Implementation of Sales Tax and VAT

7/30/2019 Implementation of Sales Tax and VAT

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Sales Tax and VATImplementation in BUSY

Overview of Sales Tax

Broadly speaking, there are two types of taxes, direct and indirect, which are levied

by the government in the economy.

Direct tax is levied on persons (legal or natural) and collected directly by thegovernment. For example, income tax and corporate tax are forms of direct taxation.

Indirect tax is tax levied on goods or services rather than persons or organizations.

It is levied on the production or sale of a goods or services. The value of indirecttaxes is included in the price paid by the consumer (purchaser) for the goods or

services. Thus, the tax burden lies on the consumer. Intermediaries (sellers) collectthe tax and deposit it with the government. For example, sales tax is a form of

indirect taxation.

Thus, there are different types of taxes that are levied in an economy depending onthe need of the economy.

Taxes applicable to the Indian Economy

In the Indian scenario, various types of taxes are imposed. Let us have a look at thetable given here to understand the different types of taxes.

With respect to the current tax structure, we will discuss Local Sales tax and CentralSales Tax.

BIPL Implementation of Sales Tax and VAT 1

Imposed byCentral

GovernmentFor example:

Central

Sales Tax Central

Excise

Customs

Examples are:

Income tax for

individuals

Corporate tax forCompanies

Wealth tax

Gift tax

Imposed by StateGovernments

For example:

Local Sales Tax

Service Tax

Other local taxessuch as entry tax

or octroi

VAT

Direct Taxes

Tax Structure

Indirect Taxes


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The term sales tax refers to the tax that is levied on sales. The main aim of imposing

tax on sales is that the government should earn revenue on the sales generated in

the economy. Thus, this form of taxation is an important source of revenue for thegovernment. Sales can either be local or central. Local sale is sale within the state.

For example, if a dealer in Delhi buys car parts from a manufacturer based in Delhi

then it is a local sale. On the other hand, Central sale will be inter-state sale. Forexample if the dealer in Delhi buys car parts from a manufacturer based in Mumbai

then it is a central sale.

Let us now look at the definition of Local Sales Tax and Central Sales Tax.

Local Sales tax

Local sales tax is levied on i.e. local sale. It is collected by the sellers and deposited

with the government. It is commonly referred to as LST.

Central Sales tax

Central sales tax is levied on sale of goods between two states i.e. inter-state sale.Inter-state sale is commonly referred to as central sale. Central Sales tax is collectedby the sellers and deposited with the government. It is commonly referred to as CST.

To understand how LST and CST are levied on sales we will use a common case

scenario, which is explained here.

Case Scenario for LST

Ahead Cars Inc. is an automobile and car parts manufacturer based in Delhi. To

distribute the products (cars and car parts) the company has a chain of distributorsand dealers in Delhi. Let us understand with the help of a diagrammatic

representation.

Ahead Cars Inc

(Manufacturer

)

Fast Wheels

(Distributorbased in Delhi)

Today Cars

(Dealerbased in

Delhi)

Go Cars

(Retailerbased in

Delhi)

Consumer(Based in

Delhi)

This diagram depicts the chain of transaction that takes place for sale of goods to theconsumer. Let us assume that the tax has been levied at each point of sale. This

case then becomes a Multi Taxation case.

Multi taxation Case

1. Ahead Cars Inc. manufactures car parts and sells 1 piece @ Rs.121 to FastWheels, the distributor in Delhi.

2. Fast Wheels sells the car parts @ Rs.144 to Today Cars, the dealer in Delhi.

3. Today Cars sells the car parts to Go Cars @ Rs.169, the retailer in Delhi.4. Go Cars sells the car parts @ Rs.196 to a consumer in Delhi.

Since the sales involved in this scenario are local sales, LST @10% has been leviedon all the sales.



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Let us have a look at the cost price and selling price given here in the form of a tablefor the business entities in the chain.

Elements/

BusinessEntity

Ahead Cars

Inc

(Manufactu

rer)

Fast

Wheels

(Distribut

or basedin Delhi)

Today

Cars

(Dealer

based inDelhi)

Go Cars

(Retailer

based inDelhi)

Consumer

(Based inDelhi)

Cost Price

(manufacturi

ngcost/Procure

ment cost)

1 * 100= 100 121 144 169 196

Profit margin 10 10 10 10 N. A.

Selling Price

(Cost Price +Profit

margin)

100 + 10 =

110

121 + 10 =

131

144 + 10

=154

169 + 10

=179

N. A.

LST

(10% ofSelling Price)

11 13

(roundedoff to

nearestrupee)

15

(roundedoff to

nearestrupee)

17

(roundedoff to

nearestrupee)

N. A.

Total 110 + 11=121

131 + 13 =144

154 + 15=169

179 + 17= 196

N. A.

The consumer paid Rs. 196 inclusive of the LST paid at each point of sale. Let usassume that the consumer had contacted the manufacturer and bought the goods

directly from him. In that case, the consumer would pay Rs. 121 only. Thus, the

consumer paid a higher price in Multi taxation case. Moreover, in Multi taxation case,tax has been paid at every point of sale i.e. multi point tax whereas the goods have

been consumed only once.

The purpose of sales tax is to levy tax on consumption of goods. If the goods havebeen consumed once the sales tax should also be levied once. Thus, there is a need

to levy tax methodically and at one point without overburdening the consumer. Forthis purpose there are two methods to levy tax that are approved and accepted by

the Indian government.

Let us discuss the methods in detail. The two methods to levy tax on sales are:

Tax paid at first point of sale

Sale against Sales Tax Declaration Form

Tax paid at first point of saleIn this method tax is paid at the first point of sale. In the case scenario, tax will be

paid by Fast Wheels @ 10% to Ahead Cars Inc. Thus, Ahead Cars is responsible fordepositing the tax collected with the government. Since the tax burden always falls

on the consumer, thus Fast Wheels will increase its cost price to include the tax paidand recover the tax from Today Cars (consumer for Fast Wheels). Similarly Today

Cars will recover the tax paid from Go Cars and Go Cars will recover the tax from theconsumer.



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Elements/

BusinessEntity

Ahead Cars

Inc

(Manufactu

rer)

Fast

Wheels

(Distribut

or basedin Delhi)

Today

Cars

(Dealer

based inDelhi)

Go Cars

(Retailer

based inDelhi)

Consumer

(Based inDelhi)

Cost Price

(manufacturin

gcost/Procurem

ent cost)

1 * 100= 100 121 131 141 151


Selling Price 100 + 10 =

110

121 + 10 =

131

131 + 10

=141

141 + 10

=151

N. A.

LST (10%) 11 Paid at first

point

Paid at

first point

Paid at

first point

N. A.

Total 110 + 11=121

131 141 151 N. A.

Tax

recovered/paid

Tax collected

from buyerand

depositedwith the

government

Tax paid Tax paid Tax paid Tax paid

In this method, tax is collected and deposited with the government at the first pointof sale. Further sales will be made on tax paid bills. The first transaction is a tax

payable sale while the other three transactions are tax paid sales.

Sale against Sales Tax Declaration Form

In this method, instead of paying the tax on sale the buyer issues a Sales Tax

Declaration Form to the seller. These forms are commonly known as ST Forms.

The Sales Tax Department issues ST Forms only to dealers who are registered withthe Sales Tax Department. There are different ST Forms for CST and LST. For

example, in Delhi the LST forms applicable are ST1 and ST35. The CST form most

commonly used is Form C. The type of form used depends on the type of sale andthe goods.

