1]What is value Added Tax or 1]What is value Added Tax or VATVAT

A new form of indirect Tax.A new form of indirect Tax.Replaces sales Tax.Replaces sales Tax. It Taxes only the value added at Various It Taxes only the value added at Various

Stages of Manufacturing and Sale of Stages of Manufacturing and Sale of goods and distribution.goods and distribution.

A multi – point levy with a benefit of set off A multi – point levy with a benefit of set off or credit for tax paid on purchase of goods.or credit for tax paid on purchase of goods.

2] Origin and spread of VAT

• Concept first developed by Wilhelm Von Siemens in 1919 in Germany.

• France went for VAT in 1948.• Brazil in 1967.• Many European countries adopted

VAT in 1970’s.• 141 countries have already adopted

VAT.

3] Why VAT Now?

• International Trend. Vat is seen as more neutral less distorting than any other commodity Taxation.

• Possibilities of standardization locally and globally.

• Taxes current consumption only.• VAT is seen as more Progressive

and more social.

4] What is wrong with existing Sales Tax

• Tends to promote Cascading effect.• Too many rates.• Has led to “Tax Wars” Between States.• Complexity of law and procedure.• Fixation with Revenue maximization.• Administrative hassles.• Intrusive Assessment Procedures

5] The Design and 5] The Design and Architecture of VATArchitecture of VAT

- VAT Types:VAT Types:

Production Type.Production Type.

Income Type.Income Type.

Consumption TypeConsumption Type

6] Production Type.

• Input tax on capital goods is not Refunded.

• Discriminates against Capital investments in plant and machinery.

• Not used in any country now, and hence of academic curiosity only.

7] Income Type.7] Income Type.

Input Tax on Capital goods is set off in Input Tax on Capital goods is set off in staggered amounts over the life of the staggered amounts over the life of the Assets.Assets.

Turkey has this type.Turkey has this type.

8] Consumption Type.8] Consumption Type. Input Tax on Capital goods is Straight Input Tax on Capital goods is Straight

away refunded in full.away refunded in full.

Most popular model.Most popular model.

9] Methods of VAT relief.

• Invoice method/ Invoice credit method or Tax credit method.

• Subtraction credit method or accounts method or business transfer method.

10] VAT Principles

• Origin as the basis.

• Destination as the basis.

11]Origin – based VAT

• Taxes value added domestically in respect of all the goods including exported goods.

• Does not tax Value added abroad.• In this exports are taxable, imports

are exempt.

12]Destination- based VAT

• Taxes value added goods that have as their destination the consumers of that country.

• Exports are exempt,imports are taxable.

• Model accords with consumption type VAT.

13]Salient features of VAT in India.

• States level Replacement of Sales Tax.

• Input Tax Credit.• Carry over of set off.• Exports zero – rated.• Rates of 12.5%, 4% and 1% &20%• Registration/ Return/ Self

assessment/ TIN …contd

…contd

• Composition scheme.• Continuation of Tax incentives.• Temporary continuation of CST.• Threshold exemption for Small

Dealers.• Audit monitoring/ Computerization.

14]Types of Registration under VAT

• Compulsory Registration.

• Voluntary Registration.

• Suo Motu Registration.

• Temporary Registration.

15]Procedure for Registration

• Application Form.• Plus, PAN Card/ Identity card.• Proof of Residence.• Copy of Lease/ Rent deed/ Proof of

Ownership of Premises.• Bank Account details.

16]Accounts for VAT.16]Accounts for VAT. Usual accounts for Usual accounts for

Purchases,Production, Storage, Sales Purchases,Production, Storage, Sales and distribution.and distribution.

Invoice/ Bill of sale/ Credit & Debit Invoice/ Bill of sale/ Credit & Debit notes.notes.

VAT Credit Account. VAT Credit Account.

17]Returns Under VAT.17]Returns Under VAT. Monthly Returns [Ex VAT – 100 for Monthly Returns [Ex VAT – 100 for

Karnataka, Form I for TN].Karnataka, Form I for TN]. Due date, 20th of the following Due date, 20th of the following

month. month. 35 Boxes to fill in VAT – 100.35 Boxes to fill in VAT – 100. Penalty for non filing.Penalty for non filing.

