shwetas_52
Shweta Vanjari
CONTENT
Sr. No. Topics Covered Page No.
1 Introduction to Value Added Tax.
2
2 Value Added Tax in Maharashtra.
A. Introduction.
B. Registration under Value Added Tax.
C. Explaining Value Added Tax.
D. Rates of Value Added Tax.
E. Composition Schemes
F. Calculating Tax Liability.
G. Point of Levy.
H. Refund 3-5
6-9
10
11
12
13-15
16-17
18
3 Appendix. 19-20
4 Bibliography. 21
WHAT IS VALUE ADDED TAX?
Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production. The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same manner, according to the white paper on VAT released by finance minister Chidambaram. The document was drawn up after all states, barring UP, were prepared to implement VAT from April. It is usually intended to be a tax on consumption, hence the provision of a mechanism enabling producers to offset the tax they have paid on their inputs against that charged on their sales of goods and services. Under VAT revenue is collected throughout the production process without distorting any production decisions.
WHY VAT IS PREFERRED OVER SALES TAX?
While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production – distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax. However, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net.
There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimizes or eliminates the problem of tax cascading, which often occurs with sales tax. These are facilitated by the fact that VAT operates through a credit system so that tax is only applied on value added at each stage in the production – distribution chain.
VALUE ADDED TAX IN MAHARASHTRA
Introduction
Background
Maharashtra is one of the 21 States which have introduced the Value Added Tax (VAT) system of taxation from 1st April 2005. With the introduction of VAT, the Sales Tax Department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries.
The design of Maharashtra State VAT is generally guided by the best international practices with regard to legal framework, as well as operating procedures. Another key factor in preparation of the design of State level VAT is the national consensus on certain issues. The consensus has been arrived at through the discussions in the Empowered Committee of State Finance Ministers on implementation of State level VAT.
On 1st April 2005, VAT replaced the single point sales tax. Single point sales tax had a number of disadvantages, primarily that of double taxation. VAT is a modern and progressive taxation system that avoids double taxation. In addition to offering the possibility of a set-off of tax paid on purchases,
VAT has other advantages for both business and government.
• It eliminates cascading impact of double taxation and promotes economic efficiency.
• It is primarily a self-policing, self-assessment system with more trust put on dealers.
• It provides the potential for a stronger manufacturing base and more competitive export pricing.
• It is invoice based, and as a result it offers a better financial system with less scope for error.
• It has an improved control, mechanism resulting in better compliance.
• It widens the, tax base and promotes equity.
VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added Tax Act (MVAT Act), supported by Maharashtra Value Added Tax Rules (MVAT Rules). VAT is levied on sale of goods including intangible goods.
The meaning of “goods” for VAT purposes
“Goods” means every kind of moveable property including goods of incorporeal and intangible nature but there are some exclusion, such as newspapers, actionable claims, money, shares and securities and lottery tickets.
Businesses engaged in. the buying and selling of goods within the scope of the VAT law are referred to as dealers.
The meaning of 'sale' for VAT purposes
A transaction of sale can be a:
• normal sale of goods;
• sale of goods under hire-purchase system;
• deemed sale of goods used I supplied in the course of execution of works contract;
• deemed sale of goods given on lease.
The rate of tax applicable to the goods sold under various classes of sales is uniform. However, in respect of normal sales of goods and deemed sales of goods under works contract and specified deemed sale of goods given on lease, the Act provides for an optional method for discharging tax liability by way of composition. Being so, the tax liability has to be determined with reference to the option exercised by the dealer for discharging tax liability.
Businesses covered by VAT
The VAT system embraces all businesses in the production and supply chain, from manufacture through to retail. VAT is collected at each stage in the chain when value is added to goods. 1t applies to al1 businesses, including importers, exporters, manufacturers, distributors, wholesalers, retailers, works contractors and lessors.
Registration under MVAT
Rules for registration
If a dealer’s annual turnover exceeds the below mentioned threshold, then it must register with the local office of the Sales Tax Department.
All Figures in Rs.
Category Annual Turnover of Sales Turnover of sales or purchase of taxable goods not less than Fees payable on registration
Importer 1,00,000 10,000 100
Others 5,00,000 10,000 100
If the dealer’s turnover is less than the above threshold, then they are not liable to collect and pay VAT. However, if a dealer wishes to avail the benefits of being a registered dealer, then they may apply for voluntary registration by paying a fee of Rs.5,000/ -.
Benefits of being a registered dealer
As a registered dealer, they are entitled to:
• collect VAT on the sales;
• claim set-off of tax (input tax credit) paid on purchases;
• Issue tax invoices and, be competitive.
Effective date of registration
The effective date of registration, that is, the date front which a dealer may charge VAT on sales; will depend on the date they first become liable to pay VAT. This date will be determined as follows:
a) New businesses:
If a dealer is not registered because their annual turnover is less than the threshold; their liability to account for VAT starts from the date they cross the threshold.
b) Existing businesses:
If a dealer took over an existing business that is registered for VAT, then they will be liable to pay tax on sales from the date they took over the business.
c) Voluntary registration:
If a dealer is registered on a voluntary basis, then he will be liable to account for VAT from the date shown on the certificate of registration.
d) Late registration:
If a dealer’s turnover has exceeded the appropriate threshold but they have applied late for registration, then he can charge VAT on his sales only after they are registered, i.e., from the date shown on the certificate of registration.
Further, having crossed the threshold, it is an offence to be engaged in business as a dealer without a certificate of registration
Certificate of registration
A dealer should prominently display the certificate and hologram, or a copy of the certificate and hologram, at each place where they carry can on their business.
If a dealer has more than one place of business, then Sales Tax Office will provide them, upon their request, one copy of the certificate of registration and hologram for each additional place of business.
If a dealer loses his / her certificate of registration or hologram, or it is accidentally destroyed or defaced, then they may obtain a duplicate copy of the certificate of hologram from their sales tax office.
The certificate of registration and hologram is personal to the dealer to whom it is issued and is non-transferable.
Cancellation of registration
A dealer will be liable to pay VAT while their registration is effective. If however, their turnover falls below the threshold, he may choose to apply for cancellation of his registration. However, he should continue to collect and pay VAT in the normal way until his registration is formally cancelled. Alternatively, they may be allowed the registration to continue.
If a dealer:
• discontinue the business;
• dispose of or sell or transfer the business;
A dealer must inform the Sales Tax Department within 30 days of the event. In case of disposal or sale of business, their successor will need to apply for a fresh registration certificate.
For cancellation of registration a dealer should submit form 103 which is available with the local sales tax office. It can also be downloaded from the website Maharashtra Sales Tax ,VAT, Commercial Tax
If the Sales Tax Department cancels the dealer’s registration, they must return the Certificate of Registration
Explaining VAT
How VAT works
When a dealer sell goods, the sale price is made up of two elements; the selling price of the goods and the tax on the sale. The tax is payable to the State Government.
The tax payable on sales is to be calculated on the selling price. The tax paid on purchases supported by a, valid tax invoice is generally available as set-off (input, tax credit) while discharging the tax liability on sales.
Example
The following example shows how the VAT works through the chain from manufacturer to retailer.
Company A buys iron ore and other consumables and manufactures stainless steel utensils; Partnership firm B buys the utensils in bulk from Company A and polishes them; shopkeeper C buys some of the utensils and purchases packing, material from vendor D, packages them and sells the packed utensils for the public.
Particulars Amount (Rs.)
Suppliers of Company A 2,000
Company A 4,000
Partnership B 1,200
Shopkeeper C 1,600
Vendor D 200
Total 9,000
Thus, through a chain of tax on sale price and set off on purchase price, the cascading impact of tax is totally eliminated.
Rates of value added tax
There are two main rates of VAT 4% and 12.5%. The goods are grouped into five schedules as under:
Schedule Rate of tax Illustrative Items
A 0% Vegetables, milk, eggs, bread
B 1% Precious metals and precious stones and their jewellery
C 4% Raw materials, notified industrial inputs, notified information technology products and a few essential items
D 20% and above Liquor, petrol, diesel etc
E 12.5% Other than items specified in schedules A, B, C & D.
Difference between tax free goods and exempt sales
It is sometimes confusing to have goods that are tax free and sales that are exempt. Both result in no VAT being charged, so what is the difference?
Tax free goods do not attract tax at any stage of sale or in any type of transaction, whereas, exempted sales are certain types of transactions, viz., export sales which are exempt from tax.
