Professional Documents
Culture Documents
Indirect Tax
MVAT
Page 1
Management Accounting
Indirect Tax
RAJASTHANI SAMMELANS
Ghanshyamdas Saraf College
Affiliated to University of Mumbai
REACCREDITED BY NAAC WITH A GRADE
R. S. Campus, S. V. Road,
Malad (W), Mumbai: 400 064
Year: 2013-2014
CERTIFICATE
I Prof. REKHA BHATIA here by certify that Ms. Jeenal Navratana
Rathod a student of Ghanshyamdas Saraf College of MCOM PART II
ACCOUNT
(Semester
IV)
has
completed
Project
on
External Examiner:
Principal:
Date:
Project Co-ordinator:
College Seal:
Date:
MVAT
Page 2
Management Accounting
Indirect Tax
ACKNOWLEDGEMENT
I take this opportunity to thank the UNIVERSITY OF MUMBAI for
giving me a chance to do this Project.
I express my sincere gratitude to the Principal Mrs. Sujata
Karmarkar, course co-ordinator Mrs. Dr. Lipi Bhattacharya,
Guide Prof. Rekha Bhatia, our librarian and other teachers for their
constant support and helping me for completing the project.
I am also grateful to my friends for giving support in my project.
Lastly, I would like to thank each and every person who helped me in
completing the project especially MY PARENTS.
Date:
MVAT
Page 3
Management Accounting
Indirect Tax
DECLARATION
I Miss JEENAL NAVARATNA RATHOD a student of Ghanshyamdas
Saraf College of Arts and Commerce, Malad (W) MCOM PART II
ACCOUNT (Semester IV) hereby declare that I have completed
project on MAHARASTRA VALUE ADDED TAX in the
academic Year 2013-2014. This information submitted is true and
original to best of my Knowledge.
Date :
MVAT
Page 4
Management Accounting
Indirect Tax
TABLE CONTENTS
Sr.
Particulars
No
1.
2.
Page
no.
INTRODUCTION OF MVAT
EXPERIENCE OF VAT IN
6-7
8-13
MAHARASTRA
3.
4.
14-18
19-24
5.
DECLARED GOODS
25-26
6.
27-43
MVAT
BUSINESS AUDIT, RECOVERY ,
44-49
MVAT
APPENDIX
CONCLUSION
BIBLOGRAPHY
50-51
52
53
MVAT
1.INTRODUCTION:
MVAT
Page 5
Management Accounting
Indirect Tax
VAT
VAT is introduced in India. VAT Council of States, the body of State
Finance Ministers and Standing Council Of
that the VAT should be implemented all over India From 1-4-2001.
However, subsequently, after taking into consideration the fact that the
groundwork is still in progress, the date has been extended to 1-42002.One thing is certain that the word VAT [Value Added Tax] is a
symbol
of
Globalization
and
Liberalization,
which
is
universal
MVAT
The system of Value Added Tax (VAT) has been implemented, in the State
of Maharashtra, i.e. 1st April, 2005. As per the provisions of MVAT, a
dealer is liable to pay tax on the basis of turnover of sales within the
State. The term dealer has been defined u/s. 2(8) of the Act. It includes all
person or persons who buys or sells goods in the State whether for
commission, remuneration or otherwise in the course of their business or in
connection with or incidental to or consequential to engagement in such
business. The term includes a Broker, Commission Agent, Auctioneer,
Public Charitable Trusts, Clubs, Association of Persons, Departments of
Union Government and State Government, Customs, Port Trusts, Railways,
Insurance
&
Financial
Corporations,
Transport
Corporations,
Local
Page 6
Management Accounting
Indirect Tax
Among many other things, the successful tax system always tries to avoid
Cascading effect of the tax. The VAT, being Value Added Tax, it
presupposes That, if the tax is levied on sale value, all the taxes paid
while making purchases as Well as all the taxes paid during the process of
manufacture or import are to be Refunded. The CREDIT method or
INVOICE method of VAT system ensures that the taxes shown in the
purchase bills are given the credit to the dealers. The Uncontrolled
incidence of tax always shrinks the industry and trade and keeps Away
from the developing process of the national economy. The tax system has
to be neutral so far as its effect on the choice of inputs and outputs for
the Manufacturer and choice of the goods for a consumer is concerned.
MVAT
Page 7
Management Accounting
Indirect Tax
One Core but was brought down on 1-7-1997 to Rest. 40 laces. Though
the additional Tax and Turnover Tax was abolished the rates were over all
increased to cover those taxes [most of the goods taxable at 10% were
taxed at 13%]. Some 12 Industries and 100% export units were allowed
the full set-off of the sale tax Paid on inputs.
It is said that the VAT was abolished from 1-4-1999 due to fall in the
Sales Tax Revenue. But the Economists do not agree to such reasoning.
Since there was a General recession in the industry during 1996 to 1999
the got could not have expected the increase in the tax revenue on
implementation of VAT. In fact the fall in the tax revenue augmented by
the set-off policy of giving refund to Manufacturers manufacturing tax-free
goods, 100% exporting Units, 12 Preferred industries and reduction in the
burden of taxes on inputs from 4% to 3% to all manufacturers.
