VAT panel to outsource coding

The empowered committee of state finance ministers on value-added tax (VAT) will appoint before October a private consultant for preparing a coding system for the VAT based on the harmonised system of nomenclature (HSN).

For this, the committee has already invited bids for which the last date of submission is August 18. Official sources said the contract would be awarded by the end of this month.

As the HSN system has attracted a number of court cases, the committee is trying to look into all aspects before finalising a list of items for coding.

"There will be thousands of items. We are trying to look into all court cases witnessed in the past. This is the reason why we are taking time," said a member of the committee.

The Centre for Taxation Studies had prepared a draft HSN coding system for all states. It had been brought before the empowered committee.

HSN is an 8-digit coding system which will provide a unique number to every item and every category taxable under the VAT. It is currently used in Customs and excise.

The empowered committee had decided to apply the coding system to all goods covered under the VAT, and clarify the tax rate on these goods. Some analysts, however, feel that the HSN system will make the VAT more complex.

This is because different variants of an item will have different codes and will, therefore, lead to litigation.

The next meeting of the committee is likely to be held in the third week of August. This time too, it will meet state tax officials and ministers on separate days.

The committee had set August 1 and September 1 as deadlines for states to have an uniform tax rate on bullions and petro products, respectively.

Rajasthan, which was supposed to raise the tax rate on bullion to 1 per cent to bring it at par with the rate suggested in the white paper, has not done so.

Delhi has complained of bullion trade shifting to neighbouring states due to lower tax rates there. The committee will review all these issues at the meeting.