may, instead of filing separate application for compounding for individual works, file a single option for payment of tax under the this clause before 30th day of April of the year to which the option relates, subject to eligibility:

Provided also that in the case of any work covered under the above provisos which remain unexecuted fully or partly at the end of the year, the contractor shall continue to pay tax in respect of such works in accordance with the provisions of this clause .

Explanation: For the purpose of this clause "whole contract amount" shall not include the amount paid to sub-contractors for execution of the portion of works contract if the sub-contractor is a registered dealer liable to tax under sub-section (1) or sub section (1A) of section 6, and the contractor claiming deduction in respect of such amount furnishes certificates in such form as may be prescribed.";

(b) In clause (c), for sub clause (ii), the following sub clause shall be substituted, namely;

"(ii) Any bar attached hotel, not being a star hotel of and above three star or a club or a heritage hotel may, at its option, instead of paying tax in accordance with the provisions of section 6, but subject to such conditions and restrictions as may be prescribed, pay tax at one hundred and twenty five per cent of the tax paid or payable under this Act, in respect of the highest turnover of cooked food and beverages prepared by them, and packaged water, aerated water, cigarettes and soft drinks purchased from registered dealers, for the previous three consecutive years, immediately preceding the year to which the option relates.

Provided that the dealers who have paid compounded tax during the previous year shall pay tax at one hundred and fifteen percent of the compounded tax paid and one hundred and fifteen per cent of the tax paid on packaged water, aerated water, cigarettes and soft drinks purchased from registered dealers.

Explanation - For the purposes of this clause "bar attached hotel" shall mean a hotel or restaurant or club or any other place, which is licensed under the Foreign Liquor Rules to serve foreign liquor falling under Serial Number 2 of the Fourth Schedule, but shall not include any hotel or restaurant, not being a star hotel, which is licensed to serve only beer."

(c) for clause (f), the following clause shall be substituted, namely;

(f) (i) any dealer in ornaments or wares or articles of gold, silver or platinum group metals may at his option, instead of paying tax in respect of such goods in accordance with the provisions of section 6, pay tax at one hundred and fifty per cent of the highest tax payable by him as conceded in the return or accounts, or tax paid by him under this Act, whichever is higher, for a year during any of the three consecutive years preceding that to which such option relates.

Explanation 1:- Where a dealer had not transacted any business for the last three years consecutively, the highest tax paid or payable for the year during the year or years he transacted business shall be considered for the above purpose.

Explanation 2: - Where during any such preceding year the dealer had not transacted business for any period in that financial year, the tax payable for the twelve months shall be calculated proportionately on the basis of the tax payable for the period during which such dealers had transacted business.

Explanation.3:- Dealers opting for payment of tax under this clause shall pay compound tax in respect of all their branches existing in the year previous to the year in which the option relates.

Explanation 4:- Where a dealer has not transacted business in a new branch for any period in that financial year the tax payable for the twelve months shall be calculated proportionately on the basis of the tax payable for the period during which such dealers had transacted business.

Explanation 5:- Where a dealer opens a new branch in the current year, the additional compounded tax payable under this clause in respect of such branch shall be the average of the tax payable by him in respect of his principal place of business and all branches. Such dealers will be permitted to continue to pay compounded tax under this clause even if they do not opt for paying tax under this clause for the new branch.

Explanation 6 :- Where a dealer has opted for payment of tax under this clause for the first time in 2007-08 and the tax payable in 2006-07 as per return or accounts is less than the output tax, the tax payable under this clause for 2007-08 shall be notionally redetermined on the basis of output tax for determining the tax liability for 2008-09.

Provided that a dealer who opts for payment of tax under this clause may collect tax on the sales at the rate not exceeding the rate prescribed for the commodity under this Act, but where the tax so collected during the year is in excess of the tax payable for the year under this clause, the tax collected in excess shall be paid over to Government in addition to the tax payable under this clause.