1-
MVAT
Page 8
Management Accounting
Indirect Tax
Right from Mr. Chidambaram & Mr. Asim Das to Mr. Jayant Patil had
said several times that the VAT brings the era of Self assessment. But
the Maharashtra Value Added Tax Act 2002 [MVAT Act] does not contain
a single provision about self assessment of Acceptance of returns except
only Margin-heading of section 20. But this section 20 is in fact Is a
provision for submission of returns. On the contrary under old Act, section
33[2] of BST Act 1959, in clear words provided that if the Commissioner
is satisfied that the returns are Correct and complete he may assess
according to the returns. Thus MVAT Act is more Regressive than the BST
Act.
The section 21 of the original MVAT Act was for self assessment. It
provided for the intimation to be given about the dues or refund. It had
also provided that if such intimation is Not received by the dealers, the
acknowledgement of the returns will serve as the intimation. This means
that the acknowledgement is the evidence of acceptance of the returns. But
now amended section 21 does not provide, neither for assessment as per
returns nor for the acceptance of the returns. Section 21 provides only for
a restriction that the notice for assessment can not be issued after 2 years
if the returns are filed in time; and after 3 years if the returns are not
filed by the prescribed date. [However this limit is extended Upto 4 years
In case of the period ending on 31-3-2008.] But what is the position of
returns and assessment if the said notices are not issued is not clearly
mentioned anywhere in MVAT Act.
3. ASSESSMENT OF DEALERS:
The assessment in particular is provided in section 23 of MVAT Act.
Surprisingly it starts with the provision for assessment in cases of
defaulters, as if the defaulters will be the order of the day in VAT regime.
MVAT
Page 9
Management Accounting
Indirect Tax
Under section 23[1], if the dealer files the return late, the Commissioner,
[that is, the STO/AC/DC], will pass expert assessment order without issuing
any notice and without any
Opportunity of hearing. Such order can not be passed after three years.
The power to pass the Best judgment assessment order against the
principles of natural justice may be the singular
Model among 126 countries where the VAT is said to have been
introduced. The power of passing the order against the dealer without
calling
him
and
without
giving
hearing
may
Be
the
meaning
of
the
new
source
of
enormous
work
will
be
created
for
the
MVAT
Page 10
Management Accounting
Indirect Tax
pass the assessment order. The date fixed for hearing should not be less
than 15 days from the date of service [rule 21 of MVAT Rules 2005]. The
assessment order will be in form 303 [similar to old form 30]. The notice
can be served at any time but the assessment order can not be passed
after the expiry of 3 years from the end of the year containing the period
which is being assessed. The dealers who have filed the returns late will
be assessed u/s 23[3]. But notice in form 301 has to be served with in 3
years and the assessment order has to be passed within 4 years. The
dealers can be assessed for the unregistered period u/s 23[4] by issue of
notice in form 301 within 5 years but such assessment order has to be
passed within 8 years.
4. ASSSESMENT OF TRANSACTION:
Section 23[5] provides for the assessment of the transaction or of the
claim. The prescribed authority for this sub-section is not the Commissioner
but, the STO. AC, DC, or Sr. DC is prescribed authorities under Rule
21[2]. The notice in form 302 [rule 21] can be issued to the dealer if the
prescribed authority is satisfied that the tax is being evaded by not
recording or by incorrect recording the transactions or any claim in
incorrectly made. Even if the notice for regular assessment is issued by the
STO/AC/DC, the notice under this sub section can be issued. If, during the
search, the STO/AC/DC finds that the tax is being evaded, then the
visiting officer can make the assessment of such transaction, even though
the proceedings are not transferred to him u/s 59. The assessment order
can be passed separately for each transaction. If there are 100 bills which
could not be explained by the dealer to the satisfaction of the visiting
offer at the time of visit, there will be 100 assessment orders in a single
year. This is unique provision giving powers to the visiting officer who
takes the search of the premises of the dealer to assess the dealer though
he may not be within his jurisdiction. [Good example of excessive
MVAT
Page 11
Management Accounting
Indirect Tax
delegation to bureaucracy]. The STO/AC/DC having a regular jurisdiction
can also take up the regular assessment of the dealer. Thus there will be
two or more assessing authorities for one dealer, assessing the same period
with out any transfer of proceedings. MVAT Act has really provided the
polyandry in the days when even polygamy is condemned. However the
MVAT Act is very kind to provide that no tax will be levied again in the
regular assessment if it is already levied in transaction-wise assessment
[provision to sec 23[5][d]].
MVAT
Page 12
Management Accounting
Indirect Tax
dealers will be covered by the time limit of 6 years, though they commit
bonafide mistakes.
MVAT
Page 13
Management Accounting
Indirect Tax
of Total
turnover Turnover
of sales
goods
of
taxable
purchased
or sold
Importer
Rs. 1,00,000
Rs. 10,000
Others
Rs. 5,00,000
Rs. 10,000
MVAT
Page 14
Management Accounting
Indirect Tax
It may be noted that while the total turnover of Rs. 1,00,000/- and Rs. 5,00,000/is in respect of Turnover of Sales (which includes all sales whether tax free or
taxable), the turnover limit of Rs. 10,000/- is in respect of taxable goods whether
purchased or sold. Both the conditions have to be satisfied for the purposes of
liability/registration under this category. [Sec. 3(4)]
Documents required for the purposes of Registration
The Commissioner of Sales Tax, Maharashtra, has issued a circular dated 4th
May, 2005, whereby a dealer is required to submit following documents along
with the application for registration in Form 101:
Documents to be submitted along with the application for registration:
(Note: Copies of documents must be self-attested and are subject to verification
from the original)
IN CASE OF FRESH REGISTRATION:
Proof of constitution of business (as appropriate):
I.