The purpose of these forms is that the issuer of the form will not pay tax and will

assume responsibility for collecting tax on further sale of the goods. The reasonbehind issuing these forms is that the burden of the tax has to fall on the consumer

and hence the middle business entities need not pay tax. In the above example, allthe business entities involved in the chain pay tax and then recover from the next

buyer. If the business entities issue a ST Form then they need not pay tax. The onlycondition for issuing ST Form is that the business entity should be a registered dealer

with the Sales Tax Department.




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Elements/Business Entity

AheadCars Inc

(Manufacturer)

Fast

Wheels(Distribut

or basedin Delhi)

Today

Cars(Dealer

basedin

Delhi)

Go Cars

(Retailer

based inDelhi)

Consumer(Based in

Delhi)

Cost Price(manufacturingcost/Procurement

cost)

1 * 100=100

110 120 130 154


Selling Price 100 + 10 =110

110 + 10 =120

120 +10

=130

130 + 10=140

N. A.

LST (10%) Receives STForm from

the buyer

Receives STForm from

the buyer

Receives ST

Form

fromthe

buyer

ChargesLST

amountin

g to Rs.14

N. A.

Total 110 120 130 140 + 14

= 154

N. A.

Tax

recovered/paid

Sold goods

against STForm

Sold goods

against STForm

Sold

goodsagainst

ST Form

Tax

collectedfrom the

buyer anddeposited

with thegovernme

nt

Tax paid

The first three transactions are cases of sales against ST Form. The fourthtransaction is a case of tax payable sale.

Comparison between the two methods

Under both the methods the tax deposited with the government and the prices paidby the consumer are different.

Let us understand with the help of the table given here.

Elements/Method Tax Paid at First point

of sale

Sales against Tax

Declaration form

Tax deposited with thegovernment 11 14

Price paid by the

consumer

151 154

Comparison Government gets less tax

Consumer pays a lowerprice

Government gets more tax

Consumer pays a higherprice



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The method followed for levying tax depends on the type of goods sold. Thegovernment has listed the goods for both the methods separately, thus clarifying the

method to be used for different types of goods.

Important points to be remembered when following any of the two methods:

The burden of the tax always falls on the consumer. Tax has to be paid at some point in the chain of sale.

Tax should be paid at one point only to avoid multi taxation.

Till now we have discussed a case involving local sales. Let us discuss the inter-statesales where CST is applicable with the help of the case scenario explained here. For

inter-state sales the two methods remain the same but the tax rates and the STforms are different.

Case Scenario for CST

Fast Wheels, a distributor for Ahead Cars Inc., handles the market for both Delhi andGujarat. It has a chain of dealers and retailers in Gujarat. Let us understand with the

help of a diagrammatic representation.

Ahead Cars Inc

(Manufacturer

based in Delhi)

Fast Wheels(Distributor

based inDelhi)

Zoom Ahead(Dealer based in

Gujarat)

Fast Cars(Retailer

based inGujarat)

Consumer

(Based inGujarat)

1. Ahead Cars Inc. sells 1 piece @ Rs.110 to Fast Wheels, the distributor in Delhi(local sale within Delhi). Fast Wheels issues a ST Form and does not pay LST.

2. Fast Wheels sells the car parts @ Rs.125 to Zoom Ahead (inter-state sale

between Delhi and Gujarat). Zoom Ahead issues Form C and pays CST @ 4%.3. Zoom Ahead sells the car parts to Fast Cars @ Rs.135 (local sale within

Gujarat). Fast Cars issues a ST Form and does not pay LST.4. Fast Cars sells the car parts @ Rs.159 to the consumer (local sale within

Gujarat). Fast Cars recovers the LST for Gujarat and CST paid from theconsumer.

Let us have a look at the cost price and selling price given here in the form of a table

for the business entities in the chain.

Elements/Busines

s Entity

Ahead Cars Inc

(Manufacturer

based in Delhi)

FastWheels

(Distributor based

in Delhi)

Zoom

Ahead(Dealer

based in

Gujarat)

Fast Cars

(Retailer

based inGujarat)

Consumer(Based in

Gujarat)

Cost Price(manufact

uring

1 * 100= 100 110 125 135 159



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cost/Procurement

cost)

Profit

margin

10 10 10 10 N. A.

Selling

Price

100 + 10 = 110 110 + 10 =

120

125 + 10

=135

135 + 10

=145

N. A.

LST (10%) Receives ST

Form from thebuyer

Not

required topay LST

since Delhiis not the

state of

finalconsumptio

n

Receives

ST Formfrom the

buyer

Charges

LSTamounting

to Rs. 14(rounded

off to

nearestrupee)

N. A.

CST (4%) N.A. 5 (roundedoff to

nearestrupee)

N.A. N.A. N. A.

Total 110 125 135 145 + 14=159

N. A.

Taxrecovered/

paid

Sold goodsagainst ST Form

Sold goodsagainst

Form C andCST

collected @4 %

Soldgoods

againstST Form

LSTcollected

from thebuyer and

depositedwith the

government

LST andCST paid

The first transaction is a case of sale against ST Form while the second transaction

is a case of tax payable sale. The third transaction is a case of sale against STForm while the fourth transaction is a case of tax payable sale.

Important points to be remembered

LST is always paid in the state of final consumption. In this case, Gujarat isthe state of final consumption and LST will be paid in Gujarat. The local salein Delhi does not require any LST to be paid. Thus, Fast Wheels issues a STForm for Delhi and does not pay LST.

ST Forms for CST i.e. Form C is required to differentiate between a registereddealer and the consumer. The consumer cannot issue ST Forms, thus he will

pay CST at the appropriate rates. Registered dealer can issue ST Forms, thushe will issue C Form. In addition he will pay a minimum CST of 2% or 4%.

This is because according to Central Government irrespective of whether a STForm is issued, CST has to be paid at some percentage. The percentage ofCST depends on specifications given by the government.

In case a consumer purchases goods directly from a dealer based in anotherstate then he will pay only CST. He will not be required to pay LST. Forexample, Mr. Ashok in Mumbai purchases goods worth Rs. 5,000 from ABC &Co. based in Delhi. Since this is a central sale, Mr. Ashok pays only CSTamounting to Rs. 500.



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Under Central sales, there can be a case scenario that involves stock transferbetween states for the same company. Such a case requires different treatment. Let

us understand with the help of a case scenario.

Case Scenario for Stock Transfer

Fast Wheels, the distributor for Ahead Cars Inc., has a chain of outlets in and aroundDelhi. Goods are frequently transferred from one outlet in Delhi to another outlet in

Gurgaon. Let us understand with the help of a diagrammatic representation.

Delhi branch of Fast Wheels transfers stock worth Rs. 50,000 to the Gurgaon branch.

This is an inter-state transaction in which no actual sale has taken place only goodshave been transferred. For stock transfer cases, a special CST ST Form, Form F is

issued. If Form F is issued then CST is not levied. Thus in this case, Gurgaon branchwill issue a Form F and the Delhi branch will transfer the goods on Form F with 0%

CST.

Let us have a look at the cost price given here in the form of a table for the businessentities in the chain.

Elements/Business

Entity

Fast Wheels Delhi

Branch

Fast Wheels Gurgaon

Branch

Cost Price

(manufacturingcost/Procurement

cost)

50,000 50,000

CST Receives Form F with 0%

CST

Issues Form F

Total 50,000 50,000

Tax recovered/paid No tax to be collected sinceit is a stock transfer

transaction

No tax to be paid since it is astock transfer transaction


Issues Form F (0% CST)

Transfers goods

Fast Wheels

Distributor for Ahead Cars

Delhi

Branch

Gurgaon

Branch


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Overview of VAT

VAT is the abbreviated form for Value Added Tax. Value Added Tax as the name

suggests, is an indirect tax calculated on the value added to the goods and servicesat each point in the production and distribution chain. It is charged as a percentage

of prices, which means that the actual tax burden is visible at each stage in theproduction and distribution chain. VAT applies to all commercial activities involving

the production and distribution of goods and the provision of services.

