As per section 39A of Punjab VAT Act, 2005, the Punjab VAT Refund Fund has been constituted and the amount of tax collected as Advance Tax under Section 6(7) shall be credited directly into the said Fund. It has been provided that the Fund shall be maintained and operated by the Department of Excise and Taxation in such manner as may be prescribed. It has also been provided that after allowing the refund claims from the Fund, the balance amount shall be deposited in the Consolidated Fund of the State as may be prescribed.
Section 39-A of Punjab VAT Act runs as under:
39-A. Punjab VAT Refund Fund
(1) There shall be constituted a fund to be called the Punjab VAT Refund Fund, which shall be maintained and operated by the Department of Excise and Taxation in such manner, as may be prescribed.
(2) The amount collected on account of advance tax under sub-section (7) of section 6, shall directly be credited in to the Punjab VAT Refund fund.
(3) After allowing refund claims from the fund, the balance amount in the fund, shall be deposited in the Consolidated fund of the State, as may be prescribed ".
Article 266 of our Constitution mandates that the amount of tax collected by a State has to be credited to the Consolidated Fund of the State and not in any other Fund. The reason behind the same is that the Consolidated Fund of the State is under the direct control of State Legislature and necessary bills are passed so as to approve the expenses made by the State Govt whereas the Fund on which the Legislature does not have any control can be subjected to manipulations which cannot be brought to the notice of Legislature.
Article 266 of our Constitution runs as under:
266. Consolidated Funds and public accounts of India and of the States
(1) Subject to the provisions of Article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled the Consolidated Fund of India, and all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in of loans shall form one consolidated fund to be entitled the Consolidated Fund of the State.
(2) All other public moneys received by or on behalf of the Government of India or the Government of a State shall be entitled to the public account of India or the public account of the State, as the case may be.
(3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution.
Thus it is clear from the above that every tax collected has to be credited to the Consolidated funds of the State. Advance collection of VAT has been given directly in the hands of the executive that too executive existing at district level, as every Assistant Excise and Taxation Commissioner is under direct control of the said VAT Refund Fund and have been issuing refunds therefrom.
The above said issue already stands settled in the case of Pioneer Agro Extractions Ltd vs State of Punjab [2002] 125 STC 532 (P&H) in which the levy of Social Security Cess has been struck down only on the ground that the amount shall not be credited in the Consolidated Fund of the State and was instead being deposited in a separate Fund. The Hon’ble Court has found the same to be violative of Article 266 of the Constitution of India.
Thus in view of the above constitution of VAT Refund Fund is clearly in violation of Article 266 of our Constitution and its a matter of time when the matter relating to its constitutionality is taken cognizance of by our jurisdictional Constitutional court.
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