VAT

Indian Value Added Tax The Government of India has excogitated Value Added Tax (VAT) on the sale of goods to provide a set-off for the tax already paid through a mechanism of input tax credit. This input tax credit in relation to any period means setting off the input tax by a registered dealer against the amount of his output tax. In conceptualization of the V T system the Government aims at the tax is to be paid on value addition at each point of sales to the goods. Dealer The dealer is the person !ho is liable to pay the Tax under the system. Therefore" before delving into the topic of V T it is necessary to #no! the term dealer. s defined in the $entral %ales Tax ct" &'() the term *ealer means any person !ho carries on the business of buying" selling" supplying or distributing goods" directly or other!ise" !hether for cash or for deferred payment" or for commission" remuneration or other valuable consideration. The term dealer explicitly encompasses but not limited to the follo!ing having a variation from state to state+ an industrial" commercial or trading underta#ing of the Government" the $entral Government" a %tate Government" a statutory body" a local authority" company" a ,indu undivided family" a partnership firm" a society" a club or an association !hich carries on such businessa casual trader" a person !ho has" !hether as principal" agent or in any other capacity" carries on occasional transactions of a business nature involving the buying" selling" supply or distribution of goods in the %tate" !hether for cash or for deferred payment" or for commission" remuneration or other valuable considerationa commission agent" a bro#er or del credere agent or an auctioneer or any other mercantile agent by !hatever name called" !ho carries on the business of buying" selling " supplying or distributing goods on behalf of any principala non-resident dealer or an agent of a non-resident dealer" a local branch of a firm or company or association situated outside the %tate a person !ho sells goods produced by him by manufacture or other!isea person engaged in the business of transfer other!ise than in pursuance of a contract of property in any goods for cash deferred payment or other valuable consideration. a person engaged in the business of transfer of property in goods .!hether as goods or in some other form/ involved in the execution of a !or#s contracta person engaged in the business of delivery of goods on hire purchase or any system of payment by installmentsa person engaged in the business of transfer of the right to use any goods for any purpose .!hether or not for a specified period/ for cash" deferred payment or other valuable consideration.

Goods covered under VAT ll the goods including declared goods as mentioned in the $entral %ales Tax covered under V T and !ill get the benefit of input tax credit. ct" &'() are

0nly fe! goods !hich has been #ept outside V T is li1uor" lottery tic#ets" petrol" diesel" aviation turbine fuel and other motor spirit since their prices are not fully mar#et determined. These !ill continue to be taxed under the %ales Tax ct or any other %tate ct or even by ma#ing special provisions in the V T ct itself" and !ith uniform floor rates decided by the 2mpo!ered $ommittee. Registration under VAT Persons require registration under the VAT Act ll dealer prior to commencement of the V T ct in the %tates" having a 3egistration $ertificate either under 4ocal %ales Tax ct or under $entral %ales Tax ct are deemed to be the 3egistered *ealer. ne! dealer !ill be given a 56 days time from the date of applicability of the ct in the %tate. s per the 7hite 8aper on Value dded Tax published by the 9inistry of :inance" the registration of dealers !ith gross annual turnover above 3s. ( la#h !ill be compulsory. ,o!ever every %tates is flexible to fix the threshold limit !ithin 3s. ( la#h for the small dealers. 2very %tate shall ma#e the provision for voluntary registration of dealers !ho are not other!ise liable to pay tax. ,o!ever the voluntary registration process are same as applicable to other dealers !ho are liable to pay tax under V T. *ealers !ith annual gross turnover not exceeding 3s. (6 la#h !ho are other!ise liable to pay V T" shall ho!ever have the option for a composition scheme !ith payment of tax at a small percentage of gross turnover. The dealers opting for this composition scheme !ill not be entitled to input tax credit. Registration process The form of application to register and manner of ma#ing application" and the fee payable is prescribed by the %tate V T ct in each %tate. properly filled application may be filed !ith the $ommercial Tax 0fficer or ssistant $ommissioner of $ommercial Taxes or any other authority prescribed by the %tate V T ct" !ho is having a ;urisdiction over the principal place of business of the pplicant. 0n receipt of an application to register the prescribed authority shall register any such dealer and grant him a certificate of registration" if he is satisfied that the applicant is a bona fide dealer and that he complies !ith the re1uirements of the ct. The certificate of registration !ill be issued !ith effect from the first day of the month follo!ing the month in !hich such application is made or from such earlier date as may be mutually agreed. The prescribed authority may refuse to grant a certificate of registration to the applicant for any good and sufficient reasons to be recorded in !riting" after allo!ing the applicant to sho! cause in !riting against such refusal. The ct may contains provision relating to suo moto 3egistration of dealer. The competent authority may after conducting such survey" inspection or en1uiry as may be prescribed" finds a dealer liable to be registered has failed to inform the competent authority of his liability to be registered" proceed to register such person under the ct. Security or registration The act may prescribe the authority for the proper payment of the tax" from time to time demand from a registered dealer or from a dealer !ho has applied for registration under this ct" reasonable security not exceeding an amount to be paid in a manner suggested in the ct.

