Professional Documents
Culture Documents
001 Mvat
001 Mvat
CONTENT
Sr. No.
Topics Covered
1
Section I Introduction to Value Added Tax.
2
Section II Value Added Tax in Maharashtra.
A. Introduction.
3
4
5
Page No.
1 12
13
14 16
17 21
22 27
28 36
37 44
45 48
G. Business Audit.
49 51
H. Appeals.
52 56
I.
57 61
-0-
62 66
67 69
70
71
consumption, hence the provision of a mechanism enabling producers to offset the tax
they have paid on their inputs against that charged on their sales of goods and services.
Under VAT revenue is collected throughout the production process without distorting
any production decisions.
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WHO PAYS?
All dealers registered under VAT and all dealers with an annual turnover of more than
Rs 5 lakh will have to register. Dealers with turnovers less than Rs 5 lakh may register
voluntarily.
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OTHER CONSIDERATIONS
It is imperative that policy makers in considering adoption of VAT should be interested in
the economy wide impact of this tax. Special emphasis is often placed on its effect on
equity, prices and economic growth.
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expressed as a proportion of current income. However if, following the premise that
welfare is demonstrated by the level of consumption rather than income, consumption is
used as the denominator the impact of VAT would be proportional.
A proportional
burden would also be demonstrated if lifetime income rather than current income is
used. A lifetime income concept considers the fact that many income recipients are only
temporarily at lower income brackets as their earnings increase. In order to address the
regressivity of VAT the following measures can be taken:
The VAT itself can be used to differentiate taxation of consumer items that are
consumed primarily by the poor such that they pay less or at zero rate or to tax luxury
goods at a higher than standard rate.
VAT exemptions may also be granted on goods and services that are consumed
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Equity concerns may also be addressed through other ways, outside the VAT
system, such as other tax and spending instruments of government. This could be in
the form of lower basic income tax rates on the poor or some pro-poor expenditures of
government. The use of multiple rates of VAT has however been widely discouraged for
various reasons. These include:
higher quality expensive products e.g. food, consumed by the rich and ordinary
products consumed by the poor. Thus any concessions extended may tend to benefit
the rich much more than the poor.
brings with it problems of delineating products and interpreting the rules on which
rate to use.
significantly increased costs of tax compliance for small firms, which are usually
This
results in the use of presumptive methods of determining the tax liability, which
leads to more difficulties in monitoring the compliance. The higher compliance cost
resultant from differentiation of VAT rates may also be regressive with respect to income
since smaller firms with lower income tend to bear proportionately more of the burden
than do larger firms.
Exemptions refer to situations where output is not taxed but taxes paid on inputs are not
recoverable.
effects of tax through the effect on incomes. The effects of exemption may be as
follows:
falling of revenues exemptions break the VAT chain. If exemptions are granted
at prior to the final sale, it results in a loss of revenue since value added at the final
stage escapes tax.
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substituting away from such inputs thus distorting the input choices of the said
producers.
Exemptions may create incentives to self supply i.e. tax avoidance by vertical
integration.
exemption creep.
This arises from the fact that each exemption gives rise to
pressures on further exemption. For example creating an exemption to reduce the tax
burden on a particular commodity or goods may lead to increased pressure for
exemption or zero rating of inputs used for the production of such a commodity.
Based on the above, it is important that care is taken when introducing exemptions in
order to avoid distortions in the production process as well as to minimize revenue loss
resulting from such distortions.
Given the fact that the primary purpose of VAT is to raise government revenue in an
efficient manner and with as little distortions of economic activity as possible,
distribution effects are perhaps better addressed by other forms of tax and government
expenditure policies which can often be better targeted at these aims.
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FEATURES OF VAT
1. Rate of Tax VAT proposes to impose two types of rate of tax mainly:
a. 4% on declared goods or the goods commonly used.
b. 10-12% on goods called Revenue Neutral Rates (RNR). There would be
no fall in such remaining goods.
c. Two special rates will be imposed-- 1% on silver or gold and 20% on
liquor. Tax on petrol, diesel or aviation turbine fuel are proposed to be kept
out from the VAT system as they would be continued to be taxed, as
presently applicable by the CST Act.
