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VAT
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CHAPTER NO. 1
INTRODUCTION TO TAX
The word “TAX” was derived from Latin word “TAXARE” which means to
censure or charge. Tax is the amount paid by the persons stating within a
territorial limit of a sovereign state and is levied on individuals, goods,
property, services etc. It may be defined as compulsory exaction of money
by public authorities for public purposes enforceable by law & does not
mean payment for services rendered.
Tax is levied but the State by virtue of its
sovereign powers. Both the union Parliament and the State Legislations are
empowered under the Constitution to make laws for the levy and collection
of taxes. Taxation is not a new concept; rather it is as old as the history of
economic science. The system of taxation in India is traced to the period of
Vedas. As Tossing puts it as, “the essence of a tax, as distinguished from the
other charges by Government, the absence of a direct quid pro quo between
the tax payer and the public authority.”
Tax collected by the Government
constitutes its revenue. The amount so collected is used to meet the general
expenses incurred by the Government for public good, without any
corresponding benefit to the taxpayer. Therefore it is used for the collective
benefit of the public.
1
FEATURES OF TAX
COMPULSORY PAYMENT :- It a compulsory payment made by
citizens. Every person who is liable to pay tax has to pay tax. No person can
refuse to pay tax. Refusal to pay tax invites punishment.
NO DIRECT RELATIONSHIP :- There is no direct relationship between
the tax-payer and the public authority. In other words taxpayer cannot claim
the reciprocal benefits against the taxes paid.
CLASSIFICATION OF TAX :- Basically tax is divided into two
categories i.e. “DIRECT TAX” & “INDIRECT TAX”. Direct tax is the tax
in which the burden of tax falls on the same person who has paid the tax and
this cannot be shifted to other while in indirect tax burden of tax is shifted to
other person who has actually paid the tax.
COLLECTION OF TAX :- Tax is collected regularly by the taxing
authority on such rates as notified from time to time by the Government
either through finance act or by way of notifications in the Official gazette.
UTILISATION OF TAX :- Tax is the major source of income for the
government. Such collected funds are utilized for the benefit of the public by
way of developing infrastructure like roads, hospitals, educational
institutions etc.
2
TYPES OF TAXES
There are two types of taxes, which are as follows :-
DIRECT TAX :- Direct tax is the tax in which the burden of tax falls on the
same person who pays the tax. In this case the burden of tax cannot be
shifted to the other.
For Example :- Income Tax, Wealth Tax etc.
INDIRECT TAX :- Indirect tax is the tax in which the burden of tax does
not falls on the same person who actually pays the tax. In this case the
burden of tax is shifted to the other.
For Example: - Excise Duty, Custom Duty, Sales Tax, and Service Tax
etc.
The Indirect Tax can be classified into four types, which are as follows: -
1) CENTRAL EXCISE TAX (DUTY) : - It is a tax, which is paid on
the goods manufactured in India. It is levied & collected through the
machinery of Central Excise Act, 1944.
2) CUSTOMS (DUTY) :- It is a tax, which is paid on the import /export
of goods from India. It is levied &collected through the machinery of
Customs Tariff Act, 1975.
3) CENTRAL SALES TAX :- It is a tax, which is paid on the sale of
goods within INDIA. It is levied & collected through the machinery of
Central Sales Tax, 1956.
3
4) PUNJAB VALUE ADDED TAX :- It is a tax which is paid on the
sale & purchases of goods & for the repeal of Punjab General Sales
Tax Act, 1948.
MODVAT :- It stands for “Modified Value Added Tax”. All inputs
levies are not allowed to be set off against duty liabilities on final
products in the Modvat Scheme. It provides for the credit of the aforesaid
duties paid on inputs used in or in relation to the manufacture of final
products by enabling the manufacture to obtain an instant and complete
reimbursement of the duties paid on inputs.
The main objectives of the scheme are to avoid the cascading effect of
imposition of duties on duties. This scheme was extended to capital
goods. Modvat scheme was introduce w.e.f. 01/03/1986. it covered
almost all manufacturing sectors except some goods. Modvat scheme was
extended to capital goods w.e.f. 01/03/1944.
From 1st April, 2000 Modvat was renamed as Cenvat. There is no much
difference between Modvat & Cenvat.
CENVAT :- Since excise duty is now leviable practically on all goods
whether raw material, intermediates, components, sub assembles, capital
goods & final products. It is necessary to devise some scheme to
neutralize the cumulative effect of multipoint levies and cascading effect
on the price predicts. Till the introduction of vat, many schemes come
into operation which are as follows :-
Cenvat credit scheme for inputs and capital goods.
Exemption for captive use.
Remission of duty for special industrial purposes.
4
Cenvat scheme was introduced by Finance Act, 2000.
Main features of Cenvat Scheme :- These are as follows :-
1) Cenvat provides relief to manufacturers on the duty borne by them in
respect of inputs used by them. Under the scheme a manufacturer can
avail credit of duty paid on the inputs purchased.
