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1.What is VAT ? Value Added TAX or VAT is a multi point taxation system wherein tax is levied at each stage. It is a simple and transparent system of taxation that is fair to business and consumers. VAT is levied on sales of all taxable goods. VAT is not levied if sale of goods is not made in the course of or in furtherance of business. 2.How VAT is computed ? VAT is a tax at each stage on value addition . While computing the final tax liability, the tax paid on earlier stage that is on purchases etc is deducted from the tax payable known as output tax ( on sales) & net balance if any is payable into the Government Treasury. Example : Tax Credit –Incase of Chain Of Distribution Producer Manufact Particulars of RM urer
Whole Seller 250 12.50% 31.25 25 6.25
Retailer 300 12.50% 37.5 31.25 6.25
100 4% 4 0 4
200 12.50% 25 4 21
Rate of Tax Tax Charged Tax Paid (Input Tax) Value Added Tax
3.Why VAT system of taxation is acceptable?
It is acceptable due to the following advantages.
• It eliminates cascading effect of taxes. • Set off of input tax will be allowed on previous purchases. • Overall tax burden will be rationalized & prices in general will fall. • It promotes competitiveness of exports. • It has simple & transparent structure. • It improves compliance. • High revenue growth. • It improves dealer-friendly tax administration. • System of invoice enables the authority to cross check declared transactions between tax payers. • Self Assessment by dealers. • It removes multiple taxes like surcharge, additional surcharge. turnover tax etc. on goods. • It minimizes litigation because of less rate slabs. • It ensures no war between the states. • It promotes development of ancillary industries. • It removes all barriers to inter-state trade and commerce and export out of the territory of India. • It ensures few tax exemptions.
It assures a reliable IT support to achieve automation filing of return etc.
4.Who should pay VAT ? An Individual, Partnership, Corporation /Company HUF, any Mercantile Agent, registered dealer under CST Act etc., who sales goods in the course of business and who is registered under repealed act & will required to register for VAT should pay VAT. 5.When is VAT Chargeable ? VAT is chargeable if the sales of goods- are made in the State - are made by a VAT dealer- are made in the course of or in furtherance of a business; and - are not specifically exempt or zero-rate. 6.Who can be Registered. • Manufacturers. • CST dealers. • Importers / Trader who import goods into the State. • Dealers with turnover exceeds certain limit. • Existing dealer will be automatically registered. • New dealer has to be registered within 30 days from the date of liability to get registered. 7.Which Sales are covered under Vat? • Transfer of property in goods for cash, deferred payment or valuable consideration. • Transfer of property in goods involved in execution of works contract. • Delivery of any goods on hire purchase / installments. • Transfer of right to use goods for any purpose/ period. • Supply by way of or as a part of any service. • Supply of goods by unincorporated association / body of person to its members.
8.What is the Taxable Limit under VAT Act. Imports for sale any goods into the State on his A own behalf or on behalf of his principal b Manufactures or produces any goods for sale C Engaged in any other business other than clause (a) and (b) d Involved in the execution of works contract and leasing
Nil Rs.50,000 Rs.5,00,000 Rs.25,000
Limit differes from State to State. 9.
Can one will be registered if turnover is below the limit ? No, if your turnover is not crossing the specified turnover limit then you need not get yourself registered under VAT Act & pay. 10.What is Tax Identification Number?
It is a 11 digit code to identify a taxpayer. It is issued to all the dealers on the same line as PAN under Income Tax Act. 1st two character will be same as state code & rest will be differ from state to state.
It will facilitate computerization. It helps to detect stop filers, delinquent accounts, cross-checking of information on tax payer compliance -
11.Who is an Importer ? Importer means a businessman who buys goods from a State outside and brings them into the State. Importer also means a businessman to who goods are dispatched from place outside the State. 12.Who is a Non-Resident Dealer ? Non-Resident Dealer is a dealer who does trading of goods (purchase or sale)in the state but has no fixed place of business or residence in that state. 13.Whether Non Resident Dealer is required to be registered under VAT Act ? Yes, he is also required to get himself registered under VAT Act & pay VAT if he crosses the prescribed limit. 14.If the turnover is not crossing the specified turnover limit, can one be registered as dealer? Yes, you can obtain registration under voluntary registration scheme but you will be liable to pay tax from the date of registration on all the turnover of taxable goods even though it is below the specified limit. 15.Who will be benefited by VAT, and how ? In the present scenario of globalization & competition ultimate benefit will go to the consumer. But there is no mechanism to see that entire benefit enjoyed by the consumer. • • • • Manufacturers will be benefited the most since they will be entitled to claim Input tax credit including entry tax. Exporters will also be benefited as they would be truly having a zero rated exports but entire input tax will be either set off or refunded The Distributors & Retailers will have to pay output tax after adjustment of input tax including entry tax . Consumer will have to take the overall impact of the taxes and will have to bear the ultimate tax burden & ultimate benefit goes to the consumers.
16.Which sales are exempted ?. o l d . • The same will be reviewed after above period.What is output tax ? It is the tax charged or chargeable under the Act by a registered dealer for the sale of goods in the course of business.What will be the Rate structure under VAT Scenario. Ee p dt xme Ie t Bli ngl u o. 21. textiles & tobacco will not be imposed due to organizational difficulties for a period of one year.Which Sale is Zero rated?.(62 category of goods listed in Schedule “I” ) 19. To a dealer having business under special economic zone.input tax paid Incase of Unregistered dealer: VAT = (Output Tax liability + Purchase Tax payable). 17. Wtsh h i te a When goods are sold In course of inter state trade & commerce. Incase of registered dealer: Tax payable = (O+P)-I (Output Tax liability + Purchase Tax payable) .What will happen to AED Goods? • Vat on AED items relating to sugar. In course of export out of the territory of India.How is VAT calculated ? VAT is payable by a dealer in any taxable period (monthly) calculated as follows. Exempt sales are listed in schedule or notified . software technology park. To an export oriented unit 20. electronic hardware technology park. 18. • These goods are subject to levy of excise under Additional Duties of Excise (Goods of Special Importance) Act 1957.What is input tax ? . 22.
The Rate of Tax . • CST will be phased out from 4% to 0% during coming 3 years. Octroi. additional tax etc.What will happen to Entry Tax? Entry tax treated as Input Tax & eligible for Set Off. Sales covered by section 6(2) of the Central Sales TAX Act. There is no other taxes like turnover tax. if any.Excise duty. • Lessor.What does sale price included ? Sale price includes following: • 1. Since there will not be any change in the Central Sales TAX Act.What will be happen to Central Sales Tax ? • Input tax on purchases made through inter state trade from outside state will not be allowed.Whether Transit sales or High seas sales under CST ACT 1956 will be continued ? Yes.What is Composition Scheme? Scheme of Composition of Tax shall be available to only such Dealer(s). Resale Tax.Is CST paid will be allowed for input tax credit ? No.Who can claim Tax Credit? A Registered dealer who is a : • Manufacturer • Wholesaler • Works contractor • Any Registered trader other than Retailer. 24.Value of goods. 29.What happens to Surcharge and Turnover Tax ? The rate under the VAT Act will be a single rate. 23. etc.Customs Duty. 26. the credit is not available to the 32. • Empowered committee is working out the demands made by the states to phase out over a period of 3 years 4% . the declaration prescribed under the CST Act will continue.Will ‘F’ Forms or ‘C” Forms be continued ? Yes.It is the tax paid in respect of the purchase of goods from registered dealers of the State. • 4. other than the works contractors. whose gross turnover does not exceeds Rs.(at present 2%) • Statutory declaration form will continue up to phasing out of CST Act.50 lakhs in a year. Branch transfer/consignment transfer outside the state would continue to be without any levy of CST against declaration in Form ‘F”.What will happen to the declaration forms ? All the declaration under the local act will be abolished as VAT is to put all dealers at par with each carrying the same rate of tax. 28. • 3. • 5. 25. How ever in other states entry tax in lieu of octroi duty will continue. 30. surcharge.Deposit whether refundable or not in connection with or incidental to the sale. if any. • 2.3% -2% -1%.1956 will be continued ? 31. 27. Since it is paid to other State Govt.Any charge for anything done by the seller to the goods at or before delivery.
37.What is the Tax Period? It may be monthly or quarterly.What is available for set-off under that Vat Act ? -Tax paid on purchases. 38. You will be able to claim a refund of excess input tax incase of exports. civil construction / structure. 33. No Tax Credit is allowed On closure of business before commercial production.What is the basis one need to claim input tax ? Original tax Invoice showing clearly tax paid issued by the seller is the basis of claiming input tax credit. 35.2005. Being expenditure on land. 34. Vehicles for conveyance / transportation. Following details are to be produced • Date of purchase • Name of selling dealer • Description of goods • Registration number of the dealer-if registered • Bill no / Invoice number • Purchase price • Amount of sales tax recovered separately by the vendor • Amount of Purchase tax paid or payable by the dealer. If capital goodsPurchased before 01. Capital Expenditure incurred prior to date of Registration.04. Manufactures exempted goods / generation of power including captive power.What is the important condition for claiming Input Tax Credit ? Only a registered dealer of the of the sate with originally tax invoice will claim Tax Credit. -trading goods -Raw materials -Racking material and Fuel -Miscellaneous goods -Purchases tax paid by the dealer. Being secondhand / subsequent purchases. 36. . All dealers to follow the same financial year. If the claim for input tax credit exceeds the amount of output tax on the return.When you will claim input tax credit? It will be along with VAT return each month. • • • • • • • • • • Allowed over a period of 36 months from the date of 1st sale of taxable goods.applicable under the Composition scheme referred in this Section shall not be exceeding 8% on the Gross Annual Turnover.What is the period of filling Return under VAT Act? It may be monthly or quarterly besides annual return to be filled after end of the year.Input Tax Credit of Capital Goods. you are entitled to a refund or to carry forward a credit. 39.
