WB VALUE ADDED TAX, 2003(AT A GLANCE)

INTRODUCTION Value Added Tax, as the name specifies is a multipoint tax

collected at each stage of production – distribution of chain. In other words tax which is collected on value addition in the price of commodity the final burden of which falls on end consumers.

In India, VAT has evolved over certain years in 2005. In our state, it is governed by West Bengal VAT Act, 2003.

VAT for a dealer is the difference of tax payable on sales (output tax) effected by the dealer during a tax period after deducting therefrom the tax paid or payable (input vat) on purchases effected during the same period, say a month.

The essence of VAT is in providing set-off through the concept of input tax credit or rebate.

In India Federal structure of taxation is followed which restricts implementation of pure VAT system. The present scenario is manufacturer and service provider pays excise and service tax and claim CENVAT credit and dealers pays VAT and claim VAT credit in comparison to Foreign countries which pay only Tax i.e., VAT.

MERITS & DEMERITS -Merits of VAT

◦ It replaces many state taxes like sales tax, additional sales tax, turnover tax, etc.◦ It reduces the possibility of tax evasion as submission of relevant invoices is must

to avail the input tax credit.◦ It helps the commercial tax departments to cross check the declared transactions

between dealers claiming ITC and enable computerization and better tax compliance.

◦ As a result of elimination of cascading burden of tax cost of goods is reduced.

Demerits of VAT◦ The price of certain goods may increase because of levy of high rate of VAT

specially when the benefit is not passed to the ultimate consumer.◦ High compliance cost may induce the dealers to evade tax, which in turn, reduces

the revenue.◦ Maintenance of accounts will become cumbersome specially when the dealer

deals with various products.

STATE SALES TAX vs VAT -

Sl No.

Sales Tax VAT

1. It’s a single point tax (levied on first point of sale)

It’s a multiple point tax (levied at all stages of production and distribution chain)

2. It is over-burdened by additional sales tax, surcharge , etc.

No such additional tax is levied.

3. It is governed by Sales Tax Act. It is governed by WB VAT Act,2003

4. It leads to double taxation i.e., tax on taxes is levied (known as cascading effect).

It facilitates elimination of cascading effect if tax burden by allowing input tax credit.

5. It becomes complex in structure as there are no. of rates in different states.

It is simple and transparent as it is a single tax with only two basic rates.

6. Illustration: Two dealers A and B are involved. Cost of input to A is 200 and profit is 20. Sales Tax is charged @ 10% amounting to Rs. 22/-. Selling Price of A is Rs. 222/-. B will add his profit margin and will charge sales tax on the same.

Illustration: Two dealers A and B are involved. Cost of input to A is 200 and profit is 20. VAT is charged @ 10% amounting to Rs. 22/-. Selling Price of A is Rs. 222/-. B will add his profit margin and will charge VAT on the same. He will claim credit of VAT paid on his purchases.

VARIANTS OF VAT

Variants of VAT

Gross Product Variant

VAT is levied on sales anddeduction for tax paid on

input is allowed excludingCapital inputs (discourages

investment).

Income Product Variant

VAT is levied on sales with set-off for tax paid on

inputs and depreciation is charged only on capital

goods (suitable when tax is not charged separately in

invoice).

Consumption Type Variant

VAT is levied on sales and deduction for tax

paid on all consumption of raw

materials, components and capital goods is

allowed. It is widely used.

COMPUTATION METHOD - Sl N0.

Addition Subtraction Tax Credit or Invoice Method

1. This method aggregates all the factor payments and profit on which VAT liability is calculated.

Under this method value addition is calculated by subtracting total purchases from total sales on which VAT is levied.

VAT liability is the difference of the total tax on outputs less tax on inputs.

2. This method is mainly used with the Income VAT. Factor Income are wages, rent, interest, profit, etc.

In case of Direct Subtraction method total purchases and total sales is considered exclusive of tax. However under Immediate Subtraction Method inclusive of tax figures are considered.

It is widely used method as it is also suitable where tax rates are different.

