VAT

Meaning
It is levied on intra-state sale of goods
It is levied at: Multiple stages of sale
Each time value is added (Value added =
Sale price Purchase Price of goods)
By computing VAT on sale price & allowing
credit of tax on inputs
VAT = Tax on Sale Tax paid on purchases

 It avoids cascading effect i.e. tax on tax by

allowing credit of input tax

Example
Ram purchased goods of Rs. 1000 plus 4%
VAT and sells the same at Rs. 1500 plus
4% VAT
Value added = Rs. 500
VAT payable in cash = 1500*4% - 1000*4%
Rs. 20

 Merits and demerits of VAT

 INPUT TAX
OUTPUT TAX
INPUT TAX CREDIT

Input Tax
It is the tax paid or payable
By the dealer of the state
In course of his business
On local purchases of any business inputs
From registered dealer of the state
For ex:- Ram purchased raw material Rs.
1000 on which VAT @ 4% is paid
Rs. 40 is input tax for Ram

Output Tax
It is the tax
Charged under VAT
By a registered dealer
For the sale of goods
In the course of business

Input tax credit

It means input tax adjusted / rebated /
deducted
from output tax payable
By a registered dealer
Tax Payable = Output VAT Input VAT

Purchases eligible for Input tax credit

(a) Intra-state trading : sale within the state

 (b) Use in manufacture of goods for sale.

For use as: Containers or packing materials
Raw materials
Consumable stores

Required for
Manufacture of taxable goods
Packing

Intended for sale

within the state

 (c) use in works contract : for being used

in execution of works contract
(d) capital goods : for use as taxable
goods required for manufacture of taxable
goods

 (e) use in manufacture of export goods

For use as: Raw materials
Capital goods
Consumable stores
Packing materials

Purchases not eligible for Input Tax Credit

(a) dealer specific restriction
Purchases from unregistered dealer
A registered dealer who opted under
composition scheme for payment of VAT

 (b) Goods specific restriction

Purchase of goods Notified by State Govt. as ineligible
Goods which has suffered tax under earlier
act but under VAT they are covered under
exempted items

 (c) invoice related restriction

Purchase of goods where
invoice:-

purchase

Does not show the amount of tax separately

Is not available with claimant

 (d) location specific restriction

Goods imported from
Outside India (high sea purchases)
Other States (inter state purchases)

 (e) use related restriction

Purchase of goods which are being
utilized
In manufacture of exempted goods
As fuel in generation of power
For personal use/consumption
For giving away free of charge as gifts

SMALL DEALERS AND COMPOSITION

SCHEME

Very small dealer

Having turnover upto Rs. 10 lakhs
Exemption from registration
Exemption from payment of VAT
No input credit is allowed as dealer is not
registered

Small Dealers
Having turnover upto Rs. 50 lakh
May opt for optional composition scheme

Eligibility for Composition Scheme

A dealer is entitled to opt for composition
scheme if: He is registered dealer
He is liable to tax under VAT law
His turnover is upto Rs. 50 lakhs during the
PY

Persons not eligible for composition scheme

Person who makes
Inter state sales
Inter state purchases
Importer/exporter

Composition Scheme - Meaning

VAT requires heavy compliance cost
Due to detailed accounting and paper
work is involved
Small dealers do not have sufficient
knowledge and expertise
To comply with requirements relating to
records and accounts
Hence, for them simplified composition
scheme is provided
It is optional

Composition Scheme - Meaning

Small dealers having turnover more than 5
lakhs and less than 50 lakhs have option
of such scheme.
They will pay small % age of their gross
turnover as tax under such scheme

Composition Scheme

It is optional scheme
Such option is availed in writing
Option is availed for a year
Dealer has to intimate the Commissioner

Minimum Record Keeping

Dealer opting for composition scheme is
not required to keep and maintain any
record prescribed under VAT laws
He must keep records for purchase, sales
and inventory

No credit
Dealer opting for composition scheme
cannot claim input tax credit on
Inventory available on date of opting of
composition scheme
Any goods acquired thereafter

No inter state dealing

Dealer opting for composition scheme
must not have any stock of goods from
outside state
He shall also not use goods brought from
outside state after opting for such scheme

 VARIANTS OF VAT
METHODS OF VAT

Variants of VAT

Methods of VAT
As discussed in class

Problem:

Problem

Cont

Problem
From the following particulars compute net VAT payable by M/s. S & Co. for the
year ended 31 Mar2013.

i.
ii.
iii.

i.

ii.
iii.
iv.
v.

Inputs procured:
Raw material at Nil VAT
Raw material at 4% VAT
Raw material at 12% VAT
Output:
Intra state sale of finished goods at 4% VAT (these goods
were produced entirely from raw material at NIL VAT rate
procured as inputs).
Exempted sales (these goods were procured from raw
material procured at 4% VAT to the extent of 50%)
Sale of finished goods intrastate at 12% VAT
Intrastate sale of raw material purchased at 4%
50% of the raw material produced at 12% VAT has been
utilized to produce capital goods for the manufacturing
process in M/s S&Cos factory.

Rs.
10,00,000
40,00,000
20,00,000

15,00,000

20,00,000
20,00,000
10,00,000
15,00,000

Sol: