Vous êtes sur la page 1sur 41

Seminar on

Value Added Tax

By

V. Narayanan
Value Added Tax Practitioner
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 1
Chennai – 600 044 Phone: 91-44-2265 4506
Agenda
 Sales Tax - An Overview
 Introduction to VAT
 VAT - What it means?
 Sales Tax and VAT - A Comparative Study
 Advantages of VAT
 Registration
 Schedules in VAT Act
 Implication on works contract (after VAT)
 Forms – A Walkthrough
 Conclusion

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 2
Chennai – 600 044 Phone: 91-44-2265 4506
Sales Tax – An Overview
 Falls under exclusive jurisdiction of state
governments - Article 246 of the Indian
Constitution
 State governments levy different tax
rates for different goods – based on the
specific needs of people, businesses
and industry
 Form of taxation applicable not only in
India, but globally
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 3
Chennai – 600 044 Phone: 91-44-2265 4506
Genesis of VAT

 Formulated during the Chief Minister’s


meet of all the states during 1999
 Tamil Nadu was a member right from the
beginning
 Members included all state finance
ministers

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 4
Chennai – 600 044 Phone: 91-44-2265 4506
Why VAT?

 To have uniform rate of tax throughout the


country
 To abolish deferral/waiver/incentives
 To abolish internal check posts
 To facilitate self assessment
 To reorganize commercial tax
departments and enable computerization

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 5
Chennai – 600 044 Phone: 91-44-2265 4506
Current Status of VAT
Implementation
 Year 2005: 22 states implemented
 Year 2006: 6 states have implemented
 Year 2007: Remaining states have
implemented
 Status in Tamil Nadu:
 July 22, 2006: Finance Minister of Tamil
Nadu announced in the state assembly
about the introduction of VAT system
 October 28, 2006: VAT Act was published in
Tamil Nadu Gazette and introduced,
effective from January 1, 2007
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 6
Chennai – 600 044 Phone: 91-44-2265 4506
What is VAT?

 VAT is a multi-point tax collected at


every stage
 VAT is arrived at by deducing the tax
paid on purchases from the tax payable
on sales

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 7
Chennai – 600 044 Phone: 91-44-2265 4506
Example

Data Calculation
 Purchases: Input worth
S.No Parameter Amount
Rs. 1,00,000/- in a
(in Rs.)
month
 Sales: Output worth 1 Input purchased within the 1,00,000
month
Rs. 2,00,000/- in a
month 2 Output sold within the month 2,00,000
 Input tax rate: 4% 3 Input Tax Paid 4,000
 Output tax rate: 12.5%
4 Output Tax Payable 25,000
5 VAT payable during the 21,000
month after set-off/input
tax credit

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 8
Chennai – 600 044 Phone: 91-44-2265 4506
Concept of VAT and Set-off /
Input Tax Credit
 Essence of VAT is providing set-off for the
tax paid earlier, given effect through the
concept of input tax credit/rebate.

 Therefore, VAT is based on the value


addition to the goods, and the related VAT
liability of the dealer is calculated by
deducting input tax credit from tax
collected on sales during the payment
period (say, a month).
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 9
Chennai – 600 044 Phone: 91-44-2265 4506
VAT Calculation – A
Diagrammatic Representation

‘B’ - MANUFACTURER ‘C’ - WHOLESALER


Sales Value: Rs.140/- Sales Value: Rs.170/-
Gross VAT @ 10%: Rs.14/- Gross VAT @ 10%: Rs.17/-
Net VAT: Rs.14 –Rs. 10 = Rs. 4/- Net VAT: Rs.17 – Rs. 14 = Rs. 3/-

‘A’ - RAW MATERIAL PRODUCER ‘D’ - RETAILER


Sales Value: Rs.100/- Sale Value: Rs.190/-
Gross VAT @ 10%: Rs.10/- Gross VAT @ 10%: Rs.19/-
Net VAT: Rs.10/- Net VAT: Rs.19 – Rs. 17 = Rs. 2/-