18] Calculation of VAT.18] Calculation of VAT.

Input Tax.Input Tax.

Output Tax.Output Tax.

Net Tax = Output tax – Input Tax.Net Tax = Output tax – Input Tax.

19]Negative Net Tax.

Provision for adjustment against CST Payable.

Provision for Refund of the Surplus amount.

Option to take the refund in the form of Tax Credit for the next tax period.

Controversial order of priority of adjustment

20]VAT and Branch/ Stock transfer outside the State.

Branch/Depot Stock transfers are not taxable under VAT also.

Input tax credit for the above transfers(manufactured goods) is available for the local taxes paid in excess of 2%.

If tax credited inputs are stock transferred as such, such input tax credit is reversible.

21] VAT and Works Contract.

Labor and service expenses deductible, based on well- maintained and proper accounts.

Otherwise, deduction of fixed percentages by the VAT Department.

Works Contractors are eligible for the compounding scheme.

22] VAT and CST

CST to stay, for now. Expected to be abolished when GST is

introduced. CST is now outside VAT. Input tax credit for CST finished goods is

available in full for local VAT.

23] VAT Refunds.

• Refunds will be set off against VAT Recoveries, if any.

• Otherwise Payable as follows. - carry forward to the next Tax

period (or) - Refunded in cash.• Provision for compulsory carry

forward. …contd

…contd• Provision for demand of security against

Refund.• Provision for the Bar of unjust

enrichment.• Provision for denial of input Tax Credit to

the buyer (if VAT registered) in respect of the refund irrespective of whether or not the seller refunds the amount to the buyer.

24] VAT and Exports.

• Exports are not taxed under VAT.• Input Tax Credit is eligible for

Refund.

25] Input Tax Credit.

• Available for purchases of specified inputs/ capital goods.

• Local VAT alone is eligible.• From registered Dealers only.• Credit against Tax Invoice.• Pro – rata reduction if used in

exempted goods (not applicable for exports)

26] Time bar for Assessment / Re-assessment.

Delhi4 Years from the date of filing of

Return or order of assessment for the tax period whichever is earlier.

6 Years for cases involving concealment.

…contd

…contd

Karnataka:5 Years – normal case.

10 Years – concealment case.

27]Issues in VAT in Indian States.

• Lack of harmonization of definitions of “Dealer” and “Capital Goods” working of charging sections.

• Continuation of exemptions/ incentives.

• CST.• Potential for evasion. …contd

…contd

• Reliance on Tax Invoices.• Non – Inclusion of Services.• Some Commodities kept out of

VAT.• Threshold exemption. • Provision for extraction of Security

from the Dealer.

28]Impact of VAT on Supply Chain.

Study of value chain.

Estimation of Tax Points.

Analysis of Tax Asymmetries.

Determination of Tax Cost Factor.

THE TAMIL NADU VALUE ADDED TAX ACT, 2006.

Salient FeaturesWho is liable to pay VAT ?Who is liable to pay VAT ?Any Dealer of goods.Any Dealer of goods.

•Company or Firm or HUFCompany or Firm or HUF•A Club, An Association.A Club, An Association.•A Society including Co-operative Society.A Society including Co-operative Society.•A Casual Trader.A Casual Trader.•A Factor, Broker, Commission Agent or Del A Factor, Broker, Commission Agent or Del Creder Agent or any Mercantile agent.Creder Agent or any Mercantile agent.•An Auctioneer.An Auctioneer.•Works Contractors.Works Contractors.

Hotels, Restaurants, Sweet Stalls. Persons delivering goods on Hire Purchase. Transferor` of the right to use goods for

consideration. Central/State Government Departments if and

when engaged as a

dealers whether or not in the course of business.