Composition schemes
Certain dealers may find it difficult to keep detailed records for claiming set-off. For such dealers, a simpler and optional method of accounting for VAT has been introduced. This method is the composition scheme. It may be noted that composition scheme is not meant to be a tax concession scheme but only a simplification of tax calculation and payment system.
Tax payable by dealers opting for composition in lieu of VAT
The following classes of dealers are eligible for option to pay tax under composition:
• Resellers selling at retail, i.e., to consumers,
• Restaurants, eating houses, hotel (excluding hotels having gradation of 'Four Star’ and above), refreshment rooms, boarding establishments, clubs and caterers,
• Bakers,
• Dealers in second-hand passenger motor vehicles and
• Works contractors
• Dealers engaged in the business of providing mandap, pandal, shamiana.
Calculating tax liability
In, order to calculate how much tax a dealer has to pay, he must, first determine his turnover of sales and turnover of purchases. The second stage is to ascertain the amount of tax due for payment.
Calculating turnover of sales and purchases
The turnover of sales is the total of the amounts received or receivable (excluding VAT charged separately) in respect, of the sale of goods, less the amount refunded to a purchaser in respect of goods returned, within six months of the date of the sale.
Similarly, the turnover of purchases is the total of the amounts paid or payable (excluding VAT charged separately) in respect of the purchase of goods less (the amounts repaid to dealer in respect of goods they return, within six months of the date of purchase.
Credit notes and debit notes.
If the sale price, or the purchase price, of any goods is varied and either a credit note or a debit note is issued, then the credit note or the debit note, as the case may be, should
• show separately, the tax and the price.
• be accounted for in the period in which the appropriate entries are made in their books of accounts.
Special cases
Auctioneers
If dealer is an auctioneer, then they must include in their turnover, the price of the goods they auction for their principal
Hotels
There are special rules for hotels and other establishments that provide boarding and lodging for an inclusive amount.
The rules provide a formula to enable them to calculate their turnover of sales for meals (food and beverages) which they provide.
The supply of food in a restaurant also includes an element of service. But the full amount charged is the sale price for the purposes of calculating turnover and tax.
Works contracts
VAT applies only to the sale of goods. Supply of services is not liable to VAT. Works contracts are deemed sales where both, goods and services are provided in a transaction and cannot be separated.
A works contract may involve the creation of immoveable property, e.g. a house, a factory or a bridge. Some other examples of works contracts are photography, repairs & maintenance etc.
To calculate the amount a dealer should include it in their turnover of sales, so that they may deduct it from the total contract price, the
• costs of labour and service charges.
• amount paid to sub-contractors.
• charges for planning and designing, and any architect's fees.
• hiring charges for machinery and tools.
• cost of consumables, such as, water, gas and electricity.
• Dealer’s administrative costs relating to labour and services and any other similar expenses.
• any profit element that relates to the supply of labour and services.
Alternatively, in lieu of the deductions as above, a dealer may choose to discharge the liability arising on works contracts by referring to the table prescribed in the rules.
If the dealer finds that it is too complicated to calculate the deductions, then they may opt for a composition scheme for any works contract.
Sales and purchases not liable to tax under VAT
The VAT law specifically excludes from value added tax all imports, exports and inter-state transactions. These transactions are covered by the CST Act. Similarly, transactions that take place outside Maharashtra are not within the scope of MVAT Act.
Point of levy in certain cases
Hire purchase
Where there is a hire purchase agreement or an agreement for sale by installments, the date of the sale is deemed to be the date of the delivery of goods. This is despite the fact that legal ownership of the goods only passes to the buyer after payment of the final installment.
If the hire-purchase agreement specifies the interest component then in calculating the sales price, dealer should disregard the interest component included in the agreement.
Calculating the amount of VAT due on sales
Dealer should also make some adjustments to the total turnover of sales to arrive at the amount on which tax is due.
From the total sales one should deduct
• the total of exports and inter-State sales.
• the total of sales of goods that are tax free, and
• branch / consignment transfers to locations in Maharashtra as well as other States.
• the tax collected.
To calculate the tax due, dealer should start allocating their turnover of sales in the return period (net of the above deductions) to the rates of tax they have been charged. They should also ensure that the correct tax rates are applied. The information should be readily available from their records. This gives the total of sales tax due.
Calculating the turnover of purchases
Records will provide the total figure, but they may not have paid VAT on all their purchases. They must now deduct the total value of
• imports from out of India.
• inter-State purchases.
• purchases of tax free goods.
• direct purchases from exempted units under the Package Scheme of Incentives.
• consignment transfers, and
• local purchased from unregistered dealers.
• local purchases from registered dealers not supported by tax invoiceCalcul
ating the amount of set off due (VAT paid on purchases)
This is the next stage of tax calculation. At this stage VAT is charged on total purchases. Dealer must, however, make some adjustments to this amount for, in certain cases, the full set off of the VAT paid on purchases is not available.
Set off not available
There are various items on which set-off is not available such as, goods of incorporeal or intangible character other than those specified, passenger motor vehicles, motor spirits, crude oil, building material used for construction etc.
Conditions for claiming set off
A dealer can claim set off only for VAT paid on purchase if they have a valid tax invoice for that transaction and they had maintain account of purchases showing the specified details.
Tax payable
The amount of set-off admissible can be adjusted against tax payable. The amount of net tax payable is the total of sales tax collected on sales less the set-off available.
Refund cases
If the amount of set-off admissible during the period is more than the amount of tax payable, then dealer’s return would reflect a balance refundable to the dealer. The amount of set-off can be more than the tax payable for a variety of reasons, such as
• Inputs are taxable at higher rate as compared with the rate of tax on output.
• Outputs are tax-free goods while inputs carry tax.
• Outputs are export sales.
• Outputs are CST sales which are taxable at the concessional rate of CST.
• Manufactured goods or trading goods are transferred to branches outside the State or are sent on consignment transfers.
Refund to specified class of dealers
Specified classes of dealers are : -
• Exporters exporting out of the country or dealers selling to an exporter against form H.
• A unit set-up in SEZ or STP or EHTP or a 100% EOU unit. These units have to be certified by the Commissioner of Sales Tax.
• An Entitlement Certificate holder availing of the benefit of incentives under the Package Scheme of Incentives (PSI).
Specified class of dealers and the dealers who have made a sale in the course of inter-State trade or commerce and in the return he has shown any amount to be refundable are eligible to claim refund in each of the returns filed by them. Full amount of excess credit can be claimed as refund due for the return period.
The dealer eligible to claim refund has to file refund application in Form 501.
Appendix 1
List of important forms referred to in the Guide
Sr. No. Form Number Subject
1 101 Application for Registration under the MV AT Act, 2002.
2 103 Application for cancellation of Registration Certificate.
3 210 Chalan in respect of payment made otherwise than with return by a dealer under the MVAT Act, 2002
4 221 Return-cum-chalan for all VAT dealers other than dealers executing works contract, dealers engaged in leasing business, composition dealers (including dealers opting for composition only for part of the activity of the business), PSI dealers and notified Oil Companies.
S5 222 Return-cum-chalan for all composition dealers whose entire turnover is under composition (excluding works contractors opting for composition and dealers opting for composition only for part of the activity of the business).
6 223 Return-cum-chalan for VAT dealers who are also in the business of executing works contracts, leasing and dealers opting for composition only for part of the activity of the business.
7 224 Return-cum-chalan for PSI dealers holding Entitlement Certificate. (Transactions by PSI dealers relating to the business of execution of works contracts, leasing, trading and composition only for part of the activity of the business to be included in a separate return in Form 223).
List of Sales Tax Offices in the State of Maharashtra
There are total 40 Sales Tax Office located all over the Maharashtra. Out which some of them are in: Mumbai (Head Quarters), Bandra, Raigad (Division), Thane (Division), Kalyan, Nalasopara, Palghar, Pune (Division), Solapur, Kolhapur (Division), Satara, Sangli, Ratnagiri, Nasik (Division), Ahmednagar, Aurangabad (Division), Nagpur (Division), Wardha, Amaravati (Division), Akola, and many more…
Bibliography
1. Value Added Tax – By Sales Tax Department.
2. Tax 4 India : Indian Income Tax
3. Maharashtra Sales Tax ,VAT, Commercial Tax
4. Direct and Indirect taxes - Ainapure
5. Legal and Tax aspects of Bu
Sr. No. Topics Covered Page No.
