V ALUE A DDED T AX

Standard Operating Procedure (SOP)

: Siddharth Biswal,

Prepared By

Date of last update :

Value Added Tax (VAT) Introduction

Value Added Tax (VAT) has been introduced in India on April 01, 2005. VAT had replaced the Local Sales Tax and at present it is being used through out the country. Under Value Added Tax (VAT) Regime, an organization can avail credit arising from Input Tax paid on Purchase of goods. Thus, tax liability shall be only on Value Addition at each stage of Sale made within the State

Setups for VAT Step No

Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 Step 11 Step 12

Required / Optional
Required Required Required Required Required Optional Optional Required Required Optional Optional Required

Step Title
Define VAT Regime Define Regime Registration Details Assign Tax Types Assign Tax Accounts Assign Organization/Locations Define Organization Registrations Assign Organization Tax Accounts Define Item Classifications Define Claim Terms Define VAT Invoice Sequence Define Supplier Registrations Define VAT Tax Authority

The above initial setups were being done by ERP team.

Account Codes
Account codes related to VAT are as below: 1. Purchase

i) ii)
2. Sales

Interim Recovery Account (242332) Recovery Account (242333) Interim Liability Account (252107) Liability Account (252108)

i) ii)

These account codes, along with the code combinations, are defined in the VAT Regime. And when a particular organization name (location) is assigned to the VAT Regime, these tax names along with the corresponding code combinations, which has been defined under the Tax Types tab, will ultimately reflect in the accounting of the transactions.

VAT Tax Name Creation

Nav : Payables > Setup > Tax > Taxes > Chose the organization from the list of values First step of VAT implementation is to define the tax names, in the Tax Definition India Localization screen, as below:

The Name of the tax should be defined as per the name convention set i.e. 1. First, put PO / OM depending on whether the tax will be used in Purchase Order or Sale Order 2. Next, put the location name. Example, for TIMF Chennai, it is MFD. 3. Next, put the name of the tax. Example, for Value Added Tax, put VAT 4. Lastly, put the rate of tax. Example, for 4% VAT, put @ 4%. In the right-hand top corner, of the screen shown above, we need to enter the tax Type. For VAT, ensure that the tax type chosen is Value Added Tax. We can enter anything in the Description field. We can copy paste the Tax Name itself or we can define it as per our convenience. Next, we need to enter an Account code combination, which is mandatory field. We need to mention the Percentage of tax, under the Rate tab. For example, if the VAT tax rate is 9%, then the percentage should be mentioned as 9. Depending on whether the tax is Cenvatable or not, we need to mention the Credit Percentage in the Information tab. If the tax is cenvatable, then we need to mention the percentage as 100. And incase, the tax is non-cenvatable, then we need to mention the percentage as 0 or we can leave it blank. Using the Rounding factor, in the Information tab, we can define the way we want to display the tax. Example, if we need that the tax amount calculated should display the amount up to 2 digits after the decimal, then we need to enter 2 in the box.

Other than this, the Update Transaction Tick and the Start Date will default and need not to be changed. After entering the above details, we need to save it. Once the detail is saved, the same cannot be modified. Incase there is any changes in the tax rates or details, then we need to put End Date to the existing tax name and create a new tax name, as per above mentioned process.

Vendor Additional Information

Nav : Payables > Suppliers > Additional Information When we prepare a Vendor and its site, in the vendor master, simultaneously we need to prepare the Vendor Additional Information also. While preparing the Vendor Additional Information, first we prepare the Vendor Additional Information without any site i.e. Null Site, save the same. We have to enter the VAT Registration No. (TIN). Next click on the TDS Details, Supplier TDS information screen will open. Need to fill the TDS details, save it and close the screen. Next, we have to again prepare the Vendor Additional Information for the same Vendor, as mentioned above. But this time we have to mention the Site. So, we need to prepare a separate Vendor Additional Information with site, for each site of the Vendor. Here, we need to mention the VAT Registration No. (TIN) of the Vendor. Please find the screen shots as below: Vendor Additional Information (Null Site)

