VATVATVATVATVATVATVATVAT

CONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTSCONCEPTS

By CA Deepak Nagpal

LEVY, LEVY, CLASSIFICATION CLASSIFICATION

AND AND AND AND ADVANTAGESADVANTAGES

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��What is VAT?What is VAT?

�Value Added Tax

�Empowered by Entry 54 of the state

list.list.

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Constitutional EmpowermentConstitutional Empowerment

Entry 54 of State List (List II)

�Taxes on the sale or purchase of goods

other than newspapers, subject to the

provisions of entry 92A of List I. provisions of entry 92A of List I.

Entry 92A of Union List (List I)

�Taxes on the sale or purchase of goods

other than newspapers, where such sale

or purchase takes place in the course of

inter-State trade or commerce.

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��Problems with Sales tax Problems with Sales tax systemsystem

��State VATState VAT��Key benefits for Key benefits for ��Key benefits for Key benefits for introduction of VATintroduction of VAT

��Levy of VATLevy of VAT��Classification of goodsClassification of goods

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��Basic RatesBasic Rates�Exempted category

�4% VAT rate category

�12.5% General VAT rate

(Revenue Neutral Rate)(Revenue Neutral Rate)

�1% Special VAT rate

�20% - Non-VAT goods

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OUTPUT TAXOUTPUT TAXANDAND

INPUT TAXINPUT TAXINPUT TAXINPUT TAXCREDIT MECHANISMCREDIT MECHANISM

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��Mechanism of VATMechanism of VAT��Input tax & Output taxInput tax & Output tax��Input Tax Credit(ITC)Input Tax Credit(ITC)��Input Tax Credit(ITC)Input Tax Credit(ITC)

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� Input purchased within month :Rs.1,00,000/-

� Output sold in the month :Rs.2,00,000/-

� Input tax paid (a) :Rs.4000/-

� Output tax payable (b) :Rs.25,000/-

��VAT LiabilityVAT Liability

� Output tax payable (b) :Rs.25,000/-

� VAT payable during the month :Rs.21,000/-After set-off/input tax credit

[(a) – (b)]

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��ITC is prescribed for purchases ITC is prescribed for purchases made for the following purposes:made for the following purposes:

�Sale within State

�Sale in course of inter-State trade &

commerce.commerce.

�Sale in course of export out of territory

of India.

�Being used as packing material of goods

for sale.

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�Being used as raw material- mfg.- other

than exempted.

�Being used as raw material- mfg.- export

�Being used in the state as capital goods.Being used in the state as capital goods.

�Goods purchased- mixed use- ITC

allowed proportionately.

�Stock transfer- ITC reversal of 2%

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�Which are being used in manufacture of

Exempted goods

�From registered dealer opting for

Composition scheme

��ITC is not allowed on purchases ITC is not allowed on purchases of goodsof goods

Composition scheme

�Imported from Outside India

�Where the purchase Invoice is not

available

�Notified by the state govt. as not eligible

for taking credit12

�For Personal use

�From Unregistered dealer, because he

cannot issue VAT invoice

�Where invoice does not show amount of

Tax separatelyTax separately

�From other State (on payment of VAT of

other state or on payment of CST)

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��Carrying Over of Tax CreditCarrying Over of Tax Credit��Zero Rated SaleZero Rated Sale��Exemption or refund to SEZ & Exemption or refund to SEZ &

EOU unitsEOU unitsInputs procured from other Inputs procured from other ��Inputs procured from other Inputs procured from other statesstates

��Treatment under Composition Treatment under Composition SchemeScheme

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��Compulsory issue of Tax Invoice, Compulsory issue of Tax Invoice, Cash memo or BillCash memo or Bill

��Purchases of Goods used in Purchases of Goods used in relation to business but not as relation to business but not as inputs inputs –– Maharashtra VATMaharashtra VATinputs inputs –– Maharashtra VATMaharashtra VAT

��One to one correlation not One to one correlation not requiredrequired

��No ITC if final product is exemptNo ITC if final product is exempt��Unregistered Purchase taxUnregistered Purchase tax

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COMPOSITION COMPOSITION SCHEME, SCHEME,

REGISTRATION & REGISTRATION & REGISTRATION & REGISTRATION & DOCUMENTATIONDOCUMENTATION

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��Composition SchemeComposition Scheme--Important AspectsImportant Aspects

�All registered dealers- eligible to opt for

composition scheme

�Optional (Not compulsory)�Optional (Not compulsory)

�Max. turnover limit- 50 lacs

�Rate of tax is 1% of turnover

�Dealers under this scheme shall not get

any ITC

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�If dealers turnover crosses the notified

amount, such dealers are automatically

out of composition scheme

�If dealer wants to be under regular

scheme then application can be made to scheme then application can be made to

respective VAT jurisdiction

�Dealers under this scheme cannot make

interstate purchases and sales

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��RegistrationRegistration�Registration Number(TIN)

��DocumentationDocumentation�Return Filing�Return Filing

�VAT Invoice�� ImportanceImportance

��ContentsContents

��Other InvoicesOther Invoices

�Credit Notes and Debit Notes

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CENTRAL SALES TAXCENTRAL SALES TAX(CST)(CST)(CST)(CST)

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��Rate of TaxRate of Tax◦ Local rate or 2% whichever is higher without

