introduction of vat in tamil nadu

January 27, 2007 No. 80, Station Road, Radha Nagar, Chromepet, Chennai – 600 044 Phone: 91-44-2265 4506

1

Seminar on Value Added Tax

By

V. NarayananValue Added Tax Practitioner

No. 80, Station Road, Radha Nagar, Chromepet, Chennai – 600 044 Phone: 91-44-2265 4506

2 January 27, 2007

Agenda Sales Tax - An Overview

Introduction to VAT

VAT - What it means?

Sales Tax and VAT - A Comparative Study

Advantages of VAT

Registration

Schedules in VAT Act

Implication on works contract (after VAT)

Forms – A Walkthrough

Conclusion


3 January 27, 2007

Sales Tax – An Overview

Falls under exclusive jurisdiction of state governments - Article 246 of the Indian Constitution

State governments levy different tax rates for different goods – based on the specific needs of people, businesses and industry

Form of taxation applicable not only in India, but globally


4 January 27, 2007

Genesis of VAT

Formulated during the Chief Minister’s meet of all the states during 1999

Tamil Nadu was a member right from the beginning

Members included all state finance ministers


5 January 27, 2007

Why VAT?

To have uniform rate of tax throughout the country

To abolish deferral/waiver/incentives To abolish internal check posts To facilitate self assessment To reorganize commercial tax

departments and enable computerization


6 January 27, 2007

Current Status of VAT Implementation Year 2005: 22 states implemented Year 2006: 6 states have implemented Year 2007: Remaining states have

implemented Status in Tamil Nadu:

July 22, 2006: Finance Minister of Tamil Nadu announced in the state assembly about the introduction of VAT system

October 28, 2006: VAT Act was published in Tamil Nadu Gazette and introduced, effective from January 1, 2007


7 January 27, 2007

What is VAT?

VAT is a multi-point tax collected at every stage

VAT is arrived at by deducing the tax paid on purchases from the tax payable on sales


8 January 27, 2007

Example

Data Purchases: Input worth

Rs. 1,00,000/- in a month

Sales: Output worth Rs. 2,00,000/- in a month

Input tax rate: 4% Output tax rate: 12.5%

Calculation

S.No Parameter Amount (in Rs.)

1 Input purchased within the month

1,00,000

2 Output sold within the month 2,00,000

3 Input Tax Paid 4,000

4 Output Tax Payable 25,000

5 VAT payable during the month after set-off/input tax credit

21,000


9 January 27, 2007

Concept of VAT and Set-off / Input Tax Credit

Essence of VAT is providing set-off for the tax paid earlier, given effect through the concept of input tax credit/rebate.

Therefore, VAT is based on the value addition to the goods, and the related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during the payment period (say, a month).


10 January 27, 2007

VAT Calculation – A Diagrammatic Representation

‘A’ - RAW MATERIAL PRODUCERSales Value: Rs.100/-

Gross VAT @ 10%: Rs.10/-Net VAT: Rs.10/-

‘B’ - MANUFACTURERSales Value: Rs.140/-

Gross VAT @ 10%: Rs.14/-Net VAT: Rs.14 –Rs. 10 = Rs. 4/-

‘C’ - WHOLESALERSales Value: Rs.170/-

Gross VAT @ 10%: Rs.17/-Net VAT: Rs.17 – Rs. 14 = Rs. 3/-

‘D’ - RETAILERSale Value: Rs.190/-

Gross VAT @ 10%: Rs.19/-Net VAT: Rs.19 – Rs. 17 = Rs. 2/-

Note: Total VAT collected at four points: Rs. 10 + Rs. 4 + Rs. 3 + Rs. 2 = Rs.19/-


11 January 27, 2007

Sales Tax & VAT – A Comparison…1

S.No. Sales Tax VAT

1 Tax is levied either at multi-stage or single stage.

Tax is levied comprehensively at every point of sale till retail stage.

2 Tax is imposed only on sales turnover of goods.

Tax is levied on every value addition including services, agricultural activities, labour, interest, royalties etc.

3 Tax paid on purchases is not rebated

Tax paid on purchases (inputs) including capital goods is rebated

4 As tax paid is built in the cost, it taxes the tax. So, there is tax cascading.

As tax paid fully rebated, there is no cascading.