In case of
proprietary firm:
No proof required.
ii. In case of
Copy of partnership deed.
partnership firm:
(Registered or
unregistered)
iii. In case of
company:
MVAT
Page 15
Management Accounting
Indirect Tax
Copy of passport.
Copy of driving license.
Copy of election photo identity card.
Copy of property card or latest receipt of property tax of Municipal
MVAT
Page 16
Management Accounting
Indirect Tax
1. Proof of change in constitution (e.g., if proprietary dealer
converted to partnership firm then copy of Partnership deed, etc.).
2. Copy of latest return-cum-challan.
3. Pay order for payment of fees.
4. PAN of new firm.
5. Proof of permanent residential address.
REGISTRATION IN CASE OF TRANSFER OF BUSINESS
1. All documents from 1 to 6 given in 'A'.
2. Copy of transfer deed.
3. Copy of latest return-cum-challan of the original dealer.
* In case of partnership firm, proof of residence has to be provided for all the
partners, in case of body corporate, proof of residence of applicant.
** In case of partnership firm, photographs of only applicant partner need to be
submitted. In case of corporate bodies, the details of place of residence and PAN,
etc. shall be required to be furnished only for the signatory to the application.
Further, in case of Voluntary Registration, it is necessary that the applicant dealer
is having a current bank account and such dealer has to be introduced either by a
registered dealer or by an advocate, chartered accountant or sales tax practitioner.
(The fees payable for voluntary registration is Rs. 5,000/- while for others it is Rs.
500/- only).
In addition to payment of fees, as mentioned above, a dealer seeking Voluntary
Registration, on or after 16th August 2007, has to be make an advance payment of
Rs. 25,000/-. This advance may be adjusted by the dealer against tax, interest or
penalty, if any, payable during the year of registration or in the immediate
succeeding year. Any amount remaining unadjusted after the end of the 2nd year
shall be refunded [For the time being, the amount of fees as well as the amount of
MVAT
Page 17
Management Accounting
Indirect Tax
advance payment has to be made by way of bank draft to be deposited with the
registering authority along with the application for registration]
Schedule Declared
C'
Goods
and
other
specified goods
Other goods i.e. 1/5/10
MVAT
A to D)
1%
4%
5%
At
specified
rates
12.5%
Page 18
Management Accounting
Indirect Tax
a leading case of Hoosier Kamas Dada the Supreme Court has pointed out
that the right to appeal is not merely a matter of procedure; it is a matter
of substantive right. [4 STC 114]. Right to appeal is vested in a dealer
when the return is filed or on the date, the return was due. In case of
Vijay Parsed [72 STC 324 SC], Hon Justice Sabyacachi Kukri has said,
Right to appeal is neither an absolute right nor an ingredient of Natural
Justice. Right to appeal is a statuary right which is circumscribed by the
conditions of grant. VAT drafters are very kind that they have provided
for right of appeal under section 26 and 27 of VAT Act.
The provisions of section 26 govern the right of appeal under VAT Act,
which is similar to old section 55 of BST Act. If the order is passed by
the STO or AC the appeal can be filed to the Deputy Commissioner of
Sales Tax. If it is passed by the DC or Sr. DC then the appeal will lie to
Joint Commissioner. If the order is passed by the Jet. Commissioner, Addle
Commissioner or the Commissioner then it will lie to the Tribunal. [The
copy of the notification changing the designations of the Sales Tax
authorities is not yet available with the PRO of the Sales Tax dept. It is
said that all Class I STOs will be designated as ACs, all ACs will be
designated as DCs and all DCs will be designated as Jet. Commissioners.
After introduction of VAT, one has not yet experienced the increase in
transparency, but there is certainly increase in the nominal structure of the
authorities due to introduction of VAT.] The second appeal against the
order passed in appeal by the DC or JT. Commissioner will lie to the
Tribunal. Unlike to old provision giving option to file second appeal either
MVAT
Page 19
Management Accounting
Indirect Tax
to Commissioner or to the Tribunal, new provision of section 26[2]
provides the second appeal only to the Tribunal.
Non-appeable Orders:
All orders are not appeable but section 85[2] bars filing of appeal against
certain notices and order viz. -I] Any notice,
ii] Summons,
iii] Exparte assessment order where any Return is not filed by the
dealer by the prescribed date,
iv] Installment order,
v] notice or order for recovery as arrears of land revenue,
vi] seizure order,
vii] order transferring the proceedings,
viii] part payment and stay order passed by appellate authority.
[Though the appeal against the part payment order is barred, the
admission of appeal is not dependent of the payment of the part
payment amount.]
As under old law, under new VAT Act also, all appeal orders are final, but
they can be reviewed [revised] u/s 25 or rectified u/s 24 of VAT Act. The
time limit for filing the appeal is 60 days from the date of communication
of the order appealed against. The power of the appellate authority to
condone the delay in filing the appeal for sufficient cause is not taken
away under VAT Act. [See how kind is the King !] The provisions of
section 4 & 12 of Limitation Act are made applicable by section 80 of
VAT Act and the power to condone the delay is granted by section 81 of
VAT Act. However, the delay cannot be condoned on the ground that any
judgment or decision, on which reliance is placed, was delivered after the
limitation period was over.
