CHAPTER NO. 1

INTRODUCTION TO TAX

The word “TAX” was derived from Latin word “TAXARE” which means to

censure or charge. Tax is the amount paid by the persons stating within a

territorial limit of a sovereign state and is levied on individuals, goods,

property, services etc. It may be defined as compulsory exaction of money

by public authorities for public purposes enforceable by law & does not

mean payment for services rendered.

Tax is levied but the State by virtue of its

sovereign powers. Both the union Parliament and the State Legislations are

empowered under the Constitution to make laws for the levy and collection

of taxes. Taxation is not a new concept; rather it is as old as the history of

economic science. The system of taxation in India is traced to the period of

Vedas. As Tossing puts it as, “the essence of a tax, as distinguished from the

other charges by Government, the absence of a direct quid pro quo between

the tax payer and the public authority.”

Tax collected by the Government

constitutes its revenue. The amount so collected is used to meet the general

expenses incurred by the Government for public good, without any

corresponding benefit to the taxpayer. Therefore it is used for the collective

benefit of the public.

1

FEATURES OF TAX

COMPULSORY PAYMENT :- It a compulsory payment made by

citizens. Every person who is liable to pay tax has to pay tax. No person can

refuse to pay tax. Refusal to pay tax invites punishment.

NO DIRECT RELATIONSHIP :- There is no direct relationship between

the tax-payer and the public authority. In other words taxpayer cannot claim

the reciprocal benefits against the taxes paid.

CLASSIFICATION OF TAX :- Basically tax is divided into two

categories i.e. “DIRECT TAX” & “INDIRECT TAX”. Direct tax is the tax

in which the burden of tax falls on the same person who has paid the tax and

this cannot be shifted to other while in indirect tax burden of tax is shifted to

other person who has actually paid the tax.

COLLECTION OF TAX :- Tax is collected regularly by the taxing

authority on such rates as notified from time to time by the Government

either through finance act or by way of notifications in the Official gazette.

UTILISATION OF TAX :- Tax is the major source of income for the

government. Such collected funds are utilized for the benefit of the public by

way of developing infrastructure like roads, hospitals, educational

institutions etc.

2

TYPES OF TAXES

There are two types of taxes, which are as follows :-

DIRECT TAX :- Direct tax is the tax in which the burden of tax falls on the

same person who pays the tax. In this case the burden of tax cannot be

shifted to the other.

For Example :- Income Tax, Wealth Tax etc.

INDIRECT TAX :- Indirect tax is the tax in which the burden of tax does

not falls on the same person who actually pays the tax. In this case the

burden of tax is shifted to the other.

For Example: - Excise Duty, Custom Duty, Sales Tax, and Service Tax

etc.

The Indirect Tax can be classified into four types, which are as follows: -

1) CENTRAL EXCISE TAX (DUTY) : - It is a tax, which is paid on

the goods manufactured in India. It is levied & collected through the

machinery of Central Excise Act, 1944.

2) CUSTOMS (DUTY) :- It is a tax, which is paid on the import /export

of goods from India. It is levied &collected through the machinery of

Customs Tariff Act, 1975.

3) CENTRAL SALES TAX :- It is a tax, which is paid on the sale of

goods within INDIA. It is levied & collected through the machinery of

Central Sales Tax, 1956.

3

4) PUNJAB VALUE ADDED TAX :- It is a tax which is paid on the

sale & purchases of goods & for the repeal of Punjab General Sales

Tax Act, 1948.

MODVAT :- It stands for “Modified Value Added Tax”. All inputs

levies are not allowed to be set off against duty liabilities on final

products in the Modvat Scheme. It provides for the credit of the aforesaid

duties paid on inputs used in or in relation to the manufacture of final

products by enabling the manufacture to obtain an instant and complete

reimbursement of the duties paid on inputs.

The main objectives of the scheme are to avoid the cascading effect of

imposition of duties on duties. This scheme was extended to capital

goods. Modvat scheme was introduce w.e.f. 01/03/1986. it covered

almost all manufacturing sectors except some goods. Modvat scheme was

extended to capital goods w.e.f. 01/03/1944.

From 1st April, 2000 Modvat was renamed as Cenvat. There is no much

difference between Modvat & Cenvat.

CENVAT :- Since excise duty is now leviable practically on all goods

whether raw material, intermediates, components, sub assembles, capital

goods & final products. It is necessary to devise some scheme to

neutralize the cumulative effect of multipoint levies and cascading effect

on the price predicts. Till the introduction of vat, many schemes come

into operation which are as follows :-

Cenvat credit scheme for inputs and capital goods.

Exemption for captive use.

Remission of duty for special industrial purposes.

4

Cenvat scheme was introduced by Finance Act, 2000.

Main features of Cenvat Scheme :- These are as follows :-

1) Cenvat provides relief to manufacturers on the duty borne by them in

respect of inputs used by them. Under the scheme a manufacturer can

avail credit of duty paid on the inputs purchased.