Is there any provision for TDS under the VAT act ? Yes. Name & address of the printer. 41. Date of issue. Under VAT act while contractee making payment exceeding Rs. Purchase of used in manufacturing of exempted goods. dealer whose certificate of registration is suspended. . To be signed by selling dealer or his representative.What is the Contents of Invoice? • • • • • • • The word “INVOICE” is to be specified. • Execution of works contract – Tax paid by way of composition. Purchase of goods taxable at single point. One lakh during the year to a contractor engaged in the works contract will deduct a portion of tax at source and deposit the same in the GOVT. Treasury within time limit fixed . value of goods & tax charged . Registration number of selling & purchasing dealers. damaged . • Purchase invoice -does not show the amount of tax separately. quantity. registered dealer who pays composite tax / turnover tax. Name & address of the selling & purchasing dealers. description of goods.Is there any provision for Advance Recovery of Tax on sales & supplies to Govt. Goods imported from outside the territory of India.40. • Incase of sale of agricultural produces. & other persons?. first & last serial number of the tax invoice. Serial number for each year. • • • • • • • • • Purchases from : unregistered dealers. Taxable goods given away by way of: free samples gift used personally Lost due to theft.What circumstances Input Tax Credit is disallowed?. Inter state purchases ( CST Paid). Purchase of goods: • purchase invoice is not available.The Rate of deduction of tax a source will be notified by state not exceeding 10%. • In respect of capital goods specified in schedule. 42. • Unsold stock at the time of closure of business. 43. destroyed.
Any other Audit is required under VAT Act? Where in any particular year. cheque book counterfoils and pay-in-slips. including statements. Any person responsible for paying sale price of taxable goods exceeding Rs. • Records of tax collection at source and tax deduction at source. duly signed and verified by such “Accountant” or “Tax Practitioners”. then such dealer shall get his Accounts audited for the purpose of this Act. as may be prescribed. within six months from the end of that year and obtain a report of such Audit in the Prescribed Form. 44. • Credit and debit notes.total Input Tax (including Entry Tax). Details of input tax calculations where the VAT dealer is making both taxable and exempt sales. by an “Accountant” or “Tax Practitioners”. Bank records. delivery notes etc. records.What Records are required to be maintained under VAT Act? A VAT monthly account . • Computer/electronic records. in respect to that year. and net Input Tax payable. 45. Documents. and the balance sheet thereof. the gross turnover of a dealer exceeds 40 lakh rupees or such other amount as the prescribed authority may. • • Record of all Export of goods with supporting documents. not exceeding rate of tax applicable to goods or supplies. • Records of Entry Tax payment. The tax recovered will be deposited in the Govt. Stock records showing stock receipts and deliveries and any manufacturing records.What is vat Tax Audit under VAT act ? The departmental officers shall undertake tax audit of the records. and claim Forms for all transitional relief claims of tax credit for sales tax and for claims for VAT credit on first registration for VAT.Yes. • Sales records. who are selected by the Commissioner in the manner as may be notified for the purpose. where available. • A VAT monthly account-total Output Tax and net Output Tax • Purchase records. stock in trade and the related documents of the dealer. profit and loss accounts. • • • • • • . Order records. & submit the same by the end of the month after expiry of the period of six months during which the Audit would have been completed. Record of inter-State sales and inter-State transfer supported by "C Forms". "F Forms" and stock transfer invoices / vouchers etc. Annual accounts including trading. by a Notification in the Official Gazette specify.1 lakh during the year is required to recover the tax @ specified by the Govt. and setting forth such particulars. • Records of adjustment of VAT credit against liabilities under CST Act. • Records of details of availment tax deferment. • 46. • Records of calculation of Purchase Tax liability. • Cash records maintained by retailers. Treasury.
while selling goods to Central / Sate Govt.S.What will be the rate of Tax Applicable on Declared Goods under VAT ? Declared goods are those goods which are declared by Central Government to be of special importance under the provisions of C. It is calculated as follows: Taxable turnover = total turnover. 53..specified Adjustments. For example: mortgage. departments vat will be charged at normal prescribed rate for that product. pledge. records of daily receipts including cash register rolls. all vouchers. Return must be made within 6 months.Is it required to retain stock and Manufacturing Records ? Yes. These records must be maintained. i. etc. No special or concessional rates have been prescribed for such transaction.If VAT charged incorrectly to purchaser whether one will loose tax credit ? No. 54. In calculating input tax credit it is required to reverse that much tax credit as per the Credit Note .What will happen incase of return of goods to supplier? In this case the supplier will have to issue a credit note for the value of goods returned as well as VAT charged. 49. They are essential for Vat accounting & Audit.T.47.What is taxable turnover and how is it computed ? The Taxable Turnover means turnover liable to tax . . hypothecation. 50. Where dispute pending with different authorities the same may be kept till final. Act. 52. Specified Adjustments Include • Goods Returned • Discounts • Exempt Items. including petty cash vouchers: all account books.Whether Quantitative Discount given by supplier to his customer is deductible from sales for arriving at taxable amount of sales ? Yes Quantitative discount given at the end of the period is allowable as deduction provided it was known to both the parties at the starting of the transaction period. a) In case of excess charge – Credit note b) Short charge – Debit Note. 48. In such case the following document to be issued. • Inter-State sales • Import & Exports • Others (Permissible adjustments).How Long do I have to retain my Records and Accounts ? Records to be maintained for 5 years .Will sales to Central / State Government Department will attract VAT ? Yes. 51.What About Cash Records ? Retain all records of your cash transaction including cash books.e. 56. While calculating tax credit necessary adjustments will be made in respect of the above stated credit/debit notes.What Is Not Included In Sales ? A sale does not include a transaction in which parties have no intention to transfer the ownership of goods. 55. The rate of VAT (Local Sales TAX) is subject to the maximum rate set under the CST Act. it should not be an afterthought.
the goods exported outside India. Software Technology Park (STP). This will promote production efficiency of investment.000/.1250. the goods are sold as tax paid.57.and charges VAT @ 12. Essential items such as agricultural implements manually operated or animal driven. are being set up to promote industry and create industrial base. then tax is collectible on subsequent points of sales of a goods. Rs. most of the goods are being taxed at first point.e. 61. does not get the tax on value addition at subsequent points of sale. In these transactions the tax rate will be zero and input tax credit will be available.Why are sales to SEZ.What is zero rating under VAT? How does it differ from exempt goods? Zero rate is applicable to goods for certain transactions under VAT and input tax credit is available on those transaction. It will not be known to the buyer at what price the dealer has purchased the goods. For administrative convenience. 63.5%. 58. value of goods and tax are mentioned separately on the invoice. the rate applicable to such transaction will be zero and the exporter will get full input tax credit. Sales to a unit under SEZ.10. The loss of revenue on account of set off/ input tax credit will be made up by tax collectible on subsequent . etc. STP are zero rated to encourage export.10. STP. This will make the exports competition. STP etc. STP. are treated on a par with export. are in the exempted category.How does VAT help industry? The provision of set of tax paid on purchase / input tax credit will eliminate cascading and double taxation. journals. Hence. sold to an EOU and to a dealer having business under a Special Economic Zone (SEZ).How does VAT help exports? The goods exported are zero rated under VAT. periodicals. Rs. 59. etc. 62. Electronic Hardware Technology Park (EHTP) are zero rated.Under VAT. Will not the Govt. For example. Under VAT. Then.e. Will not the buyer know the profit margin of a dealer? No. That means. the Govt. fresh milk. tax holidays. therefore. Investment decisions will not. 100% self assessment will reduce the tax payer’s need to visit tax department officer. 000/. Under VAT the revenue collected on the first point of sale is assured. Under VAT there will be no incentives/ exemptions to industries. books. which will increase competitiveness and encourage exports. Exempt goods are those goods whose tax rate is zero.5% i.There is provision of set off of tax paid on purchases. 60. the goods sold to SEZ. incur loss on account of introduction of VAT? Sales Tax is a single point taxation system. be based on tax consideration.00. The propose is that the goods exported or sold to outside the State will be free of any load of tax in it.and tax @12. a dealer sells a TV at Rs. he will indicate in the tax invoice the price of TV i. The price of the goods the dealer sells and the tax charged are to be indicated in the bill separately. but input tax credit will not be available. and EHTP & EOU zero rated? SEZ.How does VAT help trade? Uniform rates of VAT will boost trade.
