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Hiregange & Associates, Chartered Accountants Overview of KVAT Law - 1 - 1 OVERVIEW OF KVAT LAW Madhukar N Hiregange FCA & Vinay K.V. ACA. Introduction Karnataka Value Added Tax is a tax on sale of goods. The KVAT law provides for setting off of the tax paid on inputs (goods purchased) against the tax payable on sale of goods. This has been done in order to avoid the cascading effect of taxes. This concept was earlier used in Central Excise as Modvat and subsequently as Cenvat Credit scheme. This can be explained with the help of an example. Suppose a dealer purchases goods worth Rs. 100 with a tax rate of 12.5% and makes a value addition of Rs. 50, in the absence of set off, he would sell the product to his customer at Rs. 162.50. If the tax rate on sale is 12.5%, the total value would be Rs. 182.82 with the tax payable being Rs. 20.32. If the set off is available, the price would be Rs. 150 with the tax on input being available for set off. The total price would be Rs. 168.75 with the tax payable being Rs. 18.75. This can be used for setting off by the customer where he himself happens to be a dealer. For the seller, the net outflow would be Rs. 6.25 (18.75-input set off of Rs. 12.5 on purchases). This in effect is the tax on his value addition alone. A modified version of this set off scheme has been in force in India in the form of Cenvat under Central Excise Law and now equally applicable to Finance Act (Service Tax). Under KVAT Act, the set off available is of tax paid under this Act and not under any other Act. In other words, where CST is paid on interstate purchase, the same will not be available for set off though KVAT paid on inputs used in interstate sales can be set off against CST payable on such interstate sales. Under this law, the concept of sale, dealer and goods assume importance. Goods generally include movable property with the exception of newspaper, actionable claims, stocks and shares and securities. It includes articles involved in the execution of works contract as well.

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