(ii) The assessing authority, for valid and sufficient reasons, such as shifting of place of business, holding of stock exceeding double the quantity held in the previous year, furnishing of false information, suppression of relevant information, failure to furnish such information demanded, may refuse permission to pay tax under this section and cancel the permission if any granted:

Provided that no orders under this sub-clause shall be issued without giving the dealer an opportunity of being heard and without prior approval of the District Deputy Commissioner:

(iii) Notwithstanding anything contained in section 55 or 60 of this Act, orders under sub-clause (ii) shall be appealable only to Appellate Tribunals.

(iv) In case where permission has been cancelled, the amount, if any paid based on the permission, shall be apportioned against the output tax due of the dealer.

(v) Where a dealer had paid tax under this clause for the previous year, the tax payable for the succeeding year and this clause shall be one hundred and fifteen per cent of such tax paid during the previous year and in case of dealers covered under Explanation 6 of this clause, one hundred and fifteen percent of the tax so re-determined.";

(5) in section 10, for sub section (2), the following sub-sections shall be substituted, namely;-

"(2) For the purpose of sub-section (1), the contractor may produce a liability certificate in relation to such work contracts from the assessing authority showing the tax liability or tax remittance, as the case may be, of the contractor in relation to the work.

(2A) In case where a liability certificate has been produced as per sub-section (2), payment shall be effected to a works contractor, on the basis of said certificate ;and,-

(i) in case of works awarded by Government of Kerala, Kerala Water Authority or Local Authorities, after deducting four percent of the amount paid as per the works contract: and

(ii) in other cases -

(a) after deducting eight percent of the amount paid as per the works contract in the case of contractors registered under this Act.

(b) after deducting ten percent of the amount paid as per the works contract in the case of other contractors: Provided that the awarder shall not insists from the contractor, not being a dealer registered under the provisions of the Central Sales Tax Act, 1956 ( Central Act 74 of 1956) any certificate issued by the assessing authority showing the tax liability or tax remittance, as the case may be, of the contractor, in relation to the contract, if he has opted for payment of tax in accordance with the proviso to sub-clause (i) of the clause (a) of section 8.";

(6) in section 11, in sub section (3),-

(a) in the third proviso, for the words " in excess of the rate specified under sub-section (1) of section 8 of the Central Sales Tax Act, 1956 ( Central Act 74 of 1956)" the words "in excess of four per cent" shall be substituted.

(b) in the fifth proviso, the following shall be added at the end, namely;

"but the amount covered under credit notes issued by a supplier that do not affect the input tax credit already availed of or on account of reimbursement of any expenses incurred by the dealer shall not be reckoned for the purpose of assessment under this Act." ;

(c) after fifth proviso, the following provisos shall be added, namely;

"Provided also that no input tax credit shall be allowed where any dealer, with a view to evade payment of tax or in order to claim any inflated input tax credit or refunds under this Act, purchases goods from a sister concern of the dealer and where the sale consideration in respect of which has been influenced by such relationship, and there has been no physical transfer of the goods covered by the invoice:

Provided also that the purchase in respect of which input tax credit availed is made from a sister concern of the dealer and there is actual physical transfer of the goods involved, and the dealer availing input tax credit sells such goods at a price lower than the price for which it was purchased, the input tax credit allowable in respect of such goods shall not exceed the output tax due on such goods.

Explanation.- For the purpose of above provisos, 'sister concern' means a business run by a proprietorship or partnership, association of persons or a company which is controlled by the dealer, or by a person whom the dealer controls, or by a person who is controlled by the same person who controls the dealer:

Provided also that notwithstanding anything contained elsewhere in this Act, planters including companies or firms or society, including a co-operative society or association of individuals, whether incorporated or not, shall not be entitled to input tax credit on purchases of fertilizers, pesticides etc.,"

(7) in section 12, in sub-section (1), in the third proviso, for the words, brackets and figures "in excess of the rate specified under sub section (1) of section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956)" the words "in excess of four percent" shall be substituted.

(8) in section 13, in sub section (2), in the second proviso, for the words "in excess of the rate specified under sub section (1) of section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956)" the words " in excess of four percent" shall be substituted.