Over 130 countries worldwide have introduced VAT over the past three decades andIndia is amongst the latest few to introduce it.

VAT in Indian Economy

VAT has replaced the local sales tax (LST) system in India in various states.Presently, the tax system in India is a combination of sales tax and VAT. For inter-

state sales, Central Sales Tax (CST) is in place with plans of replacing it by VAT in

the near future. In case of local sales, many states have adopted VAT while there are

still few states that are using the old Local Sales Tax system.

The primary difference between Sales Tax and VAT is in the way tax is levied. In

case of Sales Tax, the tax is generally levied at either the first point or the last point

in the production and distribution chain. It is therefore a single-point tax system. Incase of VAT, the tax is levied at each point in the production and distribution chain.

Thus, VAT is a multi-point tax system.VAT can be computed using different methods. These methods are discussed here.

Methods for calculating VAT

VAT can be computed by using any of the three methods explained here.

Subtraction Method:

According to this method, the tax is calculated on the difference betweenthe value of output and the cost of input. Let us understand with the help

of an example. ABC & Co. purchases goods (inputs) worth Rs. 10,000. Itsells the goods at Rs. 20,000. The difference between the cost of input

and value of output is the value added by the company. In this case, the

value added by ABC & Co. is Rs. 10,000 (20,000 10,000).Thus, VAT will be computed by applying the appropriate tax rate on Rs.

10,000.

Addition Method:According to this method, the value added is computed by adding all the

payments that are payable to the factors of production such as wages,salaries, and interest payments and so on.

Tax Credit Method:

According to this method the tax paid on purchases is set-off against tax

collected on sales.



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In India, the Tax Credit method is followed. VAT is calculated on both the purchaseand sale transactions in the chain of production and distribution of goods and

services with the provision for a set-off for the tax paid at earlier stages in the chain.

Let us understand the calculation of VAT with the help of an example. Ahead CarsInc. is a car parts manufacturer. In the month of May 2005, Fast Wheels Inc., a

dealer based in Delhi purchased car parts from Ahead Cars Inc. On this purchase, atax of Rs 10 has been paid. Further Fast Wheels Inc. sells the toys to a retailer andcollects tax amounting to Rs.11. For Fast Wheels Inc., the net tax payable/receivable

will be the difference between the tax collected on sales and tax paid on purchase.

Thus, net tax payable is Re. 1 being the difference between tax collected, Rs. 11,and tax paid, Rs. 10.

In case of VAT, by applying the tax rate on the value added to the goods at the sale

transaction stage we can check whether the net tax payable/receivable amount isthe correct amount. Fast Wheels Inc. made a value addition of Rs. 10 to the toys.

Thus, Fast Wheels Inc. has to pay tax @10% on the value addition of Rs. 10. Thistax amounts to Re. 1.

This amount is equal to the tax amount computed by the tax credit method.

Note: For this example, we assume that the manufacturer has not paid any tax onthe purchases. This is done to simplify the example.

Given here is a table containing the data on the cost price and tax paid for the

different business entities in the chain of transaction.

Elements/Busines

s Entity

Ahead Cars Inc

(Manufacturer)

Fast Wheels

(Distributorbased in Delhi)

Today Cars

(Dealer based inDelhi)

Cost Price(manufacturing

cost/Procurementcost)

90 100 (do notinclude VAT paid

on purchase in thecost)

110 (do notinclude VAT paid

on purchase in thecost)

Profit margin/ Value

Added

10 10 10

Selling Price 90 + 10 = 100 100 + 10 = 110 110 + 10 =120

VAT (10%) 10 11 (rounded off to

nearest rupee)

12 (rounded off to

nearest rupee)

Total 100 + 10 =110 110 + 1 = 121 120 + 12 =132

Tax paid on purchase N.A 10 11

Tax collected

(payable) on sales

10 11 12

Net VAT payable

(Tax Collected Tax

Paid)

10 11-10=1 12-11=1

Note: An important point to remember in computing VAT is that while computingVAT, do not include the VAT paid at earlier stages in the cost of goods. In the

scenario explained here, Fast Wheels paid tax amounting to Rs.10 on the purchaseof goods. Further, while computing tax on the sale of the goods, it did not includetax paid, Rs. 10 in the cost of goods. It included only the cost and the profitmargin/value added in the selling price and computed VAT on it.



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Under this method the dealers can deduct the amount of tax paid by them onpurchase from the tax collected on sales, thereby paying the balance amount to the

Government as tax.

The objective of levying a multi-stage tax with the provision for set off is to avoid'cascading' or multi taxation, which can have a snowballing effect on prices. The

mechanism of VAT is such that the first seller of goods pays the first point tax andthe next seller pays tax only on the value-addition done. If we add up the net taxpaid at each stage then the total tax will be equal to the tax burden if we had taxed

the transaction at the first or last point of sale only.

There are few typical terms used in VAT that we need to know. Let us discuss these

terms.

Terms used in VAT

The terms used in VAT are:

Tax Payers Identification Number (TIN)

Input Tax Credit

Output Tax Net Tax Payable/Receivable

Invoice

Tax Payers Identification Number

Tax Payers Identification Number, popularly known, as TIN is the registrationnumber allotted to a dealer registered under the Value Added Tax (VAT) Act. The

Sales Tax Department issues TIN to the registered VAT dealer.

Input Tax Credit

Input refers to the goods purchased by a dealer for resale or for further

manufacturing, processing, or packing of good manufactured by the dealer. Thus,Input tax is the tax paid on the purchase of goods (inputs) by a dealer and on

purchase of raw materials by a manufacturer. Further, Input tax credit (ITC) refersto the tax paid by a dealer on purchase of goods from VAT registered dealers.

The significance of ITC is that the dealer can deduct ITC from the tax collected on

sales and then pay/receive the balance amount to the government accordingly.

To reiterate, Input Tax Credit is the input tax paid on purchases of goods from within

the state during the tax period from VAT registered dealers that are used:

For sales within the state / inter-state sale or export out of India.

As Raw Material or Capital Goods in manufacturing or processing of goods

other than those exempt from tax under this Act For use as containers for packing of goods other than those exempt from tax

Output Tax

Output refers to the finished products or goods sold by a dealer or manufacturer.Output tax is the tax collected by a dealer or manufacturer on the sale of goods. This

tax is payable to the government.



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Net tax payable/receivable

Net tax payable/receivable is calculated as:

Net tax payable/receivable = Output Tax Input Tax Credit

Let us understand with the help of an example. We will continue with the casescenario of Ahead Cars discussed in the previous topic. In the month of May 2005,

Fast Wheels Inc., a dealer based in Delhi purchased car parts from Ahead Cars Inc.On this purchase, a tax of Rs 10 has been paid. Further Fast Wheels Inc. sells the

toys to a retailer and collects tax amounting to Rs.11. For Fast Wheels Inc., the nettax payable/receivable will be the difference between output tax and input tax. Thus,

net tax payable is Re. 1 being the difference between the output tax, Rs. 11, and

input tax, Rs. 10. Similar is the case for Today Cars where the net tax payable is Re.1 being the difference between the output tax, Rs. 12, and input tax, Rs. 11.

Given here is a table containing the data on the cost price and tax paid for thedifferent business entities in the chain of transaction.