Vendor Additional Information (Null Site)_TDS Details

Vendor Additional Information (With Site)

Vendor Additional Information (With Site)_TDS Details

VAT Item Assignment

It is mandatory to assign the items to the VAT template, so the accounting will be generated, as per the VAT regime. Navigation for assignment of Items to the VAT and the screen is as belowNav : Receivables > India TCS/VAT/Service Tax > Transactions > VAT-Item Classification

We have to fill the fields, by choosing from the list of values, as below: Suppose we want to assign a FGIN item of TPI Avadi, to the VAT template, then we need to choose the fields as

Item / Template : Template Assignment Regime : Value Added Tax Organization : TPI AVADI Template Name : Finished Goods VAT Recoverable

And the screen will be as below:

Press the Find tab at the bottom, to open the Template Assignment screen, as shown below:

We need to enter the item code, in the blank space provided next to, Items Like mentioned in the screen. And then press the Find Items tab. The item, if not yet assigned, will be shown as below:

If the item is not yet assigned, then the Item Name & the Description will reflect in the below table. Next we need to SAVE it to complete the template assignment process. Similarly, if incase we need to un-assign an item from the VAT template, then we need to query the particular item in the Template Assignment screen, in the column Item Name and then remove the tick the from the Assign Template box, at the far right side, against the item and save it.

VAT PURCHASES AND CLAIM PROCESS 1. Creation of Purchase Order with VAT Tax
Nav : Purchasing > Purchase Orders > Purchase Order (Localized) VAT Purchase process starts with creation of Purchase Order with VAT taxes. Create a Purchase Order in the name of the Vendor and in the Purchase Order India Localization screen, attach the VAT taxes. Tax has to be attached to all the lines of the Purchase Order. Make sure that the Tax Type of the Tax Name, attached to the Purchase Order should be VALUE ADDED TAX. And incase the tax amount is CENVATABLE, the Modvat Flag box should be ticked. See the screen shots below, for the details and mentioned above.

Purchase Order India Localization screen

Tax Details India Localization screen (Tax Type)

Tax Details India Localization screen (Modvat Flag tick)

2. MRC preparation against the Purchase Order

Nav : Purchasing > Receiving > Receipts (Localized) MRC needs to be prepared against the Purchase Order and it involves three steps i.e. a. Receive b. Accept c. Delivery Receipt India Localized screen

While preparing the MRC, when we complete the step Receive, the concurrent report India Receiving Transaction Processor (IRTP) will run to populate the accounting for the MRC. We can view the accounting for the MRC by the navigation as below Tools > View Accounting The accounting screen will be as below

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3. Claim VAT
Nav : Receivables > India TCS/VAT/Service Tax > Transactions > VAT Tax Claim The above navigation will lead you to the Find Tax Claims screen, as shown below

In this screen, first two lines i.e. Regime and Organization will default. Rest of the lines needs to be filled, so as to query the particular MRC(s). Also please note that, here none of the lines are mandatory. So its not mandatory fill all the line and query the MRC. Details for the lines with heading as Location, Receipt Type, Receipt Date From, Receipt Date To, Claim Status & Item Class, can be selected from the list of values (LOV). All other lines i.e. Party & Receipt Number need to be filled manually. We can decide the chose the combination of details in the above mentioned screen and press the Find tab, at the bottom to query the MRC.

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In case we need to claim VAT on a receipt, where we know the MRC no. (no. 55092) only, then we have to enter the details as shown in the above screen shot and then press the Find tab to query the MRC. The next screen to open will be as below:

In order to Claim VAT, follow the steps as below: a) Select Processing Action as Claim. And press the Populate Defaults tab.

Press here.

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b) Details from the Populate Defaults section will appear in the lines below that (see the
screen shot below)

c) Save the above transaction done. This completes the VAT claim process. If you query the same MRC again, you can view the changes in the screen as below 1. Claim Status is changed to Full Claimed. 2. Recovered Amt will show is VAT amount claimed, which was earlier showing as zero.