2) No statutory record is prescribed under Cenvat.
3) The scheme allow for the availing Cenvat in respect of inputs as well
as capital goods.
4) Registration of dealer is not stipulated under Cenvat, though the first
& second stage dealers remain as valid as duty paying documents.
5) Special excise duty paid on inputs can be as Canvat credit.
ADVANTAGES OF CENVAT SCHEME :-
1) Simplified rules for manufacturers to avail and utilized cenvat credit in
respect of both inputs & capital goods.
2) The coverage of inputs has been wided expecting high-speed diesel oil
& petrol, all inputs as per tariff schedule all covered.
3) No statutory record has been prescribed. The records maintained by
the manufacturer in the normal course of business all acceptable to the
department.
4) No declaration is necessary for availing of credit in respect of inputs
immediately and in respect of capital goods in two installments.
5) Assesses are not required to submit duty, documents to the
departments for defacing.
6) Assesses are not allowed to transfer credit under certain specified
situation without obtaining permission prom the authorities concerned.
5
CHAPTER NO. 2
OBJECTIVES & SCOPE OF STUDY
OBJECTIVES :- The main objectives to study the “vat” are as follows :-
1). To get the thorough knowledge about Punjab Vat Act, 2005.
2). To know about the procedure of registration under Vat Act, 2005.
3). To get the knowledge about the different class of dealer covered under
Vat Act, 2005.
4). To know about the different documents to be required at the time of
registration.
SCOPE OF STUDY :-
The study under consideration includes the meaning, definition, various
terms under Vat, incidence & levy of tax, procedure of registration,
payment & recovery of tax, returns & assessment of tax, case study
covers the registration procedure of GOLDEN CRAFTS.
6
CHAPTER NO. 3
MEANING OF VAT
VALUE ADDED TAX (VAT) is a general consumption tax assessed on
the value added to goods and services.
It is a general tax that applies in principle to all commercial activities
involving the production and distribution of goods and the provision of
services. It is a consumption tax because it is borne ultimately by the
final consumer.
It is not a charge on companies. It is charged as percentage of price,
which means that the actual tax burden is visible at each stage in the
production and distribution chain.
It is collected fractionally, via a system of deductions whereby taxable
persons can deduct from their VAT liability the amount of tax they have
paid to other taxable persons on purchases for their business activities.
This mechanism ensures that the tax is neutral regardless of how many
transactions are involved.
In other words, it is a multi stage tax, levied only on value added at each
stage in the chain of production of goods and services with the provision
of a set-off for the tax paid at earlier stages in the chain. The objective is
to avoid “cascading” which can have a snowballing effect on prices. It is
assumed that due to cross checking in a multi-staged tax, tax evasion will
be checked, resulting in higher revenues to the government.
Over 130 countries worldwide have introduced VAT over the past three
decades and India is almost the last few to introduce it.
India already has a system of sales tax collection wherein the tax is
collected at one point (first/last) from the transactions involving the sale
7
of goods. VAT would, however, be collected in stages (installments)
from one stage to another.
The mechanism of VAT is such that for goods that are imported and
consumed in a particular state, the first seller pays the first point tax, and
the next seller pays tax only on the value addition done leading to a total
tax burden exactly equal to the last point tax.
Vat is a system of collection of sales tax under which tax is charged at
each stage of sale on the value added to the goods.
There are less rates of taxes in vat in comparison to the sales tax. Only
few rates such as 4%, 12.5% etc. are there.
Under value added tax no statutory forms, local forms are to be issued
and collected by the authorities.
8
SOME IMPORTANT TERMS & DEFINITIONS :-
VALUE ADDED TAX :- As per section (2 (zr) ) value added tax (VAT)
means a leviable on the taxable turnover of a person, other than a
registered person, under this act. It is a multi point tax. This tax is levied
with the factory to set off the tax paid on purchases against the tax
payable on the sale of goods.
VAT LIMIT :- It is the limit of gross turnover of a person below which
he is not required to be registered as VAT. In Punjab, it is Rs. 30 Lacs.
But person with turnover of more than Rs.5 Lacs can opt for voluntary
registration a VAT (Taxable person).
COMPOSITION SCHEME :- Dealers below the VAT threshold limit
and who have not opted for VAT registration will be required to pay a
presumptive compounded tax on the entire sales turnover @ 1%. The
manufacturers with turnover of more than 1 lac and the persons
registered under the Central Sales Tax Act, 1956 are not eligible for
being registered under composition scheme.
These dealers can neither claim input tax credit nor can they
transfer the input tax credit. They will issue Retail Invoice and not
the VAT Invoice.
DECLARED GOODS :- These are goods, which are specified in the
Central Sales Tax Act as goods of importance in the course of interstate
trade or commerce. The rate of state level sale tax on these goods cannot
exceed 4%.
9
ZERO RATE SALES :- An export sale will be zero rated sales in VAT.