(9) after section 15A, the following sections shall be inserted, namely:-

"15.B Special Drive for Registration-

Notwithstanding anything contained anywhere in this Act, dealers who had voluntarily applied for registration under the Act for the period from 15th December, 2007 to 31st March 2008 would be entitled to-

(a) get registration with effect from the date of commencement of business irrespective of the date of application;

(b) claim input tax credit on their purchases covered under bills/ invoices of registered dealers within the state from the date of commencement of business; and

(c) pay tax under sub section (5) of section 6, subject to eligibility, or pay tax under section 8 for the relevant years subject to eligibility and filing application for compounding along with the registration application: Provided that such dealers shall be liable to pay interest on all dues and will not be entitled for any refund relating to the period prior to filing of registration application.

15C. Registration of Industrial Units: -

(1) Any person who intends to establish an industrial unit may get himself registered under this section.

(2) Every application for registration of an industrial unit shall be supported by a certificate in the prescribed form issued by the Director of Industries and Commerce, the Kerala State Industrial Development Corporation or the Kerala Financial Corporation.

(3) A provisional registration certificate shall be issued to the applicant within seven days from the date of application.

(4) The form of application, form of provisional registration certificate, the fee for registration, the conditions and the authority empowered to issue such certificates shall be such as may be prescribed.

(5) The provisional registration certificate issued under this section shall facilitate the holder for procurement of all materials for construction and establishment of the industrial unit, including raw materials for trial production in such quantity as may be specified in such certificate.

(6) Every holder of provisional registration certificate, shall before starting commercial production in the Industrial Units, get himself registered under section 15.";

(10) after section 20, the following section shall be inserted, namely;

20A. Condonation of Delay-

(1) The Deputy Commissioners having jurisdiction over the area may, for valid and sufficient reasons, to be recorded in writing, condone delay,-

(a) in the applying for any refund under this Act and Rules made there under,

(b) in filing option under section 8 of this Act, up to 31st December 2008 for the years 2005-06, 2006-07 and 2007-08:

Provided that the time limit for completion of any assessment under this Act shall be extended by a further period of three years from the date of condoning such delay, under this section."

(11) in section 22, after sub section (6), the following sub-sections shall be inserted, namely;

"(7) Where on scrutiny of returns or verification of accounts in any proceeding under this Act, in respect of dealers paying tax under sub section (5) of section 6, it is found that the amount of tax, if any, paid by such dealer is less than the amount of tax he is liable to pay on finalising such proceedings, the assessing authority shall direct the dealer to pay difference of tax between the amount of tax already paid and that fixed in the such proceedings, together with thrice the amount of such difference as penalty."

(8) No proceeding made under sub-section (7) shall be completed without affording the dealer an opportunity of being heard.";

(12) in section 30, in sub section (2) for the words, brackets, figures and letters "Compounded tax under clause (a) to clause (d) of Section 8", the words, brackets, figures and letters "tax under clause (a) of section 8 by those undertaking works of Government of Kerala, Kerala Water Authority and Local Authorities, and under clause (b), clause (c)(ii) and clause (d) of section 8" shall be substituted:

(13) in section 40, the following proviso shall be added, namely;

"Provided that dealers shall be permitted to use electronic billing and accounting subject to such restrictions and conditions as may be prescribed.";

(14) in section 44,-

(i) in sub section (9), after the words "opportunity of being heard", the words "confiscate such goods and" shall be inserted;

(ii) after sub section (9), the following sub section shall be inserted, namely;

"(10) If any officer, in the course of any inspection or search of any business place, building or any other place finds that goods are stored in undeclared godown, such stock shall be treated as stock outside the regular books of accounts of the dealer:

Provided that godowns in respect of which prior written intimation had been given to the registering authority by the dealer shall not be treated as undeclared godowns.";

(15) in Section 46,-

(a) for sub section (1), the following sub-section shall be substituted, namely;

"(1) If the Government consider that with a view to prevent or check evasion of tax under this Act in any place or places in the State it is necessary so to do, they may by notification in the Gazette notify such areas, hereinafter referred to as the notified area, and may direct setting up of check posts at such place or places, and define the boundaries of such notified area and may demarcate such boundaries by means of barriers or otherwise for the purpose of regulating the passage of goods across the notified area."

