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Naveen Rajpurohit
Chartered Accountant Bangalore
Preamble
The Karnataka Value Added Tax Act, 2003 (VAT Act) received the Presidential assent on 15.12.2004 and was published in the Karnataka Gazette on 19.01.2005 The VAT Act was amended in the 102 session of the legislative council vide L A Bill no. 4/2005 by the legislative assembly on 04.02.2005
Preamble
The legislature passed this Act under its powers available to it vide Entry 54, List II of the Seventh Schedule to the Constitution which reads:
Taxes on sale or purchase of goods other than newspaper, subject to the provisions of Entry 92 A of List I of the Seventh Schedule
Preamble
The legislative powers is inter-alia subject to restrictions and conditions relating to sales vide Article 286(1) and 286(2) of the Constitution of India read section 3, 4, 14, & 15 Article 286(1) speaks about the restriction on the State to impose Tax on:
Sale outside State Import or Export
Article 286(2) speaks about the formulation of principle in the above cases.
In respect of local sale, the sale or purchase is deemed to take place within the State irrespective of where the contract is entered into so long as the goods are within the State. In case of specific or ascertained goods at the time, the contract of sale is entered into In case of unascertained or future goods at the time of their appropriation
Collection of Tax
Every registered dealer liable to pay tax shall collect tax and such collection of tax shall be accounted as prescribed Central / State Governments, Statutory Body or a Local Authority shall collect tax on taxable sale of goods Provisions of section 18(1) of the KST Act, bars collection of tax by URD and bars excess collections by RDs. Under VAT Act, there is no specific bar on URD from charging and collecting tax nor the registered dealer is barred from collecting excess tax on sale. However, section 47 requires that such amounts collected is to be paid to the Government within 20 days
Input Tax
Input Tax means tax paid or payable by a registered dealer on purchase of goods under this Act in the course of business It is sum total of tax paid on purchase of goods mentioned in the second, third, fourth and nonscheduled goods effected from the registered dealers inside the State Such purchases are meant for sale / resale, for use in the manufacture / processing of goods or on capital goods purchased for use in the business Input Tax includes tax paid by the registered dealer to his agents who purchases on his behalf
Input Tax
No deduction for Input tax will be permitted unless such deduction is supported by a Tax Invoice / Debit note / Credit note Tax paid by the registered dealer on URD purchase need not be supported by such Tax Invoice / Debit note /Credit note If the Input Tax exceeds the Output Tax, the excess can be adjusted or refund claimed (together with interest) as prescribed
Goods returned to vendor within six months from the date of receipt input tax is to be reversed
Conditions in respect of Capital goods Rule 133 If the Capital goods is used for both:
sale of goods in the course of export or sale of taxable and exempt goods; and Taxable goods disposed of otherwise than by way of sale or non-taxable transaction
The non-deductible element of input tax shall be calculated on the basis of the following formula: Non-deductible input tax = (sale of exempt goods + non-taxable transactions) * total input
Deduction can be claimed by the dealer in his monthly return. The un-expired portion of rebate on capital goods purchased before April 2006 can be claimed in the month of April 2006 subject to conditions as specified
Output Tax
Output Tax means tax payable under this Act on Taxable Sale of goods in the course of business It is sum total of tax liability on the taxable turnover of sale or purchase of goods, mentioned in second / third / fourth and non-scheduled goods at the rate of tax prescribed therein. In case of works contract at the rate prescribed in Sixth Schedule. Output Tax includes tax payable by a commission agents on Taxable Sales Commission agent is required to issue a prescribed declaration to the principal If Output tax exceeds Input tax, the excess amount of input tax is eligible for refund / adjustment in the subsequent month In case of sales returns within 6 months out put tax is to be reversed
Net Tax
Net Tax means tax payable by a registered dealer on his output less Input Tax available as deduction
In case of any dealer who files a final return refund will be due within 35 days from date of receipt of such final return.
In such cases dealer seeking refund is to be given an opportunity to show cause prior to rejection In case of delay in issuing refunds within specified time interest at 6% per annum proportionately for part of the month
Registration
Turnover exceeding Rs.2 lakhs as on 31.03.2005 Turnover exceeding Rs.15,000 p.m. in any month Voluntary registration Transfer of business transferee should get registered Dealer involved in Inter-State transactions, Imports / Exports / Works contracts / Casual trader / Non-resident If dealer fails to register, prescribed authority is empowered to Suo moto register
Registration
Dealer to apply in prescribed form Prescribed authority to grant registration on his satisfaction that a applicant is bonafide dealer and on compliance of prescribed requirements Registrations to be valid from the first of the following month or on such earlier date mutually agreed Registrations can be refused for good & sufficient reasons Commissioner to authorise for issue of RC to Central / State Governments, Statutory Body or Local Authority
Registration
Prescribed authority can demand security deposit as specified Prescribed authority can forfeit security deposit when tax remains unpaid / misuse of certificates / declarations etc., Dealer to intimate changes in business/ ownership/ status/ name/ nature/ succession Amendment to RC In respect of amendment of registration certificate the provisions relating to the existing sales tax law hold good.