not by an individual. he is required to maintain accounts of forms such as Form-XXXIV and IPR related forms. In comparison to the requirement under the Sales Tax Act. it is rather simple under VAT. if a dealer is paying tax regularly. he will continue to be registered.(b) the books of accounts relating to his business (c) An annual account of the stock of goods purchased and sold by him showing the opening balance and the closing balance at the beginning and close of each accounting year. so as to justify the claim of set off/ input tax credit etc.5.stages of sale and withdrawal of incentives.in Orissa (d) general trader . maintenance of accounts under VAT will be complicated. hence the dealer will not keep account of these forms. then assessment will be taken up.00.000/. Selection for audit will be done on the basis of objective criteria.Differ from State to State Rs. steps have been taken to encourage voluntary compliance.Differ from State to State Rs. The apprehension is unfounded. there is no need of these forms. the dealer is required to maintain books of account similar to that of Sales Tax Act. Audit visit report will be submitted to another Wing i. There is no renewal of registration certificate. Assessment Wing. These are provisions under the Act and Rule so as to avoid harassment to the dealers by Department Officers. 65. Audit will be taken up by a team. Besides. Under VAT. The Revenue Neutral Rate (RNR) has also been so fixed so as not to incur any loss on account of introduction of VAT. audit will be undertaken at dealer’s premises with prior notice. Taxable limit in relation to a (a) dealer who purchases goods from or sells to outside the State is Nil (b) works contractor Differ from State to State Rs. Under VAT Act.There is apprehension that under VAT. 66. There will be no human bias in selecting a dealer for audit. he will be audited once in five year. And notice of assessment will be issued along with supply of a copy of the Audit visit report.50. Twenty percent of the dealers will be selected on random basis for audit in a year. 64.2. there will be much harassment by the Department Officers. If there is material in the Audit visit report against the dealer.00. The Govt.000/. Will it not increase cost of compliance for the dealer? Under the Sales Tax Act.Some say.Who has to be registered under VAT Act? The following dealers have to be registered (I) A dealer whose gross turnover exceeds the taxable limit during a period of 12 consecutive months. A dealer will not come to the Office for getting his registration certificate renewed every year for assessment. there is no charge received from any quarter against him. A dealer will assess his own tax liability and pay the tax. a registered dealer is required to maintain (a) a true account of the value of goods bought and sold by him.000/- . Under VAT. of India will also compensate if there will be any loss in the initial years. That means.in Orissa (c) manufacturer . There will be Audit based assessment. Once selected. He will not be assessed by the Department Officer as it is being done under Sales Tax Act.e. Once a dealer is registered.
Small contractors can opt to be under the composition scheme.he is not a manufacturer .C. If a dealer under composition scheme wants. of a dealer is suspended. provided . If the R. TIN is an 11 digit number.Who will come under composition scheme? Composition scheme is for the small dealers/retailers. pay VAT and avail input tax credit. there will be no ritual of security. A dealer having business in more than one place in the State will be given separate registration or may opt for consolidated registration. What about my registration number? Will it remain the same? Every VAT dealer will be allotted a Tax Identification Number (TIN) and the dealers under the composition scheme will be allotted Small Retailers Identification Number (SRIN). 70. where there will be apprehension of loss of revenue.10 lakh will come under composition scheme. will be restored. If the dealer makes do the deficiency for which his R.Will there be renewal of certificate? There is no provision of renewal under VAT Act. 68. first two given for identifying the Circle. he can become a VAT dealer on application. the first two given for State code. 71. his R.C. even though his turnover does not exceed taxable limit 67. Prior permission of the Commissioner is to be obtained before an officer suspends the registration certificate of a dealer. security will be demanded. I shall be deemed to be registered under VAT. A dealer once registered will continue to be registered. A persons who intends to establish business for purpose of manufacturing or processing of taxable goods exceeding Rs. SRIN is a seven digit number. He will display the registration certificate in his places of business.C.As a registered dealer under OST Act.ordinarily effects sales to consumers A dealer under composition will pay tax at a low flat rate on his taxable turnover and he will not avail input tax credit. was suspended.2 lakh in a year may take voluntary registration. 69. A dealer having gross annual turnover within Rs. notice will be issued immediately and the dealer to produce the relevant documents to rebut suspension within 30 days from the date of suspension.Will the provision of suspension of registration certificate be misused by the officers? The Registration Certificate of a dealer will be suspended if a dealer contravenes the provisions of the Act or does not comply with the provisions of Act & Rules.What will be the amount of security to be deposited under VAT Act at the time of registration? Security is not mandatory under VAT Act. Only in cases.he neither purchases or receives goods from outside the State nor sells goods to outside the State and . . They will pay VAT at a low rate to be prescribed and will not avail input tax credit.(II) who is liable to be registered under Central Sales Tax Act (III) who is registered or liable to be registered under JST Act or CST Act (IV) The dealer who is registered under Jharkhand Sales Tax Act and his registration certificate is valid on the day before the appointed day is deemed to be registered under the VAT Act.
For big tax payers.How can a dealer get his refund? Refund flowing from an order shall be given to the dealer within 60 days from the date of receipt of the order. Tax fraction is r in which ‘r’ represents the rate of tax applicable to the sale. Audit Visit Report will be submitted with seven days from the date of completion of the audit. The return will be accepted as assessed subject to adjustment of any arithmetical error apparent on the face of the return. Notice for assessment will be issued along with a copy of the Audit Visit Report. If the dealer furnishes return along with producing evidence of payment of tax. 30 th June. so that a dealer can know in advance the charges against him and prepare his defence. which is called tax period.What happens if a dealer discovers an omission after he has filed the return? The dealer can file revised return before the date on which the return for next tax period becomes due. the provisional assessment shall stand revoked.72. 74. If there is material in the Audit Visit Report against the dealer. the amount of VAT included in the value of the sales of the goods can be calculated by applying the tax fraction to the gross value of sales at each tax rate.How do I calculate my output tax when I am selling to consumers without separately showing the VAT? For taxable sale. 75. provisional assessment will be taken up. the tax period is one month and for small dealers a quarter.How will a dealer be assessed? There is no regular assessment as in the Sales Tax Act. If tax inclusive invoice has been issued. The dealer will assess himself for each tax period.What is a tax period? A dealer is required to file return for a period. r + 100 73.What happens when a dealer defaults in filing return? In case of default.When is the dealer required to file return? Ans. Twenty percent of dealers may be selected to be audited in a year. The Commissioner is to decide the tax period for a dealer. Audit is to be done by a team. assessment will be taken up by officer of assessment wing. A quarter means a period of three months ending on 31st March. He will calculate his output tax. 79. If a dealer does not file return. The dealer need not apply for such refund. A tax period is a month or a quarter. 78. VAT charged to be indicated separately on the invoice. Audit will be undertaken at dealer’s premises with prior notice. the dealer is required to pay interest @2% per month from the date the return was due to the date of payment. . deduct from it the input tax he has paid and pay the balance along with the return. A dealer is required to furnish return within 21 days from the expiry of a tax period. There will be audit based assessment. 76. 77. 30th September and 31st December.What is audit procedure? Selection of dealers for audit will be done on the basis of risk parameters or on random basis.
Since there is little chance of arbitrariness in the assessment a dealer is required to pay 20% of amount in dispute for his appeal to be entertained along with payment of admitted tax in full. Haryana had a sales tax growth of 15% during the year 2003-04. If there is no material against the dealer in the Audit Visit Report. assessment will not be taken up.Why America has not accepted VAT? In America there is retail sales tax which means tax is paid on the last consumer sale point. the average of 3 best years will be taken as the growth rate of the State. There is little scope for arbitrary assessment in the procedure to be followed for audit and audit based assessment. 83. interest @ 8% per annum will be paid after 60 or 90 days as the case may be. 82. Is it not unfair? The amount of tax admitted by a dealer due to the Govt. 85.Can VAT be successful in a federal country like India? VAT has been successful in federal countries like Canada and Brazil. In case of delay. 84. This has been evidenced from the experience of Haryana which had introduced VAT in the year 2003-04. As discussed earlier. VAT at each stage ensures flow of right tax at right time. In the event of any loss of sales tax revenue on account of introduction of VAT. If there is some material in the Audit Visit Report. The growth during the year 2004-05 is 26%. assessment will be taken up with prior supply of a copy of the Audit Visit Report to the dealer. Refund will be granted to an exporter within 90 days from the date of application after an audit. should be paid in full. There will be audit based assessment. the VAT Act has been prepared by the States taking into consideration the national consensus on the issues to bring in uniformity in all State Vat laws. Taking the growth rate the sales tax .What is the methodology for calculation of compensation? The year 2005-06 will be taken as the base year. It is a land mark in cooperative federalism.What will be the fate of Sales Tax revenue under VAT in the State? Will there be any loss? Ideally there should not be any loss on account of introduction of VAT. States have agreed to a common tax rate. 80.Appeal against an order will be entertained after full payment of admitted tax and twenty percent of the amount in dispute.Jurisdiction of the Act. States have shown keen interest in implementing VAT soon. However. It helps planning of income and expenditure.In case of export. Abundant caution has been taken so that assessing authority can not act arbitrarily. The audit has to be completed within one month from the date of application. The VAT Act is applicable to the transactions made inside the State. the dealer will make an application for refund. Gradually State VAT will lead to emergence of an Indian common market. 81. which includes all the value additions made in previous stages. the Central Government will compensate the loss each month @ of 100% in the first year. It also sustained the growth rate more vigorously during the year 2004-05. 75% in the second year and 50% in the third year. Going backwards for five years. It is marvel to find States in Indian Union agreeing to a general consensus on critical points relating to VAT. there is no regular assessment as in the sales tax act .