The prescribed authority as per the state V T ct may by order forfeit the !hole or any portion of the security furnished by a dealer+ a. for collecting any amount of tax" interest or penalty that is payable by such dealer" or b. if such dealer is found to have misused any prescribed certificate or declaration or has failed to #eep or retain them in the prescribed manner. .5/ <o order shall be passed under sub-section .=/" !ithout giving the dealer an opportunity of sho!ing cause in !riting against such forfeiture. VAT rates and the co!!odities The V T covers about ((6 goods and only t!o basic V T rates of >? and &=.(?" plus a specific category of tax-exempted goods and a special V T rate of &? only for gold and silver ornaments" etc. are applicable. The uniform V T rate !ill abolish the multiplicity of rates in the existing structure. @nder the exempted category" there !ill be about >) commodities comprising of natural and unprocessed products in unorganized sector" items !hich are legally barred from taxation and items !hich have social implications. Included in this exempted category is a set of maximum of &6 commodities flexibly chosen by individual %tates from a list of goods .finalized by the 2mpo!ered $ommittee/ !hich are of local social importance for the individual %tates !ithout having any interstate implication. The rest of the commodities in the list !ill be common for all the %tates. V T rate of >? is applicable to the largest number of goods .about =A6 /" common for all the %tates" comprising of items of basic necessities such as medicines and drugs" all agricultural and industrial inputs" capital goods and declared goods. The remaining commodities" common for all the %tates" !ill fall under the general V T rate of &=.(?. In terms of decision of the 2mpo!ered $ommittee" items relating to sugar" textile and tobacco" because of initial organizational difficulties" !ill not be imposed for one year after the introduction of V T" and till then the existing arrangement !ill continue. Returns and iling simplified form of returns may be used and such form is to be notified by each %tate. 3eturns are to be filed monthlyB1uarterly as specified in the %tate ctsB3ules" and !ill be accompanied !ith payment challans. 2very return furnished by dealers !ill be scrutinized expeditiously !ithin prescribed time limit from the date of filing the return. If any technical mista#e is detected on scrutiny" the dealer !ill be re1uired to pay the deficit appropriately. 2very return shall be signed and verified a. In the case of an individual" by the individual himself" and !here the individual is absent from India" either by the individual or by some person duly authorized by him in this behalf and !here the individual is mentally incapacitated from attending to his affairs" by his guardian or by any other person competent to act on his behalfb. In the case of a ,indu @ndivided :amily" by a Carta and !here the Carta is absent from India or is mentally incapacitated from attending to his affairs" by any other adult member of such familyc. In the case of a company or local authority" by the principal officer thereofd. In the case of a firm" by any partner thereof" not being a minore. In the case of any other association" by any member of the association or personsf. In the case of a trust" by the trustee or any trustee- and

