Mysterious finance act omission puts Kerala gold merchants in a fix

Thiruvananthapuram: Thanks to a “mysterious omission” in Finance Act 2014, the Accountant General’s office has begun an aggressive arrears recovery drive from gold jewellers in the state. The omission of the word ‘purchase’, which was spotted only last fiscal by the Accountant General, had caused the Commercial Sales Tax Department to impose a ‘purchase tax’, in addition to the sales/compounding tax, with retrospective effect on gold and silver traders. The CST has hesitated to initiate recovery proceedings but the AG has now gone ahead inviting the ire of gold traders.

The total ‘purchase tax’ arrears (5 percent purchase tax and 5 percent penalty) from 2013-14 has accumulated to Rs 2500 crore; liability range from Rs 15,000 to Rs 150 crore for each trader. Till 2013, finance acts referred to ‘levy of tax on sale or purchase of goods’. The 2014 Act speaks about just levy of tax on ‘sale’ of goods, prompting the AG to see in this omission a legal scope to extract a tax on purchase. Traders, naturally, have resisted payment, and have shot off a missive to the finance minister to either restore the original wordings or prevent tax officials from levying the tax.

But the finance minister is non-committal, though he knows such a tax is against the spirit of Value-Added Tax. “Any such move will be construed as a favour to the gold merchants’ lobby and could prove politically embarrassing,” a top finance department source said. So Isaac’s stated position is that he will go ahead with the collection of arrears.

Mr Isaac also agreed to do away with the purchase tax on gold retailers with retrospective provided the opposition made such a demand. He said the ‘purchase tax’ now imposed on traders had come about as a result of an omission committed by the UDF government. “I am ready to roll back the purchase tax on gold. But since former minister K C Joseph has cautioned me against the rollback of budget announcements with retrospective effect, I will not make the first move. Let the demand come from the opposition itself,’’ he had said in the Assembly in October last year.