Thais is different from the exempt sale because in this sale the input tax
paid on the goods exports or on the goods consumed in production of
goods, which are exported will be refunded back to the seller i.e. the
exporter.
BRANCH TRANSFER/CONSIGNMENT DISPATCH :- This is
exempt under VAT because there is no transfer of property from one
person to another during branch transfer or consignment dispatch
transaction. In this transaction the input tax credit is providing on input
tax paid in excess of 4%
INPUT TAX CREDIT ON CAPITAL GOODS :- ITC on capital goods
is available on the tame of their purchase itself through the white paper
on VAT had given power to the State Governments to distribute the input
tax credit on capital goods in 36 equal installments. No input tax credit is
available on the Capital Goods held by a taxable person on the appointed
day i.e. on 1st April, 2005.
OUTPUT TAX :- Output tax is that tax which is payable by a registered
dealer on the sale of goods affected.
PRESUMPTIVE TAX :- Tax @ 1% is payable by the person who opt
for composition scheme. This 1% tax is called the Presumptive Tax. No
ITC shall be available on this Presumptive Tax.
10
REGISTRATION :- registered under VAT can either be taken as a
taxable person or as a registered person ? In common parlance the taxable
person is called VAT person and the person is called TOT person.
REVERSE TAX CREDIT :- The available input tax credit may
sometimes be needed to be reverse when the conditions for availment of
input tax credit are pot compiled with in future. Punjab Vat Act has
specified the circumstances is reverse tax credit is to be made. For
example:- when the taxable goods produced out, material are
consumed and not sold and the taxable person has already taken input tax
credit in the inputs consumed for manufacturing these items. The input
tax credit is to be reversed back.
Exempt goods :- These are the goods on which 0% Vat is leviable .
For example :- Bread.
TAX INVOICE :- The invoice prescribed for sale to be eligible for input
tax credit is called Vat tax invoice. Input tax credit will be allowed only
if tax invoice contains the particulars required to be specify under the
VAT Act.
FREE GIFTS UNDER VAT :- Under Vat If some goods are given as
gift then it means disposal of goods otherwise than by way of sale. The
tax effect of these type of transaction is that input tax credit is not
available in case the output is given free of cost as gift. It is thus
advisable to charge though a nominal amount as sale consideration in
case goods is given even as free gift.
11
REFUNDS IN VAT :- Circumstances are there when refunds will arise
in the VAT era. In case of export the case of input tax being more than
output tax because of difference in rates of tax and output tax, in case of
local purchase at higher rate of tax than the tax leviable on these goods
when sold in inter-state trade some of the situations when refunds will
arise. In Punjab VAT Act, provisions are there for giving refund within
30 days of receipt of complete application for refund.
DEFERRAL OF TAX IN VAT :- Deferral of tax means payments of
tax after a period it is collected. Under the vat regime, deferral benefits
will not be given except in case of existing unit who are already enjoying
these benefits.
DEEMED SALES :- Deemed sales are those which are not really
“sales” but have been deemed as sales. For instance an hire purchase
transaction, works contract, transfer of right to sale goods are the sales
when deemed sale is recognized.
PERIOD :- Period refers to the period for which the dealer is required to
file returns. The period under the Vat Act is quarterly both for the taxable
persons and the registered persons under VAT.
PURCHASE TAX :- Purchase tax is levied in two cases in the Punjab
VAT Act. First is the case when the goods specified in Schedule-H are
purchased for the first time in the State. The provisions in this regard are
made in section 20. the second is the case when goods purchased without
12
payment of tax are sold or otherwise disposed off without collection of
tax. Provisions for these transactions are made in section 20.
SELF-ASSESSMENT :- It is the assessment by the taxable or the
registered person himself of the tax payable by him. There will not be
any obligation to have the assessment done on year to year to basis by
going to the office of the department. The department will rely on the
assessment done by the person himself and in select cases audit shall be
done.
13
INCIDENCE & LEVY OF TAX :-
INCIDENCE OF VAT (VALUE ADDED TAX) (Section 6(1)) :-
Every person, except a casual trader and one dealing exclusively in goods
declared tax free under section 16, whose gross turnover during the year
immediately preceding the commencement of this act or during any year
subsequent thereto, exceeded the taxable quantum, as provide in clause
(a) of sub section (3) shall be liable to pay tax under this act by way of
Vat on the taxable turnover.
TOT (Turnover tax) INCIDENCE :- Every person except a casual
trader and one dealing exclusively in goods declared tax free under
section 16, whose gross turnover during the year immediately preceding
the exceeded taxable turnover, as provided in clause (b) of sub section (3)
shall be liable to pay under this act by way of TOT (Turnover Tax) on the
taxable turnover.