1 Introduction to Value Added Tax.
2
2 Value Added Tax in Maharashtra.
A. Introduction.
B. Registration under Value Added Tax.
C. Explaining Value Added Tax.
D. Rates of Value Added Tax.
E. Composition Schemes
F. Calculating Tax Liability.
G. Point of Levy.
H. Refund 3-5
6-9
10
11
12
13-15
16-17
18
3 Appendix. 19-20
4 Bibliography. 21
WHAT IS VALUE ADDED TAX?
Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production. The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same manner, according to the white paper on VAT released by finance minister Chidambaram. The document was drawn up after all states, barring UP, were prepared to implement VAT from April. It is usually intended to be a tax on consumption, hence the provision of a mechanism enabling producers to offset the tax they have paid on their inputs against that charged on their sales of goods and services. Under VAT revenue is collected throughout the production process without distorting any production decisions.
WHY VAT IS PREFERRED OVER SALES TAX?
While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production – distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax. However, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net.
There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimizes or eliminates the problem of tax cascading, which often occurs with sales tax. These are facilitated by the fact that VAT operates through a credit system so that tax is only applied on value added at each stage in the production – distribution chain.
VALUE ADDED TAX IN MAHARASHTRA
Introduction
Background
Maharashtra is one of the 21 States which have introduced the Value Added Tax (VAT) system of taxation from 1st April 2005. With the introduction of VAT, the Sales Tax Department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries.
The design of Maharashtra State VAT is generally guided by the best international practices with regard to legal framework, as well as operating procedures. Another key factor in preparation of the design of State level VAT is the national consensus on certain issues. The consensus has been arrived at through the discussions in the Empowered Committee of State Finance Ministers on implementation of State level VAT.
On 1st April 2005, VAT replaced the single point sales tax. Single point sales tax had a number of disadvantages, primarily that of double taxation. VAT is a modern and progressive taxation system that avoids double taxation. In addition to offering the possibility of a set-off of tax paid on purchases,
VAT has other advantages for both business and government.
• It eliminates cascading impact of double taxation and promotes economic efficiency.
• It is primarily a self-policing, self-assessment system with more trust put on dealers.
• It provides the potential for a stronger manufacturing base and more competitive export pricing.
• It is invoice based, and as a result it offers a better financial system with less scope for error.
• It has an improved control, mechanism resulting in better compliance.
• It widens the, tax base and promotes equity.
VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added Tax Act (MVAT Act), supported by Maharashtra Value Added Tax Rules (MVAT Rules). VAT is levied on sale of goods including intangible goods.
The meaning of “goods” for VAT purposes
“Goods” means every kind of moveable property including goods of incorporeal and intangible nature but there are some exclusion, such as newspapers, actionable claims, money, shares and securities and lottery tickets.
Businesses engaged in. the buying and selling of goods within the scope of the VAT law are referred to as dealers.
The meaning of 'sale' for VAT purposes
A transaction of sale can be a:
• normal sale of goods;
• sale of goods under hire-purchase system;
• deemed sale of goods used I supplied in the course of execution of works contract;
• deemed sale of goods given on lease.
The rate of tax applicable to the goods sold under various classes of sales is uniform. However, in respect of normal sales of goods and deemed sales of goods under works contract and specified deemed sale of goods given on lease, the Act provides for an optional method for discharging tax liability by way of composition. Being so, the tax liability has to be determined with reference to the option exercised by the dealer for discharging tax liability.
Businesses covered by VAT
The VAT system embraces all businesses in the production and supply chain, from manufacture through to retail. VAT is collected at each stage in the chain when value is added to goods. 1t applies to al1 businesses, including importers, exporters, manufacturers, distributors, wholesalers, retailers, works contractors and lessors.
Registration under MVAT
Rules for registration
If a dealer’s annual turnover exceeds the below mentioned threshold, then it must register with the local office of the Sales Tax Department.
All Figures in Rs.
Category Annual Turnover of Sales Turnover of sales or purchase of taxable goods not less than Fees payable on registration
Importer 1,00,000 10,000 100
Others 5,00,000 10,000 100
If the dealer’s turnover is less than the above threshold, then they are not liable to collect and pay VAT. However, if a dealer wishes to avail the benefits of being a registered dealer, then they may apply for voluntary registration by paying a fee of Rs.5,000/ -.