2. Uniform Rates in the VAT system, certain commodities are exempted from tax.
The taxable commodities are listed in the respective schedule with the rates. VAT
proposes to keep these rates uniform in all the states so the goods sold or
purchased across the country would suffer the same tax rate. Discretion has
been given to the states when it comes to finalizing the RNR along with the
restrictions. This rate must not be less than 10%. This will ensure By doing this
that there will be level playing fields to avoid the trade diversion in connection
with the different states, particularly in neighboring states
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It provides the potential for a stronger manufacturing base and more competitive
export pricing.
with
less
VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added
Tax Act (MVAT Act), supported by Maharashtra Value Added Tax Rules (MVAT Rules).
VAT is levied on sale of goods including intangible goods.
The meaning of goods for VAT purposes
Goods means every kind of moveable property including goods of incorporeal and
intangible nature but there are some exclusion, such as newspapers, actionable claims,
money, shares and securities and lottery tickets.
Businesses engaged in. the buying and selling of goods within the scope of the VAT law
are referred to as dealers.
The meaning of 'sale' for VAT purposes
A transaction of sale can be a:
The rate of tax applicable to the goods sold under various classes of sales is uniform.
However, in respect of normal sales of goods and deemed sales of goods under works
contract and specified deemed sale of goods given on lease, the Act provides for an
optional method for discharging tax liability by way of composition. Being so, the tax
liability has to be determined with reference to the option exercised by the dealer for
discharging tax liability.
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Importer
Others
Annual Turnover of
Turnover of sales or
Fees payable on
Sales
purchase of taxable
registration
1,00,000
5,00,000
100
100
If the dealers turnover is less than the above threshold, then they are not liable to
collect and pay VAT. However, if a dealer wishes to avail the benefits of being a
registered dealer, then they may apply for voluntary registration by paying a fee of
Rs.5,000/ -.
Benefits of being a registered dealer
As a registered dealer, they are entitled to:
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A dealer must inform the Sales Tax Department within 30 days of the event. In case of
disposal or sale of business, their successor will need to apply for a fresh registration
certificate.
For cancellation of registration a dealer should submit form 103 which is available with
the local
also be downloaded
www.vat.maharashtra.gov.in
If the Sales Tax Department cancels the dealers registration, they must return the
Certificate of Registration
The cancellation of their certificate does not affect their liability to pay any tax, interest
or penalties in respect of any period prior to the date of cancellation of their registration.
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inform their sales tax office of any changes in the details previously reported to
the sales tax office;
calculate the tax due and submit correct, complete and self consistent returns
and pay the amount of tax due on or before the due dates;
maintain adequate records and retain them for a period of five years from the end
of the tax year to which they relate;
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Amount
VAT @
(Rs.)
4% (Rs.)
50,000
1,50,000
1,00,000
2000
6000
(2000)
4000
1,50,000
1,80,000
30,000
7,200
(6,000)
1200
Shopkeeper C
Purchases polished stainless steel utensils
1,80,000
Packing material
5,000
Total Purchases
1,85,000
Sales
2,25,000
Value added
40,000
Shopkeeper C is liable to pay V AT on Rs.2,25,000 @ 4%
9,000
Set off of tax paid on purchases (Rs.7,200 + Rs.200 of
7,400
packing material)
Net VAT amount to pay with the Return
Vendor D
Tax paid costs
Sales
Value Added
1,600
Nil
5,000
5,000
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200
9,000
4% on Rs.2,25,000 is :
The State Government received the tax in stages. The payments of tax were as follows:
Particulars
Suppliers of Company A
Company A
Partnership B
Shopkeeper C
Vendor D
Total
Amount (Rs.)
2,000
4,000
1,200
1,600
200
9,000
Thus, through a chain of tax on sale price and set off on purchase price, the cascading
impact of tax is totally eliminated.