Elements/Business Entity

Ahead Cars Inc

(Manufacturer)

Fast Wheels

(Distributor basedin Delhi)

Today Cars

(Dealer basedin Delhi)

Cost Price(manufacturing

cost/Procurementcost)

90 100 110

Profit margin/Value Added

10 10 10

Selling Price 90 + 10 = 100 100 + 10 = 110 110 + 10 =120

VAT (10%) 10 11 (rounded off tonearest rupee) 12 (rounded offto nearest rupee)

Total 100 + 10 =110 110 + 1 = 121 120 + 12 =132

Input Tax N.A 10 11

Output Tax 10 11 12

Net taxpayable/receivable

(Tax Collected Tax Paid)

10 11-10=1 12-11=1

Note: For this example, we assume that the manufacturer has not paid any input tax

on the purchases.

The essence of VAT is in providing set-off for input tax through the concept of inputtax credit. According to this concept, the amount of input tax paid by a registered

dealer is set-off against the amount of output tax. The resultant amount representsthe VAT liability or the net tax payable/receivable by the dealer.

There can be two broad cases possible with Net tax payable. These are:



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Net Tax Payable: If the output tax is more than the input tax, the dealer will

need to pay the difference to the government. In this case, net tax payableamount will be a positive amount.

Net Tax Receivable: If the input tax is more than the output tax, the dealer

can claim the balance from the government. In such a case, net tax payablewill be a negative amount. Thus it can be called net tax receivable. The dealer

can take the refund in two ways:o The dealer can carry forward the net tax receivable amount and adjust

it against the output tax in the subsequent months. Let us understandwith the help of an example. Suppose in month of April, net tax

receivable is Rs. 20,000. But only Rs. 10,000 net tax was refunded.Now the balance of Rs. 10,000 net tax can claimed in the next return.

o The dealer can get the refund of the net tax receivable from the

government at the end of the current or next year.

Invoice

Invoice, popularly known as a bill, is a claim raised by the seller of the goods on the

buyer of the goods in respect of the goods sold. It provides complete detail of thegoods sold by the seller.

There are primarily two types of invoices:

Tax Invoice

This invoice is issued when a registered dealer sells goods to anotherregistered dealer for:

o Resale

o Manufacture or processing of goods for sale

Retail Invoice

This invoice is issued when a dealer, registered or unregistered sells goods toan unregistered dealer or a consumer.

The significance of Tax invoice in VAT is that the entire design of VAT and input taxcredit is based on documentation of tax invoice, cash memo, or bill. The dealer canclaim input tax credit only when the goods are purchased on a tax invoice.

Let us understand with the help of an example. Fast Wheels Inc. purchased good

worth Rs. 50,000 each from a registered dealer on a tax invoice and an unregistereddealer on a retail invoice. VAT amounting to Rs. 5,000 has been paid on both the

purchases. Now Fast Wheels sold goods worth Rs. 1,00,000 to a registered dealerand VAT amounting to Rs. 10,000 is collected. In this case, the input tax credit will

be Rs. 5,000. This amount pertains to the input tax paid on the tax invoice purchase.The output tax is Rs. 10,000. Thus net tax payable is 5,000 (10,000 5,000).

We have so far, discussed VAT with respect to the methods used for calculating VAT

along with the common terminology used in VAT. Now let us summarize thedifferences between Sales Tax and VAT, which will help us in understanding the

relevance of implementing VAT.

Comparison of Sales Tax and VAT

The differences between sales tax and VAT are listed here in form of a table.



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Basis Sales Tax VAT

Point of Levy Sales Tax system is a

Single point tax systemwhere tax is generally

levied at the first or lastpoint of sale.

VAT is a Multi point tax

system where tax is leviedat each point in the chain

of transactions.

Sale against Forms Sale can be made againstSales Tax Forms.

In VAT, there is noprovision for selling

against Forms.

Visibility of tax levied The amount of tax levied

at each point of purchaseor sale is not visible.

The amount of tax levied

at each point of purchaseor sale of goods is visible.

Simplification of Procedure The procedure of filingreturns, payment of tax,

furnishing declaration andassessment is long and

tiresome.

The procedure of filingreturns, payment of tax,

furnishing declaration, andassessment is simplified

under the VAT system.

Tax included in the cost Tax paid is included in the

cost. Thus, tax becomes apart of cost of doing a

business.

Tax paid is not included in

the cost. Thus, tax is not apart of cost of doing a

business.

Tax Avoidance (Non-

compliance)

Sales Tax system is

complex and inducesnon-compliance. Since the tax

paid/payable is not visibleat each stage, it is

possible to avoid payingtax. This form of tax

evasion is an obstacle inthe growth of the

economy. Moreover, it also

leads to loss of revenuefor the government.

VAT is a simple and

transparent system. Thetax liability is clearly

visible at each stage thatmakes it difficult to evade

tax liability.

Double taxation

(Cascading effect)

The inputs are taxed

before a commodity isproduced and the output is

taxed after it is produced.This leads to double

taxation with cascadingeffects.

VAT helps in eliminating

the cascading effect of tax.This is done through the

provision of set-off againstinput tax, which leads to

reduction in overall taxburden.

Uniform tax rates Under Sales tax, differentrates of tax are applicable

on different goods.

VAT has uniform tax ratesacross the state that

simplifies the process oftaxing. The two basic rates

are 4% and 12.5%

Till now we have discussed VAT on a broad level wherein the methods, terms, and

differences between Sales Tax and VAT have been discussed.



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Now we will discuss the tax rates applicable in VAT and the special cases in VAT forsome types of goods and transactions.

VAT Rates

According to the White Paper, there are 550 categories of goods under the VAT

system. They are classified into the four categories depending on the tax rate: VAT @ 1% - This category covers specific category of goods such as gold, and

silver.

VAT @ 4% - This category covers the largest number of goods (270)comprising of basic necessity items such as drugs and medicines, agricultural

and industrial inputs, and capital goods.

Exempted goods - There are about 46 commodities under the exemptedcategory. The exempted goods include natural and unprocessed products in

unorganised sector as well as items that are legally barred from taxation.

[email protected]% - This category covers the remaining commodities.

Note: There are few goods that are not covered under VAT. These items willcontinue to be taxed under the sales tax act of the respective states. Some examples

are lottery tickets, petroleum products, and so on.

Currently, the sales tax system is an intricate combination of Central Sales Tax andVAT. This intricacy leads to special cases involving different treatment of some goods

and transactions. Let us discuss these cases in detail.

Special Cases in VAT where input tax credit cannot be claimed

Input Tax Credit is not allowed in the cases listed here:

Goods purchased from an unregistered dealer

Goods purchased from another state (inter-state purchase)

Goods purchased for the manufacture, processing, or packing of goods that

are exempt from tax.

Goods purchased from an unregistered dealer

Goods are purchased from an unregistered dealer on a retail invoice. We know that

input tax credit can be claimed only on purchases with a tax invoice. Thus in thiscase scenario, no input tax can be claimed.

Goods purchased from another state (inter-state purchase)

Let us understand this case with the help of an example. A Delhi based dealer

purchased goods worth Rs. 50,000 and paid CST amounting to Rs. 5,000. For theinput CST that he has paid on the purchase of goods he is not eligible for input tax

credit. In other words, he cannot adjust the output tax against the input CST.

Goods purchased for the manufacture, processing, or packing of goods that are exemptfrom tax.

In case an exempted good is sold then the input tax paid on the inputs cannot be

claimed.Let us understand with the help of an example. Book World is a book-publishing firm.

The firm purchased paper @ Rs.100/kg and paid VAT @12.5% amounting to Rs.