12 January 27, 2007

Sales Tax & VAT – A Comparison…2

S.No. Sales Tax VAT

5 To minimize cost of production, manufacturer produces intermediary products to use in the final product. This leads to vertical integration.

As the tax paid is credited, there is no possibility of vertical integration.

6 Abnormal increase in price of the goods

Nominal increase in price of goods

7 In single point tax, verification of earlier sufferance of tax is not easy. So, there is large scale evasion of tax.

The system facilitates mechanism for

verification of claim of tax credit.


13 January 27, 2007

Advantages

Rationalized Tax Structure: 1% , 4%, and 12.5% Simple: Minimum exemptions with lesser rate and refund

procedures. Transparent: Being a consumption tax, more transparency

is maintained Bigger Opportunities: By giving tax credits, the

manufacturing cost will be less and even bigger enterprises will establish their presence in Tamil Nadu.

Reduced Prices of Goods: Elimination of tax cascading and pyramiding effects

Growth: Creates more job opportunities in the state. Tax Compliance: Checks tax evasion


14 January 27, 2007

Registration Registration Fee: Rs.500 for the principal place and Rs.50

for each of the other places for all categories of dealers.

Renewal not required: Registration once granted need not

be renewed each year, will continue to be in force till revoked

or till the closure of the business.

Legal Provisions: Under Section 88 (3) (i) all rules, regulations, notifications,

clarifications or orders made or issued under any other

provisions of the said act shall continue in force on or after such

date under TNVAT too. Until they are repealed or amended.


15 January 27, 2007

TIN

Tax Payer’s Identification Number (TIN) already made available to all existing dealers.

TIN consists of 11 digit numerals throughout the country: First two characters will represent the State Code as

used by the Union Ministry of Home Affairs. The set-up of the next nine characters may, however,

be different in different States. In Tamil Nadu, the last seven digits relates to the existing TNGST number holders.


16 January 27, 2007

Schedules

6 Schedules (as against 11 in the old scheme). They include:

Schedule Number

Description

1 VATable Goods)

Part A - Bullion, Gold, Silver (taxable @ 1%)

Part B - Taxable @ 4% (150 items)

Part C – Taxable @ 12.5% (69 items) – W.E.F 12.07.2007

2 Non-VATable (12 items)

3 Compounding Schemes for Hotels, Restaurants & Sweet Stalls

4 Exempted Goods (Section 15)

5 Zero Rate Sale – International Organizations

6 Transit Passes


17 January 27, 2007

Compounding Scheme

Applicable to Assesses, who effect second or subsequent sales, pay 0.5% Tax as a percentage on Gross Turnover. Such dealer cannot collect tax from the customers.

Limit: Rs. 50 Lakhs Per Annum VAT invoice cannot be issued


18 January 27, 2007

Implication on works contract (after VAT)

Section 5 provides for levy of tax on transfer of property in the goods involved in the execution of works contract. Rule 8 (5) prescribes methods of computing.

ITC is permissible in this Section on goods mentioned in the first schedule purchased within the State and used in the execution of works contract.


19 January 27, 2007

Continued…

Section 6 - compounding Scheme has been amended recently with retrospective 01.04.2007.

Inter state purchases / stock transfer are not permitted

Dealers paying under this scheme are not entitled for ITC and cannot collect tax from the customers.


20 January 27, 2007

Exempt vis-à-vis Zero Rated Sale

Dealer not entitled for input tax credit if the sales are not taxable and exempted

Refund on input tax applicable to a dealer who pays no tax on his output

For e.g., Export


21 January 27, 2007

Continued….

Option to be exercised along with the first monthly return for the financial year or in the first monthly return after the commencement of the works contract. Such option shall be final for the assessment year.

Dealers need not maintain detailed account under this scheme. Sufficient if they maintain records in original for the receipts and payments


22 January 27, 2007

Continued.

Section 13 represents TDS provision Every person responsible for paying any sum

to a contractor has to deduct TDS @ 2% and 4% respectively.

Dealer can provide form S obtained from the respective assessing authority which is called a no liability certificate.