DEEMED ASSESSEESDEEMED ASSESSEES

• Customs Departments Customs Departments • Port TrustPort Trust• MunicipalitiesMunicipalities• RailwaysRailways• Shipping, Transport and Construction CompaniesShipping, Transport and Construction Companies• Airlines and Air Port Companies, Advertising AgenciesAirlines and Air Port Companies, Advertising Agencies• Vehicle Permit Holders of Motor Vehicles used for HireVehicle Permit Holders of Motor Vehicles used for Hire• TN State Road Transport CorporationsTN State Road Transport Corporations• Bank, Insurance CompaniesBank, Insurance Companies• Government EntitiesGovernment Entities

VAT EXEMPTIONSVAT EXEMPTIONS

Threshold limit of Rs. 10 lakhs .Threshold limit of Rs. 10 lakhs . Sales of goods to SEZ,/International Sales of goods to SEZ,/International

Organisations.Organisations. Export of goods.Export of goods. Goods exempted u/s 15 – Fourth Schedule.Goods exempted u/s 15 – Fourth Schedule.

INPUT TAX CREDIT

First Schedule goods barring :Items used for providing facility to

employees. Automobiles. Air conditioners. Items for personal use. Free Samples, gifts. Inputs not sold or used due to theft, loss,

accident on destruction.

CAPITAL GOODS UNDER VAT Plant, Machinery, Equipment, apparatus, tools,

appliances or electrical installations, for use in manufacture of final products.

Pollution control, Quality Control, Lab and Cold Storage equipments.

Components, Spare parts and accessories of the above. Moulds, dies, Jigs and Fixtures. Refractors and refractory materials. Tubes, Pipes and fittings thereof. Storage Tanks Used for manufacturing, processing,

packing or storing of goods excluding Civil structures and goods as per negative list.

RESTRICTIONS ON INPUT TAX CREDIT

• Inputs and Capital goods used to produce exempted goods are not eligible.

• Only credit in excess of 4% of Tax paid on materials consumed in the manufacture of goods stock transferred to other States.

• No inputs Tax Credit on CST Purchases or VAT purchases from other States

TIME LIMIT FOR AVAILING CREDIT

• Before the end of the financial year or Ninety days from the date of purchase whichever is later.

TRANSFER OF CREDIT

• Allowed on transfer of business due to sale, merger, amalgamation or lease.

• Transfer of liabilities

• Transfer of inputs and capital goods.

UTILIZATION OF INPUT TAX CREDIT

• Section 19

• Credit to be used within 180 days of accrual or before the close of the

next financial year, whichever is later. Otherwise, the credit will lapse.

• To be adjusted against output tax.

TIME LIMIT FOR ASSESSMENT AND

RECOVERY• 5 years for reassessment of returns

showing sales at low prices as compared

• To Market prices.

• 5 years for assessment of escaped turnover.

• 5 years for reassessing wrong availment of input tax credit.

TARIFF SCHEDULES• I Schedule

• Part A – Goods taxed at 1%• Part B – Goods taxed at 5%• Part C – Goods taxed at 14.5%

•II Schedule – Goods outside VAT.

contd.• III Schedule – Compounded rate for

Hotels, Restaurants and Sweet stalls.

• IV Schedule – Parts A and B – Exempted goods.

• V Schedule – List of International Organizations – Zero Rate sale.

• VI Schedule – Transit Pass.

OTHER FEATURES

• TDS for works contract Tax.

• Levy of purchase tax.

• Input tax credit for stock held on date of registration.

• Refunds.

contd..• Purchase Returns.• Sales returns.• Compounding tax at 0.5% for

turnover above 10 lakhs but below 50 lakhs

• Functions and Powers of VAT authorities.

Central Sales TaxCentral Sales Tax

Why CST came at allWhy CST came at all Its financial scope for the governmentsIts financial scope for the governments Its administrationIts administration Its futureIts futureCovers inter-state sales as well as exports Covers inter-state sales as well as exports

and imports of goodsand imports of goods

CST……CST……

Defects of CST:Defects of CST:Form riddenForm riddenC form not easy to obtainC form not easy to obtainTax costs are huge for non “C” form Tax costs are huge for non “C” form

transactionstransactions

CST….

• Forms under CST – a glance:• C form• F form• H form• E 1 form • E 2 form