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State-Centre gap hits prices

india Updated: Jan 27, 2007 01:49 IST
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Consumers may end up paying more for information technology products in certain states, thanks to the lack of communication between the Centre and the states on the rate of value added tax (VAT) to be charged under the new harmonised system of nomenclature (HSN), affected by the World Customs Organisation. Centre’s commitment to fine-tune the HSN list periodically stems from the fact that these products are covered under the IT Agreement of the WTO of which India is a signatory.

There is utter confusion regarding the prices of some IT equipment like monitors, printers and plotters, certain projectors, digital cameras, routers, modems, unrecorded media, cellular phones because currently states like Karnataka, Andhra Pradesh, Maharashtra, Delhi, West Bengal, Haryana, Punjab, Chandigarh, Jharkhand, Goa and Kerala levy VAT based on HSN.

The Ministry of Finance, as per its commitment to the World Customs Organisation (WCO), has effected changes in the HSN for some of the IT products effective January 01, 2007 as was declared in the Finance Bill, 2006. However, state governments have not been able to factor in the HSN change into their value added tax schedules.

As a result, as per the new definitions some of these products have been pushed out of list of items that come under the 4 per cent VAT regime. With the state and the Centre not in tune on fine-tuning the HSN list, there is no clarity on whether the consumer should still pay 4 per cent VAT or more.

States that do not levy VAT based on HSN, but use product description, continue to levy the same at 4 per cent. In states where VAT is linked to HSN, since the changed HSN are not currently reflected in the schedule of products at 4 per cent, the VAT rate is likely to go up to 12.5 per cent. “Should the VAT rates for the same product vary from state to state, it will not only create an imbalance in the trade, but also defeat the very purpose of VAT. We have urged the Centre to persuade the state governments to issue clarification incorporating the changed HSN in their VAT schedules so that the IT products continue to attract 4 per cent VAT,” said Manufacturers’ Association for Information Technology (MAIT) Executive President Vinnie Mehta.

The industry has also urged the governments that the VAT rate should be applicable as on December 31, 2006 and should continue to be applicable from January 1, 2007.

Email Prerna K Mishra: pmishra @hindustantimes.com

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