Page 20
Management Accounting
Indirect Tax
The powers of appellate authorities u/s 26[5] have been classified under
four categories, viz.
a] Appeal against assessment orders - In this case the appellate
authority gets the power to confirm, reduce, enhance or cancel the
assessment. The power to remand the case is only with the
Tribunal. It can only direct to make fresh assessment of the
appellant.
b] Appeal against the penalty, the appellate authority gets the power to
confirm or cancel , or modify the penalty. The words in
accordance with the provisions of the Act are added under VAT
Act, these words were not in the BST Act. When the appellate
authorities are the officers appointed under the Act for the carrying
out the purposes of the Act, there is no significance to the newly
added words. Only the time will show the purpose of this addition.
c] Appeal against the interest - Here the appellate authority gets the
power to confirm, cancel or modify it in accordance with the
provisions of the act.
d] In case of appeal of any other kind, the appellate authority gets the
power to pass just and proper order. The BST Act section 55[7]
had provided that the appellate authority could pass the appeal order
against the point decided by the Tribunal, if the State had gone in
reference against that decision to High Court. But VAT Act does not
provide so in section giving powers to appellate authority. However
section
23[8]
provides
for
passing
the
appropriate
order
of
MVAT
Page 21
Management Accounting
Indirect Tax
The appellate authority has u/s 26[6], a power to grant stay against the
operation of the order appealed against. He can ask for the part payment
and can put some conditions before granting such stay.
MVAT
Page 22
Management Accounting
Indirect Tax
the law under which it was assessed, then such turn over can be by the
Sales Tax authorities. The time limit of 5 years is put for correction of
such assessments.
MVAT
Page 23
Management Accounting
Indirect Tax
As per Rule 36, the intimation of fixing appeal for final hearing has to be
given 10 days in advance. If any date is to be given, it should be after 10
days, unless the appellant agrees for earlier date. If on the date fixed the
appellant remains absent the appeal can be decided expert. Such expert
appeal order can also be restored on application if it is found that the
notice was not served or that there was sufficient cause for his absence.
Rule 36[2] expects the appellate authority including the Tribunal, to
maintain the Register showing the date of filing of appeal and the disputed
quantum in that appeal.
Rule36[4] prescribes that the appellate authority including the Tribunal
should in any month fix 50% appeals which are against the DDQ orders
passed u/s 56 and old appeals and 50% out of appeals involving highest
quantum of relief sought.
Court Fees:
Rule 73 prescribes the court fees to be paid. The appeal memo requires
the CF of Rs. 100/- if the amount of relief is less then Rs. 1 lac. If it is
1 lac or more then the CF is equal to 10% of the relief or maximum Rs.
1000/-. Where there is no amount in dispute the CF will be Rs. 100/-.
There is no distinction as to first or second appeal or appeal to Tribunal.
MVAT
Page 24
Management Accounting
Indirect Tax
The CF for restoration application is Rs. 10/-. The CF for stay application
is Rs. 25/-.On application by Sr. Citizen for taking, the appeal on priority
there is no CF.There is no CF for application of condonation of delay. The
adjournment application and the miscellaneous also do not require CF.
5. DECLARED GOODS:
Some goods are declared as goods of special importance and restrictions
are placed on power of State Governments to levy tax on such goods.
Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads :
Taxes on the sale and purchase of goods other than newspapers, where
such sale or purchase takes place in the course of Inter-state trade or
commerce. Entry 54 of list II - State List - reads : Tax on sale or
purchase of goods other than newspapers except tax on Inter State sale or
purchase. Thus, sale within the State (Intra-State sale) is within the
authority of State Government, while sale outside State (Inter-State sale) is
within the authority of Central Government.
Sale where both buyer and seller are from same State is Intra-State sale
e.g. from * Mumbai to Pune or * Ahmedabad to Surat * Howrah to
Kolkata * Mysore to Bangalore etc. These are Intra-State sales. However,
when buyer and seller are in different States, it is Inter-state sales. e.g. :
Chennai (Tamil Nadu) to Trivandrum (Kerala) * Allahabad (UP) to
Hyderabad (Andhra Pradesh) * Bhubaneshwar (Orissa) to Daman (Union
Territory) etc.
MVAT
Page 25
Management Accounting
Indirect Tax
TAXABLE EVENT IN SALES TAX In re Sea Customs Act - AIR 1963 STC 437= (1964) 3 SCR 827 (SC 9
member bench), it was held that in case of sales tax, taxable event is the
act of sale. It is not a tax directly on goods.
Categories of Sales - Sales can be broadly classified in three categories.
(a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within
the State) sale. - Murli Manohar and Co. v. State of Haryana (1990) 4
CLA 304 (SC) = (1991) 80 STC 79 = 1990(2) SCALE 821 = (1991) 1
SCC 377 (SC 3 member bench). In this case, it was observed that they
cannot conceive fourth category of sale. If sale or purchase to Marketing
Agency is in same State, it will be an Intra-State sale even if goods are
despatched outside the state as per instructions of the marketing agency. ACC v. CST - AIR 1991 SC 1122.