TERMINOLOGIES IN VAT - Dealer : Dealer means a person who carries on the business of selling or purchasing

goods in West Bengal or any person u/s 14 and includes-◦ An occupier or shipper of jute mill◦ Government, local authority or statutory body◦ Owner of establishment of selling or purchasing goods in WB◦ a society including cooperative society, club which sell goods for commission,

consideration, remuneration.◦ A factor, broker, a commission agent for handling or transferring goods.

Casual Dealer : Casual dealer means a person other than a dealer whether as a principal or agent has occasional transaction of buying, selling, distributing goods in WB irrelevant of fixed place in WB. It includes owner or lessee or occupier of warehouse, transporter, carrier or transporting agent.

Goods : It all kinds of movable property but does not includes the following – ◦ Actionable claims, stocks, shares or securities.◦ Country liquor◦ Foreign liquor◦ Lottery tickets◦ Motor spirit of any kind.

TERMINOLOGIES IN VAT - (contd…) Sale and Purchase :

Sale / Purchase for i. Localii. Inter stateiii. In the course of exportiv. In the course of import

Works contract and processing jobsLease transactionPurchase/sale of capital assetDisposal of scrapes and waste Recovery from employees for meal Sale of confiscated goods by bank/ financial institutionsDisposal of salvage by insurance companiesRoyalty for Technical Know-how, Patents, Trademarks, CopyrightsPurchase of Patent , Trademark, Copyrights

TYPES OF SALES Intra State Sales : A sale is said to be take place in the course of Intra State Trade or Commerce if such sale means sale of goods within the state. Tax on both point is collected by WB govt.

Inter State Sales : A sale is said to be take place in the course of Inter State Trade or Commerce if such sale or purchase occasions movement of goods from one state to another or by way of transfer of documents of title of goods during movement of goods from one state to another.

Suppose transfer of goods commenced from dealer A of Jharkhand and terminates in Jharkhand to dealer B. While movement of goods it passes through territory of West Bengal. Whether it will be deemed to be sales in the course of Inter state??

??

B of WB

Sells goods

X is a dealer of UP

Sells goods through movement or transfer

of documents

Y is dealer of AP

WORKS CONTRACT As per sec. 14 of VAT Act, 2003 every registered dealer is required to

pay VAT on the amount of Contractual Transfer Price (CTP). There are options available to contractor who are engaged with works

contract for levy of Tax – ◦ Actual Labor Deduction Method.◦ Standard Labor Deduction Method.◦ Composition Method

The dealer is required to get himself registered for works contract under the act.

If the input tax amount is not separately shown in invoice the contractor cannot avail ITC.

The party to whom service is provided is required to deduct Works Contract Tax (WCT) normally known as TDS on VAT on the payment being made to contractor.

The dealer can claim the WCT deducted by party. The certificate for TDS deduction is Form 18.

REGISTRATION UNDER VAT Compulsorily Registration : A dealer whose gross annual turnover is

above the VAT threshold limit is required for compulsorily registration under VAT. The limit of turnover is Rs. 50 lakh. A new dealer will be allowed 30 days time from the date of liability to get registered, will be entitled to issue tax invoice from the very first day of incurring liability.

Voluntary Registration : Dealers with an annual gross turnover not exceeding a prescribed limit i.e., Rs. 50 lakh can opt for a composition scheme with a payment of tax at a small percentage of gross turnover. Dealers are not entitled to input tax credit and required to submit vat returns in a separate format. A dealer purchasing from a composite dealer is not entitled for input tax credit.A dealer whose annual turnover is less than Rs.5 lakhs is an Unregistered Dealer and has been granted the status of a Consumer. So, the VAT paid by an Unregistered Dealer is treated as his cost and will not charge further VAT on his sale.

TAXPAYERS IDENTIFICATION NUMBER (TIN)

All dealers registered under the VAT Act will have to use 11 digit TIN or Taxpayer’s Identification Number.

Dealers registered under the West Bengal Sales Tax Act, 1994 and CST Act, 1956 have been allotted the TIN and intimated accordingly.