Taxable Quantum :- The expression “Taxable Quantum” means :
a). For registration as a taxable person for VAT :-
1. In relation to any person, who imports taxable goods for sale or
use in manufacturing or processing any goods in the State,
rupee one;
2. In relation to a person, who receives goods on
consignment/branch basis from within or outside the State on
which no tax has been paid under this act, rupee one;
3. In relation to a person, liable to pay purchase under section 19,
rupee one;
4. In relation to a person, who is a manufacturer, rupee one lac;
5. In relation to voluntary registration, rupee 5 lac
14
6. In relation to any other person, rupees 50 lac;
7. In relation to a person, who is running a hotel / restaurant,
rupees 5 lac;
8. In relation to a person, who is running a bakery, rupees 10 lac;
b). For registration as a registered person for TOT :-
In relation to a person other than those specified in clause (a)
whose turnover during the preceding year is more than Rs. 5 lac,
but below Rs. 50 lacs.
TAX LIABILITY- when ceases (Section 6(4)) :- Every person, who has
become liable to pay tax under this act, either by way of VAT or TOT,
shall continue to be so liable, until the expiry of three consecutive years
during each of which his gross turnover doesn’t exceed the taxable
quantum and such further period after the date of such expiry, as may be
specified by notification by the State Government and on the expiry of
such specified period, his liability to pay tax, shall cease.
SUBSEQUENT LIABILITY OF TAX (Section 6(5)) :- Every person
whose liability to pay tax has ceased under sub-section (4), shall again be
liable to pay tax under this Act from the date on which his gross turnover
again exceeds the taxable quantum.
TAX LIABILITY OF CASUAL TRADER (Section 6(6)) :- Every
casual trader shall be liable to pay tax under this act by way of VAT on
the taxable turnover including sales through agent within the State.
NECESSITY OF VAT IN INDIA :-
15
India, particularly the trading community, has believed in accepting and
adopting loopholes in any system administered by the State or the Center.
If a well-administered system comes in, it will close revenues for traders
and businessmen to evade paying taxes. They will also be compelled to
keep proper records of their sales and purchases.
Many sections hold the view that the trading community has been
amongst the biggest offenders when it comes to evading taxes.
Under the VAT system, no exemptions will be given and a tax will be
levied at each stage of manufacture of a product. At each stage of value-
addition the tax levied on the inputs can be claimed back from the tax
authorities.
At a macro level, there are two issues, which make the introduction of
VAT critical for India.
Industry watchers say that the VAT system, if enforced properly, forms
part of the fiscal consolidation strategy for the country. It could, in fact,
help address the fiscal deficit problem and the revenues estimated to be
collected could actually mean lowering of the fiscal deficit burden for the
government.
The International Monetary Fund (IMF), in its semi-annual World
economic Outlook released on April 9, expressed its concern over India’s
large fiscal deficit @ 10% of the GDP.
16
Further any globally accepted tax administrative system, will only help
India integrate better in the World Trade Organization regime.
LIABILITY OF REGISTERED PERSON (SECTION 12) :-
Liability of a registered person shall be calculated at the rate, specified
under section 9.
Sale of taxable goods held on stock by a registered person on the
appointed day, which were purchased without payment of tax under the
repealed Act, shall be liable to tax at the rate, specified for those goods
under this Act.
A registered person, whose registration has been continued under section
21, shall furnish in such form and to such authority, as may be notified, a
statement of taxable goods under this Act, held in stock on the appointed
day, within a period of 30 days from the appointed day.
A registered person shall not be entitled to input tax credit for any
purchase.
A registered person shall issue only a retail invoice for sale made by him
and shall not be eligible to issue a VAT invoice.
A registered person shall not be eligible to hold registration under the
Central Sales Tax Act, 1956.
INPUT TAX CREDIT (SECTION 13) :-
17
A taxable person shall be entitled to the input tax credit. In such manner and
subject to such conditions, as may be prescribed, in respect of input tax on
taxable goods, including capital goods, purchases by him from a taxable
within the state during the tax period.
Provided that such goods are for sale in the State or in
the course of inter- state trade or commerce or in the course of export or for
use in the manufacture, processing or packing of taxable goods for the sale
within State or in the course inter-state trade or commerce or in the course of
export.
However a taxable person shall be entitled to partial input tax credit in any
other event, as may be provided in this section in such manner and subject to
such conditions as may be prescribed.
In case the purchases are used partially for the purposes
specified in this sub-section and the taxable person is unable to identify the
goods used for such purposes , then the input tax credit shall be allowed
proportionate to the extent, these are used for such purposes, in the
prescribed manner.
It is provided that input tax credit in respect of purchase tax paid or payable
by a taxable person under section 19, shall be allowed to subject to the
conditions laid therein.
ADVANTAGES OF VAT :-
18
1. NO TAX EVASION :- It is said that VAT is a logical beauty. Under VAT,
credit of duty paid is allowed against the liability on the final product
manufactured or sold. Therefore, unless proper records are kept in respect
of various inputs, it is not possible to claim credit. Hence, suppression of
purchases or production will be difficult because it will lead to loss of
revenue. A perfect system of VAT will be a perfect chain where tax
evasion is difficult.