18 (b)]. tax charged on the goods sold shall be shown separately in the Tax / Retail invoice issued. Whether he is liable to pay tax on the receipt value of such free medicines received? Ans.Can tax paid on goods not related to manufacturing be taken as input tax credit? In case of manufacturing. 88. But he is liable to pay tax on the sale turnover of such free medicines 91. [Sec.What about sales to International Organizations? There will be no tax exemption on sales to International Organizations but tax paid by them will be refunded.A registered dealer under VAT receives free medicine as quantity discount from a Company and resells the same in the State of Orissa.Whether penultimate sale in course of export is Zero rated? Treatment of penultimate sale in course of export is regulated under the provisions of the CST Act and the CST Act remains unchanged after introduction of VAT. Input tax credit on capital goods will be given within 36 months after commercial production and first sale. But the above facility is not available under some of the State Act. Un-availed period of exemptions will be converted into deferrals.Whether declared goods will be subject to tax at single point or multipoint? Declared goods will be subject to tax at multipoint.What about IPR exemptions and concessions? Exemptions and concessions have been withdrawn in the VAT Act. 93. 86.which would have been collected during the year 2006-07 under the present regime will be calculated. 89. Whether retail invoice will be tax inclusive? Retail invoice and tax invoice have to be tax exclusive. 87. 92. 95. The actual collection under the VAT regime will be deducted from the sales tax revenue which would have been collected under the OST regime to arrive at the loss. then can he avail ITC? ITC can be available on the basis of duplicate Invoice obtained from the selling dealer after compliance with the Jharkhand Value Added Tax Act / Rules. No. goods purchased by a dealer which directly goes into composition of finished product or consumables directly used in such processing or manufacturing are eligible .When original tax invoice is lost & the dealer produces other evidences in support of such purchases effected & tax paid on such purchases. the tax paid on purchases shall be allowed as input tax credit. Section 15 of the CST Act has since been amended 90.Can the input tax credit for the tax paid on capital goods financed on lease be availed against tax payable on finished goods? If the capital goods have been purchased from inside the state on payment of tax. no input tax credit is admissible as the purchase has been made by the person. However. who has transferred the right to use of such goods.Will there be input tax credit for capital goods? There will be input tax credits on capital goods purchased from inside the State after introduction of VAT. 94. if the capital goods have been received on transfer of right to use on payment of lease rental. The goods sold in course of export out of the territory of India are zero rated. In other words.
If a consumer purchases goods from outside the state. Textile. Official Website etc.What is the procedure of procurement of goods by a consumer from outside the State? No procedure is prescribed for a consumer to procure goods from outside the state. If audit is undertaken. he avails of the concessional rate of tax @ 4% against declaration in Form ‘C’. Would you kindly address the way or modalities of such proportionate calculation? .Sugar. ‘C’ forms and ‘F’ forms will be continued or not ? Way bill will continue. against declaration in form ‘C’.How to ascertain the registration of a dealer is cancelled / suspended? The fact of suspension/ cancellation shall be published in Commercial Tax Gazette. etc. Goods purchased but not ITC. then the input credits are to be availed on proportionate basis. the dealer has various output goods and some are exempted of VAT. whichever is higher.Tobacco is not taxed at present but when VAT will be applicable to these items? VAT will not be applicable to Sugar.Whether the sale in transit (E-1) is available in VAT Regime? Sale in transit is in accordance with the provisions of CST Act and there is no change in such provision on introduction of VAT.for input tax credit. Such sales are taxed under the CST Act.Whether the goods purchased for own use is subjected to purchase tax? The goods purchased for own use is not subject to purchase tax. related to manufacturing. he is required to Pay CST @10% or VAT rate of tax. the audit team may require tax invoice for verification of the claim of input tax credit and correctness of the accounts maintained. 99. 98. and no input tax shall be available to him 103. Dealer purchases goods from outside the State. 105.Textile. What is the rate of VAT for interstate sales without ‘C’ form? There is zero VAT for sales in course of inter state trade and commerce. and Tobacco presently. 97. There is no concept of ‘deemed exempt’ under the VAT Act. 100. 102.What is the status of ITC for the sale of goods which are deemed to be exempted from VAT? ITC is not available in case of exempt goods since no tax is payable on the purchase of tax free goods.In the VAT system whether the provision of statutory forms like way bills. 101.What is the impact of such procurement on (a) local traders (b)local industry/ manufactures? If a regd. 106.Whether copy of the bills to be furnished to audit for their verification? Tax invoice is an important document for availing ITC.In case. 104. but the tax so paid is not eligible for input tax credit. are not eligible for 96. All the forms provided under CST Act will continue.
Refund under VAT Act to an exporter will be granted within 90 days from the date of receipt of application for such refund.Modalities of calculation are given in VAT Rules. material. 107. But under Jharkhand Vat Act Input Tax Credit is available on Entry Tax Paid on purchases. 110. VAT is to be levied on the value of goods sold including Entry Tax. We are a company having three plants outside Jharkhand and one warehouse in Ranchi.? (b) any time limit? In case of stocks returned by the purchasers.Whether quantity discounts passed on to customers based on quantity purchased on a half yearly or yearly basis are eligible for VAT adjustment? No. (a) What is the impact of VAT on dealer.2006 but invoice raised before 31.4.4.What is the safeguard available to an exporter against the department with holding VAT refund arising after 2004 against Sales Tax / CST demand pertaining to earlier years? Refund under JST/ CST Act to an exporter is regulated under the provisions of the said Acts. In case.2006 so as to be eligible for input tax credit. Customer and the plant (b) if dealer purchases material directly from the plant outside Jharkhand (c) if dealer purchases from depot at Ranchi (i.2005 can also be treated as opening stock on 1. In case.Stocks returned by our purchasers: a) is there any input tax credit. The goods received after 1.For tax credit whether credit will be given if a dealer purchases or receives goods after 1. .Will input tax credit be adjusted against CST payable by the assessee? ITC will be adjusted against arrears of tax. R 'Q’ is the taxable turnover of sales including zero rated sales and ‘R’ is the total amount of all sales including exempt sales. Whether input tax credit will be available on works contract? Yes. there will be adjustment of sale price or tax in relating to a taxable sale by way of issue of credit note and debit note.e. 113. he will not get full input tax credit as the CST paid on such purchases is not eligible for input tax credit. ITC shall be calculated applying the formula: PxQ ‘P’ is the total amount of input tax. interest and penalty payable under the VAT Act. he is entitled to full input tax credit and sales by you to the dealer shall be subject to output tax at the applicable rate.Whether sales tax will be paid on Entry Tax under VAT or not? Since Entry Tax is included in the sale price of the goods.3. The time of sale to be construed as the date of issue but not for Invoice which is before the date of implementation of VAT. 112. where the dealer is dealing both in taxable and tax exempt goods.2006.4. No. stock transfer from outside the Jharkhand) If a dealer in Jharkhand purchases goods from your plant outside State. 111. but when he purchases from the depot in Ranchi . interest will be paid to the Exporter. 109. 114. 108. refund is not granted within the period of 90 days.
Input tax credit in cases of tax suffered cases e. which suffered tax at the first point of sale. Audit by chartered or cost Accountant shall not be required if the gross turnover does not exceed Rs. If the local producer purchases capital goods.When there is total turnover of an organization is 40 lakh audits by the Auditor as is required. suppose tax paid on Ist point goods is at present 8% and at VAT regime it will be 4% ? Input tax credit on closing stock is available for the actual tax charged i. Purchases of goods from outside the state will attract CST. inside the State he will get full input tax credit. 118. 117.Whether input credit is available for purchase tax? Yes.4 lakh is audit by CA required? If the Gross Turnover of a dealer exceeds Rs. @ 8% in this case. the charges on account of service rendered is not taxable under the VAT Act and. the plant can claim input tax credit in excess of 4% in the state of its location.Interstate sales (CST sales) zero rated. Input tax credit on closing stock will be available both for the goods purchased on payment of tax and goods.Whether a producer outside Jharkhand will have advantage to sell their product in Orissa in comparison to local producer? That depends upon several factors. The purchasing dealer may not be held responsible for non-compliance of tax liability by the selling dealer. Tax practitioner / association or chamber of commerce. which means full ITC will be available. but no input tax credit is available. If goods subject to Ist point tax paid are purchased from the 2nd line dealer. There is no mandatory provision in VAT Act for CCT Office to provide clarification on statutory matters or classification of any goods. which is not eligible for input tax credit. If services rendered are separately charged and is not a part of the sale price. 116. therefore. is not a part of the gross turnover. However. there will be no taxes in purchases made in course of inter state trade or commerce and when such goods are sold inside the state.40 lakh in a year he is required to get his accounts audited by an Accountant defined under the act.38 lakh and service charges of Rs.40 lakh in any year.Is there any mandatory provision in VAT so that CCT office will provide clarification on classifications of a certain goods or clarification of a certain VAT Act or rule if asked for by a dealer.What steps should be taken by the purchasing dealer who has taken the credit and utilized it by paying sales tax or VAT when the selling dealer has not paid the same tax earlier? The onus is on the selling dealer to pay the tax. .e. 122. However. Dealers inside the state will prefer to purchase from him to avail input tax credit. 120.So far as the stock transfer from the plant outside the state to the depot at Ranchi is concerned. 121. if the goods are received at Ranchi on transfer of stock from the plant and sold to customer. what is the likely scenario after three years when CST becomes zero? When CST becomes zero.g. etc. 119. He can sell goods at a lower rate.Treatment of input tax on closing stock in cases of tax suffered cases? E.g. 115. there is incidence of output tax. sales will be subject to output tax. inputs. but if there is sale of Rs.