Identification of TIN meant for VAT is very simple. The third digit from right of 11 digit TIN indicates– ◦ (a) the West Bengal Sales Tax Act, 1994, if it is 1, for example

19578989139;◦ (b) the Central Sales Tax Act, 1956, if it is 2, for example 19578989236;

and◦ (c) the West Bengal Value Added Tax Act, 2003, if it is 0, for example

19578989042.

MAINTENANCE OF BOOKS & TAX INVOICEMAINTENANCE OF BOOKS

◦ A dealer is required to maintain and up to date account of quantity and value of goods purchased, manufactured or sold by him or used in the execution of work contract or held by him in stock.

◦ Books of account that a dealer normally maintain would continue to maintain under the VAT Act.

◦ In case of dealers opting for compounded rate of tax only output tax account need be maintained and gross sale value or gross amount of contractual transfer price will suffice to calculate liability under VAT Act.

TAX INVOICE◦ Entire design of VAT with input tax credit is crucially based on

documentation of tax invoice, invoice, cash memo or bill.◦ This tax invoice will be signed and dated by the dealer or his authorized

regular employee, showing the required particulars. The dealer shall keep a counterfoil or duplicate of such tax invoice duly signed and dated. Failure to comply with the above provisions will attract penalty.

RATES & SCHEDULES UNDER VAT BASIC RATES (FY 2014-15) :

◦ Basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods - 5%

◦ Majority of remaining taxable commodities -14.5% ◦ Gold, silver, platinum and ornaments, tea sold through auction at tea auction centers in

West Bengal duly authorized by the Indian Tea Board - 1% ◦ Works contractors are liable to pay tax @ 5% on that part of their taxable contractual

transfer price which represents transfer of declared goods and the remaining contractual transfer price will attract tax @ 14.5%

◦ A dealer registered under the VAT Act is liable to pay tax on his purchases as Purchase Tax effected from unregistered dealers within West Bengal at the rate equivalent to the rate of VAT on goods covered in Negative List.

◦ An occupier of jute mill and shipper of jute are liable to pay tax @ 2% on purchases of raw jute effected from within the State.

◦ A dealer registered under normal composition scheme is required to pay tax @ 0.25% on turnover of sales or such fixed amount as per rule 38 (3A) depending on sales and @ 2% on turnover of contractual transfer price.

◦ Tax rate on liquor and tobacco sold on MRP is 27% and other than MRP @ 50%

RATES & SCHEDULES UNDER VAT SCHEDULES :

◦ Schedule A - Goods on sale of which no tax is payable◦ Schedule AA - List of Goods taxable @ 0%◦ Schedule B - List of Goods taxable @ 1%◦ Schedule C (Part I) – List of Goods taxable at 5%◦ Schedule C (Part II) – List of Items under category of IT Products @ 5%◦ Schedule C (Part III) – Industrial Inputs and Packing Material @ 5%◦ Schedule CA - List of Goods taxable at 14.5%

TAX on MRP :◦ An option is available to dealers on purchasing from manufacturers and importers of

certain goods to be notified/specified by the State Government in this behalf, for sales effected in WB to pay tax on maximum retail price (MRP).

◦ A dealer (irrespective of registration) opting for the scheme will have to pay tax on the sale of notified/specified goods by applying full VAT rate on MRP and not on his actual sale price.

◦ The dealer purchasing goods against ‘Invoice for tax on MRP' will not get ITC against such invoice but he will be entitled to claim re-imbursement of the exact amount, paid or payable by him at the time of purchase of such goods, from the buyer, provided that the MRP excludes tax.

REVERSE CREDIT Where a registered dealer avails of input tax credit for purchase of goods and subsequently

disposes of such goods not in accordance with the provisions of the VAT Act, then the ITC so availed of shall be deducted from the input tax credit of the tax period during which such occasion arises.

ITC reversal is computed by either Self Accounting (ascertainable from books of accounts) or as per formula given in rule 23(4).

Following are some of instances where reversal of input tax credit will take place: ◦ (a) goods purchased and subsequently returned to the seller for any reason whatsoever; ◦ (b) goods purchased for business but used for personal consumption, gift or given out as

free samples; ◦ (c) goods stolen or destroyed; ◦ (d) goods remaining in stock at the time of closure of business.