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Rate of
Illustrative Items
e
A
B
C
tax
0%
1%
4%
20% and
above
12.5%
(The list is illustrative and not exhaustive. Please refer to the schedules for details)
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Bakers,
Works contractors
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be accounted for in the period in which the appropriate entries are made in their
books of accounts.
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Dealers administrative costs relating to labour and services and any other
similar expenses.
any profit element that relates to the supply of labour and services.
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To calculate the tax due, dealer should start allocating their turnover of sales in the
return period (net of the above deductions) to the rates of tax they have been charged.
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inter-State purchases.
direct purchases from exempted units under the Package Scheme of Incentives.
The resulting figure represents purchases against tax invoices from registered dealers.
Calculating the amount of set off due (VAT paid on purchases)
This is the next stage of tax calculation. At this stage VAT is charged on total purchases.
Dealer must, however, make some adjustments to this amount for, in certain cases, the
full set off of the VAT paid on purchases is not available.
Adjustments to tax available for set off
Then a dealer must calculate the value of those items and deduct tax @ 4% of the
corresponding purchase price from the amount otherwise available for set off. (Not
applicable to PSI dealers other than the New Package Scheme of Incentives for
Tourism Projects, 1999 and also to manufacturers of tax-free sugar or fabrics covered
by Entry A 45 and where such goods are sold in the course of export falling under
section 5 of the CST Act, 1956).
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Similarly, if the goods are stock transferred by way of branch / consignment transfer to a
place outside the State, deduct tax @ 4% (1 % in respect of goods covered by
Schedule B) of the corresponding purchase price from the amount otherwise available
for set off.
Dealer must also make further adjustments as follows:
If they have been used any goods (other than capital assets) as part of a works
contract for which they have been opted for payment composition @ 8% on the
total contract value, they must also deduct 36% of the amount from the set off
otherwise available (4% of purchase price in respect of construction contracts for
which they have been opted for payment of composition @ 5% on total contract
value).
Where a dealers sales are less than 50 % of their gross receipts, then they can
claim set off only on those purchases of goods or packing materials effected in
that year where the corresponding goods are sold within six months of the date
of purchase or consigned within the said period to another State by way of stock
transfers.
If a dealer is the retailer of liquor vendor and its actual sale prices are less than
the Maximum Retail Price, there is a special formula for calculating the amount of
the adjustment. Effectively this means that, if a dealer sells at 75% of the MRP
then they can claim set off only to the extent of 75% of the tax paid.
A dealer can not claim any set off for the tax paid on any purchases that remain
unsold on the date when business discontinues.
All this information should be available from their records, including tax invoices and
bills or cash memorandum they have issued, and the tax invoices they have received.
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Inputs are taxable at higher rate as compared with the rate of tax on output.
Outputs are CST sales which are taxable at the concessional rate of CST.
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Whatever may be the reason for credit in excess of tax due and payable during a tax
period, dealers are eligible to claim refund of such excess credit. For the purpose of
granting refund, dealers have been classified under two categories viz. a) specified
class of dealers and b) other dealers
Refund to specified class of dealers
Specified classes of dealers are :
A unit set-up in SEZ or STP or EHTP or a 100% EOU unit. These units have to
be certified by the Commissioner of Sales Tax.
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They had filed the return with the Returns branch as per the prescribed time
schedule.
The return filed by the dealers should be correct, complete and self-consistent.
Refund application in Form 501 is filed with the Refunds branch in time.
They should have promptly furnished Bank Guarantee and other details when
called for.
They should keep ready all the documents and records for audit.
They should file the return for a period for which they are required to file.
Thus, if they are required to file a quarterly return, but they file a monthly return, then
the refund would not be granted for the monthly return. In order to be eligible for refund,
they would have to file a quarterly return.
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To Be Used By
All VAT dealers other than dealers executing works contract, dealers
engaged in leasing business, composition dealers (including dealers
opting for composition only for part of the activity of the business), PSI
222
223
opting for composition only for part of the activity of the business).
