Value added tax ( VAT) is a form of Sales Tax. Under the VAT Concept , Tax paid on the purchase of goods is adjusted against tax payable on sales thereby avoiding double taxation. The tax paid on Purchases is referred to as Input tax and tax paid on sales is referred to as Output tax.. . Dealers who are registered for VAT can claim a credit for the VAT charged on most business purchases. VAT is levied on sales of all taxable goods. An individual, partnership, corporation, HUF etc., who sells goods in the course of business and who is registered or is required to register for VAT is required to pay VAT. The rate under the VAT Act will be a single rate. Levies like Turnover tax, Surcharge, Resale Tax, Additional tax etc will be done away with thereby simplifying the Taxation procedure. Octroi being a levy by the Municipal Corporation will not be disturbed. There would not be any change in Market Cess and Entry Tax. ( generally chargeable on petroleum products). The Central Sales Tax will be gradually phased out and it is expected to fall to 2% and eventually to zero against “C” FORM. Branch transfer/consignment transfer outside the state would continue to be without any levy of CST against declaration in Form ‘F’. The computation of VAT liability is not the same for all the dealers. A special class of dealers will not have to discharge their VAT liability, but will have to pay a lump sum amount as tax [by way of composition]. For Example the Composition scheme in Delhi (DVAT 01 ), has a maximum exemption of Rs. 5000. In the Composition scheme , the turnover is less than Rs. 50 lakh ( which can be checked from the sales register ) and tax is charged @1%.
A case study of VAT in Delhi
In Delhi, VAT was introduced w.e.f April 1, 2005. It replaced Delhi Sales Tax Act 1975, Delhi Tax on Motor Vehicles into Local Areas Act 1994, Delhi Sales Tax on Works Contract Act 1999, Delhi Sales Tax on Transfer of Right to use goods Act 2002. The VAT applies to movable goods with some exceptions. However VAT has not been introduced in Uttar Pradesh and Rajasthan. This has led to confusion and ambiguity.
In Delhi the Vat Registration Certificate DVAT 06 has certain norms. Input tax credit on purchases from other states is not available. It is available on purchases from Delhi. However the Output Tax liability is for Local Sale or Outside sale both. The records are to be maintained for atleast 7 years and Monthly records are to be maintained for Output and Input tax. Also the records are to be made for the order received till date ie records will have to be kept for bank records, challan counterfoils and pay in slips.. VAT cannot be charged on MRP as MRP includes VAT.
The Sales Tax return is filled by the Company. Hence the Cas and CWAs will have appellate work rather than the return filling assignments. Input Tax credit available on Capital Goods is available on a deferred basis i.e. one third in the first, second and the third year each. An Item wise stock register is to be maintained.
By: Dr. Nikhil Kulshrestha
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This article is extracted from dissertation conducted by Dr. Nikhil Kulshrestha, Dean-Academics at NSB-NIILM School of Business. NSB-NIILM School of business is one of the top business schools in India.