2. Neutrality :- The greatest advantage of the system is that it does not
interfere in the choice of decision for purchases. This is because the
system has anti-cascading effect. How much value is added and at what
stage it is added in the system of production/distribution is of no
consequence. The system is neutral with regard to choice of production
technique, as well as business organisation. All other things remaining
the same, the issue of tax liability does not vary the decision about the
source of purchase. VAT facilitates precise identification and rebate of
the tax on purchases and thus ensures that there is no cascading effect of
tax. In short, the allocation of resources is left to be decided by the free
play of market forces and competition.
3. Certainty :- The VAT is a system based simply on transactions. Thus
there is no need to go through complicated definitions like sales, sales
price, turnover of purchases and turnover of sales. The tax is also broad-
based and applicable to all sales in business leaving little room for
different interpretations. Thus, this system brings certainty to a great
extent.
19
4. Transparency :- Under a VAT system, the buyer knows, out of the total
consideration paid for purchase of material, what is tax component. Thus,
the system ensures transparency also. This transparency enables the State
Governments to know as to what is the exact amount of tax coming at
each stage. Thus, it is a great aid to the Government while taking
decisions with regard to rate of tax etc.
5. Better revenue collection and stability :- The Government will receive
its due tax on the final consumer/retail sale price. There will be a
minimum possibility of revenue leakage, since the tax credit will be
given only if the proof of tax paid at an earlier stage is produced. This
means that if the tax is evaded at one stage, full tax will be recoverable
from the person at the subsequent stage or from a person unable to
produce proof of such tax payment. Thus, in particular, an invoice of
VAT will be self enforcing and will induce business to demand invoices
from the suppliers. Another attribute of VAT is that it is an exceptionally
stable and flexible source of government revenue.
6. Better accounting systems :- Since the tax paid on an earlier stage is to
be received back, the system will promote better accounting systems.
7. Effect on retail price :- A persistent criticism of the VAT form has been
that since the tax is payable on the final sale price, the VAT usually
increases the prices of the goods. However, VAT does not have any
inflationary impact as it merely replaces the existing equal sales tax. It
may also be pointed out that with the introduction of VAT, the tax impact
20
on raw material is to be totally eliminated. Therefore, there may not be
any increase in the prices.
DISADVANTAGES OF VAT :-
1. ELIMINATE THE EFFECTS :- The merits accrue in full measure only
under a situation where there is only one rate of VAT and VAT applies to all
commodities without any question of exemptions whatsoever. Once
concessions like differential rates of VAT, composition schemes, exemption
schemes, exempted category of goods etc. are built into the system,
distortions are bound to occur and the fundamental principle that VAT will
totally eliminate cascading effects of taxes will also be subject to
qualifications.
2. NEUTRALITY :- In the federal structure of India in the context of sales
tax, so long as Central VAT is not integrated with the State VAT, it will be
difficult to put the purchases from other States at par with the State
purchases. Therefore, the advantage of neutrality will be confined only for
purchases within the State.
3. EXPENSIVE :- For complying with the VAT provisions, the accounting
cost will increase. The burden of this increase may not be commensurate
with the benefit to traders and small firms.
4. INCREASE OF BURDEN :- Another possible weak point in the
introduction of VAT, which will have an adverse impact on it is that, since
the tax is to be imposed or paid at various stages and not on last stage, it
21
would increase the working capital requirements and the interest burden on
the same. In this way it is considered to be non-beneficial as compared to the
single stage-last point taxation system.
5. REGRESSIVE :- VAT is a form of consumption tax. Since, the
proportion of income spent on consumption is larger for the poor than for the
rich, VAT tends to be regressive. However, this weakness is inherent in all
the forms of consumption tax. While it may be possible to moderate the
distribution impact of VAT by taxing necessities at a lower rate, it is always
advisable to moderate the distribution considerations through other
programmes rather than concessions or exemptions, which create
complications for administration.
6. INCREASE IN ADMINISTRATION COST :- As a result of
introduction of VAT, the administration cost to the State can increase as the
number of dealers to be administered will go up significantly.
ITEMS COVERED IN INDIAN VAT
550 items 270 items of basic Rest 12.5 % VATS
22
covered needs like medicine,
drugs, agro &
industrial inputs,
capital & declared
goods 4 % VAT.
Gold & silver
Jewellery-1%.
Tea-producing
States options
Either percentage
VAT
Petrol, diesel,
Liquor, lottery not
Included.
Sugar, textile &
Tobacco excluded for
one year.
Traders with turnover of less than Rs. 5,00000
Are exempt from the new tax.
Note : Some state like Delhi have imposed Vat on diesel @ 20%, which is
higher than the 12% sales tax charged earlier. Similarly, Delhi imposed vat
on LPG at 12.5% which is also higher than the previous sales tax rate of 8%.
All business transactions carried on within a state by individuals,
partnerships, companies etc, will be covered by vat.