Note: Total VAT collected at four points: Rs. 10 + Rs. 4 + Rs. 3 + Rs. 2 = Rs.19/-
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 10
Chennai – 600 044 Phone: 91-44-2265 4506
Sales Tax & VAT – A
Comparison…1
S.No. Sales Tax VAT
1 Tax is levied either at multi-stage Tax is levied comprehensively at every
or single stage. point of sale till retail stage.
2 Tax is imposed only on sales Tax is levied on every value addition
turnover of goods. including services, agricultural activities,
labour, interest, royalties etc.
3 Tax paid on purchases is not Tax paid on purchases (inputs) including
rebated capital goods is rebated
4 As tax paid is built in the cost, it As tax paid fully rebated, there is no
taxes the tax. So, there is tax cascading.
cascading.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 11
Chennai – 600 044 Phone: 91-44-2265 4506
Sales Tax & VAT – A
Comparison…2
S.No. Sales Tax VAT
5 To minimize cost of production, As the tax paid is credited, there is no
manufacturer produces possibility of vertical integration.
intermediary products to use in the
final product. This leads to vertical
integration.
6 Abnormal increase in price of the Nominal increase in price of goods
goods
7 In single point tax, verification of The system facilitates mechanism for
earlier sufferance of tax is not easy. verification of claim of tax credit.
So, there is large scale evasion of
tax.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 12
Chennai – 600 044 Phone: 91-44-2265 4506
Advantages
 Rationalized Tax Structure: 1% , 4%, and 12.5%
 Simple: Minimum exemptions with lesser rate and refund
procedures.
 Transparent: Being a consumption tax, more transparency
is maintained
 Bigger Opportunities: By giving tax credits, the
manufacturing cost will be less and even bigger enterprises
will establish their presence in Tamil Nadu.
 Reduced Prices of Goods: Elimination of tax cascading
and pyramiding effects
 Growth: Creates more job opportunities in the state.
 Tax Compliance: Checks tax evasion
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 13
Chennai – 600 044 Phone: 91-44-2265 4506
Registration
 Registration Fee: Rs.500 for the principal place and Rs.50
for each of the other places for all categories of dealers.
 Renewal not required: Registration once granted need not
be renewed each year, will continue to be in force till revoked
or till the closure of the business.
 Legal Provisions:
 Under Section 88 (3) (i) all rules, regulations, notifications,
clarifications or orders made or issued under any other
provisions of the said act shall continue in force on or after such
date under TNVAT too. Until they are repealed or amended.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 14
Chennai – 600 044 Phone: 91-44-2265 4506
TIN
 Tax Payer’s Identification Number (TIN) already
made available to all existing dealers.
 TIN consists of 11 digit numerals throughout the
country:
 First two characters will represent the State Code as
used by the Union Ministry of Home Affairs.
 The set-up of the next nine characters may, however,
be different in different States. In Tamil Nadu, the last
seven digits relates to the existing TNGST number
holders.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 15
Chennai – 600 044 Phone: 91-44-2265 4506
Schedules
 6 Schedules (as against 11 in the old
scheme). They include:
Schedule Description
Number
1 VATable Goods)
Part A - Bullion, Gold, Silver (taxable @ 1%)
Part B - Taxable @ 4% (150 items)
Part C – Taxable @ 12.5% (69 items) – W.E.F 12.07.2007
2 Non-VATable (12 items)
3 Compounding Schemes for Hotels, Restaurants & Sweet Stalls
4 Exempted Goods (Section 15)
5 Zero Rate Sale – International Organizations
6 Transit Passes

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 16
Chennai – 600 044 Phone: 91-44-2265 4506
Compounding Scheme

 Applicable to Assesses, who effect


second or subsequent sales, pay 0.5%
Tax as a percentage on Gross Turnover.
Such dealer cannot collect tax from the
customers.
 Limit: Rs. 50 Lakhs Per Annum
 VAT invoice cannot be issued

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 17
Chennai – 600 044 Phone: 91-44-2265 4506
Implication on works contract
(after VAT)

 Section 5 provides for levy of tax on


transfer of property in the goods involved
in the execution of works contract. Rule
8 (5) prescribes methods of computing.
 ITC is permissible in this Section on
goods mentioned in the first schedule
purchased within the State and used in
the execution of works contract.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 18
Chennai – 600 044 Phone: 91-44-2265 4506
Continued…

 Section 6 - compounding Scheme has


been amended recently with
retrospective 01.04.2007.
 Inter state purchases / stock transfer are
not permitted
 Dealers paying under this scheme are
not entitled for ITC and cannot collect tax
from the customers.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 19
Chennai – 600 044 Phone: 91-44-2265 4506
Exempt vis-à-vis Zero Rated
Sale
 Dealer not entitled for input tax credit if
the sales are not taxable and exempted
 Refund on input tax applicable to a
dealer who pays no tax on his output
For e.g., Export

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 20
Chennai – 600 044 Phone: 91-44-2265 4506
Continued….

 Option to be exercised along with the


first monthly return for the financial year
or in the first monthly return after the
commencement of the works contract.
Such option shall be final for the
assessment year.
 Dealers need not maintain detailed
account under this scheme. Sufficient if
they maintain records in original for the
January 27, 2007
receiptsNo.and payments
80, Station Road, Radha Nagar, Chromepet, 21
Chennai – 600 044 Phone: 91-44-2265 4506
Continued.

 Section 13 represents TDS provision


 Every person responsible for paying any
sum to a contractor has to deduct TDS
@ 2% and 4% respectively.
 Dealer can provide form S obtained from
the respective assessing authority which
is called a no liability certificate.
 The person deducting the TDS amount
has to deposit the same on or before 20th
January 27, 2007 of succeeding
Chennai – 600 month
No. 80, Station Road, Radha Nagar, Chromepet,
044 Phone: 91-44-2265 4506
22
Continued…..