Tax on Inter-State sale is levied by Union (i.e. Central) Government while
tax on Intra-State sale is levied by State Government of the State in which
sale takes place. No tax is levied on sales during import or export.
SALE WITHIN THE STATE IS RESIDUARY SALE As we will see
later, sale within State is residuary sale. Thus, first we have to decide if
sale is Inter State. If not, we have to find if it is Sale during export or
import. If not, then the sale is Intra State. Thus, if a sale is Inter State
of during export or import, it cannot be Sale within the State.
MODE OF A SALES TRANSACTION - Initially, buyer places an order
on seller for supply of goods, called Purchase Order. After the goods
ordered are ready, the buyer may come to the business place (godown,
factory or warehouse) of seller and obtain delivery of goods. This will be
Sale within the State. Alternatively, buyer may ask seller to send the
goods by transport. In such cases, the seller will book the consignment by
rail, road, ship or air as per requirement of buyer to the destination where
buyer requires the goods. In such a case, generally, (a) if buyer and seller
MVAT
Page 26
Management Accounting
Indirect Tax
are in the same State, it is Intra-State sale (b) if they are in different
States, it is Inter-State sale (c) if buyer is outside India, it is sale during
export (d) if seller is outside India, it is sale during import.
Tax Period
Tax Period in relation to a dealer may be a calendar month, quarter (a period of
three months; i.e., Apr. to June, July to Sep., Oct. to Dec. and Jan. to Mar.) or six
months (prescribed period of six months; i.e., April to September and October to
March).
FILING OF RETURNS AND PAYMENT OF TAXES
Every registered dealer shall be required to file correct, complete and selfconsistent return, in prescribed form, by the due date. [Sec. 20, Rules 17 to 20]
Sr. Category
No
.
1.
A
)
B
)
C
)
MVAT
Periodicity
Half yearly
Page 27
Management Accounting
Indirect Tax
2.
3.
A
)
B
)
C
)
All other dealers whose tax liability, in the previous year, exceeds
Rs. 10 lakhs or refund entitlement exceeding Rs. 1 crore.
Quarterly
Monthly
Page 28
Management Accounting
Indirect Tax
From 1st April 2009, all dealers, whether required to file monthly,
quarterly or six monthly returns, have to submit their returns in electronic
format
only.There
are
separate
return
forms
prescribed
for
various
categories of dealers, i.e., Form Nos. 231 to 235. A dealer has to use
appropriate form as may be applicable to him. All these forms have to be
submitted electronically within the prescribed due date.
A dealer shall first make payment of tax due in to the Government
treasury through challan Form No. 210, (Form MTR-6 for payment of CST
dues), and thereafter upload the return in appropriate form as may be
applicable. A grace period of 10 days has been permitted for uploading of
e-returns but the tax due, if any, has to be paid within the prescribed due
date.It may further be noted that from 1st June, 2010 it is now mandatory
for the dealers required to file monthly returns to make payment of taxes
electronically.In case of delayed payments, interest is payable @ 15% p.a.
Such interest is mandatory and shall be paid before filing of return.
Refunds of any period can be adjusted in the return/s for subsequent or
any other period/s within the same financial year. As per the provisions of
MVAT, refund cannot be adjusted against liability of the subsequent year;
i.e., refund cannot be carried forward to the next financial year. However,
for refunds relating to financial years 2005-06 as well as for 2006-07, the
Commissioner has issued Trade Circulars whereby the refund for these
financial years could be carried forward to the subsequent year.
The Commissioner of Sales Tax has also issued a Trade Circular (No. 15T
of 2010 dated 15-4-2010) whereby the dealers have been permitted to
adjust the refund due for financial year 2009-10 against tax payable for the
current year; i.e., financial year 2010-11, provided that the refund due as
per return for the period ended 31st March 2010 is less than rupees one
lakh and the dealer has not filed an application for refund (in Form 501)
for such refund.
MVAT
Page 29
Management Accounting
Indirect Tax
Revised Returns
Revised return, for any period, can be filed within 9 months from the end
of the year in which such tax period falls or before receipt of notice for
assessment, whichever is earlier. [Sec. 20(4))
100 + R
MVAT
Page 30
Management Accounting
Indirect Tax
ITC on Capital Goods: Tax paid on certain items of capital goods
(defined) such as machinery, components, parts and spares etc. are also
eligible for full set off. (On certain other items of capital assets such as
furniture and fixtures, office equipments, etc. set off is admissible, subject
to retention @ 3%, w.e.f. 8-9-2006)
ITC on Miscellaneous Goods: The amount of Vat paid on purchase of
miscellaneous goods, debited to Profit & Loss A/c. (such as printing and
stationery, repairs, sales promotion etc.) also eligible for full set off.
ITC on Fuel: Tax paid on purchase of goods, which is used as fuel,
shall be eligible for set off, in excess of 3%.
Reduction in set off: The amount of set off, available to a registered
dealer, shall be reduced to the extent as provided, under the following
circumstances: i.
ii.
iii.
iv.
MVAT
Page 31
Management Accounting
Indirect Tax
v.
vi.
vii.
viii.
ix.
x.
MVAT
Page 32
Management Accounting
Indirect Tax
Wherever such reduction in set off is required to be done, it shall be done
in the tax period in which such contingency arises.