C-Form

◦ Local rate or 2% whichever is lower with C-

Form

��ExemptionExemption��ExemptionExemption◦ CST is exempt if local sale is exempt

◦ Sale in transit is exempt

◦ Sale to SEZ – Against Form I

◦ Sale to Exporter – Against Form H

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��Stock TransferStock Transfer• Form – F is required to establish stock

transfer

��Interstate SalesInterstate Sales• U/s 3(a) sale is interstate if it occasions • U/s 3(a) sale is interstate if it occasions

movement of goods from one state to

other

• U/s 3(b) by transfer of documents of

title during movement of goods from

one state to another

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Situs of saleSitus of sale-- Sec Sec 44 of CST Act of CST Act

In case of specified or ascertained goods

�The state in which goods are lying at the

time when contract of sale is made

In case of unascertained or future goodsIn case of unascertained or future goods

�The state in which goods are appropriated

to the contract of sale

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��Statutory FormsStatutory Forms�FORM AFORM AFORM AFORM A: Application for registration

under CST Act

�FORM BFORM BFORM BFORM B: Certificate of Registration

�FORM CFORM CFORM CFORM C: Declaration by purchasing registered dealer to obtain goods at registered dealer to obtain goods at concessional rate

�FORM DFORM DFORM DFORM D: Withdrawn with effect from 01.04.2007

�FORM E1, E2FORM E1, E2FORM E1, E2FORM E1, E2: Certificate for Sale in transit

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�FORM FFORM FFORM FFORM F: Certificate for Stock transfer

�FORM GFORM GFORM GFORM G: Indemnity bond when C form

lost

�FORM HFORM HFORM HFORM H: Certificate for benefit of

deemed Exportdeemed Export

�FORM IFORM IFORM IFORM I: Certificate by SEZ unit

�FORM JFORM JFORM JFORM J: Certificate to be issued by

foreign diplomatic mission or consulate

in India or the UN Agency

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DEEMED SALESDEEMED SALESDEEMED SALESDEEMED SALES

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Article Article 366 (29A)366 (29A)“Tax on sale or purchase of goods” includes “Tax on sale or purchase of goods” includes

(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(b) a tax on the transfer of property in goods (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(c) a tax on the delivery of goods on hire-purchase or any system of payment by installments;

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(d) a tax on the transfer of the right to use

any goods for any purpose (whether or not

for a specified period) for cash, deferred

payment or other valuable consideration;

(e) a tax on the supply of goods by any

unincorporated association or body of unincorporated association or body of

persons to a member thereof for cash,

deferred payment or other valuable

consideration;

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(f) a tax on the supply, by way of or as part of

any service or in any other manner

whatsoever, of goods, being food or any

other article for human consumption or any

drink (whether or not intoxicating), where

such supply or service is for cash, deferred

payment or other valuable consideration, payment or other valuable consideration,

and such transfer, delivery or supply of any

goods shall be deemed to be a sale of those

goods by the person making the transfer,

delivery or supply and a purchase of those

goods by the person to whom such transfer,

delivery or supply is made;29

��Hire PurchaseHire Purchase[Article 366(29[Article 366(29--A)]A)]

��Right to Use (Lease)Right to Use (Lease)��Right to Use (Lease)Right to Use (Lease)��Works ContractWorks Contract

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COMPUTATION OF COMPUTATION OF VATVATVATVAT

(ILLUSTRATIONS)(ILLUSTRATIONS)

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Different Stages of VATDifferent Stages of VAT

VAT Rate: Raw material @ 12.5%

Finished goods @ 12.5%

FIRST STAGEFIRST STAGEFIRST STAGEFIRST STAGE---- Raw material producer

Inputs Sale Price Tax

charged

Tax already

paid

Net VAT

payable

SECOND STAGESECOND STAGESECOND STAGESECOND STAGE---- Manufacturer

charged paid payable

0 1000 125 0 125

Purchase

Price

Value

Addition

Sale

Price

Tax

charged

Tax already

paid

Net VAT

payable

1000 1000 2000 250 125 250-125

=12532

THIRD STAGETHIRD STAGETHIRD STAGETHIRD STAGE---- Wholesaler

FOURTH STAGEFOURTH STAGEFOURTH STAGEFOURTH STAGE---- Retailer

Purchase

Price

Value

Addition

Sale

Price

Tax

charged

Tax already

paid

Net VAT

payable

2000 100 2100 262.50 250 262.5-250

=12.50

FOURTH STAGEFOURTH STAGEFOURTH STAGEFOURTH STAGE---- Retailer

Purchase

Price

Value

Addition

Sale

Price

Tax

charged

Tax already

paid

Net VAT

payable

2100 420 2520 315 262.50 315-262.5

=52.50

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Value addition & involvement of taxValue addition & involvement of tax

First Stage

1000

Tax=125

Second Stage

1000

Tax=125

Third Stage

100

Tax=12.5

Fourth Stage

420

Tax=52.50

Total Value addition= 1000+1000+100+420

= 2520

Since tax rate at each stage is @ 12.50%,

Therefore, Net tax payable= 315

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VAT in InterVAT in Inter--State TradeState Trade

Inter-State Trade

Inter-State sale

Delhi

Purchase

Maharashtra

C-FORM

Cost Price 10,000 Cost Price 12,240Cost Price 10,000 Cost Price 12,240

Local Tax paid on

Purchase (12.50%)

1,250 Local Tax paid on

Purchase

0

Sale Price 12,000 Sale Price 13,000

CST charged @ 2%

Agnst. C-Form

240 Local Tax charged @

12.5%

1,625

VAT Credit 1,250 VAT Credit 0

Tax Payable -1010 Tax Payable 1,625

(240-1,250) (1,625-0)35