 A statement in form R and Form T to be


issued to the contractor for the TDS
recovery.
 Once the contractor produces the Form
T TDS shall be adjusted.
 Contreventions of the provision interest
attracts 1.25% per annum.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 23
Chennai – 600 044 Phone: 91-44-2265 4506
VAT & CST Act

 CST rate of tax has been brought down


to 3% effective from 01.04.2007 for inter-
state transaction
 Input Tax Credit allowed for inter-state
sale – Section 8.1 of CST Act
 No Input Tax for inter-state purchases
and stock transfer

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 24
Chennai – 600 044 Phone: 91-44-2265 4506
VAT & Stock Transfer

 Due to existence of CST Act, stock


transfers/consignment sales are
exempted as at present
 When stock transfers are exempted, ITC
is eligible in excess of 3% for rebate on
the goods used to produce products

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 25
Chennai – 600 044 Phone: 91-44-2265 4506
VAT & Deemed Sales

 Tax on deemed sales such as Leasing,


Works Contract are Vatable – Sec 5
 Composition of Tax on work
contract is available: 2%
on civil works and Sec 6
civil maintenance works
 4% on other contracts

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 26
Chennai – 600 044 Phone: 91-44-2265 4506
Tax Computation on WCT –
Sec 5

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 27
Chennai – 600 044 Phone: 91-44-2265 4506
Treatment of Exports &
Deemed Exports
 Export will be zero-rated. Refund on ITC
 Penultimate sale is also treated as Export and
eligible for ITC
 Sales to SEZs and International Organizations
are zero-rated ITC available for both
contractors as well as sub-contractors
 Refund of ITC to Exporters/Deemed Exporters
will be made within 180 days from the date of
claim. Beyond which period such credit lapse
to Government.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 28
Chennai – 600 044 Phone: 91-44-2265 4506
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 29
Chennai – 600 044 Phone: 91-44-2265 4506
Capital Goods

 ITC eligible for purchase of capital goods


used for the manufacture of taxable goods
 Eligibility: From the date of
commencement of commercial production
 50% can be adjusted in the first year,
balance 50% in the second and third year
 Remaining unadjusted amount, if any will
lapse

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 30
Chennai – 600 044 Phone: 91-44-2265 4506
Returns

 Every Dealer should file monthly return


in Form I disclosing the input tax paid
and output tax payable by 20th of the
following month
 Details of TIN should be furnished on
both purchase and sales
 Separate Forms J, K, L, M are meant for
various categories of dealers

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 31
Chennai – 600 044 Phone: 91-44-2265 4506
Assessment Procedure

 Self-assessment for VAT dealers in


terms of submission of returns upon
setting of tax credit
 No compulsory annual assessment as at
present
 Failure to file monthly returns assessing
officers can resort best judgment
assessment order after giving
reasonable opportunity.
January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 32
Chennai – 600 044 Phone: 91-44-2265 4506
Continued…

 Penalty @150% of the tax assessed is


applicable in case of best judgment
assessment.
 Limitation for revision of assessment is 5
years from the date of original
assessment order. (Section 27)
 Appeal, revision procedures are similar
to TNGST Act.

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 33
Chennai – 600 044 Phone: 91-44-2265 4506
Input tax Credit

 Section 19 and Rule 10 are relevant for


ITC claim.
 ITC is available in respect of tax paid
goods i.e. vatable goods. (4% & 12.5%)

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 34
Chennai – 600 044 Phone: 91-44-2265 4506
Scrutiny of Accounts

 Detailed scrutiny on 20% of the dealers


on a random basis
 If evasion is detected upon
scrutiny/audit, dealer may be assessed
for all the previous periods (5 years)

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 35
Chennai – 600 044 Phone: 91-44-2265 4506
Audit

 Enforcement Wing will be the Audit Wing


for VAT
 Audit will be conducted at the premises
of the Tax Payer with prior intimation
 Before Audit Closure, the audit team
discusses with the Tax Payer on the
findings and a detailed report is given to
the dealer

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 36
Chennai – 600 044 Phone: 91-44-2265 4506
Treatment of Waiver &
Deferral
 Units enjoying waiver will be required to
switch over to deferral mode of payment
 Units enjoying the benefits of deferral will
continue for the un-expired period
subject to unused portion of monetary
ceiling

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 37
Chennai – 600 044 Phone: 91-44-2265 4506
Status of Other Taxes after
Introduction of VAT
 Additional Sales Tax, Surcharge, and
Resale Tax will be abolished
 No provision for concession sale, hence
no declaration forms such as Form XVII

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 38
Chennai – 600 044 Phone: 91-44-2265 4506
Forms

 Totally, 46 forms have been introduced


 Important Forms:
 RegistrationFormalities – Forms A-F
 Monthly Returns – Forms I, J, K, L, & M

 TDS Forms – Forms R, S, & T

 Stock Inventory & Refund – Forms V & W

 Despatch – Forms JJ, LL, & NN

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 39
Chennai – 600 044 Phone: 91-44-2265 4506
Conclusion

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 40
Chennai – 600 044 Phone: 91-44-2265 4506
Thank You

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, 41
Chennai – 600 044 Phone: 91-44-2265 4506