(b) in sub section (3), after clause (d), the following clause shall be inserted namely;

"(e) Where goods are imported into the State through coastal cargo, through air and through the Railways, the importer or clearing agents, by whatever name called, shall, on arrival of such goods, furnish a declaration before the Commercial Tax Officer having jurisdiction over the place of import, as may be prescribed. While transporting such goods within the state or across the State, the transporter/person in charge of the vehicle/vessel shall keep a copy of such declaration duly acknowledged by the concerned authority and shall be produced for verification by any authority under this Act.";

(16) in section 47, in sub-section (16), after the word "seize" the words "and confiscate" shall be inserted.

(17). in section 74, in sub section (1), after clause (a), the following proviso shall be inserted, namely:-

"Provided that the maximum compounding fee collectable against a single offence spread over several return periods in a financial year shall be two lakh rupees.";

(18) after section 79A, the following section shall be inserted, namely;

"79B Bar against Revision of returns:-

Notwithstanding anything contained elsewhere in this Act, where a case of tax evasion has been detected and proceedings have been initiated against such evasion, the dealer shall not be permitted to revise the returns in respect of the return period covered in the penal proceedings until such proceedings are finalized.";

(19) in section 86, in sub section (1), in the Explanation, after the words "he is appearing" the following words shall be inserted, namely;

"or part time employee holding Diploma in Sales Taxation issued by the Centre for Taxation Studies.";

(20) in section 93, in sub section (1), after the words "Schedule to this Act" the words "either prospectively or retrospectively" shall be inserted.;

(21) in section 94, the proviso shall be omitted.

(22) in Schedule

(a) in the First Schedule,-

(i). in serial No. 12B, the entries against it in column (3) shall be omitted.

(ii) after serial No. 35, in column (1) and the entries against it in columns (2) and (3), the following serial number and entries shall respectively inserted, namely:-

(iii) after serial No. 41, in column (1) and the entries against it in columns (2) and (3), the following serial number and entries shall respectively inserted, namely:-

(iv) after serial No. 59 in column (1) and the entries against it in columns (2) and (3), the following serial number and entries shall respectively be inserted, namely;

(b) in the Third Schedule,-

(i) in serial number 3 after item (37) and entries against it in column (2) and (3) the following items and entries shall respectively be inserted, namely;

(ii) in serial number 13, after sub item (h) of item (3) and the entries against it in columns (2) and (3), the following Note shall be inserted namely:-

"Note: sub item (h) shall be deemed to have come into force on the 1st day of April, 2005."

(iii) in serial No.19A, for the entries against it in columns (2) and (3), the following entries shall be substituted, namely:-

(iv) after serial number 30, and the entries against is in column (2) and (3) the following serial number and the entries shall respectively be inserted, namely;

(v) after serial number 38 and the entries against it against it in column (2) and (3) the following serial number and the entries shall respectively be inserted, namely;

(vi) after serial number 59, entries against it in column (2) and (3) the following serial number and entries shall respectively be inserted, namely;

(vii) for serial number 69 and entries against it in column (2) and (3), the following serial number and entries shall respectively be substituted, namely;

(viii) in serial No.83,-

(a) in item (19) and the entries in columns (2) and (3), the following item and entries respectively shall be substituted,namely:_

(b) in item (27) for the entries in column (2) and (3) the following item and entries shall respectively be substituted, namely;

(c) for item (28) for the entries in columns (2) and (3) the following item and entries shall respectively be substituted, namely;

( ix) after serial number 86, and the entries in column (2) and (3), the following serial number and entries shall be respectively be inserted, namely

(x) after serial number 103, and the entries against it in column (2) and (3), the following serial number and entries shall respectively be inserted, namely;

(xi) after serial number 103A, and the entries against it in column (2) and (3), the following serial number and entries shall respectively be inserted, namely;

(xii) in serial number 105 after item (32) and entries against it in column (2) and (3) the following serial number and entries shall respectively be inserted, namely;

(xiii) in serial number 117, for the entry in column (2) the following entry shall be substituted, namely;

" SIM cards.

