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About  V A T
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About V A T

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About V A T

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  • 1. CONTENTSr. Topics Covered Page No.No.1 Section – I Introduction to Value Added Tax. 1 – 122 Section – II Value Added Tax 13 A. Introduction. 14 – 16 B. Registration under Value Added Tax. 17 – 21 C. Explaining Value Added Tax. 22 – 27 D. Calculating Tax Liability. 28 – 36 E. Filing of Return and Paying Tax. 37 – 44 F. Records and Accounts. 45 – 48 G. Business Audit. 49 – 51 H. Appeals. 52 – 56 I. Tax Payer Service. 57 – 61 J. Recovery, Offences and Penalties. 62 – 663 Section – III Appendix. 67 – 694 Section – IV Conclusion. 705 Section – V Bibliography. 71
  • 2. Value Added TaxWHAT IS VALUE ADDED TAX?Value Added Tax is a broad-based commodity tax that is levied at multiplestages of production. The concept is akin to excise duty paid by themanufacturer who, in turn, claims a credit on input taxes paid. Excise duty is onmanufacture, while VAT is on sale and both work in the same manner,according to the white paper on VAT released by finance minister Chidambaram.The document was drawn up after all states, barring UP, were prepared toimplement VAT from April. It is usually intended to be a tax on consumption,hence the provision of a mechanism enabling producers to offset the tax theyhave paid on their inputs against that charged on their sales of goods andservices. Under VAT revenue is collected throughout the production processwithout distorting any production decisions.WHY VAT IS PREFERRED OVER SALES TAX?While theoretically the amount of revenue collected through VAT is equivalentto sales tax collections at a similar rate, in practice VAT is likely to generatemore revenue for government than sales tax since it is administered on variousstages on the production – distribution chain. With sales tax, if final sales arenot covered by the tax system e.g. due to difficulty of covering all the retailers,particular commodities may not yield any tax. However, with VAT somerevenue would have been collected through taxation of earlier transactions,even if final retailers evade the tax net.There is also in-built pressure for compliance and auditing under VAT since itwill be in the interest of all who pay taxes to ensure that their eligibility for taxcredits can be demonstrated. VAT is also a fairer tax than sales tax as itminimizes or eliminates the problem of tax cascading, which often occurs with -1-
  • 3. Value Added Taxsales tax. These are facilitated by the fact that VAT operates through a creditsystem so that tax is only applied on value added at each stage in theproduction – distribution chain. At each intermediate stage credit will be givenfor taxes paid on purchases to set against taxes due on sales. Only atconsumption stage where there are no further transactions will there be no taxcredits. Lack of input credit facility in sales tax often results in tax on inputsbecoming a cost to businesses which are often passed on to consumers. Salestax is often applied again to the sales tax element of the cost, thus there is aproblem of tax on tax. This is not the case with VAT, which makes it a neutraltax as it provides the least disturbance to patterns of production and thegeneration and use of income.In addition, the audit trail that exists under the VAT system makes it a moreeffective tax in administration terms than sales tax as it helps with theverification of VAT amounts declared as due. This is made possible by the factthat one person’s output is another’s input. As with sales tax imports aretreated the same way as local goods while exports are zero- rated to avoidanti-export bias.Notwithstanding the advantages mentioned above, it is worth noting that VAT isa considerably complex tax to administer compared with sales tax. It may bedifficult to apply to small companies due to difficulties of record keeping andits coverage in agriculture and the services sector may be limited. To cover thehigh administration costs, VAT rates of 10-20 per cent are generallyrecommended. The equity impact of the relatively high rates have been a causefor concern as it is possible that the poor spend relatively high proportions oftheir incomes on goods subject to VAT. Thus the concept of zero VAT rate onsome items has been introduced. -2-