Benefits of being a registered dealer
As a registered dealer, they are entitled to:
• collect VAT on the sales;
• claim set-off of tax (input tax credit) paid on purchases;
• Issue tax invoices and, be competitive.
Effective date of registration
The effective date of registration, that is, the date front which a dealer may charge VAT on sales; will depend on the date they first become liable to pay VAT. This date will be determined as follows:
a) New businesses:
If a dealer is not registered because their annual turnover is less than the threshold; their liability to account for VAT starts from the date they cross the threshold.
b) Existing businesses:
If a dealer took over an existing business that is registered for VAT, then they will be liable to pay tax on sales from the date they took over the business.
c) Voluntary registration:
If a dealer is registered on a voluntary basis, then he will be liable to account for VAT from the date shown on the certificate of registration.
d) Late registration:
If a dealer’s turnover has exceeded the appropriate threshold but they have applied late for registration, then he can charge VAT on his sales only after they are registered, i.e., from the date shown on the certificate of registration.
Further, having crossed the threshold, it is an offence to be engaged in business as a dealer without a certificate of registration
Certificate of registration
A dealer should prominently display the certificate and hologram, or a copy of the certificate and hologram, at each place where they carry can on their business.
If a dealer has more than one place of business, then Sales Tax Office will provide them, upon their request, one copy of the certificate of registration and hologram for each additional place of business.
If a dealer loses his / her certificate of registration or hologram, or it is accidentally destroyed or defaced, then they may obtain a duplicate copy of the certificate of hologram from their sales tax office.
The certificate of registration and hologram is personal to the dealer to whom it is issued and is non-transferable.
Cancellation of registration
A dealer will be liable to pay VAT while their registration is effective. If however, their turnover falls below the threshold, he may choose to apply for cancellation of his registration. However, he should continue to collect and pay VAT in the normal way until his registration is formally cancelled. Alternatively, they may be allowed the registration to continue.
If a dealer:
• discontinue the business;
• dispose of or sell or transfer the business;
A dealer must inform the Sales Tax Department within 30 days of the event. In case of disposal or sale of business, their successor will need to apply for a fresh registration certificate.
For cancellation of registration a dealer should submit form 103 which is available with the local sales tax office. It can also be downloaded from the website Maharashtra Sales Tax ,VAT, Commercial Tax
If the Sales Tax Department cancels the dealer’s registration, they must return the Certificate of Registration
Explaining VAT
How VAT works
When a dealer sell goods, the sale price is made up of two elements; the selling price of the goods and the tax on the sale. The tax is payable to the State Government.
The tax payable on sales is to be calculated on the selling price. The tax paid on purchases supported by a, valid tax invoice is generally available as set-off (input, tax credit) while discharging the tax liability on sales.
Example
The following example shows how the VAT works through the chain from manufacturer to retailer.
Company A buys iron ore and other consumables and manufactures stainless steel utensils; Partnership firm B buys the utensils in bulk from Company A and polishes them; shopkeeper C buys some of the utensils and purchases packing, material from vendor D, packages them and sells the packed utensils for the public.
Particulars Amount (Rs.)
Suppliers of Company A 2,000
Company A 4,000
Partnership B 1,200
Shopkeeper C 1,600
Vendor D 200
Total 9,000
Thus, through a chain of tax on sale price and set off on purchase price, the cascading impact of tax is totally eliminated.
Rates of value added tax
There are two main rates of VAT 4% and 12.5%. The goods are grouped into five schedules as under:
Schedule Rate of tax Illustrative Items
A 0% Vegetables, milk, eggs, bread
B 1% Precious metals and precious stones and their jewellery
C 4% Raw materials, notified industrial inputs, notified information technology products and a few essential items
D 20% and above Liquor, petrol, diesel etc
E 12.5% Other than items specified in schedules A, B, C & D.
Difference between tax free goods and exempt sales
It is sometimes confusing to have goods that are tax free and sales that are exempt. Both result in no VAT being charged, so what is the difference?
Tax free goods do not attract tax at any stage of sale or in any type of transaction, whereas, exempted sales are certain types of transactions, viz., export sales which are exempt from tax.