2) No statutory record is prescribed under Cenvat.

3) The scheme allow for the availing Cenvat in respect of inputs as well

as capital goods.

4) Registration of dealer is not stipulated under Cenvat, though the first

& second stage dealers remain as valid as duty paying documents.

5) Special excise duty paid on inputs can be as Canvat credit.

ADVANTAGES OF CENVAT SCHEME :-

1) Simplified rules for manufacturers to avail and utilized cenvat credit in

respect of both inputs & capital goods.

2) The coverage of inputs has been wided expecting high-speed diesel oil

& petrol, all inputs as per tariff schedule all covered.

3) No statutory record has been prescribed. The records maintained by

the manufacturer in the normal course of business all acceptable to the

department.

4) No declaration is necessary for availing of credit in respect of inputs

immediately and in respect of capital goods in two installments.

5) Assesses are not required to submit duty, documents to the

departments for defacing.

6) Assesses are not allowed to transfer credit under certain specified

situation without obtaining permission prom the authorities concerned.

5

CHAPTER NO. 2

OBJECTIVES & SCOPE OF STUDY

OBJECTIVES :- The main objectives to study the “vat” are as follows :-

1). To get the thorough knowledge about Punjab Vat Act, 2005.

2). To know about the procedure of registration under Vat Act, 2005.

3). To get the knowledge about the different class of dealer covered under

Vat Act, 2005.

4). To know about the different documents to be required at the time of

registration.

SCOPE OF STUDY :-

The study under consideration includes the meaning, definition, various

terms under Vat, incidence & levy of tax, procedure of registration,

payment & recovery of tax, returns & assessment of tax, case study

covers the registration procedure of GOLDEN CRAFTS.

6

CHAPTER NO. 3

MEANING OF VAT

VALUE ADDED TAX (VAT) is a general consumption tax assessed on

the value added to goods and services.

It is a general tax that applies in principle to all commercial activities

involving the production and distribution of goods and the provision of

services. It is a consumption tax because it is borne ultimately by the

final consumer.

It is not a charge on companies. It is charged as percentage of price,

which means that the actual tax burden is visible at each stage in the

production and distribution chain.

It is collected fractionally, via a system of deductions whereby taxable

persons can deduct from their VAT liability the amount of tax they have

paid to other taxable persons on purchases for their business activities.

This mechanism ensures that the tax is neutral regardless of how many

transactions are involved.

In other words, it is a multi stage tax, levied only on value added at each

stage in the chain of production of goods and services with the provision

of a set-off for the tax paid at earlier stages in the chain. The objective is

to avoid “cascading” which can have a snowballing effect on prices. It is

assumed that due to cross checking in a multi-staged tax, tax evasion will

be checked, resulting in higher revenues to the government.

Over 130 countries worldwide have introduced VAT over the past three

decades and India is almost the last few to introduce it.

India already has a system of sales tax collection wherein the tax is

collected at one point (first/last) from the transactions involving the sale

7

of goods. VAT would, however, be collected in stages (installments)

from one stage to another.

The mechanism of VAT is such that for goods that are imported and

consumed in a particular state, the first seller pays the first point tax, and

the next seller pays tax only on the value addition done leading to a total

tax burden exactly equal to the last point tax.

Vat is a system of collection of sales tax under which tax is charged at

each stage of sale on the value added to the goods.

There are less rates of taxes in vat in comparison to the sales tax. Only

few rates such as 4%, 12.5% etc. are there.

Under value added tax no statutory forms, local forms are to be issued

and collected by the authorities.

8

SOME IMPORTANT TERMS & DEFINITIONS :-

VALUE ADDED TAX :- As per section (2 (zr) ) value added tax (VAT)

means a leviable on the taxable turnover of a person, other than a

registered person, under this act. It is a multi point tax. This tax is levied

with the factory to set off the tax paid on purchases against the tax

payable on the sale of goods.

VAT LIMIT :- It is the limit of gross turnover of a person below which

he is not required to be registered as VAT. In Punjab, it is Rs. 30 Lacs.

But person with turnover of more than Rs.5 Lacs can opt for voluntary

registration a VAT (Taxable person).

COMPOSITION SCHEME :- Dealers below the VAT threshold limit

and who have not opted for VAT registration will be required to pay a

presumptive compounded tax on the entire sales turnover @ 1%. The

manufacturers with turnover of more than 1 lac and the persons

registered under the Central Sales Tax Act, 1956 are not eligible for

being registered under composition scheme.

These dealers can neither claim input tax credit nor can they

transfer the input tax credit. They will issue Retail Invoice and not

the VAT Invoice.

DECLARED GOODS :- These are goods, which are specified in the

Central Sales Tax Act as goods of importance in the course of interstate

trade or commerce. The rate of state level sale tax on these goods cannot

exceed 4%.

9

ZERO RATE SALES :- An export sale will be zero rated sales in VAT.