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12.5. Now they publish a book using that paper and sell in the market. Since booksare exempted from VAT hence no VAT is charged.

According to the government, if the finished products are exempted from VAT then

the firm cannot claim any tax credit paid on raw material. Thus, Book World cannotclaim any VAT from the government. In such a case the net tax payable will be equal

to the output tax.

We have discussed the cases where Input Tax Credit cannot be claimed at all. Now

let us discuss the special cases where Input Tax Credit can be claimed fully or

partially.

Special Cases in VAT where input tax credit can be claimed fully or partially

Input Tax Credit can be claimed fully or partially in the cases listed here:

Stock transfer/Consignment basis sale

Capital Goods

Goods purchased for export

Stock brought forward from previous period

Stock transfer/Consignment basis sale

In case of inter-state stock transfer, input tax paid in excess of 4% is liable for taxcredit.

Let us understand with the help of an example. ABC & Co. purchases goods worth

Rs. 10,000 and paid VAT @12.5% amounting to Rs. 1250. After few days, the

company makes a stock transfer from its Delhi outlet to Gurgaon outlet. The goodsare sold in Gurgaon @ Rs. 20,000 with VAT @12.5% amounting to Rs. 2500. In case

of stock transfer, the input tax rate over and above 4% can be claimed from thegovernment. Thus in this case the input tax credit is Rs. 850 i.e. 8.5% (12.5 4) on

Rs. 10,000 while the output tax is Rs. 2500. Thus the net tax payable is Rs. 1650(2500 850).

Capital Goods

Traders and manufacturers can claim input tax paid on capital goods. Input tax credit

on capital goods can be adjusted over a maximum of 36 equal monthly installments.

Let us understand with the help of an example. Machinery worth Rs. 50,000 hasbeen purchased for business purpose. At the time of purchase input tax amounting

to Rs. 5,000 has been paid. Now input tax credit can be claimed from thegovernment in instalments.

Thus in this case the net tax receivable is Rs. 5,000.

Goods purchased for Export

Goods that are purchased for the purpose of export are eligible for input tax credit.

For the goods that are exported, input tax will be refunded in full, and this refund willbe made within three months. Units located in SEZ (Special Economic Zone) and

EOU (Export Oriented Unit) will be granted either exemption from payment of inputtax or refund of the input tax paid within three months.

Stock brought forward from previous period



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All tax-paid goods purchased on or after April 1, 2004 and still in stock (Opening

Stock) as on April 1, 2005 will be eligible to receive input tax credit, subject to

submission of requisite documents.

Let us understand with the help of an example. Tax amounting to Rs. 15,000 has

been paid in the previous year on purchase of stock. In this case, input tax creditamounts to Rs. 15,000 and it can be claimed. Thus, input tax credit will be allowed

for sales tax already paid in the previous year. This input tax credit will be given insix monthly instalments after a period of 3 months needed for verification.

Till now we have discussed the working of VAT in mainly a local scenario. Now we will

discuss the working of VAT in combination with Central Sales Tax.

Working of the combined system of Central Sales Tax and VAT

To amalgamate Central Sales Tax with VAT, certain rules and regulations have been

specified. These rules and regulations ensure smooth functioning of the tax system inIndia.

Let us discuss these rules and regulations with the help of an example. Blue Bags is

a bag manufacturing and distributing company based in Delhi. In April 2005, BlueBags purchased raw material worth Rs. 50,000 from a seller based in Maharashtra.

Since this is an inter-state transaction (central purchase), CST @ 10% amounting toRs. 5,000 has been paid. Further, Blue Bags processes the raw material and

produces 100 bags worth Rs. 700 each. The company sells these bags in Gujaratitself and collects output tax @ 10 % amounting to Rs. 7000.

In this case the various tax payable/receivable amounts are:

Tax head Amount

Input tax credit (Local Purchase) 0

Output Tax (Local Sales) 7,000Net tax payable 7,000 (7,000 0)

Input CST (Central Purchases) 5,000

We cannot adjust the Input CST against the net tax payable. The reason is that Input

CST is to be paid to the government and is a part of the cost to the business. It

cannot be claimed or refunded like Input tax paid on local purchases can be. This isan important rule in the working of the combined tax system in India.

Let us understand this further with some modification in the case scenario. In the

month of May 2005, Blue Bags sold bags worth Rs. 80,000 to Bags Inc., theirdistributor in Gujarat. Since this is an inter-state transaction (central sale), CST 2

10% amounting to Rs. 8,000 has been collected by Blue Bags. In May, the input taxpaid on local purchases amounted to Rs. 10,000 while the output tax on local sales

amounted to Rs. 2,000. In this case scenario, the various tax payable/receivableamounts are:

Tax head Amount

Input tax credit (Local Purchase) 10,000

Output Tax (Local Sales) 2,000

Net tax payable -8,000 (2,000 10,000)



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Output CST (Central Sales) 8,000

Net tax payable is 8,000 (negative figure), which means that net tax is receivablefrom the government. Further Output CST (Central sales) is Rs. 8,000, which means

that this amount is payable to the government. In such a case, the governmentallows us to adjust the receivable and payable amounts against each other.

Net tax payable/receivable = Output CST Net tax receivable

= 8,000 8,000= 0

Thus, under Central Sales Tax system there is no provision for setting off input tax

against output tax. The input CST is a liability for the purchaser and has to be borneby him in any case. Output CST can only be adjusted against net tax payable to

avoid unnecessary payment and receipt of tax.

Now that we are familiar with the working of the sales tax system in India, let ussummarize the key points (rules and regulations) in the working of the sales tax

system in India.

In Local transactions, Input tax credit on purchases can be claimed andsubsequently adjusted against Output tax on sales.

In Central transactions:

Input CST on purchases cannot be claimed or adjusted. It is a part of thecost and has to be borne by the purchaser of the goods.

Output CST on sales can be adjusted if the net tax payable (Output tax Input tax) is negative. In other words, if net tax on local transactions is

receivable from the government then we can adjust it against Output CST.This is done to avoid unnecessary give and take of money between the

government and the dealers.

Now that we have understood the concept of Sales Tax and VAT, let us discuss the

implementation of the same in BUSY.



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Implementation of Sales Tax & VAT Reporting

The implementation of Sales Tax & VAT Reporting in BUSY is a simple four-step

process. The steps are:1. Configure Sales Tax & VAT

2. Create Masters3. Record Sales Tax & VAT Using Vouchers

4. View Sales Tax & VAT Reports

Let us discuss the steps in detail.

1. Configure Sales Tax & VAT

The first step is to configure Sales Tax & VAT in BUSY. There are three sub-steps in

configuring Sales Tax & VAT. The sub-steps are:

1.1Enable Sales Tax & VAT Reporting1.2Configure Sales Tax & VAT Reporting Account-wise

1.1 Enable Sales Tax & VAT Reporting

To enable Sales Tax & VAT Reporting in BUSY, perform the following steps:

Open the company you want to configure Sales Tax Reporting for by clicking

CompanyOpen Select your company

Click theAdministration Menu:

Click Configuration Features/Options Sales Tax and VAT

Enable the option Enable Sales Tax & VAT Reporting by selecting the

check box and enter the appropriate details in the data fields thatbecome active.

Given here is a screenshot of Features/Options Window for enabling Sales TaxReporting in BUSY.



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After you enable Sales Tax Reporting in BUSY, certain data fields become active.

Enter the appropriate data in the data fields.

To enable Sales Tax Surcharge, specify Y in the Enable Sales Tax Surcharge

data field. On enabling Sales Tax Surcharge, a Configure button next to theEnable Sales Tax Surcharge data field appears.