(xiv) after serial number 127, and the entries against it in column (2) and (3) the following serial number and the entries against it in shall respectively be inserted, namely;

(xv) after serial number 129, and the entries against it in column (2) and (3) the following serial number and the entries against it in shall respectively be inserted, namely;

(xvi) serial number 136, and the entries against it in column (2) shall be omitted.

(c ) In List A

(i) after serial No 91, and the entries against it in column (2) and (3) the following serial number and entries shall respectively be inserted, namely;

(ii) after serial number 167A. Veneer sheets for plywood 4408, the following Note shall be inserted,namely:-

"Note: serial number 167A shall be deemed to have come into force on the 1st day of April, 2005.";

(iii) in serial number 174,-

(a) an item (1), for sub item (c) and the entries against it in column (2) and (3),the following sub item and entries shall respectively be substituted, namely;

(b)in item (6) for sub item (c), and the entries against it in column (2) and (3), the following sub item and entries, shall respectively be substituted, namely;

6. Levy and Collection of Cess

1. There shall be levied and collected from dealers a Cess at the rate of one per cent on the tax payable by them under section 5 and section 7 of the Kerala General Sales Tax Act, 1963 (15 of 1963), to be called the Social Security Cess, to fulfil the commitment of the Government to provide and finance a comprehensive social security scheme.

Provided that the rate of cess payable under this section shall be ten per cent on the lax payable under section 5(l)(b) of the Kerala General Sales Tax Act, 1963 (15 of 1963).

2. Notwithstanding anything contained in sub-section (1) no cess shall be levied in respect of declared goods as defined in section 14 of the Central Sales Tax Act, 1956(Central Act 74 of 1956).

(2A) (a) There shall be levied and collected from the Kerala State Beverages (Manufacturing and Marketing) Corporation Limited, a cess, on the tax payable by them under clause (b) of sub-section (1) of section 5 of the Kerala General Sales Tax Act, 1963 (15 of 1963),-

(i) at the rate of one per cent, to be called a Medical Cess to fulfil the commitment of the Government to provide generic medicine free of cost to the patients of the Government Hospitals, who are not income tax payers;

(ii) at the rate of five per cent, to be called a Rehabilitation Cess to fulfill the commitment of the Government to provide for rehabilitation of bar hotel workers who had lost employment pursuant to the closure of bar hotels in the State as per Abkari policy;

(b) The cess so collected shall be in addition to the cess collected under sub-section (1).

(3) The Government may after due appropriation made by the Legislature by law in this behalf utilise such sum of money of Social Security Cess, Medical Cess and the Rehabilitation Cess for the purposes specified in sub-section (1) or in sub-section (2A), as the case may be.

4. The provisions of Section 22 of the Kerala General Sales Tax Act, 1963 (15 of 1963) shall be applicable for the collection of cess as per sub-sections (1) and (2A)

(5) The provisions regarding the assessment and recovery in the Kerala General Sales Tax Act, 1963 shall mutatis mutandis apply to Cess under this section.

7. Validation.-

Notwithstanding anything contained in the Kerala General Sales Tax Act, 1963 (15 of 1963) and the Kerala Value Added Tax Act, 2003 (30 of 2004), during the period from 1st April, 2008 to the date of publication of this Act, during which the declared provisions contained in the Kerala Finance Bill, 2008 (Bill No. 178 of the XII Kerala Legislative Assembly) were in force, anything done or any action taken by virtue of the said provisions of the said Bill shall be deemed to have been validly done or taken under this Act and no action shall lie against any dealer or authority on the ground of short levy or refund of excess tax, and tax collected or paid by a dealer, if any, shall be paid over to the Government.