Thais is different from the exempt sale because in this sale the input tax

paid on the goods exports or on the goods consumed in production of

goods, which are exported will be refunded back to the seller i.e. the

exporter.

BRANCH TRANSFER/CONSIGNMENT DISPATCH :- This is

exempt under VAT because there is no transfer of property from one

person to another during branch transfer or consignment dispatch

transaction. In this transaction the input tax credit is providing on input

tax paid in excess of 4%

INPUT TAX CREDIT ON CAPITAL GOODS :- ITC on capital goods

is available on the tame of their purchase itself through the white paper

on VAT had given power to the State Governments to distribute the input

tax credit on capital goods in 36 equal installments. No input tax credit is

available on the Capital Goods held by a taxable person on the appointed

day i.e. on 1st April, 2005.

OUTPUT TAX :- Output tax is that tax which is payable by a registered

dealer on the sale of goods affected.

PRESUMPTIVE TAX :- Tax @ 1% is payable by the person who opt

for composition scheme. This 1% tax is called the Presumptive Tax. No

ITC shall be available on this Presumptive Tax.

10

REGISTRATION :- registered under VAT can either be taken as a

taxable person or as a registered person ? In common parlance the taxable

person is called VAT person and the person is called TOT person.

REVERSE TAX CREDIT :- The available input tax credit may

sometimes be needed to be reverse when the conditions for availment of

input tax credit are pot compiled with in future. Punjab Vat Act has

specified the circumstances is reverse tax credit is to be made. For

example:- when the taxable goods produced out, material are

consumed and not sold and the taxable person has already taken input tax

credit in the inputs consumed for manufacturing these items. The input

tax credit is to be reversed back.

Exempt goods :- These are the goods on which 0% Vat is leviable .

For example :- Bread.

TAX INVOICE :- The invoice prescribed for sale to be eligible for input

tax credit is called Vat tax invoice. Input tax credit will be allowed only

if tax invoice contains the particulars required to be specify under the

VAT Act.

FREE GIFTS UNDER VAT :- Under Vat If some goods are given as

gift then it means disposal of goods otherwise than by way of sale. The

tax effect of these type of transaction is that input tax credit is not

available in case the output is given free of cost as gift. It is thus

advisable to charge though a nominal amount as sale consideration in

case goods is given even as free gift.

11

REFUNDS IN VAT :- Circumstances are there when refunds will arise

in the VAT era. In case of export the case of input tax being more than

output tax because of difference in rates of tax and output tax, in case of

local purchase at higher rate of tax than the tax leviable on these goods

when sold in inter-state trade some of the situations when refunds will

arise. In Punjab VAT Act, provisions are there for giving refund within

30 days of receipt of complete application for refund.

DEFERRAL OF TAX IN VAT :- Deferral of tax means payments of

tax after a period it is collected. Under the vat regime, deferral benefits

will not be given except in case of existing unit who are already enjoying

these benefits.

DEEMED SALES :- Deemed sales are those which are not really

“sales” but have been deemed as sales. For instance an hire purchase

transaction, works contract, transfer of right to sale goods are the sales

when deemed sale is recognized.

PERIOD :- Period refers to the period for which the dealer is required to

file returns. The period under the Vat Act is quarterly both for the taxable

persons and the registered persons under VAT.

PURCHASE TAX :- Purchase tax is levied in two cases in the Punjab

VAT Act. First is the case when the goods specified in Schedule-H are

purchased for the first time in the State. The provisions in this regard are

made in section 20. the second is the case when goods purchased without

12

payment of tax are sold or otherwise disposed off without collection of

tax. Provisions for these transactions are made in section 20.

SELF-ASSESSMENT :- It is the assessment by the taxable or the

registered person himself of the tax payable by him. There will not be

any obligation to have the assessment done on year to year to basis by

going to the office of the department. The department will rely on the

assessment done by the person himself and in select cases audit shall be

done.

13

INCIDENCE & LEVY OF TAX :-

INCIDENCE OF VAT (VALUE ADDED TAX) (Section 6(1)) :-

Every person, except a casual trader and one dealing exclusively in goods

declared tax free under section 16, whose gross turnover during the year

immediately preceding the commencement of this act or during any year

subsequent thereto, exceeded the taxable quantum, as provide in clause

(a) of sub section (3) shall be liable to pay tax under this act by way of

Vat on the taxable turnover.

TOT (Turnover tax) INCIDENCE :- Every person except a casual

trader and one dealing exclusively in goods declared tax free under

section 16, whose gross turnover during the year immediately preceding

the exceeded taxable turnover, as provided in clause (b) of sub section (3)

shall be liable to pay under this act by way of TOT (Turnover Tax) on the

taxable turnover.

