1. VAT
CONCEPTS
By CA Deepak Nagpal

2. LEVY,
CLASSIFICATION
AND
ADVANTAGES
2

3. What is VAT?
Value Added Tax
Empowered by Entry 54 of the state
list.
3

4. Constitutional Empowerment
Entry 54 of State List (List II)
Taxes on the sale or purchase of goods
other than newspapers, subject to the
provisions of entry 92A of List I.
Entry 92A of Union List (List I)
Taxes on the sale or purchase of goods
other than newspapers, where such sale
or purchase takes place in the course of
inter-State trade or commerce.
4

5. Problems with Sales tax
system
State VAT
Key benefits for
introduction of VAT
Levy of VAT
Classification of goods
5

6. Basic Rates
Exempted category
4% VAT rate category
12.5% General VAT rate
(Revenue Neutral Rate)
1% Special VAT rate
20% - Non-VAT goods
6

7. OUTPUT TAX
AND
INPUT TAX
CREDIT MECHANISM
7

8. Mechanism of VAT
Input tax & Output tax
Input Tax Credit(ITC)
8

9. VAT Liability
Input purchased within month :Rs.1,00,000/-
Output sold in the month :Rs.2,00,000/-
Input tax paid (a) :Rs.4000/-
Output tax payable (b) :Rs.25,000/-
VAT payable during the month :Rs.21,000/-
After set-off/input tax credit
[(a) – (b)]
9

10. ITC is prescribed for purchases
made for the following purposes:
Sale within State
Sale in course of inter-State trade &
commerce.
Sale in course of export out of territory
of India.
Being used as packing material of goods
for sale.
10

11. Being used as raw material- mfg.- other
than exempted.
Being used as raw material- mfg.- export
Being used in the state as capital goods.
Goods purchased- mixed use- ITC
allowed proportionately.
Stock transfer- ITC reversal of 2%
11

12. ITC is not allowed on purchases
of goods
Which are being used in manufacture of
Exempted goods
From registered dealer opting for
Composition scheme
Imported from Outside India
Where the purchase Invoice is not
available
Notified by the state govt. as not eligible
for taking credit
12

13. For Personal use
From Unregistered dealer, because he
cannot issue VAT invoice
Where invoice does not show amount of
Tax separately
From other State (on payment of VAT of
other state or on payment of CST)
13

14. Carrying Over of Tax Credit
Zero Rated Sale
Exemption or refund to SEZ &
EOU units
Inputs procured from other
states
Treatment under Composition
Scheme
14

15. Compulsory issue of Tax Invoice,
Cash memo or Bill
Purchases of Goods used in
relation to business but not as
inputs – Maharashtra VAT
One to one correlation not
required
No ITC if final product is exempt
Unregistered Purchase tax
15

16. COMPOSITION
SCHEME,
REGISTRATION &
DOCUMENTATION
16

17. Composition Scheme-
Scheme-
Important Aspects
All registered dealers- eligible to opt for
composition scheme
Optional (Not compulsory)
Max. turnover limit- 50 lacs
Rate of tax is 1% of turnover
Dealers under this scheme shall not get
any ITC
17

18. If dealers turnover crosses the notified
amount, such dealers are automatically
out of composition scheme
If dealer wants to be under regular
scheme then application can be made to
respective VAT jurisdiction
Dealers under this scheme cannot make
interstate purchases and sales
18

19. Registration
Registration Number(TIN)
Documentation
Return Filing
VAT Invoice
Importance
Contents
Other Invoices
Credit Notes and Debit Notes
19

20. CENTRAL SALES TAX
(CST)
20

21. Rate of Tax
◦ Local rate or 2% whichever is higher without
C-Form
◦ Local rate or 2% whichever is lower with C-
Form
Exemption
◦ CST is exempt if local sale is exempt
◦ Sale in transit is exempt
◦ Sale to SEZ – Against Form I
◦ Sale to Exporter – Against Form H
21

22. Stock Transfer
• Form – F is required to establish stock
transfer
Interstate Sales
• U/s 3(a) sale is interstate if it occasions
movement of goods from one state to
other
• U/s 3(b) by transfer of documents of
title during movement of goods from
one state to another
22