Click the Configure button to configure Sales Tax Surcharge

On clicking the Configure button, a Sales Tax Surcharge ConfigurationWindow appears.

Given here is a screenshot of the Sales Tax Surcharge Configuration Window.



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Enter the appropriate data in the data fields. There are certain data fields that

are active by default while other get activated based on the values.

The data fields active by default are:

Surcharge Percentage Enter the percentage of surcharge that you want

to levy

Item-wise surcharge to be calculated on Under this heading there are

three options of Tax Amt., Item Basic Amt, and Item MRP. Select theoption suitable for you.

Enable in Local Sales Specify Y if you want to enable surcharge inlocale sales. If you specify Y then two more data fields become active.

These areo Surcharge Bill Sundry Specify the bill sundry to be used for Sales

Tax Surchargeo Freeze for Local Sales Specify Y here if you want the surcharge

to be levied under any condition for all local sales.

Note: If you specify Y in this data field, Busy will perform a checkwhen you are entering a local sales voucher for a surcharge bill

sundry. If you forget to attach a surcharge bill sundry then Busy willprompt you to attach the appropriate bill sundry. You will not be ableto save the voucher without attaching the surcharge bill sundry.

Similarly, you have options for enabling sales tax surcharge in Local Purchase,Central Sales and Central Purchase.

Click the Save button to save the Surcharge configuration settings

To create Default Masters in VAT, click the Create Default Masters button

On clicking the Create Default Masters button, a Create Default Masters forVATMessage Box appears.



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Note: Default Masters are those Masters that Busy creates for implementing VATin Busy. For example, Busy creates bill sundry, account, sales or purchase typefor VAT.

Click the Yes button to create the default masters for VAT. On clicking the

Yes a Default VAT Masters Message Box appears.

Click the Okbutton to return to the Features/Options Window

Click the Save button to save the configuration settings for Sales Tax & VAT

1.2 Configure Sales Tax Reporting Account-wise

After Sales Tax Reporting is configured in BUSY, you need to configure Sales Tax

Reporting account-wise for sundry debtors and sundry creditors.

To configure an account for Sales Tax Reporting, perform the following steps:

Click theAdministration Menu MastersAccountAdd

In theAccount Master AddWindow, enter the appropriate information in

the data fields.

Given here is the screenshot of theAccount Master - Add Window.

When you specify the Group as Sundry Debtors or Sundry Creditors thenenter the LST No. and other sales tax related details for the account.

Click the Save button to save the account information.

Now that you have configured Sales Tax in BUSY, you can create masters that arenecessary for recording sales tax related details.

2. Create Masters


Enter the LST No.

and CST No. for

Sundry Debtors andCreditors.


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To enter and maintain sales tax related details, you need to create certain masters.The masters to be created are:

2.1 Sale/Purchase Type2.2 ST Form

Let us discuss the two masters in detail.

2.1 Sale/Purchase Type

A Sale/Purchase Type is classification of sale/purchase based on the type ofsale/purchase (central or local) and the rate of sales tax charged. This classification

is required for the purpose of reporting. Certain Sale/Purchase Types are created bydefault at the time of creation of a company. These can be modified or deleted as per

your requirements.

To create a Sale/Purchase Type, perform the following steps:

Click theAdministration Menu MastersSale/Purchase TypeAdd

In the Sale Type Master AddWindow, enter the appropriate information

in the data fields.

Given here is the screenshot of the Sale Type Master - Add Window.

There are certain data fields that are active by default while other get activatedbased on the values. The data fields/Options Boxes active by default are:

Sale Type

Sales Account

Taxation Type

For Printing in Documents

Region

Sale Type



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In this data field, enter the name of the Sales Type that you want to create.

Note: While naming the sale type keep in mind that the name should reflect theproperties of the sale type. For example if you are creating a sale type for centralsale against ST Form and with 10% CST applicable then you can give a name Central10%. Such a naming convention ensures that it is easy to recognize which sale typeis applicable in a particular case.

Sales Account

In this data field, enter the name of the Sales Account that you want to affect by the

transaction. For example, Fast Wheels Inc. is a dealer in car parts. It wants to create

sale types for two types of goods. For this purpose it creates two sale types, one forsemi-processed goods and one for processed goods. Since it maintains separate

sales account for the two types of goods it specifies the respective sale account forthe sale types.

Taxation Type

In this option box, you need to select one of the following options:o Tax Paid Select this option if tax has been levied on sale already

o Taxable - Select this option if tax has to be levied on sale

o Against ST Form - Select this option if sale is against ST Form

o Exempt - Select this option if sale is exempt from tax

o Tax Free - Select this option if sale is tax free

o Multi-Tax - Select this option if you want to record sale of different items with

different rates of sales tax in a single voucher

Note: When you are creating a Sale Type then two options of Un-registered Dealerand Lump-sum Dealer are NOT ACTIVE. The reason is that under sales tax systemirrespective of whether you are selling to an un-registered dealer/lump-sumdealer/customer you do not distinguish between them and will charge tax as per

regular sale. Thus for such sales you will specify the Taxation Type as Taxable.

When you are creating a Purchase Type then these two options are ACTIVE. Thereason is that when you purchase goods from an un-registered dealer or lump-sumdealer, you will pay sales tax. For your convenience you can distinguish between thetwo types of dealer regarding the number of purchases made from each.

For Printing in Documents

In this option box, there are two data fields:

o Invoice Heading Enter the heading of the invoice that you want to be

displayed on the invoice

o Invoice Description Enter the description of the invoice that you want to be

displayed on the invoice.

Region

In this option box, you need to select one of the following options:o Local Select this option if sale is within the state

o Central - Select this option if sales is between two states (inter-state sale)

The data fields/Options Boxes that get activated based on values are:



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Calculate Tax on Item MRP

Tax inclusive Item Price

Tax Invoice

Tax Bill Sundry

Type of Central Transaction

Form Information

Tax Calculation

Calculate Tax on Item MRP

In this data field specify Y if you want to calculate tax on Item MRP. This data fieldis activated when you select the Taxation Type as Multi-Tax.

Tax inclusive Item Price

In this data field specify Y if you want to display the item price in the invoiceinclusive of tax. Enabling this option allows you to do MRP Billing. In other words, if

you enable this option then you need to enter only the quantity, price and tax ratefor the item. BUSY will calculate the tax automatically by doing reverse calculation.

Let us understand with the help of an example. You want to specify a standard rate

for all the items of a particular category. The problem is that the rate of tax isdifferent for all the items. To simplify the situation, you can enable this option and

specify the price and tax rate for all the items. In this way you need not calculate thetax per item.

On enabling Tax Inclusive Item Price option another data field, Hide Item Tax Rate

Window, becomes active. If you specify N then while entering the voucher an Item-wise Tax Rates Window appears wherein you can specify the tax rate for the item. If

you specify Y then the Item-wise Tax Rates Window does not appear. In such acase you need to specify the tax rate in the Item Master.

On disabling Tax Inclusive Item Price option another data field Calculate Tax On field

becomes active. Enter in this field the percentage of amount on which tax is to becalculated.

This data field is activated when you select the Taxation Type as Multi-Tax.

Tax Invoice

In this data field specify Y if you want that the invoice that is billed in the sale typeis Tax Invoice. If you specify N then the invoice that is billed is Retail Invoice. The

distinction between the two types of invoices is that on Tax Invoice the seller canclaim input VAT whereas on Retail Invoice he cannot claim input VAT.

This data field is activated when the Taxation Type is Multi-Tax/Taxable.