Taxable Quantum :- The expression “Taxable Quantum” means :

a). For registration as a taxable person for VAT :-

1. In relation to any person, who imports taxable goods for sale or

use in manufacturing or processing any goods in the State,

rupee one;

2. In relation to a person, who receives goods on

consignment/branch basis from within or outside the State on

which no tax has been paid under this act, rupee one;

3. In relation to a person, liable to pay purchase under section 19,

rupee one;

4. In relation to a person, who is a manufacturer, rupee one lac;

5. In relation to voluntary registration, rupee 5 lac

14

6. In relation to any other person, rupees 50 lac;

7. In relation to a person, who is running a hotel / restaurant,

rupees 5 lac;

8. In relation to a person, who is running a bakery, rupees 10 lac;

b). For registration as a registered person for TOT :-

In relation to a person other than those specified in clause (a)

whose turnover during the preceding year is more than Rs. 5 lac,

but below Rs. 50 lacs.

TAX LIABILITY- when ceases (Section 6(4)) :- Every person, who has

become liable to pay tax under this act, either by way of VAT or TOT,

shall continue to be so liable, until the expiry of three consecutive years

during each of which his gross turnover doesn’t exceed the taxable

quantum and such further period after the date of such expiry, as may be

specified by notification by the State Government and on the expiry of

such specified period, his liability to pay tax, shall cease.

SUBSEQUENT LIABILITY OF TAX (Section 6(5)) :- Every person

whose liability to pay tax has ceased under sub-section (4), shall again be

liable to pay tax under this Act from the date on which his gross turnover

again exceeds the taxable quantum.

TAX LIABILITY OF CASUAL TRADER (Section 6(6)) :- Every

casual trader shall be liable to pay tax under this act by way of VAT on

the taxable turnover including sales through agent within the State.

NECESSITY OF VAT IN INDIA :-

15

India, particularly the trading community, has believed in accepting and

adopting loopholes in any system administered by the State or the Center.

If a well-administered system comes in, it will close revenues for traders

and businessmen to evade paying taxes. They will also be compelled to

keep proper records of their sales and purchases.

Many sections hold the view that the trading community has been

amongst the biggest offenders when it comes to evading taxes.

Under the VAT system, no exemptions will be given and a tax will be

levied at each stage of manufacture of a product. At each stage of value-

addition the tax levied on the inputs can be claimed back from the tax

authorities.

At a macro level, there are two issues, which make the introduction of

VAT critical for India.

Industry watchers say that the VAT system, if enforced properly, forms

part of the fiscal consolidation strategy for the country. It could, in fact,

help address the fiscal deficit problem and the revenues estimated to be

collected could actually mean lowering of the fiscal deficit burden for the

government.

The International Monetary Fund (IMF), in its semi-annual World

economic Outlook released on April 9, expressed its concern over India’s

large fiscal deficit @ 10% of the GDP.

16

Further any globally accepted tax administrative system, will only help

India integrate better in the World Trade Organization regime.

LIABILITY OF REGISTERED PERSON (SECTION 12) :-

Liability of a registered person shall be calculated at the rate, specified

under section 9.

Sale of taxable goods held on stock by a registered person on the

appointed day, which were purchased without payment of tax under the

repealed Act, shall be liable to tax at the rate, specified for those goods

under this Act.

A registered person, whose registration has been continued under section

21, shall furnish in such form and to such authority, as may be notified, a

statement of taxable goods under this Act, held in stock on the appointed

day, within a period of 30 days from the appointed day.

A registered person shall not be entitled to input tax credit for any

purchase.

A registered person shall issue only a retail invoice for sale made by him

and shall not be eligible to issue a VAT invoice.

A registered person shall not be eligible to hold registration under the

Central Sales Tax Act, 1956.

INPUT TAX CREDIT (SECTION 13) :-

17

A taxable person shall be entitled to the input tax credit. In such manner and

subject to such conditions, as may be prescribed, in respect of input tax on

taxable goods, including capital goods, purchases by him from a taxable

within the state during the tax period.

Provided that such goods are for sale in the State or in

the course of inter- state trade or commerce or in the course of export or for

use in the manufacture, processing or packing of taxable goods for the sale

within State or in the course inter-state trade or commerce or in the course of

export.

However a taxable person shall be entitled to partial input tax credit in any

other event, as may be provided in this section in such manner and subject to

such conditions as may be prescribed.

In case the purchases are used partially for the purposes

specified in this sub-section and the taxable person is unable to identify the

goods used for such purposes , then the input tax credit shall be allowed

proportionate to the extent, these are used for such purposes, in the

prescribed manner.

It is provided that input tax credit in respect of purchase tax paid or payable

by a taxable person under section 19, shall be allowed to subject to the

conditions laid therein.

ADVANTAGES OF VAT :-

18

1. NO TAX EVASION :- It is said that VAT is a logical beauty. Under VAT,

credit of duty paid is allowed against the liability on the final product

manufactured or sold. Therefore, unless proper records are kept in respect

of various inputs, it is not possible to claim credit. Hence, suppression of

purchases or production will be difficult because it will lead to loss of

revenue. A perfect system of VAT will be a perfect chain where tax

evasion is difficult.