Composition schemes
Certain dealers may find it difficult to keep detailed records for claiming set-off. For such dealers, a simpler and optional method of accounting for VAT has been introduced. This method is the composition scheme. It may be noted that composition scheme is not meant to be a tax concession scheme but only a simplification of tax calculation and payment system.
Tax payable by dealers opting for composition in lieu of VAT
The following classes of dealers are eligible for option to pay tax under composition:
• Resellers selling at retail, i.e., to consumers,
• Restaurants, eating houses, hotel (excluding hotels having gradation of 'Four Star’ and above), refreshment rooms, boarding establishments, clubs and caterers,
• Bakers,
• Dealers in second-hand passenger motor vehicles and
• Works contractors
• Dealers engaged in the business of providing mandap, pandal, shamiana.
Calculating tax liability
In, order to calculate how much tax a dealer has to pay, he must, first determine his turnover of sales and turnover of purchases. The second stage is to ascertain the amount of tax due for payment.
Calculating turnover of sales and purchases
The turnover of sales is the total of the amounts received or receivable (excluding VAT charged separately) in respect, of the sale of goods, less the amount refunded to a purchaser in respect of goods returned, within six months of the date of the sale.
Similarly, the turnover of purchases is the total of the amounts paid or payable (excluding VAT charged separately) in respect of the purchase of goods less (the amounts repaid to dealer in respect of goods they return, within six months of the date of purchase.
Credit notes and debit notes.
If the sale price, or the purchase price, of any goods is varied and either a credit note or a debit note is issued, then the credit note or the debit note, as the case may be, should
• show separately, the tax and the price.
• be accounted for in the period in which the appropriate entries are made in their books of accounts.
Special cases
Auctioneers
If dealer is an auctioneer, then they must include in their turnover, the price of the goods they auction for their principal
Hotels
There are special rules for hotels and other establishments that provide boarding and lodging for an inclusive amount.
The rules provide a formula to enable them to calculate their turnover of sales for meals (food and beverages) which they provide.
The supply of food in a restaurant also includes an element of service. But the full amount charged is the sale price for the purposes of calculating turnover and tax.
Works contracts
VAT applies only to the sale of goods. Supply of services is not liable to VAT. Works contracts are deemed sales where both, goods and services are provided in a transaction and cannot be separated.
A works contract may involve the creation of immoveable property, e.g. a house, a factory or a bridge. Some other examples of works contracts are photography, repairs & maintenance etc.
To calculate the amount a dealer should include it in their turnover of sales, so that they may deduct it from the total contract price, the
• costs of labour and service charges.
• amount paid to sub-contractors.
• charges for planning and designing, and any architect's fees.
• hiring charges for machinery and tools.
• cost of consumables, such as, water, gas and electricity.
• Dealer’s administrative costs relating to labour and services and any other similar expenses.
• any profit element that relates to the supply of labour and services.
Alternatively, in lieu of the deductions as above, a dealer may choose to discharge the liability arising on works contracts by referring to the table prescribed in the rules.
If the dealer finds that it is too complicated to calculate the deductions, then they may opt for a composition scheme for any works contract.
Sales and purchases not liable to tax under VAT
The VAT law specifically excludes from value added tax all imports, exports and inter-state transactions. These transactions are covered by the CST Act. Similarly, transactions that take place outside Maharashtra are not within the scope of MVAT Act.
Point of levy in certain cases
Hire purchase
Where there is a hire purchase agreement or an agreement for sale by installments, the date of the sale is deemed to be the date of the delivery of goods. This is despite the fact that legal ownership of the goods only passes to the buyer after payment of the final installment.
If the hire-purchase agreement specifies the interest component then in calculating the sales price, dealer should disregard the interest component included in the agreement.
Calculating the amount of VAT due on sales
Dealer should also make some adjustments to the total turnover of sales to arrive at the amount on which tax is due.
From the total sales one should deduct
• the total of exports and inter-State sales.
• the total of sales of goods that are tax free, and
• branch / consignment transfers to locations in Maharashtra as well as other States.
• the tax collected.
To calculate the tax due, dealer should start allocating their turnover of sales in the return period (net of the above deductions) to the rates of tax they have been charged. They should also ensure that the correct tax rates are applied. The information should be readily available from their records. This gives the total of sales tax due.