VA T dealers who are also in the business of executing works
contracts, leasing and dealers opting for composition only for part of
224
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of
works
contracts,
leasing, frading and composition only for part of the activity of the
225
A dealer can refer to the instructions given in the form before filling the return.
Please ensure that the return for a tax period covers all the transactions of sales,
purchases, branch transfers received, branch transfers made etc. Further, they must
ensure that all the columns of the return are duly filled in and are clearly legible. If a
particular column is not relevant, please do not leave it blank but mention" not
applicable". The return filed by them must be correct, complete and self-consistent.
Time schedule for filing returns
Periodicity of filing returns is as follows:
Retailers who have opted for composition should file six-monthly returns.
Newly registered dealers should file quarterly returns until the end of the year in
which they first register.
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All other dealers should file returns as given below :o Dealers whose tax liability in the previous year was less than
Rs.1,OO,OOOj- (Rs.1lakh) or whose entitlement for refund was less than
Rs.10,OO,OOOj- (Rs.10lakh) should file six-monthly returns.
o Dealers whose tax liability in the previous year was more. than
Rs.10,00,000- (Rs.10lakh) or whose entitlement for refund was more than
Rs.l,00,00,000- (Rs1crore) should file monthly returns.
o All other dealers should file quarterly returns.
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Consequences for filing a return, which is not correct, complete and selfconsistent
Each of the returns filed by them is checked to confirm that the same is correct,
complete and self-consistent. In case the return is defective, a defect notice is issued by
the Returns Branch pointing out the error or the omission. On receipt of the notice, it is
required to file fresh return which is correct, complete and self-consistent and should
also pay differential tax due, if any.
The return filed by them in response to defect notice is termed as Fresh Return and the
dealer should indicate so on the return in the space provided for the same.
Fresh return rectifying the defects has to be filed within the time limit specified in the
defect notice. Failure to comply with the notice would be construed as non-filing of
return and consequently, a unilateral (ex-parte) assessment order would be passed.
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The various types of returns and their description have been summarised as under:
Type Of
Description
Return
Original
The return filed by the dealer originally along with the payment
Fresh
in the bank.
The return filed by the dealer after the department issues a
Revised
defect notice.
The return filed by them to correct any error or omission.
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a quarterly return, in form 224, for the period from the first day of the quarter in
which the event occurs to the date the Certificate of Entitlement ceases, and
a quarterly return, in form 221 or 222 or 223 as the case may be, for the
remainder of that financial year. For succeeding years, the period and
frequency of the returns will be determined on the basis of the tax liability or
entitlement for refund of the preceding financial year.
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record payments for the purchases and sale of goods in cash book / bank book.
be supported by invoices for all goods purchased, and copies of invoices, and
bills or cash memoranda, issued for goods sold.
the words 'Tax invoice', printed in bold letters at the top or at a prominent place;
date of issue;
description of the goods, the quantity and price of the goods sold;
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rate and the amount of the tax charged and indicated separately;
And it must also be signed either by dealer or by someone who is authorized by the
dealer.
If a dealer issues a bill or cash memorandum, it must contain:
if a dealer is 'a composition dealer (other then works contractor) then the words
Composition Dealer at the top of the bill / cash memorandum;
date of issue;
description of the goods, the quantity and price of the goods sold;
And it must also be signed either by dealer or by someone who is authorized by the
dealer.
Retention of records
A dealer must keep all their records including tax invoices / bill / cash memorandum,
relating to their stock of goods, purchases, sales, deliveries and payments made or
received for the purchase or sale of goods for a minimum of five years from the end of
the year to which they relate.
However, in case any legal proceedings are pending; the records pertaining to that
period should be retained till the proceedings reach finality.
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in whose case they have reason to believe that the return may not be correct or a
detailed scrutiny is necessary
A dealer who consistently and regularly complies with the VAT law and files correct,
complete and self consistent returns will normally not be selected for audit. The
selection of audit cases will be by exception rather than as a rule.
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In addition, there are two important differences: 1. The Tribunal has the discretionary power to award costs.