If, for the purpose of reduction of set off, wherever required, it is not
possible to identify the corresponding purchases then proportionate reduction
on FIFO basis.
Condition for grant of set off:
1. Set off to be allowed only to a registered dealer.
2. A valid Tax Invoice is must to claim set off.
3. Proper
maintenance
of
account
of
all
the
purchases
in
No set off:No set off, under any Rule shall be admissible in respect of;
a. Purchase of passenger motor vehicles and parts components and
accessories thereof unless the dealer is engaged in the business of
trading in motor vehicles or transferring the Right to Use (Leasing).
MVAT
Page 33
Management Accounting
Indirect Tax
b. Purchase of motor spirit by any dealer other than a dealer in motor
spirit.
c. Purchase of Crude Oil, used by an oil refinery for refining.
d. Any purchase of consumables or capital assets by a job worker
(pure labour job), whose only sales are waste or scrap of goods
obtained from such labour job.
e. Any purchase made by a dealer holding Entitlement Certificate
under a Package Scheme of Incentives. (Such units are entitled for
refund of tax paid on purchases).
f. Any purchase of goods of incorporeal or intangible nature other
than:
i.
ii.
iii.
Except above, all other intangible goods are debarred from set off.
g. Tax paid by way of works contracts in the erection of immovable
property (other than plant & machinery).
h. Purchases of building material used in the erection of immovable
property (other than plant & machinery). However, a contractor, who
undertakes construction of immovable property by way of works
contracts, is eligible to claim setoff on purchase of such goods.
i. Office Equipments, Furniture & Fixtures, Electric Installations, etc.,
(treated as capital assets), purchased during the period from 1-42005 to 7-9-2006. (Such assets, if purchased on or after 8-9-2006,
are eligible for set off subject to retention @ 4% or 3% as the
case may be).
MVAT
Page 34
Management Accounting
Indirect Tax
j. Small dealers/retailers, hoteliers, caterers, bakers, mandap decorators
etc., opting for Composition Scheme, u/ss. 42(1), 42(2) and 42(4) of
MVAT Act, are not entitled for any set off.
k. There is no set off of CST paid on inter-state purchases.
l. There is no set off for any other taxes paid such as excise duty,
import duty, service tax, octroi or such other levy or levies.
m. In case of hotelier, the set off on capital assets is prohibited where
such capital assets are not pertaining to sale or service of
food/drinks.
Credit C/f and Credit B/f: If during a tax period (month/quarter/six
months) the tax on total turnover of sales is less than the amount of input
tax credit, then such excess amount of credit may either be adjusted by
the dealer against his tax liability under the CST Act for the same period
or may be c/f to the next period. The unadjusted credit c/f of one period
shall become the credit b/f for the next period. The excess credit may be
carried forward in this manner till the end of the accounting year. The
balance, if any, thereafter shall be claimed as a refund in Form 501 from
the department, within a period of three years from the end of the year
for which it relates.
Goods Return, Debit/Credit Notes: Section 63(5) and (6) of the MVAT
Act provides that the amount of goods returned during any period shall be
reduced from the total turnover of sales/purchase of that period in which
the goods returned, provided that the goods has been returned within a
period of six months from the date of sale or purchase thereof as the case
my be. Similarly other debit and credit notes, which are in the nature of
increasing or reducing the sale price and/or the purchase price shall be
given effect in the month in which such debit/credit note has been entered
in the books of account of the dealer. Thus the amount of set off, for that
MVAT
Page 35
Management Accounting
Indirect Tax
period, shall get increased or reduced to the extent it related to purchase
return and debit/credit notes having impact on the purchase price of goods.
Exports: Exports are treated as zero-rated. Thus no tax is payable on
export of goods out of India. However full set off is available of input tax
paid on purchases, from within the state of Maharashtra, used in such
exports. As there are no concessional forms under MVAT, the exporters
may have to claim refund of the VAT paid on their purchases (inputs).
However, the trading exporters (who were earlier purchasing goods against
Form 14B), may purchase such goods against Form H of CST Act,
provided all other conditions of section 5(3) of CST Act are fulfilled.
Inter-State Sales: The transactions of inter-state sales and inter-state
movement of goods are governed by the CST Act. Thus the tax on such
sale is levied according to the provisions of CST Act. Such transactions
are not liable for VAT. However full input tax credit is available for the
value
added
tax
paid
in
Maharashtra.
(Except
in
case
of
branch
TAX INVOICE:
Essential ingredients of a Tax Invoice: Under the scheme of VAT, the
most important document is tax invoice. A registered dealer is entitled to
claim set off only on the basis of a valid tax invoice. Set off is not
available on purchases affected through a bill or cash memorandum. A 'Tax
Invoice is must to claim input tax credit (set off). To be a valid tax
invoice,
section
86(2)
provides
that
it
shall
contain
the
following
particulars:
i.
ii.
MVAT
Page 36
Management Accounting
Indirect Tax
iii.
iv.
v.
vi.
vii.
viii.
MVAT
Page 37
Management Accounting
Indirect Tax
h) Profit earned by the contractor to the extent it is relatable to the supply
of labour & services:
SALE PRICE OF GOODS: FIXED PERCENTAGE (Table U/R 58)
Where proper evaluation of such expenses [a to h of Rule 58(1)] is not
possible, fixed percentage of deduction is prescribed from 15% to 40%
various activities enlisted in the table, e.g. Installation of Plant & Machinery
15%, Painting 20%, Pipeline 20%, other works contracts-25%.