Calculating the turnover of purchases
Records will provide the total figure, but they may not have paid VAT on all their purchases. They must now deduct the total value of
• imports from out of India.
• inter-State purchases.
• purchases of tax free goods.
• direct purchases from exempted units under the Package Scheme of Incentives.
• consignment transfers, and
• local purchased from unregistered dealers.
• local purchases from registered dealers not supported by tax invoiceCalcul
ating the amount of set off due (VAT paid on purchases)
This is the next stage of tax calculation. At this stage VAT is charged on total purchases. Dealer must, however, make some adjustments to this amount for, in certain cases, the full set off of the VAT paid on purchases is not available.
Set off not available
There are various items on which set-off is not available such as, goods of incorporeal or intangible character other than those specified, passenger motor vehicles, motor spirits, crude oil, building material used for construction etc.
Conditions for claiming set off
A dealer can claim set off only for VAT paid on purchase if they have a valid tax invoice for that transaction and they had maintain account of purchases showing the specified details.
Tax payable
The amount of set-off admissible can be adjusted against tax payable. The amount of net tax payable is the total of sales tax collected on sales less the set-off available.
Refund cases
If the amount of set-off admissible during the period is more than the amount of tax payable, then dealer’s return would reflect a balance refundable to the dealer. The amount of set-off can be more than the tax payable for a variety of reasons, such as
• Inputs are taxable at higher rate as compared with the rate of tax on output.
• Outputs are tax-free goods while inputs carry tax.
• Outputs are export sales.
• Outputs are CST sales which are taxable at the concessional rate of CST.
• Manufactured goods or trading goods are transferred to branches outside the State or are sent on consignment transfers.
Refund to specified class of dealers
Specified classes of dealers are : -
• Exporters exporting out of the country or dealers selling to an exporter against form H.
• A unit set-up in SEZ or STP or EHTP or a 100% EOU unit. These units have to be certified by the Commissioner of Sales Tax.
• An Entitlement Certificate holder availing of the benefit of incentives under the Package Scheme of Incentives (PSI).
Specified class of dealers and the dealers who have made a sale in the course of inter-State trade or commerce and in the return he has shown any amount to be refundable are eligible to claim refund in each of the returns filed by them. Full amount of excess credit can be claimed as refund due for the return period.
The dealer eligible to claim refund has to file refund application in Form 501.
Appendix 1
List of important forms referred to in the Guide
Sr. No. Form Number Subject
1 101 Application for Registration under the MV AT Act, 2002.
2 103 Application for cancellation of Registration Certificate.
3 210 Chalan in respect of payment made otherwise than with return by a dealer under the MVAT Act, 2002
4 221 Return-cum-chalan for all VAT dealers other than dealers executing works contract, dealers engaged in leasing business, composition dealers (including dealers opting for composition only for part of the activity of the business), PSI dealers and notified Oil Companies.
S5 222 Return-cum-chalan for all composition dealers whose entire turnover is under composition (excluding works contractors opting for composition and dealers opting for composition only for part of the activity of the business).
6 223 Return-cum-chalan for VAT dealers who are also in the business of executing works contracts, leasing and dealers opting for composition only for part of the activity of the business.
7 224 Return-cum-chalan for PSI dealers holding Entitlement Certificate. (Transactions by PSI dealers relating to the business of execution of works contracts, leasing, trading and composition only for part of the activity of the business to be included in a separate return in Form 223).
List of Sales Tax Offices in the State of Maharashtra
There are total 40 Sales Tax Office located all over the Maharashtra. Out which some of them are in: Mumbai (Head Quarters), Bandra, Raigad (Division), Thane (Division), Kalyan, Nalasopara, Palghar, Pune (Division), Solapur, Kolhapur (Division), Satara, Sangli, Ratnagiri, Nasik (Division), Ahmednagar, Aurangabad (Division), Nagpur (Division), Wardha, Amaravati (Division), Akola, and many more…
Bibliography
1. Value Added Tax – By Sales Tax Department.
2. Tax 4 India : Indian Income Tax
3. Maharashtra Sales Tax ,VAT, Commercial Tax
4. Direct and Indirect taxes - Ainapure
5. Legal and Tax aspects of Bu
: SugarwareZ-143:...was of great help