g. In the case of any other person" by some person competent to act on his behalf. Sel "assess!ent The basic simplification in V T is that V T liability !ill be self-assessed by the dealers themselves in terms of submission of returns upon setting off the tax credit. 3eturn forms as !ell as other procedures !ill be simple in all %tates. There !ill no longer be compulsory assessment at the end of each year as is existing no!. If no specific notice is issued proposing departmental audit of the boo#s of accounts of the dealer !ithin the time limit specified in the ct" the dealer !ill be deemed to have been self-assessed on the basis of returns submitted by him. Appellate authorities n appeal from every original order under the V T ct or the rules made thereunder shall lie"a. if the order is made by a an ssistant $ommissioner or %ales Tax 0fficer" or any other officer subordinate thereto" to the *eputy $ommissionerb. if the order is made by an *eputy $ommissioner" to the Doint $ommissionerc. if the order is made by a Doint $ommissioner" $ommissioner" to the Tribunal. dditional $ommissioner" or

.=/ In the case of an order passed in appeal by an *eputy $ommissioner or" as the case may be" by a Doint $ommissioner" a second appeal shall lie to the Tribunal. .(/ The $ommissioner on receipt of notice that an appeal against the order passed in appeal by the *eputy $ommissioner or" as the case may be" by the Doint $ommissioner has been preferred by the other party to the Tribunal may" !ithin thirty days of receipt of the notice" file a memorandum of cross ob;ection against any part of the order passed in appeal by the *eputy $ommissioner or" as the case may be" by the Doint $ommissioner and such memorandum shall be disposed of by the Tribunal as if it !ere an appeal personB $ommissioner of $ommercial Taxes not satisfied by the order of the Tribunal may approach the ,igh court of the %tate either in appeal or revision !ithin <inety-days from the date of communication of the order" the decision of !hich !ill be final. Penalty and other !easures The penalties prescribed in the V T from state to %tate. Re unds 7here any amount is refundable to a dealer after having duly verified the fact of deposit of such amount" the assessing authority shall in the prescribed manner refund to such dealer the amount to be refunded either by cash payment or by ad;ustment against the tax or other sum due in respect of any other period. %uch refundable amount shall carry interest at the rate as may be notified by the %tate Government from time to time" !ith effect from the date of its deposit. 7here an amount or tax is collected at any chec#-post from any person !ho is not registered under the ct and such amount or tax is not found payable by him" or !here an amount in lieu of tax for any !or# is deducted in any manner by an a!arder from any bill of payment to a contractor" !ho is not liable to get registration under the ct" the amount so collected or deducted shall be refunded in the prescribed manner by the ssistant $ommissioner or the $ommercial Taxes 0fficer" as the case may be" in !hose territorial ;urisdiction such person or contractor ordinarily resides. ny tax levied and collected under this ct" in respect of the sale or purchase inside the %tate of any declared goods !hich are subse1uently sold in the course of inter-%tate trade or commerce and on !hich tax has been paid under the $entral %ales Tax ct" &'() .$entral ct A> of &'()/" ct are different in for different 0ffences and it still differs

shall be refunded to the person ma#ing such sale or purchase in the course of inter-%tate trade or commerce. refund can be claimed only by the dealer or the person" !ho has actually suffered the incidence of tax- and the burden of proving the incidence of tax so suffered shall be on the dealer or the person claiming the refund. Advantages o VAT 3emoves the cascading of taxes due to its inherent features of offering set-off of taxes paid already. 2ncourages !idening of tax base and reduction in rates of tax. properly designed system of V T does not distort trade and production methods i.e. it does not induce shifting of production bases" vertical integration or disintegration" or changes in constitution of the entity. 2ncourage better compliance due to the availability of set off of taxes paid" and thereby less evasion. Improves economic efficiency !ith its neutrality !ith respect to forms of organizations" production facilities and location. 8articularly improves export competitiveness of local industries due to Ezero ratingE of exports. It creates an audit trail due to its inherent nature !here the purchase invoice forms the basis for obtaining credit of tax. It also has a Fself-policing effectF since it re1uires proper maintenance of purchase and sale documents to avail the credit. The V T has a self-enforcing effect in that buyers demand invoices from suppliers !hich !ould other!ise not be sought by most buyers. V T is usually accompanied by a lesser number of rates !hich ma#es administration much easier and record #eeping less tedious for traders.