2. Neutrality :- The greatest advantage of the system is that it does not

interfere in the choice of decision for purchases. This is because the

system has anti-cascading effect. How much value is added and at what

stage it is added in the system of production/distribution is of no

consequence. The system is neutral with regard to choice of production

technique, as well as business organisation. All other things remaining

the same, the issue of tax liability does not vary the decision about the

source of purchase. VAT facilitates precise identification and rebate of

the tax on purchases and thus ensures that there is no cascading effect of

tax. In short, the allocation of resources is left to be decided by the free

play of market forces and competition.

3. Certainty :- The VAT is a system based simply on transactions. Thus

there is no need to go through complicated definitions like sales, sales

price, turnover of purchases and turnover of sales. The tax is also broad-

based and applicable to all sales in business leaving little room for

different interpretations. Thus, this system brings certainty to a great

extent.

19

4. Transparency :- Under a VAT system, the buyer knows, out of the total

consideration paid for purchase of material, what is tax component. Thus,

the system ensures transparency also. This transparency enables the State

Governments to know as to what is the exact amount of tax coming at

each stage. Thus, it is a great aid to the Government while taking

decisions with regard to rate of tax etc.

5. Better revenue collection and stability :- The Government will receive

its due tax on the final consumer/retail sale price. There will be a

minimum possibility of revenue leakage, since the tax credit will be

given only if the proof of tax paid at an earlier stage is produced. This

means that if the tax is evaded at one stage, full tax will be recoverable

from the person at the subsequent stage or from a person unable to

produce proof of such tax payment. Thus, in particular, an invoice of

VAT will be self enforcing and will induce business to demand invoices

from the suppliers. Another attribute of VAT is that it is an exceptionally

stable and flexible source of government revenue.

6. Better accounting systems :- Since the tax paid on an earlier stage is to

be received back, the system will promote better accounting systems.

7. Effect on retail price :- A persistent criticism of the VAT form has been

that since the tax is payable on the final sale price, the VAT usually

increases the prices of the goods. However, VAT does not have any

inflationary impact as it merely replaces the existing equal sales tax. It

may also be pointed out that with the introduction of VAT, the tax impact

20

on raw material is to be totally eliminated. Therefore, there may not be

any increase in the prices.

DISADVANTAGES OF VAT :-

1. ELIMINATE THE EFFECTS :- The merits accrue in full measure only

under a situation where there is only one rate of VAT and VAT applies to all

commodities without any question of exemptions whatsoever. Once

concessions like differential rates of VAT, composition schemes, exemption

schemes, exempted category of goods etc. are built into the system,

distortions are bound to occur and the fundamental principle that VAT will

totally eliminate cascading effects of taxes will also be subject to

qualifications.

2. NEUTRALITY :- In the federal structure of India in the context of sales

tax, so long as Central VAT is not integrated with the State VAT, it will be

difficult to put the purchases from other States at par with the State

purchases. Therefore, the advantage of neutrality will be confined only for

purchases within the State.

3. EXPENSIVE :- For complying with the VAT provisions, the accounting

cost will increase. The burden of this increase may not be commensurate

with the benefit to traders and small firms.

4. INCREASE OF BURDEN :- Another possible weak point in the

introduction of VAT, which will have an adverse impact on it is that, since

the tax is to be imposed or paid at various stages and not on last stage, it

21

would increase the working capital requirements and the interest burden on

the same. In this way it is considered to be non-beneficial as compared to the

single stage-last point taxation system.

5. REGRESSIVE :- VAT is a form of consumption tax. Since, the

proportion of income spent on consumption is larger for the poor than for the

rich, VAT tends to be regressive. However, this weakness is inherent in all

the forms of consumption tax. While it may be possible to moderate the

distribution impact of VAT by taxing necessities at a lower rate, it is always

advisable to moderate the distribution considerations through other

programmes rather than concessions or exemptions, which create

complications for administration.

6. INCREASE IN ADMINISTRATION COST :- As a result of

introduction of VAT, the administration cost to the State can increase as the

number of dealers to be administered will go up significantly.

ITEMS COVERED IN INDIAN VAT

550 items 270 items of basic Rest 12.5 % VATS

22

covered needs like medicine,

drugs, agro &

industrial inputs,

capital & declared

goods 4 % VAT.

Gold & silver

Jewellery-1%.

Tea-producing

States options

Either percentage

VAT

Petrol, diesel,

Liquor, lottery not

Included.

Sugar, textile &

Tobacco excluded for

one year.

Traders with turnover of less than Rs. 5,00000

Are exempt from the new tax.

Note : Some state like Delhi have imposed Vat on diesel @ 20%, which is

higher than the 12% sales tax charged earlier. Similarly, Delhi imposed vat

on LPG at 12.5% which is also higher than the previous sales tax rate of 8%.

All business transactions carried on within a state by individuals,

partnerships, companies etc, will be covered by vat.