why should refund again be subject to audit further delaying the refund? Tax audit contemplated for sanction of refund in case of exporters is for determination of the genuineness of the claim for refund and its quantification with reference to records. be adjusted in the sale of jewelry at 1% VAT? Yes.123. he will pay local VAT as applicable to the goods and bear the cost of transportation. there will be cases of refunds on inputs. say exporters. purchases goods from outside the State. Moreover.e. the dealer will suffer. If he purchases from inside the State. Which type of accounts is to be maintained by the composite dealer and works contractor? A registered dealer is required to maintain books of accounts so as to establish his claim of output tax charged and input tax credit availed.Explain the situation in the new VAT system where a customer purchases the same product outside Orissa and inside Orissa from the same company warehouse? If the customer not being a registered dealer.2006 is available. audit is to be completed within one month after receipt of the application.05 both tax paid purchases and taxable purchases (outside purchases).4.In case of zero tax VAT dealers.3. Tax invoice is the evidence for claiming input tax credit.Is tax paid on bullion purchases inside the state 1% special rate. interest to be paid after 90 days from the date of receipt of application. 126. 128. sales. If there will be delay.3. much after the claim of refund is made and sanctioned.Whether input tax credit / set off shall be based on input tax paid on purchases? What could be the procedure for producing documents in support of input tax credit availed? In case of traders. set off/ input tax credit is available on the tax paid on purchases.What will be the treatment of stock holding as on 31. 125. the taxable limit is ‘nil’ and the unregistered dealer will be liable to pay tax in the state on the sales again. If annual audit report is awaited for sanction of refund. CST paid on goods purchased in course of interstate trade or commerce is not eligible for input tax credit. A works contractor will however. have to maintain accounts of purchase. A dealer under the composition scheme shall have to maintain accounts of purchase and sales. for an importer. Besides. where the stock is purchased on or after 1. 124. 127. documents and such other materials and is conducted before sanction of refund.2005 and if the goods in the stock have been purchased within the State of Jharkhand on payment of tax or which have suffered tax at the first point of sale in a series of sale. Input Tax Credit on closing stocks held on 31. Whether it will get set off against the gross bill and tax will be adjusted against the rate of tax in respect of works contract? .If a dealer has purchased materials outside the state of Orissa and also inside the state of Jharkhand and has been engaged in the execution of works contract. and stock in addition to other accounts required to establish figures furnished in the periodic returns 129. As exporters more than 40 lakh turnover are tax audited by CA as per both VAT and IT Act. but may not have to bear the cost of transportation. The report of annual audit by chartered/ cost accountant is due after seven months of the expiry of the year i. he will also pay local VAT applicable to the goods here.
40 lakh in any year will get his accounts audited by a CA or Cost Accountant within 6 months from the expiry of that year and submit a copy of the report to the Commissioner by the end of the month following expiry of the period of six months. 134.Tax is paid within due date but return is not filed in time. 135. which are deemed to be exempted from VAT? There are no goods deemed to be exempt from VAT. Transfer of ownership in goods used in works contract. Supply of goods by a club. 137. what will be the consequences? . Every disposal of goods by certain specified entities.The contractor will avail ITC on goods purchased from inside the State of Jharkhand. Transfer of right to use goods or lease.If a dealer purchased goods from non-VAT dealers whether it will be set off? No. what records to be maintained in case of manufacturers? Whether copy of the bills to be furnished to audit for their verification? In case of audit.What is the status of ITC for the sale of goods.Existing regd. otherwise than in the course of business. A dealer having a Gross Turnover exceeding Rs. Exemptions availing by an industry will be converted into deferral. TIN will be allotted by the Department.What does deemed Sales Include ? • • • • • • • Transfer of ownership in any goods otherwise than in pursuance of a contract. He will not get ITC on purchases from outside the State. the dealer is required to justify his claim of input tax credit. 132. he will defer payment. 133.Whether certificate of CA is required for submission of annual return? No. 131. That means the manufacturer dealer will collect tax on his sales. Can purchase from exempted manufacturing unit and trading for the same product be exempted from VAT? Exemption from payment of tax to manufacturing industries is not available under VAT. and Supply of food or any other article or drink for consumption. 136. The amount of tax admissible as input tax credit is adjustable against the output tax payable during a tax period. Hence.For getting credit on purchases. 130. the dealer who purchases the goods from him pays tax and he will get set off of tax paid. ITC is not available for exempt goods. The books of accounts required to justify such claims may have to be produced. dealer required to apply for TIN under VAT Act? No. The audit team may require the copy of bills/tax invoice during audit. on his sales.. society or an association to its members on payment of fee or subscription. The existing registered dealer shall be deemed to be registered under the VAT Act. Sale of goods on hire purchase or installment system.
the tax rate will remain the same for the goods purchased either from inside or from outside.If a manufacturer during set up of a plant / factories brings capital goods from outside the state of Orissa. The turnover of sales means the aggregate of the amounts of the sale price received or receivable by a dealer. Hence. any Govt. all taxable goods are subject to tax on purchase price under the circumstances where no tax is leviable on sale of those commodities. The sale price under VAT Act does not include the tax paid or payable under VAT Act.The dealer is to be noticed to file return as the proof of due discharge of tax liability is to be verified with reference to the return furnished. Whether it is . The manufacturer will get input tax credit if he sells goods in course of inter state trade and commerce. If the dealer does not comply with the notice other penal action under the Act shall be initiated. Can input credit is available ? ITC is not available if input purchased from a suspended dealer.Can tax set off on purchases be allowed proportionate to production of quantity inside the State? ITC is adjustable against output tax collected on sales. How will a local dealer compete. 142. On the other hand. 145.If CST is phased out. no particular commodity is subject to tax on purchase price. 140. However. there will be uniform Tax rate for each commodity all over the country except few cases. 139. 143. who will have to collect output tax under VAT? How State will get its revenue? When CST is phased out. Under VAT Act. 141. whether liable for tax? If the purchaser is a registered dealer and the goods purchased are taxable.If goods Purchased in July 2006 from a dealer. Department or a consumer buying from outside the State will pay no tax.Purchase from an unregistered dealer. then the purchaser will pay tax on the purchase price. whose certificate of registration suspended.Gross turnover including tax collected or Gross aggregated turnover (sales and purchases). then how the manufacturer can get the input credit on capital goods? ITC is not admissible on tax paid on goods purchased from outside the State.Is a manufacturer eligible to get input credit under CST sale? Yes. given as gift/free sample. the rate of tax will be zero against declaration in Form ‘C’. those who will purchase from outside the state will . Under VAT regime. 138. 144.Definition of turnover for audit etc. Gross turnover means the aggregate of turnover of sales and the turnover of purchases subject to tax. purpose.List of goods subject to PT has not been prescribed under VAT Act.
5-4) on Rs. there will be reverse input tax credit. 146.4.62. 153.have to bear the transportation cost.Whether professional tax will continue after VAT or not? Yes. 149.5 %( 12. the dealer is to indicate the value of goods and amount of tax charged on the goods separately. 148. 152.50 as input tax credit in case branch transfer.Whether waybill will exist? If yes.5% is Rs. If the trader has already availed of input tax credit and the goods have been damaged/ expired. the value of inputs is Rs. But the last dealer can not know the amount of tax paid by the seller on the goods purchased by him. No such cost will be borne by anybody who purchases from inside the state.2006 is available for the goods purchased within one year prior to the appointed day as per the opinion of the states and ratified by the Empowered Committee of the Finance Ministers of States and UTs.How the tax paid by previous seller to be transparent to last seller? The most important document under VAT is tax invoice. how it will be adjusted? Payment of tax by a registered dealer at the Check gate will be adjusted against the output tax. then what will be the fate of a dealer who procures goods without way bill? Way Bill will continue under VAT.Why there is the limit of input tax credit for the goods purchased within one year only. For example. The TDS provisions under the VAT Act are similarly to that of Sales Tax Act. 150.and tax paid on input @ 12.Please clarify ITC on Branch Transfer? In case of Branch Transfer. The state which imposed tax on Tax on profession. please explain? A trader gets input tax credit in respect of each tax period in which the goods are purchased. In the tax invoice.What is provision regarding works contract assessment and what about tax deduction at source? The provision for assessment to works contractor is the same as in the case of other dealers. Whether this will be applicable to industries also or industries will be allowed credit on CST? .50. What will be the fate of other tax paid on stocks? ITC on opening stock held on 1. Other taxes paid will not be given credit.42. 147.500/. Trade and Callings will continue after VAT. there is provision for imposition of penalty. If a registered dealer transports goods without way bill or fails to furnish the same on being noticed.If tax has been paid at check gate. how this has been adjusted in the VAT system.As regards to damage and expired goods. works contractor will assess himself. The dealer will get ITC @8.500 which is calculated at Rs. ITC is available in excess of 4%.It is clear now that no input tax credit on CST will be allowed. 151. 154.