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4. Accounting Entries for VAT Purchase

Sl. No. Transaction Transacti on Type
RECEIVE

Account Type
RECEIVING

Account Mode
REGULAR

Dr/Cr

Account Name

Account Code
242332 251402 242332 251401 242333 242332 242333 242332 242333 242332 242332 252107 242333 242332 231602 242332 251402 242332 242332 252108 251402

Remarks

MRC for Inventory Item

Debit Credit

MRC for Expense Item

RECEIVE

RECEIVING

REGULAR

Debit Credit

VAT Claim (RMIN & OTIN)

RECEIVE

VAT CLAIM

REGULAR

Debit Credit

VAT Interim Recovery Account Inventory Accounts Payable Accrual A/c VAT Interim Recovery Account Expense Accounts Payable Accrual A/c VAT Recovered Account VAT Interim Recovery Account VAT Recovered Account VAT Interim Recovery Account VAT Recovered Account VAT Interim Recovery Account VAT Interim Recovery Account VAT Interim Liability Account VAT Recovered Account VAT Interim Recovery Account Inventory Receiving VAT Interim Recovery Account Inventory Accounts Payable Accrual A/c VAT Interim Recovery Account VAT Interim Recovery Account VAT Liability Account Inventory Accounts Payable

VAT Claim (CGIN) - 1st 50% VAT Claim (CGIN) - 2nd 50%

RECEIVE

VAT CLAIM

REGULAR

Debit Credit

RECEIVE

VAT CLAIM

REGULAR

Debit Credit

50% Amt 50% Amt 50% Amt 50% Amt

of the of the of the of the

6 7

MRC for FGIN Item - RMA VAT Claim (FGIN)

RECEIVE RECEIVE

RECEIVING VAT CLAIM

REGULAR REGULAR

Debit Credit Debit Credit

VAT Unclaim RTV - When VAT already claimed RTV - When VAT already claimed RTV - When VAT not

RECEIVE

VAT NO CLAIM

REGULAR REVERSA L REVERSA L REVERSA

Debit Credit

RECEIVE

RECEIVING

Debit Credit

10 11

RECEIVE RECEIVE

VAT CLAIM RECEIVING

Debit Credit Debit

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claimed

L Credit

12 13

RTV - When VAT not claimed Purchase Order with Match Approval Level - 2way Invoice Match Option - PO

RECEIVE PAYABLES

VAT CLAIM Standard Inv

REVERSA L

Debit Credit Debit Credit

Accrual A/c VAT Interim Recovery Account VAT Interim Recovery Account VAT Liability Account VAT Recovered Account Sundry Creditors Material

242332 242332 252108 242333 252401

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5. Reports
There are two customized reports related to VAT. They are: A. TI VAT Unclaimed And Partial Claimed Detail Report B. TI VAT Details Report A. TI VAT Unclaimed And Partial Claimed Detail Report

Report Name is TI VAT Unclaimed And Partial Claimed Detail Report And the Parameters are 1. Organization Code 2. From Period 3. To Period

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The output of the report as below

In this report, the net of the Gross total for the columns Debit VAT Amt & Credit VAT Amt, has to tally with the balance showing in the A/c Code 242332 (in GL), for a particular location. The balance amount for the A/c Code 242332 can be viewed in GL, as shown in the below mentioned screen shot.

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Report Name is TI VAT Details Report And the Parameters are 1. Organization Code 2. Period 3. Option (should choose the option as PURCHASE, for VAT Purchase) 4. CST/VAT (i.e. VAT or CST)

The output of the report is as shown in next page. The Gross Amount shown at the bottom of this report output, for the column VAT Amount, should tally with the Debit balance showing for the A/c Code 242333 (in GL), for a particular location.