More than 550 items would be covered under the new Indian vat regime of

which 46 natural and unprocessed local products would be exempt from vat

a PTI report quoted WEST BENGAL Finance Minister and vat panel

chairman Asim Dasgupta as saving.

About 270 items including drugs and medicines, all agriculture and

industrial inputs, capital goods and declared goods would attract 4% vat in

India.

23

The remaining items would attract 12.5% vat. Precious metals like gold and

bullion would be taxed at 1%. Considering the difficulties faced by the tea

industry. It was decided that tea-producing states would be given an option

to levy 12.5% or 4%subject to review in 2006.

THE IMPACT OF VAT IN INDIA :-

VAT is most certainly a more transparent and accurate system of taxation.

The existing sales tax structure allows for double taxation thereby cascading

24

the tax burden. For example, before a commodity is produced, inputs are

first taxed, the produced commodity is then taxed and finally at the time of

sale, the entire commodity is taxed once again.

The transaction chain under vat assuming that a profit of Rs.10 is retained

during each sale.

Sale‘A’of

CHENNAI @

Rs.100/-

‘B’ of

BANGLORE

SALE @

Rs.114/-

SALE ‘C’ of

BANGLORE

SALE @

RS.124/-

SALE ‘D’ of

BANGLORE

SALE @

RS.134/-

CONSUMER

IN

BANGLORE

Tax implication under Value Added Tax Act

Seller Buyer Selling

Price

(excl.tax)

Tax Rate Invoice

Value

(incl.tax)

Tax

Payable

Tax

Credit

Net Tax

Outflow

A B 100 4%CST 104 4 0 4.00

B C 114 12.5%VAT 128.25 14.25 0* 14.25

C D 124 12.5%VAT 139.5 15.50 14.25 1.25

D Consumer 134 12.5%VAT 150.75 16.75 15.50 1.25

Total to Govt. VAT

CST

16.75

4.00

STATES WELCOMING VAT IN INDIA

25

Except the following 8 states (among them 5 BJP ruled states ), all the 21

states have given a welcome hug to vat in India. Ramesh chandra, secretary

of the federal panel overseeing Indian vat implementation said that other

states will join within a month-and-a-half.

Uttar Pradesh

Tamil Nadu (to join from 21 July)

Uttaaranchal

BJP Ruled States

Madhya pradesh

Rajasthan

Jharkhand

Gujarat

Chhattisgarh

CHAPTER NO.4

26

REGISTRATION OF DEALERS UNDER VAT

Registration means a person liable to tax under the act either have a VAT or

TOT registration. A person registered under VAT is known as ‘Taxable

Person’ and person registered under TOT is known as ‘Registered Person’.

Registered under the Punjab Value Added Tax Act, 2005 can either be

Compulsory Registration or Voluntary Registration. We discuss the

provision here as under:

COMPULSORY REGISTRATION :-

As per section 21, no person, other than a casual trader who is liable to pay

tax shall carry on his business unless he is registered under the Act. Liability

to pay tax under this Act is determined by section 6. Every person except a

casual trader and dealing exclusively in goods declared tax free under

section 16, whose gross turnover during the year immediately preceding the

commencement of this act or during any year subsequent thereto, exceeded

the taxable quantum, as per section 6(3)a shall be liable to pay tax on the

taxable turnover by way of VAT and if his taxable turnover exceeds the

taxable quantum during the year immediately preceding the commencement

of this ACT or during any year subsequent thereto as per section 6(3)(b) then

shall be liable to pay tax on the taxable turnover by way of TOT on his

taxable turnover.

27

Section6 (3)(a) prescribed the taxable income quantum for registration as a

taxable person and section 6(3)(b) prescribe the taxable quantum for

registration as a registered person.

So, we can infer from the above that: - -

No person other than a casual trader, who is liable to pay the tax, shall

carry on the business;

The person shall be liable to pay tax is his gross turnover during the

year immediately preceding the commencement of the Act that is

immediately thereto i.e. in any subsequent year exceeds the taxable

quantum;

Taxable quantum is defined in section 6(3) vide it’s clauses (a) and

(b);

Section 6(3) (a) prescribe the taxable quantum for registration as a

taxable person and section 6(3) (b) prescribe the taxable quantum for

registration as a registered person.

VOLUNTARY REGISTRATION :-

In addition to these cases of compulsory registration, a person can opt for

voluntary registration as taxable person (VAT) under section 22 of the Act

but he must not be dealing exclusively in the goods declared Tax Free under

section 16. Every person, who has been registered upon application made

under this section shall, for so long as his registration remains in force, be

liable to pay tax under this Act whether his gross turnover exceeds the

taxable quantum or not.

28

COMPULSORY REGISTRATION :-

When any person, who is registered before the appointed say under the

repeated Act, and continues to be registered on the day, immediately before

such appointed day, the designated officer shall within thirty days of the

receipt of application in the prescribe form, issue to such person, in the

prescribed manner. A fresh registered under this Act for VAT or TOT, as the

case may be.