Stock Transfer : Goods purchased in West Bengal and subsequently transferred to other States, otherwise than by way of sale in case of branch transfer or transfer to an agent, will lead to a reversal of ITC to the extent of 4%.

◦ For example, a dealer purchases television sets on payment of VAT at the rate of 14.5% in West Bengal in May, 2015 and avails of full input tax credit but subsequently transfers the same to his branch office outside the State in July, 2015. He will have to reverse 4% of input tax credit in July, 2005. In other words the dealer is entitled to avail of only 10.5% of input tax as input tax credit and 4% is ineligible.

RETURN FILING & LATE FEE The dealer is required to furnish quarterly return disclosing the amount of net tax

and interest paid or payable along with receipt within the prescribed time limit in Form 14e.

The return is to be filed within 30 days of an English calendar month from the end of quarter.

In case of non – filing of return within the prescribed limit, dealer is attracted towards late fee. The provision of the same w.e.f from 01.04.2010 as per trade circular no. 9/2010 dated 02.08.2010 –

Sl. No.

Quarter Due date

1. April – June 30th July2. July – September 30th October3. October – December 30th January4. January – March 30th April

Case

Net Tax Payable Liability

A Exceeds ten thousand rupees

Rs. 1000 /- for 1st month & Rs. 250 for subsequent month of default or

part thereofB Is ten thousand

rupee or lessRs. 300 /- for 1st month & Rs. 100

for subsequent month of default or part thereof

PAYMENT OF VAT & INTEREST The net tax payable to appropriate govt. treasury should be monthly

within the time limit prescribed u/s 33 of WB VAT Act,2003. The net tax payable is arrived by deducting ITC from the output tax

payable (both VAT and CST). The ITC includes ITC c/f from last month.

The due date of payment are –

Interest liability arises in case of delay in payment of tax within the due date and pay a simple interest at the rate of 12% p.a. for the period of delay (in days).

The dealer is allowed to adjust excess payment of tax with tax liability of next month.

Sl No.

Particulars Due Date

1. For first two months of each quarter

21st of the following month

2. Last month of the quarter

Return filing date

AUDIT & ASSESSMENT ASSESSMENT :

◦ The VAT liability will be self-assessed by the dealers themselves in terms of submission of returns by setting off the input tax credit against the output tax.

AUDIT :◦ The correctness of self-assessment will be checked through a system of

Departmental Audit.◦ A dealer is required to get his audit done and submit statements, accounts or

declarations u/s 30 if he has acquired TIN and his turnover exceeds the prescribed limit as specified.

◦ The prescribed limit of turnover is Rupees 5 crore during the FY for which audit is to be done.

◦ Every dealer who is a company is required to get his audit done whether his turnover exceeds the limit specified.

◦ The dealer whose turnover lies between 1.5 crores to 5 crores is required to file a self declaration being termed as Self-Audit Statement in Form 88A to department.

AUDIT & ASSESSMENT (contd….) A dealer whose turnover exceeds the prescribed limit is required to submit

VAT Audit report in Form 88 in hard copy to department within 31st December. The Audit report basically states the difference if any, of liability as per quarterly return and as found upon audit of books.

The Audit is required to state the reason of differences if any, noticed while conducting the audit.

If the dealer fails to furnish details with the prescribed authority, is liable to pay penalty not exceeding 5000/- for each default.

Points to Keep in Mind : While calculating Late Fee one should consider period of default as

per part of month too. For Instance – If return filing date is 30th November, and return is filed on 2nd of December the month of default will be considered 2 months.

The due date for return filing in case of extension should be considered such extended date.

The dealer is required to submit e-filed return in paper form to department and get it duly stamped.

While computing liability of interest delay in period should be considered from the due date of filing till the previous date when the payment is done.

THANKYOU…

Note: This slides are prepared keeping in mind that the readers are having basic ideas about VAT. It is a kind request to follow the bare act for further information.