161.Whether a dealer registered on start up business under sales tax act will continue till commercial production or directly convert to VAT dealer? Ans. it is noticed that discrepancies or evasion of tax relate to further tax periods. The dealer is to be audited ordinarily for the tax period(s) /year for which audit is due. • VAT Credit (Input) Receivable A/C. VAT on Capital goods Receivable A/C will be shown under the head “Loans & Advances” in the Assets side. • Eligible capital goods such as Plant & Machinery etc. Please clarify whether the dealer will be audited for all the 5 years or for the year only in which audit take place. A dealers whose registration certificates are valid on the day immediately preceding the appointed day shall be deemed to be registered under VAT Act. CST Act will continue.Whether VAT is applicable to a restaurant? Yes.e. 157. .Disclosure in Financial Statement? • Vat ( Out put ) Payable A/c will be shown under the head “Current Liabilities” of the Liabilities Side. 159.CST paid on purchases is not eligible for input tax credit to any dealer including industries 155. They will be VAT dealers. If during audit.Explain from which date the period of refund i. 163.What shall be the fate of litigated cases under sales tax regime? Though Jharkhand Sales Tax Act was repealed. 160. (which are eligible as per as per act ) do not include value added tax paid on purchases & kept under separate head as VAT on Capital Goods Receivable A/c for adjustment to VAT (output) Payable A/C. 162.What will happen to sales tax and central tax? Orissa VAT Act will replace Jharkhand Sales Tax Act. 156. so that the VAT chain is not broken. the provisions of the said Act including settlement of litigation have been saved. then such other tax periods shall also be included in the audit. • Sales are accounted excluding the value added tax payable. 158.Disclosure in Accounting policies?: It will be proper if a reporting enterprise will disclose the following in their accounting policy to give a true & fair view of the financial statement . What will be the status of industries enjoying tax holidays? Exemption will be converted into deferrals. 60 days will be calculated? Refund flowing from any order shall be granted without application and within 60 days from the date of receipt of the order giving rise to the refund.As required a dealer is to be audited once in 5 years. • Inventories valued at net of value added tax / Input Tax.
This White Paper is a result of collective efforts of all the States in formulating the basic design of the State-level Value Added Tax (VAT) through repeated and candid discussions in the Empowered Committee of State Finance Ministers. It will be put up by April 2006 to capture data on inter state transaction. State Webs will be connected to TINSYS to capture the data. additional surcharge. Central Sales Tax is also going to be phased out. 14 States joining in Pilot TINSYS by October 2005. in general. Setting up TIES has already started by empowered committee & expected to be completed within one year. it is a State subject derived from Entry 54 of the State List. surcharge on sales tax. This White Paper is a collective attempt of the States to strike a balance between this needed commonality and the desired federal flexibility in the VAT structure. & Central Excise vice versa to have required information.What about Taxation Information Exchange System?. VAT will replace the existing system of inspection by a system of built-in self-assessment by traders and manufacturers. In arriving at these decisions on VAT. These features will constitute the basic design of VAT. there is also a critical need for putting in place a regulatory frame work in terms of Taxation Information Exchange System to give a comprehensive picture of inter state trade of all commodities. 2005. 59.The State-level VAT. will fall. • • • • • • • • • • While CST is phased out. for which the States are sovereign in taking decisions.for appropriate variations consistent with this basic design. It will capture data base of Income Tax Dept. A White Paper On State-Level Value Added Tax By The Empowered Committee of State Finance Ministers (Constituted By the Ministry of Finance. through discussion in the Empowered Committee. have found it in their interests. This will significantly improve tax compliance and will also help increase revenue growth. Government of India On the Basis of Resolution Adopted in the Conference of the Chief Ministers on November 16. At the same time.Vat paid on the opening stock on the date of implementation of VAT Act will be deducted from Opening Stock shown under Inventories a/c in the Asset side. the overall tax burden will be rationalised. to avoid unhealthy competition and have certain features of VAT to be common for all the States. such as turnover tax. and prices. the States will have freedom. special additional tax. Central Server will be at Trivandrum with additional server at Chenai. 50% of expenditure Shared by GOI & balance 50% by all the State Govts. While this State-level VAT has all these advantages. The VAT will not only provide full set-off for input tax as well as tax on previous purchases. the States. As a result. but it will also abolish the burden of several of the existing taxes. PREFACE. The tax structure will become simple and more transparent. as elaborated in this White Paper. Moreover. etc. 1999) New Delhi . January 17. Total expenditure estimated Rs. In addition.The White Paper also strikes a balance between what is possible in the VAT design to begin with and what .16 Crs. has certain distinct advantages over the existing sales tax structure.
At the same time. Additional Secretary. With this background and the attitude. Together with them. in Part 3. or will reach that stage very soon. the other related issues have been discussed for effective implementation of VAT. Govinda Rao. and our mutual interaction will take place regularly. Finally. 1. which we will try to overcome as we learn more from the actual experience of implementation of VAT. in the existing structure. Government of West Bengal.can be improved upon in subsequent years as we gather more experience . before a . therefore. and their contribution should be particularly recorded. the justification of VAT and its background have been mentioned (Part 1). A White Paper On State-Level Value Added Tax This White Paper on State-level Value Added Tax (VAT) is presented in three parts. which we are all looking forward to. for his active support over the last eight months. the main design of VAT. We remain thankful to them. there may be some unavoidable shortcomings in this White Paper. Justification of VAT and Background 1. Even for one major State where there are some ground-level problems. Shri Yashwant Sinha and Shri Jaswant Singh.1 In the existing sales tax structure. 2005.Even after all these efforts. For instance. We take this opportunity to thank all of them. this White Paper is an expression of the genuine commitment of the States to the implementation of VAT from April 1. as evolved on the basis of a consensus among the States through repeated discussions in the Empowered Committee. Government of India. Manmohan Singh. there are problems of double taxation of commodities and multiplicity of taxes. The Secretary. Adviser to the Union Finance Minister. and New Delhi. Asim Kumar Dasgupta Convenor. 2005. nearly all the States either have finalised their VAT Bills by now and are in the process of obtaining Presidential Assent. We appreciate the efforts of Shri Chandra and the staff of the Empowered Committee. it is recognized that this VAT is a State subject and therefore the States will have freedom for appropriate variations consistent with the basic design as agreed upon at the Empowered Committee. Empowered Committee of State Finance Ministers. Revenue and all the concerned officials of the Revenue Department of the Finance Ministry have helped us by participating in the discussions whenever we requested them. (iii). While doing so. Chidambaram. the Finance Ministry has never imposed their views on us. Shri Ramesh Chandra. the present Union Finance Minister. has been elaborated. The Commissioners of Commercial Taxes have often burnt their mid-night oil. the Chairman of Technical Experts Committee on VAT and other members of the Committee has also been useful. January 17. To begin with. (iv). In Part 2. but also took time off his busy schedule to participate with us in the campaign for VAT in the States. when he not only helped formulate the modality of Central financial support to the States for possible loss of revenue in the transitional years of implementation of VAT. and with constant help from the Finance Secretaries and the Commissioners of Commercial Taxes of the States. Interaction with Dr. We are specially grateful to Shri P. These efforts of the States towards formulation of VAT design and its implementation have received full cooperation of the Finance Ministry. Parthasarathi Shome. Finally. The White Paper further mentions how after working out a consensus on this VAT design.It has always been fruitful to have interaction with Dr. we are determined to overcome these difficulties in implementing VAT in the States. Revenue. (ii). Finance Minister. a positive interaction with the Empowered Committee has recently opened up the possibility of resolving most of these problems. resulting in a cascading tax burden. We. Member-Secretary of the Empowered Committee had to carry on the difficult administrative task in the functioning of the Empowered Committee. remain thankful to the former Union Finance Ministers––Dr. for his insightful observations on the analytical structure of VAT as well as his reference to vast experience in the implementation of VAT. this White Paper could be written only on the basis of lively support of the Finance Ministers of the States. Discussions with the representatives of trade organisations and chambers of commerce and industry at the national level as well as in the States have been relevant in assessing the ground-level difficulties.