PROCEDURE FOR REGISTRATION :-

Application for registration :- An application for registration shall

be made to designed officer. It must be signed by proprietor in case of

business, by a partner of the firm, in case of firm. By a manner in case

of Hindu Undivided Family.

Fee & Supporting Document :- the application for registration shall

be in form VAT-1 and shall be accompanied by deposit receipt in

form VAT-2 of fee of 2 rupees five hundred in appropriate

government treasury.

Time limit :- the application shall be made to designated officer

within a period of the thirty days from the appointed day i.e. Ist April

2005.

Security :- the additional security is required to be given for

registration shall be in any of the following forms:

a) Bank guarantee from a local scheduled commercial bank for the

amount of security / additional security.

b) Personal bond with two solvent securities acceptable to the

designated officer for the amount of security/additional security

in form VAT-3.

29

Certificate of Registration :- when the designated officer after

making enquiry is satisfied that all particulars in application are fee

has been paid it shall be register the person and issue him a certificate

of registration in Form VAT-4.

Issue of Duplicate Copy of Certificate of Registration :- where the

certificate granted to a person is lost, destroyed, defaced may on

application made in this behalf to the designated officer and on

payment of fee of Rs. 100/- obtain a duplicate copy.

Keeping certificate of registration at all places of business :- the

certificate of registration granted under rule 5 shall be kept and

displayed at the principal place of business and copy each of the

certificate shall be kept at every additional place of business within

the state.

Amendment of registration :- an application for amendment for

registration granted under the act shall be made in the Form VAT-5

within thirty days from the occurrence of event necessitating such

amendment.

Cancellation of registration :- an application for cancellation of

registration shall be made within thirty days from the occurrence of

event necessitating such cancellation.

30

CHAPTER NO.5

PAYMENTS AND RECOVERY OF TAX

Due date of payment of VAT or TOT :- According to section 33 Vat or TOT

due shall be paid.

In the case of taxable person whose turnover exceeds Rs. 1 crore in the

previous year, on the monthly basis.

In the case of a taxable person whose turnover is less than Rs. 1 crore in

the previous year, by the date the return for such a period is required to

be filled.

In the case of the turnover tax payable by a registered person under this

act, the return for the period is required to be filled.

In the case of a casual trader by such date as may be prescribed.

In the other case, the tax shall be payable by such date, as may be specified

by the designated officer.

Recovery as Debt: - According to Sec 34 tax or may other amount due or

payable by a person under this Act, shall be debt, due to the State

Government payable recovered as per the provisions of this Act.

Charge on the Property: - According to the Section 35, any amount of tax,

penalty, interest and any other sum payable by a taxable person or registered

person under this Act, shall be the first charge on the property of such person

from the date on which the amount becomes due and payable.

31

Recovery as arrears of Land Revenue: - According to section 36 the

amount of tax , penalty, interest or any other sum due and payable under this

Act, which remains unpaid after the due date, shall be recoverable as arrears

of land revenue.

PAYMENT OF TAX :-

The tax is to be paid into the government treasury or any bank authorized to

transact government business or at District excise and taxation office when

paid through cheque/draft.

The table below shows the time and procedure for payment of tax by any

person: -

Description of person

Type of Tax

When to Pay

Due Date for Payment of Tax

Form for Payment

Taxable person With turnover Up to Rs. 1 crore

VAT Quarterly

30 days from the end of each quarter If paid through TR & 20 days If paid by cheque or draft.

Challan

Taxable person with turnover Above Rs. 1 crore

VAT Monthly10 days from the End of each month Form

Registered personTOT Quarterly

30 days from the end of each quarter If paid through TR & 20 days If paid by cheque or draft

Every person Ta due as perAssessment

On issue of Notice of Demand

Date specified in The notice of demand or 30 days, whichever I

Every person Entering into A works contract

TaxDeductedAt source

On payment Made to contractor

Within 15 days of the End of the month in which deduction is made

VAT-25

32

RETURNS AND ASSESSMENT

MEANING AND FEATURES :-

Returns means: -

a) A true and correct statement of account of the business

for a specified period.

b) A statement of any additional information as may be

required under the Act.

c) A statement that enables the department to calculate the

output tax liability, the amount of input Tax Credit

claimed and the net tax payable by the assesses.

Provisions Regarding Returns: -

i. Returns to be filled quarterly or monthly by a

taxable person: Every taxable person shall file

quarterly self-assessed return in FORM VAT 15

days within 30 days from the expiry of each

quarter along with the proof of payment into the

appropriate Government treasury & TDS

certificate, If any.

A person, whose annual turnover exceeds Rs. 1 crore in

the preceding year, shall determine his tax liability for

every month.