More than 550 items would be covered under the new Indian vat regime of
which 46 natural and unprocessed local products would be exempt from vat
a PTI report quoted WEST BENGAL Finance Minister and vat panel
chairman Asim Dasgupta as saving.
About 270 items including drugs and medicines, all agriculture and
industrial inputs, capital goods and declared goods would attract 4% vat in
India.
23
The remaining items would attract 12.5% vat. Precious metals like gold and
bullion would be taxed at 1%. Considering the difficulties faced by the tea
industry. It was decided that tea-producing states would be given an option
to levy 12.5% or 4%subject to review in 2006.
THE IMPACT OF VAT IN INDIA :-
VAT is most certainly a more transparent and accurate system of taxation.
The existing sales tax structure allows for double taxation thereby cascading
24
the tax burden. For example, before a commodity is produced, inputs are
first taxed, the produced commodity is then taxed and finally at the time of
sale, the entire commodity is taxed once again.
The transaction chain under vat assuming that a profit of Rs.10 is retained
during each sale.
Sale‘A’of
CHENNAI @
Rs.100/-
‘B’ of
BANGLORE
SALE @
Rs.114/-
SALE ‘C’ of
BANGLORE
SALE @
RS.124/-
SALE ‘D’ of
BANGLORE
SALE @
RS.134/-
CONSUMER
IN
BANGLORE
Tax implication under Value Added Tax Act
Seller Buyer Selling
Price
(excl.tax)
Tax Rate Invoice
Value
(incl.tax)
Tax
Payable
Tax
Credit
Net Tax
Outflow
A B 100 4%CST 104 4 0 4.00
B C 114 12.5%VAT 128.25 14.25 0* 14.25
C D 124 12.5%VAT 139.5 15.50 14.25 1.25
D Consumer 134 12.5%VAT 150.75 16.75 15.50 1.25
Total to Govt. VAT
CST
16.75
4.00
STATES WELCOMING VAT IN INDIA
25
Except the following 8 states (among them 5 BJP ruled states ), all the 21
states have given a welcome hug to vat in India. Ramesh chandra, secretary
of the federal panel overseeing Indian vat implementation said that other
states will join within a month-and-a-half.
Uttar Pradesh
Tamil Nadu (to join from 21 July)
Uttaaranchal
BJP Ruled States
Madhya pradesh
Rajasthan
Jharkhand
Gujarat
Chhattisgarh
CHAPTER NO.4
26
REGISTRATION OF DEALERS UNDER VAT
Registration means a person liable to tax under the act either have a VAT or
TOT registration. A person registered under VAT is known as ‘Taxable
Person’ and person registered under TOT is known as ‘Registered Person’.
Registered under the Punjab Value Added Tax Act, 2005 can either be
Compulsory Registration or Voluntary Registration. We discuss the
provision here as under:
COMPULSORY REGISTRATION :-
As per section 21, no person, other than a casual trader who is liable to pay
tax shall carry on his business unless he is registered under the Act. Liability
to pay tax under this Act is determined by section 6. Every person except a
casual trader and dealing exclusively in goods declared tax free under
section 16, whose gross turnover during the year immediately preceding the
commencement of this act or during any year subsequent thereto, exceeded
the taxable quantum, as per section 6(3)a shall be liable to pay tax on the
taxable turnover by way of VAT and if his taxable turnover exceeds the
taxable quantum during the year immediately preceding the commencement
of this ACT or during any year subsequent thereto as per section 6(3)(b) then
shall be liable to pay tax on the taxable turnover by way of TOT on his
taxable turnover.
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Section6 (3)(a) prescribed the taxable income quantum for registration as a
taxable person and section 6(3)(b) prescribe the taxable quantum for
registration as a registered person.
So, we can infer from the above that: - -
No person other than a casual trader, who is liable to pay the tax, shall
carry on the business;
The person shall be liable to pay tax is his gross turnover during the
year immediately preceding the commencement of the Act that is
immediately thereto i.e. in any subsequent year exceeds the taxable
quantum;
Taxable quantum is defined in section 6(3) vide it’s clauses (a) and
(b);
Section 6(3) (a) prescribe the taxable quantum for registration as a
taxable person and section 6(3) (b) prescribe the taxable quantum for
registration as a registered person.
VOLUNTARY REGISTRATION :-
In addition to these cases of compulsory registration, a person can opt for
voluntary registration as taxable person (VAT) under section 22 of the Act
but he must not be dealing exclusively in the goods declared Tax Free under
section 16. Every person, who has been registered upon application made
under this section shall, for so long as his registration remains in force, be
liable to pay tax under this Act whether his gross turnover exceeds the
taxable quantum or not.
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COMPULSORY REGISTRATION :-
When any person, who is registered before the appointed say under the
repeated Act, and continues to be registered on the day, immediately before
such appointed day, the designated officer shall within thirty days of the
receipt of application in the prescribe form, issue to such person, in the
prescribed manner. A fresh registered under this Act for VAT or TOT, as the
case may be.