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Manual VAT Claim Process

Nav : Receivables > India TCS/VAT/Service Tax > Transactions > Manual Entry Sometimes, we need to perform few transactions manually like claiming VAT amount manually, where it is not possible to claim the same through the VAT Tax Claim screen. These type of manual transactions can be done through the Manual Entry screen, as per the above mentioned navigation. As you follow the above navigation, the first screen will be as below:

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Press here to enter a New Manual Entry

Incase, we need to enter a new entry, we need to press the tab New, at the bottom and the next screen will be as below:

In the above mentioned screen, 1. Need to select the Regime as Value Added Tax, from the list of values (LOV). 2. Then choose the Organization Type as Inventory Organizations, form the LOV. 3. Choose the Organization Name from the LOV, for eg. TPI AVADI. 4. Choose the Transaction Type from the LOV, depending upon the type of transaction that you want to enter. For example, if you want to claim the VAT amount, then you may choose the transaction type as Adjustment-Recovery. 5. Then enter the Transaction Date, Party Name & Party Site, which all are mandatory fields. 6. Then you may enter the other details like Invoice Number, Invoice Date, Item Class and Item Name, which are not mandatory fields.

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7. Then you need to fill the Remarks field appropriately, so that it describes the transaction
properly and that will be helpful for tracing the transaction in a later date.

8. Next is to enter the details under the tab Tax Details. Here you have to choose the Tax Type
as Value Added Tax and enter the Assessable Value & Tax Rate for the item as per the invoice. This will help the system to calculate the Tax Amount automatically. And lastly, you need to enter the appropriate credit a/c code combination under the column Adjustment Account. The screen will be as below:

Please note that, you need not to enter the Transaction Number in the above mentioned screen. It is because, once you enter the details as mentioned above and save it, system will generate the Transaction Number on its own and the same will reflect in the screen, as below:

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Accounting Entry for the Manual Entry (with transaction type as Adjustment Recovery) Debit Credit VAT Recovery A/c (242333) A/c code that has been mentioned under the column Adjustment Account.

The same Manual Entry screen, as shown below, can be used to query an existing manual transaction. Just you need to enter the necessary details and press the Find button at the right-hand bottom corner.

Press here to Find

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VAT SALES PROCESS 1. Creation of Sale Order with VAT Tax

In order to prepare a sale order with VAT tax attached to it, we have to first define the tax name. Defining tax name for a Sale Order is similar to that of defining the tax name for a Purchase Order. The navigation is below: Nav : Receivables > Setup > Tax > Taxes > Chose the organization from the list of values And the Tax Definition India Localization screen will be as below

Here also, we need to select the Tax Type as Value Added Tax. But the differences are as below: 1. Tax name has to start with OM, as it is related to the Sale Orders (Part of Order Management). 2. In the A/c code combination, to be mentioned in the Tax Name, the Account to be chosen should be 252107 (VAT Interim Liability Account) So, the final outcome will be as below:

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Next we need to prepare the Sale Order . Navigation for preparation of Sale Order creation is Nav : Order Management > Orders, Returns > Orders/Returns (Localized) The screen is as shown below :

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We can query an existing Sale Order by 1. Press F11 2. Enter the Sale Order no. in the specified field and 3. Press Ctrl + F11 For example, we have queried Sale Order no. 84067, which is as below:

Incase you need to enter a new Sale Order, just press the Open button at the bottom as shown in the above screen shot, without querying for Sale Order. The next screen will be as below:

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In the above mentioned screen, i.e. in the Order Information tab, we need to enter 1. Customer Name & Number 2. Customer PO No. (If any) 3. Ship TO Location & Bill To Location 4. Order Type & Date 5. Price List Name 6. Salesperson Name, etc as shown below

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Next, in the Line Items tab, we need to enter the 1. Ordered item and 2. Order Quantity as shown in the above screen shot Please note that Unit of measurement (UOM) and the Unit selling price will default from the Price List. After this, press the Book Order button, at the right-hand bottom corner. This will result in creating the Sale Order no. and also this will give a message saying Order has been booked. Please refer to the screen shot below:

To this Sale Order, we need to attach the required taxes at the Sale Order India Localization screen as below:

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Here we need to attach the VAT Tax, with tax type as Value Added Tax

2. Creation of Ship Confirm Delivery

Nav : Order Management > Shipping > Transactions After creation of Sale Order, follow the above mentioned navigation and do the following transactions:

1. Lunch Pick Release 2. Auto-create Delivery

3. Ship Confirm 4. Update Status (To Close the delivery transaction) As a result of the above mentioned transactions, Delivery ID and Excise Invoice No. will be generated, which can be queried by the following navigation and the same is as per the below screen shot: Nav : Order Management > Shipping > Ship Confirm (Localized)
Delivery ID

Excise Invoice No.

3. Creation of Receivables Invoice

Once the Sale Order, Delivery ID and the Excise Invoice is generated, the transaction will be moved to the Receivables interface. We have to run the report Autoinvoice Master Program and import the transaction into Receivables workbench. Once the transaction is imported into the Receivables workbench, the same can be viewed by following the navigation as below:

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Nav : Receivables > Transactions > Transactions Localized This will show the Enter Transaction India Localization screen will be as below:

In this screen, we need to enter the 1. Organization and 2. Location

Press here to Open and see the detailed Transaction.

And then query the transaction number i.e. the invoice no. This screen shows the details of the taxes attached to the invoice, as shown below:

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To view the detailed transaction, we need to press the Open button, placed at the right-hand bottom corner, of the Enter Transaction India Localized screen (as mentioned above). The next screen will be as below:

We can view the accounting of the transaction by following the navigation as below: Nav : Tools > View Accounting And the screen will be as below:

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4. RMA - Return Authorization Material Transaction (Sales Return)

RMA transaction is similar to the process for preparing the Invoice through the Sale Order, except few changes. In a RMA transaction, we need to created the RMA Order to receive the Sales Return, as below

Localized screen is as below

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This RMA order needs to be approved, by a authorized person and then only the MRC will be prepared to receive the returned goods at the factory or warehouse. Preparing the MRC, for the RMA transaction is same as that of the regular MRC for purchases, except only difference i.e. here we need to choose the Context Value as India RMA Receipt in the DFF.

Localized screen is as below:

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Once the RMA is approved and the MRC is prepared for the same, Credit Memo will be generated in Receivables as below

Localized screen is as below

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5. Accounting Entries for VAT Sales

Sl. No. 1 Transaction AR Invoice Line Type Receivable Revenue Rounding Distribution Tax Tax Tax Tax Delivery ID - Excise Taxes Dr/Cr Debit Credit Credit Credit Credit Credit Credit Account Name Debtors Sales - Ex Factory Header Rounding Excise Duty - Recovery CESS Tax Recovery S&H Edu CESS Tax Recovery VAT Interim Liability Account Excise Duty - Payment CESS Tax Payment S&H Edu CESS Tax Paid Excise - Personal Ledger Account VAT Interim Liability Account VAT Liability Account Sales - Ex Factory Excise Duty - Recovery CESS Tax Recovery S&H Edu CESS Tax Recovery VAT Interim Liability Account Credit Credit Debit Credit Header Rounding Debtors VAT Interim Recovery Account VAT Interim Liability Account VAT Recovered Account VAT Interim Recovery Account Account Code 235101 810001 670023 470005 470033 470039 252107

RG Register RG Register RG Register RG Register

Debit Debit Debit Credit

470001 470034 470038 242319

Delivery ID - VAT Taxes

VAT VAT

Debit Credit Debit Debit Debit Debit Debit

252107 252108 810001 470005 470033 470039 252107 670023 235101 242332 252107

AR Credit Memo

Revenue Tax Tax Tax Tax Rounding Distribution Receivable

MRC for the RMA Receipt

Receiving Receiving

VAT Claim on RMA Receipt

VAT Claim VAT Claim

Debit Credit

242333 242332

6. Reports

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The customized reports related to VAT Sales is TI VAT Details Report

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**=+=**

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