23. Situs of sale- Sec 4 of CST Act
sale-
In case of specified or ascertained goods
The state in which goods are lying at the
time when contract of sale is made
In case of unascertained or future goods
The state in which goods are appropriated
to the contract of sale
23

24. Statutory Forms
FORM A Application for registration
A:
under CST Act
FORM B: Certificate of Registration
B
FORM C Declaration by purchasing
C:
registered dealer to obtain goods at
concessional rate
FORM D Withdrawn with effect from
D:
01.04.2007
FORM E1, E2 Certificate for Sale in
E2:
transit
24

25. FORM F Certificate for Stock transfer
F:
FORM G Indemnity bond when C form
G:
lost
FORM H Certificate for benefit of
H:
deemed Export
FORM I Certificate by SEZ unit
I:
FORM J Certificate to be issued by
J:
foreign diplomatic mission or consulate
in India or the UN Agency
25

26. DEEMED SALES
26

27. Article 366 (29A)
“Tax on sale or purchase of goods” includes
(a) a tax on the transfer, otherwise than in
pursuance of a contract, of property in any
goods for cash, deferred payment or other
valuable consideration;
(b) a tax on the transfer of property in goods
(whether as goods or in some other form)
involved in the execution of a works
contract;
(c) a tax on the delivery of goods on hire-
purchase or any system of payment by
installments;
27

28. (d) a tax on the transfer of the right to use
any goods for any purpose (whether or not
for a specified period) for cash, deferred
payment or other valuable consideration;
(e) a tax on the supply of goods by any
unincorporated association or body of
persons to a member thereof for cash,
deferred payment or other valuable
consideration;
28

29. (f) a tax on the supply, by way of or as part of
any service or in any other manner
whatsoever, of goods, being food or any
other article for human consumption or any
drink (whether or not intoxicating), where
such supply or service is for cash, deferred
payment or other valuable consideration,
and such transfer, delivery or supply of any
goods shall be deemed to be a sale of those
goods by the person making the transfer,
delivery or supply and a purchase of those
goods by the person to whom such transfer,
delivery or supply is made;
29

30. Hire Purchase
[Article 366(29-A)]
366(29-
Right to Use (Lease)
Works Contract
30

31. COMPUTATION OF
VAT
(ILLUSTRATIONS)
31

32. Different Stages of VAT
VAT Rate: Raw material @ 12.5%
Finished goods @ 12.5%
FIRST STAGE- Raw material producer
STAGE-
Inputs Sale Price Tax Tax already Net VAT
charged paid payable
0 1000 125 0 125
SECOND STAGE- Manufacturer
STAGE-
Purchase Value Sale Tax Tax already Net VAT
Price Addition Price charged paid payable
1000 1000 2000 250 125 250-125
=125 32

33. THIRD STAGE- Wholesaler
STAGE-
Purchase Value Sale Tax Tax already Net VAT
Price Addition Price charged paid payable
2000 100 2100 262.50 250 262.5-250
=12.50
FOURTH STAGE- Retailer
STAGE-
Purchase Value Sale Tax Tax already Net VAT
Price Addition Price charged paid payable
2100 420 2520 315 262.50 315-262.5
=52.50
33

34. Value addition & involvement of tax
First Stage Second Stage Third Stage Fourth Stage
1000 1000 100 420
Tax=125 Tax=125 Tax=12.5 Tax=52.50
Total Value addition= 1000+1000+100+420
= 2520
Since tax rate at each stage is @ 12.50%,
Therefore, Net tax payable= 315
34

35. VAT in Inter-State Trade
Inter-
Inter-State Trade
Inter-State sale Purchase
Delhi Maharashtra
C-FORM
Cost Price 10,000 Cost Price 12,240
Local Tax paid on 1,250 Local Tax paid on 0
Purchase (12.50%) Purchase
Sale Price 12,000 Sale Price 13,000
CST charged @ 2% 240 Local Tax charged @ 1,625
Agnst. C-Form 12.5%
VAT Credit 1,250 VAT Credit 0
Tax Payable -1010 Tax Payable 1,625
(240-1,250) (1,625-0)35