PROCEDURE FOR REGISTRATION :-
Application for registration :- An application for registration shall
be made to designed officer. It must be signed by proprietor in case of
business, by a partner of the firm, in case of firm. By a manner in case
of Hindu Undivided Family.
Fee & Supporting Document :- the application for registration shall
be in form VAT-1 and shall be accompanied by deposit receipt in
form VAT-2 of fee of 2 rupees five hundred in appropriate
government treasury.
Time limit :- the application shall be made to designated officer
within a period of the thirty days from the appointed day i.e. Ist April
2005.
Security :- the additional security is required to be given for
registration shall be in any of the following forms:
a) Bank guarantee from a local scheduled commercial bank for the
amount of security / additional security.
b) Personal bond with two solvent securities acceptable to the
designated officer for the amount of security/additional security
in form VAT-3.
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Certificate of Registration :- when the designated officer after
making enquiry is satisfied that all particulars in application are fee
has been paid it shall be register the person and issue him a certificate
of registration in Form VAT-4.
Issue of Duplicate Copy of Certificate of Registration :- where the
certificate granted to a person is lost, destroyed, defaced may on
application made in this behalf to the designated officer and on
payment of fee of Rs. 100/- obtain a duplicate copy.
Keeping certificate of registration at all places of business :- the
certificate of registration granted under rule 5 shall be kept and
displayed at the principal place of business and copy each of the
certificate shall be kept at every additional place of business within
the state.
Amendment of registration :- an application for amendment for
registration granted under the act shall be made in the Form VAT-5
within thirty days from the occurrence of event necessitating such
amendment.
Cancellation of registration :- an application for cancellation of
registration shall be made within thirty days from the occurrence of
event necessitating such cancellation.
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CHAPTER NO.5
PAYMENTS AND RECOVERY OF TAX
Due date of payment of VAT or TOT :- According to section 33 Vat or TOT
due shall be paid.
In the case of taxable person whose turnover exceeds Rs. 1 crore in the
previous year, on the monthly basis.
In the case of a taxable person whose turnover is less than Rs. 1 crore in
the previous year, by the date the return for such a period is required to
be filled.
In the case of the turnover tax payable by a registered person under this
act, the return for the period is required to be filled.
In the case of a casual trader by such date as may be prescribed.
In the other case, the tax shall be payable by such date, as may be specified
by the designated officer.
Recovery as Debt: - According to Sec 34 tax or may other amount due or
payable by a person under this Act, shall be debt, due to the State
Government payable recovered as per the provisions of this Act.
Charge on the Property: - According to the Section 35, any amount of tax,
penalty, interest and any other sum payable by a taxable person or registered
person under this Act, shall be the first charge on the property of such person
from the date on which the amount becomes due and payable.
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Recovery as arrears of Land Revenue: - According to section 36 the
amount of tax , penalty, interest or any other sum due and payable under this
Act, which remains unpaid after the due date, shall be recoverable as arrears
of land revenue.
PAYMENT OF TAX :-
The tax is to be paid into the government treasury or any bank authorized to
transact government business or at District excise and taxation office when
paid through cheque/draft.
The table below shows the time and procedure for payment of tax by any
person: -
Description of person
Type of Tax
When to Pay
Due Date for Payment of Tax
Form for Payment
Taxable person With turnover Up to Rs. 1 crore
VAT Quarterly
30 days from the end of each quarter If paid through TR & 20 days If paid by cheque or draft.
Challan
Taxable person with turnover Above Rs. 1 crore
VAT Monthly10 days from the End of each month Form
Registered personTOT Quarterly
30 days from the end of each quarter If paid through TR & 20 days If paid by cheque or draft
Every person Ta due as perAssessment
On issue of Notice of Demand
Date specified in The notice of demand or 30 days, whichever I
Every person Entering into A works contract
TaxDeductedAt source
On payment Made to contractor
Within 15 days of the End of the month in which deduction is made
VAT-25
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RETURNS AND ASSESSMENT
MEANING AND FEATURES :-
Returns means: -
a) A true and correct statement of account of the business
for a specified period.
b) A statement of any additional information as may be
required under the Act.
c) A statement that enables the department to calculate the
output tax liability, the amount of input Tax Credit
claimed and the net tax payable by the assesses.
Provisions Regarding Returns: -
i. Returns to be filled quarterly or monthly by a
taxable person: Every taxable person shall file
quarterly self-assessed return in FORM VAT 15
days within 30 days from the expiry of each
quarter along with the proof of payment into the
appropriate Government treasury & TDS
certificate, If any.
A person, whose annual turnover exceeds Rs. 1 crore in
the preceding year, shall determine his tax liability for
every month.