Tax Bill Sundry

In this data field, specify the bill sundry to be used when you are levying tax on thevoucher. This data field is a part of the Tax Calculation Option Box and it gets

activated when the Taxation Type is Multi-Tax/Against ST Form/Taxable.



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Type of Central Transaction

In this option box, there are three options that specify the type of central

transaction. Select one of the following options:o Stock Transfer

o Export

o Others

This option box is activated when the Central option is selected under Region option

Box.

Form Information

In this option box, you need to enter details for the following data fields:

o Issue ST Form Specify Y in this data field if you want to issue a ST Form

for the sale voucher

o Form Issuable This data field is activated if you have specified Y in the

previous data field. Select the form to be issued from the list that is displayed

in the data field.o Receive ST Form Specify Y in this data field if you can receive a ST Form

for the sale vouchero Form Receivable This data field is activated if you have specified Y in the

previous data field. Select the form to be received from the list that isdisplayed in the data field.

This data field is activated when you select the Taxation Type as Against ST Form.

Tax Calculation

In this option box, you need to enter details for the following data fields:o Tax (%) You can specify a default tax rate for the tax bill sundry. If you do

not want to specify any tax rate then you can leave this field blank.o Tax Bill Sundry Specify the tax bill sundry to be used for levying tax on the

sale voucher. You cannot leave this field blank.o Freeze Tax in Sales Specify Y in this data field if you want to attach the tax

bill sundry for levying tax in all cases of sales. If you specify Y then youcannot save a sale voucher without attaching the tax bill sundry.

o Freeze Tax in Sales Return Specify Y in this data field if you want to attach

the tax bill sundry for levying tax in all cases of sales return. If you specify Y

then you cannot save a sale return voucher without attaching the tax billsundry.

This option box is activated when you select the Taxation Type as Taxable/Against

ST Form.

2.2 ST Form

ST Form is an abbreviation for Sales Tax Declaration Forms. These forms are used

under the Sales tax System. You can create ST Forms according to yourrequirement. Some ST Forms are created by default at the time of creation of a

company. These can be modified or deleted as per your requirement.



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To create a ST Form, perform the following steps:

Click theAdministration Menu MastersST FormAdd

In the Form Master AddWindow, enter the appropriate information in

the data fields.

Given here is the screenshot of the Form Master - AddWindow.

There are three data fields that are active by default in the Form Master AddWindow. The active data fields are:

Name

Print Name

ST Reg. TypeName

In this data field, enter the name of the form that you want to create.

Print Name

In this data field, enter the print name for the form. Print Name refers to the namethat appears on documents given to external parties such as sales invoice, receipt,

debit note and so on. By default, the name entered in the Name field is displayed asPrint Name. You can leave this field blank if you do not want any name to appear on

the printed Reports.

ST Reg. Type

In this data field, select one of the three options that are displayed. The threeoptions are:

o Local Select this option if the form is for local transactions

o Central Select this option if the form is for central transactions

o ST-37 Select this option if the form is for Delhi only with VAT enabled

Now that you have created masters for Sales Tax in BUSY, you can record sales taxrelated transactions using vouchers.

3. Record Sales Tax Using Vouchers

If you have paid/received sales tax on sale/purchase of goods then you can enter

sales tax related details in the appropriate vouchers.

To record sales tax related details perform the following steps:



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Click the Transactions Menu Select the appropriate voucher

Enter appropriate information in the voucher and save the voucher

Click the Transactions Menu Select the appropriate voucher for Forms

Received/Forms Issued

Enter appropriate information in the voucher and save the voucher

Let us understand the recording of sales tax with the help of an example. FastWheels Inc. is a dealer in car parts based in Delhi. It sold car parts to Today Cars, a

dealer based in another state. Moreover, Fast Wheels Inc. collected sales tax at 10%and surcharge at 10% on sales tax.

Given here is a screenshot of the sales voucher that Fast Wheels Inc. enters for sale

of car parts.

Note: If you do not attach the Tax Bill Sundry as specified in the Sale Type(Central 10%) then Busy will display a Message Box asking you whether tocontinue without the tax bill sundry. In such a case, you can save the voucherwith or without the tax bill sundry.

Click the Save button to save the voucher. On clicking the Save button aSales Tax/Excise Reporting Details Window appears.

Given here is a screenshot of the Sales Tax/Excise Reporting Details Window.



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There are three active data fields that appear in the Sales Tax/Excise Reporting

Details Window. These are:

Description of Items

Total Qty.

Form DVAT 34 No.

Let us discuss these data fields in detail.

Description of Items

In this data field, enter the description of the item sold. If you do not want to give a

description for the item then you can leave this field blank.

Total Qty.

In this data field, enter the quantity of goods sold that you want to display in Sales

tax & VAT Reporting. By default, the quantity specified in the voucher is displayed in

the data field.

Form DVAT 34 No.

In this data field, enter the details of road permit, if any. This information is requiredfor generating the Form DVAT report.

Note: If you enter a purchase transaction involving sales tax then a Sales Tax/ExciseReporting Details Window appears on clicking the Save button. This window hasactive data fields such as Purchase Bill Number, Purchase Bill Date, and Descriptionof Items. You can enter the appropriate information in the data fields since thisinformation is required for Sales Tax Reporting.

Click the Okbutton to close the Sales Tax/Excise Reporting Details Window.

On clicking the Okbutton a ST Forms Details Windowappears.

Given here is a screenshot of the ST Forms Details Window.



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Note: ST Forms Details Window appears for the sale voucher because in the SaleType (Central 10%) the Taxation Type is defined as Against ST Form. If theTaxation Type is an option other than Against ST Form then this window willnot appear.

There are two data fields that appear in the ST Form Details Window. These are:

Form Issuable Amt.

Form Receivable Amt.

Let us discuss these data fields in detail.

Form Issuable Amt.

In this data field, enter the amount for which the Form is issuable. By default, the

total amount of transaction is entered in this data field.

Form Receivable Amt.

In this data field, enter the amount for which the Form is receivable. By default, thetotal amount of transaction is entered in this data field.

Note: Depending on the configuration in sale/purchase type under Form InformationOption Box either Form Issuable Amount or Form Receivable Amount or both thedata fields will be active. In the screenshot given above, since the sale typeconfiguration allows the form to be issued as well as received both the fields areactive in the window.

Typically speaking, Form Issuable Amount data field will be active for purchasetransactions and Form Receivable Amount data field will be active for salestransactions.

Click the OKbutton to close the ST Forms Details Window and save the sale

voucher.

Now that you have entered the sale voucher for the sale transaction, you need toenter a Form Received transaction for the form that is received from Today Cars.

Given here is a screenshot of the Forms Received Add Window that Fast Wheels

Inc. enters for receipt of the appropriate form.



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There are certain data fields that appear in the Forms Received AddWindow.

These are:

Date Form

Form No.

Party

Narration

Bill No./Dated/Amount

Date

In this data field, enter the date on which the Form is received.

Form

In this data field, select the Form that you have received from your customer. You

can select from the list of ST Forms displayed in the data field.Form No.

In this data field, enter the number that is printed on the Form. Form number is a

unique number of the Form.

Party

In this data field, select the party from whom you have received the Form.

Narration

In this data field, enter the narration giving a brief description of the transaction.

Bill No./Dated/Amount

In this data field, select the appropriate form details from the list that is displayed inthe grid.



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Note: On selecting the appropriate form details, the details for Bill No, Dated, andAmount are automatically entered in the data field.