33

TYPE OF RETURNS

The table below shows the type of returns to be filled when and in which

form by every person :-

Description of Person

Type of Return Form No. Due Date for Payment

Taxable Person

QuarterlyReturn VAT-15

30 days from expiry of quarter

Taxable Person with Turnover AboveRs.1Crore

Monthly Information On tax liability

VAT-1610 days from the expiry of the month

Registered Person

Quarterly ReturnVAT-17

30 days from expiry of each quarter

Taxable Person

Annual Statement VAT-20

20th Nov. each year

Registered person

Annual Statement VAT-21

20th Nov. Each year

Every Person With turnover Above Rs.40 lacs

VAT audit certificate VAT-22

Same as for annual statement

Every person On cancellation of registration

VAT-15VAT-17

Within 30 days of Such closure

34

CHAPTER NO.6

HISTORY OF SOLE PROPRIETORSHIP CONCERN

M/S GOLDEN CRAFTS were registered under Punjab VAT Act, 2005

on 31 May 2005. Its registered office is at 3929/22, GALI MAHAVIR,

NEAR PIPLI SAHIB GURDUARA, PUTLIGHAR, AMRITSAR. It is a

sole proprietorship concern. The main object of the concern is to carry

on the business of trading, manufacturing, buying, selling in all kinds of

carpets.

The objects ancillaries to the main objectives are:

To enter into any arrangement or agreement or contract with any

person, association firm or corporation whether in Punjab or Outside

Punjab, for techniques, or for such other purpose that may seem

beneficial and conductive to the objects of the company.

To acquire and undertake all or any part of business, property

liabilities and rights of any person, firm or company carrying on any

business that this concern is authorized to carry on or be possesses of

property suitable for the purpose of the concern.

To deal with the selling and buying of all kinds of carpets and their

components as specified above.

To institute, conduct, deafen, compound, compromise any legal

proceedings against or by the company.

Mr. NARINDER SINGH is the sole proprietor of the M/s GOLDEN

CRAFTS

35

CASE STUDY

Name of the sole proprietorship concern : M/S Golden Crafts

Address of the sole proprietorship concern : 3929 / 22, Gali Mahavir, Near Pipli Sahib Gurduara, Putlighar, Amritsar.

Registered office (Head Office) : In State of Punjab

Registration Number : 03522027261

Registered Under : Punjab VAT Act, 2005

Permanent Account No.( PAN ) : ABLPS1171L

M/s Golden Crafts is carrying the business of trading, manufacturing buying

& selling of all kinds of carpets and some other type of woolen carpets. The

earlier sole proprietorship concern was registered under Central Sales Tax;

and then with the applicability of Punjab VAT-1 Act 2005. It got registration

under this Act.

For the purpose of registration under PunjabVATACT, 2005, the firm

applied through form VAT i.e. application for registration form.

Contents of the Application Includes:

I. Name of the Applicant.

II. Trade name in which business is carried on.

36

III. Expected turnover in currency financial year.

IV. Date from which liable to tax.

V. Constitution of business.

VI. Address of principal place of business in Punjab.

Full information about the sureties was also submitted. There are two

sureties of M/s Golden Crafts. Both of these sureties are registered person. It

also includes complete address of their firm, their registration certificate

number, Telephone number etc.

Along with application fee of Rs.500/- was deposited. Out of this Rs. 500/-.

Rs. 150/- was for VAT Act and Rs.50/- was paid for Punjab municipal fund.

Other documents which were required to be submitted along with

applications form includes ownerships proof, residential proof, PAN card

etc, Mr. Narinder Singh is the sole proprietor of the M/s Golden Crafts.

The application form duly filled and signed by the authorized person was

submitted to the authorities. After the security of the application and

satisfied with all the information and declaration there in the authorities

granted the Certificate of registration to M/s Golden Crafts.

37

CONCLUSION

VAT is new concept of taxation, which is fair to business and consumers.

Tax paid on purchases (Input Tax) is rebated against Tax Payable on sale

i.e. Output tax.

Value Added Tax means that tax which is payable only on value added to

commodities and on the services rendered. VAT is simple, transparent Tax

collected on the sale of goods. From 1st April 2005, various states and union

territories have decided to introduce VAT in place of sales Tax and related

taxes. Above a certain turnover all business transactions are carried on

within a state by individuals in business, partnerships and companies will be

covered by VAT. Thus VAT is multipoint taxation system i.e. sales tax

which is payable at each stage.

VAT is the system of taxation that prevents cascading effects of taxes and

promotes export.

38

BIBLIOGRAPHY

Some Books such as:-

Dhushankul, “ How to deal with VAT ”, Pearson publishers, Edition

2005.

Brooks john, “ How to live with VAT ”, Amazon Publishers, Edition

2005.

Sareen V. K. Sharma Ajay, “ Indirect tax laws ”, kalyani publishers,

Edition 2006.

R. K. Sharma, Shashi K. Gupta, “ Indirect tax laws ”, Sharma

Publications, Edition 2008.

V. S. Datya, “ Indirect taxes”, Taxmans Publications, Edition 2008.

Websites :-

www.vatmanindia.com

www.rediff.com

www.yahoo.com

www.google.co.in

www.formation house.com

www.Finance.Indiamart.com

39

40