Cancellation of Registration
Registration under this Act, can be cancelled when:
The business is discontinued / transferred fully or otherwise disposed off Change in status / ownership Taxable turnover of sale of goods for a period of 12 months is below Rs.2 lakhs A registered dealer issues Tax Invoice without affecting taxable sales For any other good or sufficient reasons
Cancellation of Registration
On cancellation of registration:
Liability to pay tax / penalty / interest for period prior to date of cancellation continues Dealer liable to pay tax on stock of taxable goods held by him at prevailing market price Obliged to file a final return
Check Posts
Prescribed authority is empowered to intercept goods in transit , cause their inspection and levy penalty in case where a tax invoice , a sale bill or a delivery note in the prescribed format is not produced on the spot The person in-charge of the goods vehicle is required to mandatorily report at the first & last situated check post while entering & leaving the State border If the competent authority has reason to believe that the (transporter or owner of goods while transporting or holding goods) goods are undervalued by a difference of more than 30%, such authority may purchase such goods subject to certain conditions
Advance Rulings
Effective 01.04.2007 Advance Ruling Authority is abolished.
TDS Section 9A
The provisions relating to deduction of tax at source on works contracts by Government / Quasi Government and certain other specified / notified undertakings
The dealer can make application to such officer for certificate in respect of computation of tax Such officer is required to issue the said certificate within 10 days from the date of application Failure to issue such certificate, then the deduction shall be made as per the dealers calculation till the issue of certificate The amount deducted can be adjusted against any amount
General
Dealer paying tax under special accounting scheme is required to issue bill of sale Section 29(3); Dealers who receive or issues debit note or credit note as the case may be are required to adjust in the month in which he receives or issues the said debit note or credit note Section 30(3); Dealers shall be deemed to be assessed based on the return file. However, Commissioner may notify the dealers to produce accounts before the prescribed authority. Then such dealers shall be assessed on the basis of return filed or to the best of its judgment (where the return appears to be incorrect or incomplete) Section 38(1);
General
Explanation of section 53(2) has been inserted to define carrier and bailee shall include Railways run by Central Government or others and all the provision applicable to carrier and bailee shall apply to railways. Check post Officers are empowered to take the possession of any goods liable to tax, in respect of which documents prescribed are not produced, till the completion of the prescribed proceedings Section 53(3)(c)(i); Dealers with annual total turnovers not exceeding Rs.15 lakhs are required to file quarterly returns Rule 138.
General
Dealers are permitted to issue tax invoice and sale bill in a consecutive serial numbers, if such dealers are issuing tax invoices under any centralized invoicing system and who is unable to issue tax invoices with consecutive serial numbers [provided such dealers intimate the LVO before commencement of issue of such tax invoices] Proviso to Rule 29. Registered dealers are required to submit Form VAT 6 every year within 20 days from the end of the last month of any year. If he fails to submit, liable for penalty of Rs. 50 for each day of default Rule 38(8).
Composition dealer Tax Computation - Example If the total consideration in respect of works contract executed by a composite dealer is Rs.1,00,000/-. If interstate purchases is at Rs.10,000/- (rate of tax is 12.5% on such goods purchased); and Payments effected to registered sub contractors is Rs.40,000/-. The computation of tax would be as follows: Total consideration Less - Deductions: Interstate purchases Rs. 10,000 Registered Sub-contract payments Rs. 40,000 Taxable Turnover Rs.1,00,000
Rs. 50,000
Composition dealer
Taxes payable on interstate purchases at 12.5% on Rs. 10,000 On taxable turnover at 4% on Rs. 50,000 Total tax payable Rs.1,250/-
Rs.2,000/Rs.3,250/-
Composition dealer
If a works contractor who has opted to pay tax under the composition scheme subsequently sells away the goods purchased by him (other than by way of transfer of property in such goods [whether as goods or in some other form]) he will be liable to pay tax on the value of such goods at the rate specified in section 4 WITHOUT ANY INPUT TAX SET-OFF.
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