whenever any deviation is reported from the uniform floor rates of sales tax. With introduction of VAT. these other taxes will be abolished. a set-off is given for input tax as well as tax paid on previous purchases. Even in India. convened on November 16.2 For these beneficial effects. As a result. In this meeting.3 by the Government of India for about last ten years in respect of Central excise duties. Government of India. would now be introduced in terms of Entry 54 of the State List of the Constitution. the then Union Finance Minister. Moreover. there has been a VAT system introduced. such as turnover tax. 2000. At the Statelevel. additional surcharge. Central sales tax is also going to be phased out.commodity is produced. before the introduction of State-level VAT. For implementing these decisions. 1. The tax structure will become simple and more transparent. with the introduction of VAT. a full-fledged VAT was initiated first in Brazil in mid 1960’s. etc. there is in several States also a multiplicity of taxes. including several federal countries. inputs are first taxed. it was possible within a period of about a year and a half to achieve nearly 98 per cent success in the first two objectives on harmonisation of sales tax structure through implementation of uniform floor rates of sales tax and discontinuation of sales-tax. the Empowered Committee takes up the matter with the concerned State and also the Government of India for necessary rectification. and prices in general will also fall. In the VAT. In Asia. First. 1. Thus to repeat. As a part of regular monitoring. then in European countries in 1970’s and subsequently introduced in about 130 countries. VAT will replace the existing system of inspection by a system of built-in self-assessment by the dealers and auditing. will be abolished overall tax burden will be rationalised prices will in general fall there will be self-assessment by dealers transparency will increase there will be higher revenue growth The VAT will therefore help common people. Thereafter. and then after the commodity is produced with input tax load. benefits will be as follows: • • • • • • • set-off will be given for input tax as well as tax paid on previous purchases other taxes.3 The first preliminary discussion on State-level VAT took place in a meeting of Chief Ministers convened by Dr. this Empowered Committee has met regularly. the then Union Finance Minister in 1995. it has been introduced by a large number of countries from China to Sri Lanka. on the basis of achievement of the first two objectives. steps would be taken by the States for introduction of State-level VAT after adequate preparation. surcharge. the unhealthy sales tax rate “war” among the States would have to end and sales tax rates would need to be harmonised by implementing uniform floor rates of sales tax for different categories of commodities with effect from January 1. In the prevailing sales tax structure. 1999 by Shri Yashwant Sinha. 1. output is taxed again. or from decision on incentives. etc. 2000. In addition. That will improve tax compliance and also augment revenue growth. Manmohan Singh. in a significant meeting of all Chief Ministers. the VAT system as decided by the State Governments.related incentive schemes. industrialists and also the Government. three important decisions were taken. Through repeated discussions and collective efforts in the Empowered Committee. such as turnover tax. equal competition and fairness in the taxation system. the sales-tax-related industrial incentive schemes would also have to be discontinued with effect from January 1. and also by the Finance Secretaries and the Commissioners of Commercial Taxes of the State Governments as well as senior officials of the Revenue Department of the Ministry of Finance. additional surcharge. . overall tax burden will be rationalised. the basic issues on VAT were discussed in general terms and this was followed up by periodic interactions of State Finance Ministers. an Empowered Committee of State Finance Ministers was set-up. traders. Second. It is indeed a move towards more efficiency. attended by the State Finance Ministers. in the interest again of harmonisation of incidence of sales tax. Third.4 Thereafter. This causes an unfair double taxation with cascading effects. surcharge on sales tax.
2004 when Shri P. and allowing at the same time certain flexibility for the local characteristics of the States. About 29 States and Union Territories had expeditiously sent their Bills to the Ministry of Finance. Design of State-Level VAT 2. then input tax. Concept of VAT and Set-off / Input Tax Credit 2. The Union Ministry of Finance had considered these Bills of States and Union Territories. excepting one. input worth Rs. the needed common points of convergence also relate to this concept of set-off/input tax credit.00. At this stage.is purchased and sales are worth Rs. In order again to avoid any unhealthy competition among the States which may lead to distortions in manufacturing and trade. the Chief Ministers of all the States in an important m eeting on State-level VAT convened by the Prime Minister on October 18. Chidambaram. It is important to note that in the meeting of Empowered Committee on June 18. the design of State-level VAT has been worked out by the Empowered Committee through several rounds of discussion and striking a federal balance between the common points of convergence regarding VAT and flexibility for the local characteristics of the States. and input tax rate and output tax rate are 4% and 10% respectively.1. 2.6 process of obtaining Presidential Assent.1 As already mentioned.000/c) Input tax paid : Rs.000/.00. has already introduced VAT on its own with good results on revenue growth. credit/set-off and calculation of VAT will be as shown below: (a) Input purchased within the month : Rs. This interaction with trade and industry is being specially emphasised. If. when Shri Jaswant Singh. steps have also been taken for necessary training. was invited and was kindly present. its coverage and related issues as elaborated below.6 Along with these measures at ensuring convergence on the basic issues on VAT. namely. steps were initiated for systematic preparation for the introduction of State-level VAT. to certain common points of convergence regarding VAT.000/- . 20. Madhya Pradesh VAT Bill had already been accorded Presidential Assent in November 2002. and the related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during the payment period (say.7 It may be noted that while such preparation was going on. 2. 2. computerisation and interaction with trade and industry. Even for this particular State with certain problems. all the States. Despite these developments.000/. clearly stated their intention of introducing VAT from April 1. once again categorically renewed their commitment to the introduction of VAT from April 1.000/b) Output sold in the month : Rs.5 After reaching this stage. 4. One State. 1. the Union Finance Minister. attempts have been made from the very beginning to harmonise the VAT design in the States.in a month. The Value Added Tax (VAT) is based on the value addition to the goods. Since the State-level VAT is centred around the basic concept of “set-off” for the tax paid earlier. for example. 2005. This input tax credit in relation to any period means setting off the amount of input tax by a registered dealer against the amount of his output tax. This has been done by the States collectively agreeing. there were certain developments which delayed the introduction of VAT. 1. a positive interaction has recently been organised with that State to resolve certain genuine ground-level problems.00. 1.00. 2003. 1. the then Union Finance Minister was present. Haryana. keeping also in view the distinctive features of each State and the need for federal flexibility. through repeated discussions in the Empowered Committee. Government of India for prior vetting. or will reach that stage very soon. 2002. and sent their comments/ suggestions to the States and Union Territories in line with the decisions of the Empowered Committee of the State Finance Ministers for incorporating the same in VAT Bills to be placed in the State legislatures and subsequent transmission to the Government of India for Presidential Assent.2 The essence of VAT is in providing set-off for the tax paid earlier. a month).000/d) Output tax payable : Rs. particularly at the State levels. and this is given effect through the concept of input tax credit/rebate. Now nearly all the States have either finalised their VAT Bills and are in the. most of the States remained positively interested in implementation of VAT.
10 The Tax Payer’s Identification Number will consist of 11 digit numerals throughout the country. April 1. a comprehensive inter-State tax information exchange system is also being set up. Registration. 2005 will also be eligible. 50 lakh who are otherwise liable to pay VAT. There will be provision for voluntary registration. 2005 will be eligible to receive input tax credit. Units located in SEZ and EOU will be granted either exemption from payment of input tax or refund of the input tax paid within three months. Tax Payer’s Identification Number (TIN) 2. then the same will be eligible for refund. tax paid within the State will be refunded in full. Tax credit on capital goods may be adjusted over a maximum of 36 equal monthly instalments.5 For all exports made out of the country. 2004 and still in stock as on April 1.8 This entire design of VAT with input tax credit is crucially based on documentation of tax invoice. etc. 5 lakh will not be liable to pay VAT. However. The States may at their option reduce this number of instalments. 5 lakh will be compulsory. shall issue to the purchaser serially numbered tax invoice with the prescribed particulars. shall however have the option for a composition scheme with payment of tax at a small percentage of gross turnover. Carrying Over of Tax Credit 2. This tax credit will be available over a period of 6 months after an interval of 3 months needed for verification. First two characters will represent the State Code as used by the Union Ministry of Home Affairs. All existing dealers will be automatically registered under the VAT Act. Treatment of Opening Stock 2. A new dealer will be allowed 30 days time from the date of liability to get registered. 2. Cash Memo or Bill 2. the excess credit will be carried over to the end of next financial year. 2.3 This input tax credit will be given for both manufacturers and traders for purchase of inputs/supplies meant for both sale within the State as well as to other States. be different in different States.9 Registration of dealers with gross annual turnover above Rs.4 If the tax credit exceeds the tax payable on sales in a month. subject to submission of requisite documents. a decision has been taken for duly phasing out of inter-State sales tax or Central sales tax. irrespective of when these will be utilized / sold. Coverage of Set-Off / Input Tax Credit 2. 5 lakh. Small dealers with annual gross turnover not exceeding Rs.000/-after set-off/input tax credit [(d) – (c)]. Small Dealers and Composition Scheme 2. Input tax credit on capital goods will also be available for traders and manufacturers. input tax paid in excess of 4% will be eligible for tax credit. Compulsory Issue of Tax Invoice. Even for stock transfer/consignment sale of goods out of the State. Failure to comply with the above will attract penalty. Inputs Procured from Other States.6 Tax paid on inputs procured from other States through inter-State sale and stock transfer will not be eligible for credit. Treatment of Exports. The set-up of the next nine characters may. having turnover of sales above an amount specified. cash memo or bill. States will have flexibility to fix this threshold limit within Rs. 2005 and input tax credit will be given for the sales tax already paid in the previous year. Return . showing the required particulars. Every registered dealer. however. Small dealers with gross annual turnover not exceeding Rs. This also reduces immediate tax liability.7 All tax-paid goods purchased on or after April 1. If there is any excess unadjusted input tax credit at the end of second year.e) VAT payable during the month : Rs. 16. VAT will be levied on the goods when sold on and after. Resellers holding tax-paid goods on April 1. There will be a negative list for capital goods (on the basis of principles already decided by the Empowered Committee) not eligible for input tax credit. The dealers opting for this composition scheme will not be entitled to input tax credit. The dealer shall keep a counterfoil or duplicate of such tax invoice duly signed and dated. This tax invoice will be signed and dated by the dealer or his regular employee. and this refund will be made within three months. As a preparation for that.