The person deducting the TDS amount has to deposit the same on or before 20th of succeeding month


23 January 27, 2007

Continued…..

A statement in form R and Form T to be issued to the contractor for the TDS recovery.

Once the contractor produces the Form T TDS shall be adjusted.

Contreventions of the provision interest attracts 1.25% per annum.


24 January 27, 2007

VAT & CST Act

CST rate of tax has been brought down to 3% effective from 01.04.2007 for inter-state transaction

Input Tax Credit allowed for inter-state sale – Section 8.1 of CST Act

No Input Tax for inter-state purchases and stock transfer


25 January 27, 2007

VAT & Stock Transfer

Due to existence of CST Act, stock transfers/consignment sales are exempted as at present

When stock transfers are exempted, ITC is eligible in excess of 3% for rebate on the goods used to produce products


26 January 27, 2007

VAT & Deemed Sales

Tax on deemed sales such as Leasing, Works Contract are Vatable – Sec 5

Composition of Tax on work contract is available: 2% on civil works and civil maintenance works

4% on other contracts

Sec 6


27 January 27, 2007

Tax Computation on WCT – Sec 5


28 January 27, 2007

Treatment of Exports & Deemed Exports Export will be zero-rated. Refund on ITC Penultimate sale is also treated as Export and

eligible for ITC Sales to SEZs and International Organizations

are zero-rated ITC available for both contractors as well as sub-contractors

Refund of ITC to Exporters/Deemed Exporters will be made within 180 days from the date of claim. Beyond which period such credit lapse to Government.


29 January 27, 2007


30 January 27, 2007

Capital Goods

ITC eligible for purchase of capital goods used for the manufacture of taxable goods

Eligibility: From the date of commencement of commercial production

50% can be adjusted in the first year, balance 50% in the second and third year

Remaining unadjusted amount, if any will lapse


31 January 27, 2007

Returns

Every Dealer should file monthly return in Form I disclosing the input tax paid and output tax payable by 20th of the following month

Details of TIN should be furnished on both purchase and sales

Separate Forms J, K, L, M are meant for various categories of dealers


32 January 27, 2007

Assessment Procedure

Self-assessment for VAT dealers in terms of submission of returns upon setting of tax credit

No compulsory annual assessment as at present

Failure to file monthly returns assessing officers can resort best judgment assessment order after giving reasonable opportunity.


33 January 27, 2007

Continued…

Penalty @150% of the tax assessed is applicable in case of best judgment assessment.

Limitation for revision of assessment is 5 years from the date of original assessment order. (Section 27)

Appeal, revision procedures are similar to TNGST Act.


34 January 27, 2007

Input tax Credit

Section 19 and Rule 10 are relevant for ITC claim.

ITC is available in respect of tax paid goods i.e. vatable goods. (4% & 12.5%)


35 January 27, 2007

Scrutiny of Accounts

Detailed scrutiny on 20% of the dealers on a random basis

If evasion is detected upon scrutiny/audit, dealer may be assessed for all the previous periods (5 years)


36 January 27, 2007

Audit

Enforcement Wing will be the Audit Wing for VAT

Audit will be conducted at the premises of the Tax Payer with prior intimation

Before Audit Closure, the audit team discusses with the Tax Payer on the findings and a detailed report is given to the dealer


37 January 27, 2007

Treatment of Waiver & Deferral

Units enjoying waiver will be required to switch over to deferral mode of payment

Units enjoying the benefits of deferral will continue for the un-expired period subject to unused portion of monetary ceiling


38 January 27, 2007

Status of Other Taxes after Introduction of VAT

Additional Sales Tax, Surcharge, and Resale Tax will be abolished

No provision for concession sale, hence no declaration forms such as Form XVII


39 January 27, 2007

Forms

Totally, 46 forms have been introduced Important Forms:

Registration Formalities – Forms A-F Monthly Returns – Forms I, J, K, L, & M TDS Forms – Forms R, S, & T Stock Inventory & Refund – Forms V & W Despatch – Forms JJ, LL, & NN


40 January 27, 2007

Conclusion


41 January 27, 2007

Thank You

introduction of vat in tamil nadu

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