Either dealer or department may chose lump-sum deductions if books are
not intelligible. Construction contracts of flats: cost of land is also allowed
as deduction. Ready reckoner rates on 1st Jan of the year in which the
agreement to sell the flat is signed.
MVAT
Page 38
Management Accounting
Indirect Tax
Normal Method: U/R 58(1) = Full set off Subject to conditions U/R 55,
54, 53 & 52 Composition : Tax @ 8% = 64% of set off [Rule 53(4)]
Tax @ 5% = 4% Reduction [Rule 53(4)] Tax @ 1% = no set off (As
per notification) On Going Contracts : No set off is allowed for RD
purchases.
CASE STUDY
VAT CREDIT IN CASE OF INPUTS/SUPPLIES
Illustration 1
1. A dealer purchases the following goods in a State during the month of March
20x6:
Particulars
Total Amount
(Rs.)
Net Amount
(Rs.)
4% VAT Goods
10,40,000
40,000
10,00,000
9,00,000
1,00,000
8,00,000
2,00,000
2,00,000
Total
21,40,000
1,40,000
20,00,000
2. The input tax paid on purchase of goods is eligible for VAT credit.
3. Sales made by the dealer during the month are as below:
Particulars
Gross Amount
(Rs.)
Output Tax
Collected
(Rs.)
Net Sales
Consideration
(Rs.)
4% VAT Goods
11,44,000
44,000
11,00,000
10,12,500
1,12,500
9,00,000
2,50,000
2,50,000
Total
24,06,500
1,56,500
22,50,000
MVAT
Page 39
Management Accounting
Indirect Tax
1. The dealer passes the following entry to record the goods purchased and input
tax paid thereon:
4% VAT Goods Purchase A/c
To Bank A/c
Rs. 21,40,000
Rs. 11,00,000
Rs. 9,00,000
Rs. 2,50,000
Rs. 1,56,500
Rs. 1,40,000
(Being liability for VAT payable met by using the balance in the VAT Credit
Receivable (Inputs) Account)
4. Net credit balance of Rs. 16,500 (i.e., Rs. 1,56,500 Rs. 1,40,000) in VAT
Payable A/c is disclosed in the balance sheet as below:
Extracts from the Balance Sheet
Current Liabilities:
VAT Payable Account
Rs.
16,500
MVAT
Page 40
Management Accounting
Indirect Tax
following sentence in the accounting policy regarding valuation of inventories to
specify the treatment regarding VAT credit available on purchases:
The cost of inventories is net of VAT credit.
6. The dealer may include the following sentence in the accounting policy
regarding revenue recognition to specify the treatment of output tax:
Sales are exclusive of VAT.
7. Suppose the dealer makes payment of outstanding VAT liability at the
beginning of the next month. To record the payment, the dealer passes the
following entry:
VAT Payable A/c
To Bank A/c
Rs. 16,500
To Bank A/c
Rs. 93,60,000
MVAT
Page 41
Management Accounting
Indirect Tax
VAT Credit Receivable (Capital Goods)
Dr. Rs. 10,000
A/c
To VAT Credit Deferred (Capital Goods)
A/c
Rs. 10,000
Amount (Rs.)
2,70,000
90,000
MVAT
Page 42
Management Accounting
Indirect Tax
2. On July 1, 20x5, when first instalment of VAT credit becomes actually
available, the dealer passes the following entry to recognise the amount becoming
available:
VAT Credit Receivable (Inputs) A/c
Rs. 6,000
Amount (Rs.)
Opening Stock
Rs. 9,36,000
Rs. 36,000
Rs. 9,00,000
To Sales
Rs. 1,00,000
Rs. 12,500
MVAT
Page 43
Management Accounting
Indirect Tax
VAT Payable A/c
Dr Rs. 1,00,000
To B
Rs. 1,12,500
in whose case they have reason to believe that the return may not
be correct or a detailed scrutiny is necessary
MVAT
Page 44
Management Accounting
Indirect Tax
A dealer who consistently and regularly complies with the VAT law and
files correct, complete and self consistent returns will normally not be
selected for audit. The selection of audit cases will be by exception rather
than as a rule.
The Business Audit Process
If any of the dealers business is selected for an audit, then Sales Tax
Office will inform them and then fix a suitable date.
The audit officer will inspect the books of accounts and supporting
documents. At that time dealer should make available any information or
documents that he may require to enable him to carry out the audit
effectively and speedily. The audit officer may like to understand dealers
business process and examine their stocks of goods. He may also like to
interview the person or its employees for this.
The audit officer cannot remove any books of accounts or documents from
their premises. However, audit officer can request for copies.
Results of the audit
If the audit shows that the returns filed do not reflect the true picture of
the dealers business, then the auditor may discuss the matter with the
dealer and will give guidance to them to prevent recurrence and will also
explain them about what action should be followed. The audit may result
in additional tax demand or a refund.
Additional tax demand
If any additional tax is due, the auditor will issue a notice explaining the
additional demand. If the dealer accepts the additional demand shown, then
they should file a revised return along-with the payment of tax.