and with uniform floor rates decided by the Empowered Committee. However. Procedure of Self-Assessment of VAT Liability 2. VAT Rates and Classification of Commodities 2.2. The States that have already introduced entry tax and intend to continue with this tax should make it vatable. including declared goods will be covered under VAT and will get the benefit of input tax credit. a cross-checking. the dealer will be required to pay the deficit appropriately. surcharge. A certain percentage of the dealers will be taken up for audit every year on a scientific basis.13 Correctness of self-assessment will be checked through a system of Departmental Audit. Because of the importance of the concept of self-assessment in VAT. Hence. The only few goods which will be outside VAT will be liquor. the dealer will be deemed to have been self-assessed on the basis of returns submitted by him. all the goods. Penal Provisions 2. Audit 2.14 There will be no need for any provision for concessional sale under the VAT Act since the provision for set-off makes the input zero-rated. This comprehensive cross-checking system will help reduce tax evasion and also lead to significant growth of tax revenue. The audit report will be transparently sent to the dealer also. diesel.11 Under VAT. Return forms as well as other procedures will be simple in all States. simplified form of returns will be notified. If any technical mistake is detected on scrutiny.16 As mentioned earlier.12 The basic simplification in VAT is that VAT liability will be self-assessed by the dealers themselves in terms of submission of returns upon setting off the tax credit. The audit team will conduct its work in a time bound manner and audit will be completed within six months. all other existing taxes such as turnover tax. If not made vatable. and will be accompanied with payment challans. This Audit Wing will remain delinked from tax collection wing to remove any bias. provision for “self-assessment” will be stated in the VAT Bills of the States.18 In general.15 Under the VAT system. this will not apply to entry tax that may be levied in lieu of octroi. At the same time. computerised system is being worked out on the basis of coordination between the tax authorities of the State Governments and the authorities of Central Excise and Income Tax to compare constantly the tax returns and set-off documents of VAT system of the States and those of Central Excise and Income Tax. entry tax will need to be abolished. If no specific notice is issued proposing departmental audit of the books of accounts of the dealer within the time limit specified in the Act. Declaration Form 2. etc.5%.19 Under the VAT system covering about 550 goods. Simultaneously. petrol. the system will also bring in more equal competition in the sphere of trade and industry. There will no longer be compulsory assessment at the end of each year as is existing now. plus a specific category of tax-exempted goods and a special VAT rate of 1% only for gold and silver ornaments. If. Thus the multiplicity of rates in the existing structure will be done away with . Other Taxes 2. There will not be any reference to these taxes in the VAT Bills. These will continue to be taxed under the Sales Tax Act or any other State Act or even by making special provisions in the VAT Act itself. Incentives 2. lottery tickets. however. aviation turbine fuel and other motor spirit since their prices are not fully market determined. additional surcharge and Special Additional Tax (SAT) would be abolished. Every return furnished by dealers will be scrutinized expeditiously within prescribed time limit from the date of filing the return. the existing incentive schemes may be continued in the manner deemed appropriate by the States after ensuring that VAT chain is not affected. Coverage of Goods under VAT 2. there will be only two basic VAT rates of 4% and 12.17 Penal provisions in the VAT Bills should not be more stringent than in the existing Sales Tax Act. by protecting transparently the interests of tax-complying dealers against the unfair practices of taxevaders. evasion is detected on audit. which will be a further relief for dealers. there will be no need for declaration form. the concerned dealer may be taken up for audit for previous periods. Returns are to be filed monthly / quarterly as specified in the State Acts/Rules.
This will also stop unhealthy taxrate “war” and trade diversion among the States. steps for computerisation up to the levels of assessing officers and also at the check posts.2 It needs to be carefully noted that although introduction of VAT may. but a concrete formula for this compensation has also now been worked out after interaction between the Union Finance Minister and the Empowered Committee. textile and tobacco). certain supporting decisions were critically needed at the national level for more effective implementation of VAT from April 1. 2005. this VAT design will also significantly bring in simplicity and transparency in the tax structure. because of initial organisational difficulties. Under 4% VAT rate category. Included in this exempted category is a set of maximum of 10 commodities flexibly chosen by individual States from a list of goods (finalised by the Empowered Committee) which are of local social importance for the individual States without having any inter-state implication. in general. lead to revenue growth.1 It is now of significance to note that most of the States.20 This design of the State-level VAT has been carefully worked out by the Empowered Committee after repeated interactions with the States and others concerned and striking a balance between the needed convergence and federal flexibility as well as ground-level reality. Moreover. after collective interaction in the Empowered Committee. 4. common for all the States.capital goods and declared goods.under the VAT system. the States have initiated. If now all the components of the VAT design are taken together. sugar.1 While the States have thus taken several steps towards introduction of VAT. common for all the States. 2005. after a few years. The remaining commodities. This position has not only been reaffirmed by the Union Finance Minister in his Budget Speech of 200405. all agricultural and industrial inputs. the price level. the States have started the process of preparing the draft of VAT Rules. then it will be seen that the total effect of this VAT system will be to rationalise the tax burden and bring down.3 Moreover. will not be imposed for one year after the introduction of VAT. The objective will be to keep these as simple as possible so that it becomes easy for a small trader to comply with the requirements. Under exempted category. 75 per cent of the loss in the second year and 50 per cent of the loss in the third year of introduction of VAT. items which are legally barred from taxation and items which have social implications. It is with this in view that the Government of India had agreed to compensate for 100 per cent of the loss in the first year. comprising of items of basic necessities such as medicines and drugs. there may be a loss of revenue in some States in the initial years of transition. Steps Taken by the States 3. and are also taking other preparatory steps towards introduction of VAT from April 1. 3. 3. including Books of Accounts to be maintained. and till then the existing arrangement will continue. In terms of decision of the Empowered Committee. 3.5%.2 As a part of the preparatory steps. The schedule of commodities will be attached to the VAT Bill of every State.4 It may be mentioned here that appropriate Central funds for VAT-related computerisation in the North-Eastern States are also being released by the Government of India. will fall under the general VAT rate of 12. and the loss would be computed on the basis of an agreed formula. . Effects of the VAT System 2. This process will continue since this is extremely important for document-based verification and integration with Taxation Information Exchange System as well as with information of the Central excise and income tax systems as indicated earlier. have either already modified or agreed to modify their VAT Bills by incorporating these common points of convergence including flexibility as mentioned in the VAT design above. 4. The rest of the commodities in the list will be common for all the States. there will be the largest number of goods (about 270). which had adversely affected interests of all the States in the past. Related Issues 4. 3. there will be about 46 commodities comprising of natural and unprocessed products in unorganized sector. and in many cases also completed. The position will be reviewed after one year. VAT on Additional Excise Duty items (namely. thereby improving tax-compliance and eventually also the revenue growth. as mentioned in the beginning.
A proposal for VAT on imports. It should be clearly noted. 4. As already mentioned. there is also a critical need for putting in place a regulatory frame-work in terms of Taxation Information Exchange System to give a comprehensive picture of inter-State trade of all commodities. along with the AED items as mentioned earlier.5 Similarly.4. a comprehensive campaign on State-level will be launched to communicate in simple and transparent manner the benefit of VAT for common people. 4. It should also be mentioned that there are some important points on the ground-level implementation of VAT which have been raised by the representatives of trade and industry. —————— . the States are now collecting nearly Rs. is being discussed with the Government of India. The point of reference on VAT should therefore be this design of VAT as explained in this White Paper. If decisions on VAT on imports and service tax are taken expeditiously at the national level. There is accordingly a need of compensation from the Government of India for this loss of revenue as CST is phased out. there is also a need.6 It may be noted that this VAT design has been worked out carefully by the Empowered Committee to strike a balance not only between the common points of convergence and federal flexibility. The Empowered Committee has therefore also set up a Consultative Committee with one representative from each of the national level trade organisations and national level chambers of commerce and industry. this process of setting up of Taxation Information Exchange System has already been started by the Empowered Committee. 4. industrialists and also the State Governments. Because of the set-off. This will then be simultaneously followed up at the level of every State and also in districts of the States.3 As mentioned earlier. as already mentioned before. traders. including the collection mechanism with adequate safeguards for the protection of interest of land-locked States. This process of amendment has also already started. 15 thousand crore every year from CST. this will not result in any tax cascading effect. This Committee has already started interacting with the Empowered Committee. Such Consultative Committees will also be set up at the level of each State. This campaign will then be launched first at the national level on the basis of necessary coordination between the States and the Centre. but also a balance between what can be done to begin with and what should be incorporated subsequently for further perfection of the VAT system.8 In course of discussion with representatives of trade and industry. then these two important spheres of taxation can be integrated. However. after introduction of VAT. The position regarding CST will be reviewed by the Empowered Committee during 2005-06. while CST is phased out. This process of interaction will continue regularly to discuss issues and sort out problems of implementation of VAT. 2005. with changes where necessary. that all the States have agreed to amend their earlier VAT Bills so as to conform broadly to the common design as elaborated in this White Paper. Moreover. We seek cooperation of all sections of people in the country. for phasing out of Central Sales Tax (CST). and interaction with the State Government will take place in a similarly regular manner.9 Finally. but will only improve tax compliance. 4. 4.4 It is also essential to bring imports into the VAT chain. There is now only looking forward to the introduction of State-level VAT by all the States and Union Territories from April 1. The purpose of this campaign will be a two-way interaction between the Government and the trade and industry as well as the common people. into the VAT system of the States from the second year of introduction of VAT. discussion between the Empowered Committee and the Government of India is going on for an early decision on the question of collection and appropriation of service tax by the Centre and the States.7 For successful implementation of State-level VAT. and suitable decision on the phasing out of CST will be taken. 4. and is expected to be completed within one year. reference has often been made to the earlier VAT Bills of some of the States. Many of the points will be taken care of in the VAT rules of the States. close interaction with trade and industry is specially important. This campaign will be based on written materials as well as publicity through all media.
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