2. The decision of the Tribunal is final, especially on points of facts, subject only to
an appeal to the High Court if the case involves a substantial question of law.
If the dealer fails to attend the hearing by the Tribunal, then they will be liable to such
costs as the Tribunal may award.
If the dealer, or the department, are not satisfied with the decision of the Tribunal and
believe that the disagreement involves a substantial question of law, an appeal can be
filed before the High Court. However, such filing of an appeal to the high court shall not
affect their liability for payment of tax / claim of refund as per the order of the Tribunal.
Appeal to the High Court
Dealer may appeal to the High Court within 120 days of receiving the order from the
Tribunal. A statement setting out in detail the point(s) of law to be decided must
accompany the appeal memo.
Late appeals
A late appeal may be admitted provided that they have a good reason for not making
the appeal within the time allowed.
But they must demonstrate that, having become aware that their appeal was late, then
they had made the appeal without further delay.
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or
can
be
downloaded
from
the
Sales
Tax
Office
website
www.vat.maharashtra.gov.in
Dealers will be issued the requisite number of forms on payment of the following fees by
way of court fee stamps only:
SR.No.
Type of
Form
1
2
3
4
5
C
F
H
E-I
E-II
(Rs.)
3.00
3.00
3.00
1.00
1.00
The statutory forms will be issued on a quarterly basis only after the transactions of the
said quarter are completed. However, form F will be issued on a monthly basis.
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Dealer will be given an opportunity to present their case before the Commissioner
makes an order. If the dealer disagrees with the commissioner's ruling, then they may
appeal to the Tribunal against the order.
However, if the Sales Tax Department has commenced assessment proceedings or if
the case is pending in appeal, dealer can not apply for determination of disputed,
question.
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periods for which Sales Tax Office have made al1 assessment.
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issues any document (including bills, cash memoranda, vouchers or any other
certificate or declaration) which the dealer knows or has reason to believe is
false.
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files a return.
In these circumstances, the dealer may be prosecuted and a fine may also be
imposed.
There are two other events that may also give rise to a penalty. If the dealer:
transfers any assets of his business with the intention of not paying tax, or
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The penalty is an amount equal to the tax due. If the dealer avoids paying the
correct amount of tax as a result of issuing bogus, false tax invoices, the maximum
penalty is an amount equal to half of the tax under assessed or Rs.100/-, whichever
is higher.
Non Tax Related Penalties
If the dealer fails to file a return, within the time allowed, the penalty is Rs.2,000/-. If
dealer files the return late but before any penalty proceedings have started, the
penalty will be reduced to Rs1,000/-.
If the dealers return is not correct, complete and self-consistent, the penalty is
Rs1,000/-, but this is without prejudice to any other penalties that may be imposed.
If, after the issue of summons, the dealer fails to attend any proceedings or to
produce books of account, registers or documents, the Tribunal or the Sales Tax
authorities may impose a fine, not exceeding Rs.5,000/-.
Most other offences attract a penalty of Rs.1,000/- although there is also a provision
for some offences to attract a penalty of Rs.2,000/- plus a continuing daily penalty of
Rs.100/-
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Appendix 1
Form
Subject
No. Number
1
101
2
103
3
210
221
222
223
224
business.
Return-cum-chalan
for
PSI
dealers
holding
Entitlement
225
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304
Form 223).
Application for cancellation of assessment order under section
(1) of section 23 of the Maharashtra Value Added Tax Act,
10
11
12
13
14
310
2002.
Appeal against an order of assessment, interest, penalty or
311
fine.
Application for grant of stay against order of assessment,
414
501
704
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There are total 40 Sales Tax Office located all over the Maharashtra. Out which
some of them are in: Mumbai (Head Quarters), Bandra, Raigad (Division), Thane
(Division), Kalyan, Nalasopara, Palghar, Pune (Division), Solapur, Kolhapur
(Division), Satara, Sangli, Ratnagiri, Nasik (Division), Ahmednagar, Aurangabad
(Division), Nagpur (Division), Wardha, Amaravati (Division), Akola, and many more
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Conclusion
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