However, if the dealer disagrees with the findings of the auditor, then they
may proceed to assess their case and issue an assessment order unless they
are able to provide evidence and convince the audit officer not to assess
them for additional demand. The assessment order will also include interest
due from the date they should have paid the tax to the date of the
MVAT
Page 45
Management Accounting
Indirect Tax
assessment. In addition, they may also impose a penalty. They should pay
the dues as per the assessment order or they may prefer an appeal against
this order.
Time limit for audit
There is no time limit prescribed for conducting Business Audit. Normally,
they may carry out an audit within two years of filing the return. They
may follow the timelines as prescribed for completion of assessments under
the MVAT Act and MVAT Rules.
Investigation
Normally, the Sales Tax Department will make Business Audit visits by
appointment. However, if the department suspects any tax evasion, it may
conduct
investigation
of
the
business
including
search
and
seizure
MVAT
Page 46
Management Accounting
Indirect Tax
necessary, officials of the Sales Tax Department may call for the records
from the defaulting dealer to examine and obtain the necessary details.
Attachment proceedings
The department may also recover the amounts due by attaching the
defaulting dealer's moveable or immoveable property under the provisions
of Maharashtra Land Revenue Code.
If the department is still unable to recover the amounts of tax, interest and
penalties plus any costs incurred in the attachment proceedings, it will
initiate prosecution proceedings through police. The VAT law outlines a
number of offences and the financial and other consequences that follow.
In addition, interest will be charged on any tax paid late at the rate of
15% per year.
Offences
The principal offences, each of which has been referred to in the text of
this guide, are as follows: If a person
information.
MVAT
Page 47
Management Accounting
Indirect Tax
files a return.
In these circumstances, the dealer may be prosecuted and a fine may also
be imposed.
There are two other events that may also give rise to a penalty. If the
dealer:
transfers any assets of his business with the intention of not paying
tax, or
MVAT
Page 48
Management Accounting
Indirect Tax
The penalty is an amount equal to the tax due. If the dealer avoids paying
the correct amount of tax as a result of issuing bogus, false tax invoices,
the maximum penalty is an amount equal to half of the tax under assessed
or Rs.100/-, whichever is higher.
Non Tax Related Penalties
If the dealer fails to file a return, within the time allowed, the penalty is
Rs.2,000/-. If dealer files the return late but before any penalty proceedings
have started, the penalty will be reduced to Rs1,000/-.
If the dealers return is not correct, complete and self-consistent, the
penalty is Rs1,000/-, but this is without prejudice to any other penalties
that may be imposed.
If, after the issue of summons, the dealer fails to attend any proceedings
or to produce books of account, registers or documents, the Tribunal or the
Sales Tax authorities may impose a fine, not exceeding Rs.5,000/-.
Most other offences attract a penalty of Rs.1,000/- although there is also a
provision for some offences to attract a penalty of Rs.2,000/- plus a
continuing daily penalty of Rs.100/Payment of Penalty or Fine
As a result of proceedings, such as audit, investigation, assessment etc.,
Sales Tax Authority may issue a demand notice containing details of tax,
interest and penalties, if any, that are imposed. The dealer should pay the
amount due within 30 days of the date of the order. Dealer should make
the payment using Form 210 through the bank where he normally files his
return.
MVAT
Page 49
Management Accounting
Indirect Tax
8.APPENDIX:
List of important forms referred to in the Guide
Sr.No.
Form
Subject
No.
1
101
103
210
221
222
MVAT
Page 50
Management Accounting
Indirect Tax
6
223
224
225
Return-cum-chalan
for
Notified
Oil
Companies.
304
10
310
11
311
12
414
13
501
14
704
MVAT
Page 51
Management Accounting
Indirect Tax
9.CONCLUSION:
The system of Value Added Tax (VAT) has been implemented, in the State
of Maharashtra, w.e.f. 1st April, 2005. As per the provisions of MVAT, a
dealer is liable to pay tax on the basis of turnover of sales within the
State.
MVAT, a dealer is liable to pay tax on the basis of turnover of sales
within the State. The term dealer has been defined u/s. 2(8) of the Act. It
includes all person or persons who buys or sells goods in the State
whether for commission, remuneration or otherwise in the course of their
business or in connection with or incidental to or consequential to
engagement in such business. The term includes a Broker, Commission
Agent, Auctioneer, Public Charitable Trusts, Clubs, Association of Persons.
Draft model of VAT legislation has been prepared by the National Institute
of Public Finance and Policy. The circulation of papers on VAT will
certainly be creating the atmosphere towards readiness to accept VAT.
Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall
apply electronically for registration to the prescribed authority, in Form 101,
within 30 days from the date of such liability.
The provisions relating appeals under MVAT Act 2002, which is in force
in Maharashtra
a leading case of Hoosier Kamas Dada the Supreme Court has pointed out
that the right to appeal is not merely a matter of procedure; it is a matter
MVAT
Page 52
Management Accounting
Indirect Tax
of substantive right. [4 STC 114]. Right to appeal is vested in a dealer
when the return is filed or on the date, the return was due.
10.BIBLOGRAPHY:
Internet
www.mahavat.gov.in
www.caclubindia.com
www.wikipedia.com
www.indiataxes.com/Information/VAT/Introduction.htm
www.business-standard.com/.../penalty-waived-for-late-
mvat-audit-repor...
www.revenue.com
Text Book
MVAT
Page 53