Click the Save button to save the Forms Received voucher

4. View Sales Tax Reports

Once you have recorded sales tax and VAT related transactions, you can view theSales Tax & VAT related reports and returns. To view the Sales Tax & VAT Reports,

perform the following tasks:

Click DisplayMenu Sales Tax & VAT Reports Select a report from thefollowing options:

ST Form Reports

o Forms Receivable

o Forms Issuable

o Forms Received Register

o Forms Issued Register

Sales Tax Summaries

o Sale Type Summaryo Purchase Type Summary

o Sales Tax Summary

o Purchase Tax Summary

Sales Tax Account Register

State-specific Sales Tax Register

VAT Summaries

o VAT Summary

o VAT Computation

o Party-wise Sales VAT Summary

o Party-wise Purchase VAT Summary

o Item-wise Sales VAT Summary

o Item-wise Purchase VAT Summaryo Party-wise Sales CST Summary

o Party-wise Purchase CST Summary

o Item-wise Sales CST Summary

o Item-wise Purchase CST Summary

VAT Registers

o Sales Registers

o Purchase Registers

State-specific VAT Reports

Tax Paid Stock Detail

Given here is a screenshot of the Sales Tax & VAT Reports menu options.



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Enter the date range in Starting Date and Ending Date fields/Select theappropriate option to generate the report

View the respective Sales Tax & VAT Report

Given here is a brief description for each of the Sales Tax & VAT Reports.

In the ST Form Reports, four options appear. Let us discuss these options in detail.

Forms Receivable

Forms Receivable Report contains details of the forms that are receivable fromcustomer or parties. It contains details such as party, bill number, type, dated, form

amount, and form.

Forms Issuable

Forms Issuable Report contains details of the forms that are issuable to suppliers orparties. It contains details such as party, bill number, type, dated, form amount, and

form.

Forms Received Register

Forms Received Register contains details of all the form receipt transactions. Itcontains details such as serial number, name of party, address of party, serial

number of forms, date of receipt and so on.

Forms Issued Register

Forms Issued Register contains details of all the form issue transactions. It contains

details such as serial number, name of seller, address of seller, serial number of

forms, date of issue and so on.

This register is also known as Forms Utilisation Register.



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In Sales Tax Summaries four options appear. Let us discuss these options in detail.

Sale Type Summary

Sale Type Summary Report contains details of all the sale types that have been used

in sales/sales return transactions. This report provides the summary on sales andsales return for a specific sale type. All the sales/sales returns belonging to specificsales type (C-10%, L, L-8% and so on) are grouped together.

Let us understand with the help of an example. There are two Sale Types, A and B.

In such a case, under this report the sale/sales return will be grouped under

separate headings of A and B.

It contains details such as name of form, sales amount, tax amount, sales return

amount, sales type name, sales tax surcharge, nett sales and so on.

Purchase Type Summary

Purchase Type Summary Report contains details of all the purchase types that have

been used in purchase/purchase return transactions. This report provides thesummary on purchase and purchase return for a specific purchase type. All the

purchase/purchase returns belonging to specific purchase type (C-10%, L, L-8% andso on) are grouped together.

Let us understand with the help of an example. There are two Purchase Types, A and

B. In such a case, under this report the purchase/purchase return will be groupedunder separate headings of A and B.

It contains details such as name of form, purchase amount, tax amount, purchase

return amount, purchase type name, sales tax surcharge, nett purchase and so on.

Sale Tax Summary

Sale Tax Summary Report contains details of all the sale and sales return

transactions on which sales tax has been paid. It provides the summary on sales andsales return for a specific tax rate. All the sales/sales return belonging to a specific

tax rate (5%, 10% and so on) and a specific region (Central/Local) will be groupedtogether irrespective of different sale types.

Let us understand with the help of an example. There are two sale types, A and B,

where the tax rate and region specified are same. Thus, the report generated willclub the sale/sales return for both sale type based on the same tax rate and region.

This report contains details such as sale type, sales amount, tax amount, salesreturn amount, sales tax surcharge, nett sales and so on.

Purchase Tax Summary

Purchase Tax Summary Report contains details of all the purchase and purchase

return transactions on which sales tax has been paid. It provides the summary onpurchase and purchase return for a specific tax rate. All the purchase/purchase



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return belonging to a specific tax rate (5%, 10% and so on) and a specific region(Central/Local) will be grouped together irrespective of different sale types.

Let us understand with the help of an example. There are two sale types, A and B,

where the tax rate and region specified are same. Thus, the report generated willclub the purchase/purchase return for both sale type based on the same tax rate and

region.This report contains details such as sale type, purchase amount, tax amount,

purchase return amount, sales tax surcharge, nett purchase and so on.

Sale Tax Account Register

Sale Tax Account Register contains details of all the transactions on which sales tax

has been paid. It is the register generally required at the time of assessment. Itcontains each and every detail relevant to sales tax. You can generate the report for

local and central transactions separately. It contains details such as date, billnumber, party, bill amount, form and so on.

State-specific Sales Tax Register

Depending on the state selected in Configuration Menu, state-specific sales tax

registers are listed in this option. For example, if the state selected is Delhi then theSales Tax Registers are ST-2A and ST-2B.

In VAT summaries ten options appear. Let us discuss these options in detail.

VAT Summary

This report is same as VAT Computation report explained below except that it showsthe details of central sales and purchases that are not related to computation of VAT.

This report forms the foundation/base for all other VAT reports.

VAT Computation

VAT Computation calculates the Net VAT Payable/Refundable for a specified periodand shows all the computations used to derive at the final figure. It contains

comprehensive detail such as input VAT, output VAT and so on.

Party-wise Sales/Purchase VAT Summary

This report displays the summary for sales/purchase transactions on which VAT has

been paid or collected. This report classifies on the basis of the parties. It simply

clubs all the sales/purchase transactions for different parties and displays theclubbed amount for different parties.

Item-wise Sales/Purchase VAT Summary

This report displays the summary for sales/purchase transactions on which VAT hasbeen paid or collected. This report classifies on the basis of the items. It simply clubs

all the sales/purchase transactions for different items and displays the balance

amount for different items.



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Party-wise Sales/Purchase CST Summary

This report displays summary of sales/purchase transactions on which CST has been

paid or collected. This report classifies on the basis of the parties. It simply clubs allthe sales/purchase transactions for different parties and displays the clubbed amount

for different parties.

Item-wise Sales/Purchase CST Summary

This report displays summary sales/purchase transactions on which Central Sales

Tax is paid or collected. This report classifies on the basis of the items. It simplyclubs all the sale/purchase transactions for different items and displays the balance

amount for different items.

In VAT Registers two options appear. Let us discuss these options in detail

Sales Registers

This register contains details of sales vouchers (VAT/non-VAT related) presented inthe format prescribed by the state government. It allows you to display the reportfor local, central or both types of sales.

Purchase Register

This register contains details of purchase vouchers (VAT/non-VAT related) presentedin the format prescribed by the state government. It allows you to display the report

for local, central or both types of purchase.

State-specific VAT Register

Depending on the state selected in Configuration Menu, state-specific VAT registers

are listed in this option. For example, if the state selected is Delhi then the VATRegisters are DVAT 16, DVAT 30, DVAT 31 and DVAT 35B.

Tax Paid Stock Details

Tax Paid Stock Details contains details of all the stock purchase transactions till aparticular date on which sales tax has been paid. The relevance of this account is

under VAT system. This registers helps you maintain a record of the tax paid stockpurchase transactions, which in turn helps you, claim any refundable amount of tax

from the government. It does not include central purchase transactions since youcannot claim a refund on central purchases.

It contains details such as serial number, items, quantity, purchase date, invoicenumber and so on. You can generate this report for all items or group of items.

After following these four steps you have successfully implemented Sales TaxReporting in BUSY.