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TYPE OF RETURNS
The table below shows the type of returns to be filled when and in which
form by every person :-
Description of Person
Type of Return Form No. Due Date for Payment
Taxable Person
QuarterlyReturn VAT-15
30 days from expiry of quarter
Taxable Person with Turnover AboveRs.1Crore
Monthly Information On tax liability
VAT-1610 days from the expiry of the month
Registered Person
Quarterly ReturnVAT-17
30 days from expiry of each quarter
Taxable Person
Annual Statement VAT-20
20th Nov. each year
Registered person
Annual Statement VAT-21
20th Nov. Each year
Every Person With turnover Above Rs.40 lacs
VAT audit certificate VAT-22
Same as for annual statement
Every person On cancellation of registration
VAT-15VAT-17
Within 30 days of Such closure
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CHAPTER NO.6
HISTORY OF SOLE PROPRIETORSHIP CONCERN
M/S GOLDEN CRAFTS were registered under Punjab VAT Act, 2005
on 31 May 2005. Its registered office is at 3929/22, GALI MAHAVIR,
NEAR PIPLI SAHIB GURDUARA, PUTLIGHAR, AMRITSAR. It is a
sole proprietorship concern. The main object of the concern is to carry
on the business of trading, manufacturing, buying, selling in all kinds of
carpets.
The objects ancillaries to the main objectives are:
To enter into any arrangement or agreement or contract with any
person, association firm or corporation whether in Punjab or Outside
Punjab, for techniques, or for such other purpose that may seem
beneficial and conductive to the objects of the company.
To acquire and undertake all or any part of business, property
liabilities and rights of any person, firm or company carrying on any
business that this concern is authorized to carry on or be possesses of
property suitable for the purpose of the concern.
To deal with the selling and buying of all kinds of carpets and their
components as specified above.
To institute, conduct, deafen, compound, compromise any legal
proceedings against or by the company.
Mr. NARINDER SINGH is the sole proprietor of the M/s GOLDEN
CRAFTS
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CASE STUDY
Name of the sole proprietorship concern : M/S Golden Crafts
Address of the sole proprietorship concern : 3929 / 22, Gali Mahavir, Near Pipli Sahib Gurduara, Putlighar, Amritsar.
Registered office (Head Office) : In State of Punjab
Registration Number : 03522027261
Registered Under : Punjab VAT Act, 2005
Permanent Account No.( PAN ) : ABLPS1171L
M/s Golden Crafts is carrying the business of trading, manufacturing buying
& selling of all kinds of carpets and some other type of woolen carpets. The
earlier sole proprietorship concern was registered under Central Sales Tax;
and then with the applicability of Punjab VAT-1 Act 2005. It got registration
under this Act.
For the purpose of registration under PunjabVATACT, 2005, the firm
applied through form VAT i.e. application for registration form.
Contents of the Application Includes:
I. Name of the Applicant.
II. Trade name in which business is carried on.
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III. Expected turnover in currency financial year.
IV. Date from which liable to tax.
V. Constitution of business.
VI. Address of principal place of business in Punjab.
Full information about the sureties was also submitted. There are two
sureties of M/s Golden Crafts. Both of these sureties are registered person. It
also includes complete address of their firm, their registration certificate
number, Telephone number etc.
Along with application fee of Rs.500/- was deposited. Out of this Rs. 500/-.
Rs. 150/- was for VAT Act and Rs.50/- was paid for Punjab municipal fund.
Other documents which were required to be submitted along with
applications form includes ownerships proof, residential proof, PAN card
etc, Mr. Narinder Singh is the sole proprietor of the M/s Golden Crafts.
The application form duly filled and signed by the authorized person was
submitted to the authorities. After the security of the application and
satisfied with all the information and declaration there in the authorities
granted the Certificate of registration to M/s Golden Crafts.
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CONCLUSION
VAT is new concept of taxation, which is fair to business and consumers.
Tax paid on purchases (Input Tax) is rebated against Tax Payable on sale
i.e. Output tax.
Value Added Tax means that tax which is payable only on value added to
commodities and on the services rendered. VAT is simple, transparent Tax
collected on the sale of goods. From 1st April 2005, various states and union
territories have decided to introduce VAT in place of sales Tax and related
taxes. Above a certain turnover all business transactions are carried on
within a state by individuals in business, partnerships and companies will be
covered by VAT. Thus VAT is multipoint taxation system i.e. sales tax
which is payable at each stage.
VAT is the system of taxation that prevents cascading effects of taxes and
promotes export.
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BIBLIOGRAPHY
Some Books such as:-
Dhushankul, “ How to deal with VAT ”, Pearson publishers, Edition
2005.
Brooks john, “ How to live with VAT ”, Amazon Publishers, Edition
2005.
Sareen V. K. Sharma Ajay, “ Indirect tax laws ”, kalyani publishers,
Edition 2006.
R. K. Sharma, Shashi K. Gupta, “ Indirect tax laws ”, Sharma
Publications, Edition 2008.
V. S. Datya, “ Indirect taxes”, Taxmans Publications, Edition 2008.
Websites :-
www.vatmanindia.com
www.rediff.com
www.yahoo.com
www.google.co.in
www.formation house.com
www.Finance.Indiamart.com
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