  • 4. Value Added TaxDIFFERENCE BETWEEN VAT AND CSTUnder the CST Act, the tax is collected at one stage of purchase or sale ofgoods. Therefore, the burden of the full tax bond is borne by only one dealer,either the first or the last dealer. However, under the VAT system, the taxburden would be shared by all the dealers from first to last. Then, such taxwould be passed upon the final consumers.Under the CST Act, the tax is levied at a single point. Under the VAT system, theretailers are not subject to tax except for the retail tax.Under the CST Act, general and specific exemptions are granted on certaingoods while VAT does not permit such exemptions. Under the CST law,concessional rates are provided on certain taxes. The VAT regime will do awaywith such concessions as it would provide the full credit on the tax that hasbeen paid earlier.Under VAT law, first, the dealer pays tax on the sale or purchase of goods. Thesubsequent dealer pays tax on the portion of the value added upon such goods.Thus, the tax burden is shared equally by the last dealer. To illustrate the wholeprocedure of VAT, an example is as follows:At the first point of sale, the value of goods is Rs.100. The tax on this is 12.5%.Therefore, the net VAT would be 12.5%. At the second change of sale, the salevalue is Rs.120 and the tax thereon is 15%. The tax that is to be paid at everypoint is 15%. The input tax is 15%. The dealer will get a credit for first change insale of 2.5%-- i.e. 15% -12.5%. Therefore, 2.5% will be the net rate. At the thirdchange of sale, the sale value is Rs.150 and the tax on this is 18.75%. At thelast stage, the tax paid is 18.75%. The Input Tax is 18.75%. Dealer’s get a creditfor second change in sale? i.e. 18.75% -15% = 3.75%. Therefore, 3.75% would -3-
  • 5. Value Added Taxbe the net VAT. This means that VAT is paid in the last point tax under the saletax regime. -4-
  • 6. Value Added TaxWHO GAINS?State and Central governments gain in terms of revenue. VAT has in-builtincentives for tax compliance — only by collecting taxes and remitting them tothe government can a seller claim the offset that is due to him on his purchases.Everyone has an incentive to buy only from registered dealers — purchasesfrom others will not provide the benefit of credit for the taxes paid at the timeof purchase. This transparency and in-built incentive for compliance wouldincrease revenues. Industry and trade gain from transparency and reduced needto interact with the tax personnel. For those who have been complying withtaxes, VAT would be a boon that reduces the cost of the product to theconsumer and boosts competitiveness. VAT would be major blow for taxevaders, both manufacturers who evade excise duty payments and traders whoevade sales-tax.WHAT’LL BE THE TAX BURDEN?The overall tax burden will be rationalized as it’ll be shared by all dealers, andprices, in general, will fall. Moreover, VAT will replace the existing system ofinspection by a system of built-in self-assessment by traders andmanufacturers. The tax structure will become simple and more transparent andtax compliance will improve significantly. It will also be simpler and offer easycomputation and easy compliance. VAT will prevent cascading effect throughinput rebate and help avoid distortions in trade and economy by ensuringuniform tax rates.WHO PAYS? -5-
  • 7. Value Added TaxAll dealers registered under VAT and all dealers with an annual turnover ofmore than Rs 5 lakh will have to register. Dealers with turnovers less than Rs 5lakh may register voluntarily. -6-
  • 8. Value Added TaxHOW TO PAY?VAT will be paid along with monthly returns. Credit will be given within thesame month for entire VAT paid within the state on purchase of inputs andgoods. Credit thus accumulated over any month will be utilized to deduct fromthe tax collected by the dealer during that month. If the tax credit exceeds thetax collected during a month on sale within the state, the excess credit will becarried forward to the next month.WHICH GOODS WILL BE TAXABLE UNDER VAT?All goods except those specifically exempt. In fact, over 550 items will becovered under the new tax regime, of which 46 natural and unprocessed localproducts would be exempt from VAT. About 270 items, including drugs andmedicines, all agricultural and industrial inputs, capital goods and declaredgoods would attract 4% VAT. But, following opposition from some states, it wasdecided that states would have option to either levy 4% or totally exempt foodgrains from VAT but it would be reviewed after one year. Three items — sugar,textile, tobacco — under additional excise duties will not be under VAT regimefor one year but existing arrangement would continue.OTHER CONSIDERATIONSIt is imperative that policy makers in considering adoption of VAT should beinterested in the economy wide impact of this tax. Special emphasis is oftenplaced on its effect on equity, prices and economic growth. This is particularlyimportant because of the potential effects on consumption of certaincommodities that have a direct or indirect effect on labour productivity. -7-
  • 9. Value Added TaxVAT EFFECT ON INFLATIONIn considering the introduction of VAT, countries are often concerned that itwould cause an inflationary spiral. However there is no evidence to suggest thatthis is true. A survey of OECD countries that introduced VAT indicated that VAThad little or no effect on prices. In cases where there was an effect it was a onetime effect that simply shifted the trend line of the consumer price index (CPI).To guard against any unforeseen price effects the authorities may consider atighter monetary policy stance at the introduction of VAT.DISTRIBUTION EFFECTS OF VATValue added tax is widely criticized as being regressive with respect to incomethat is its burden falls heavily on the poor than on the rich. This emanates fromthe fact that consumption as a share of income falls as income rises. Hence auniform VAT rate falls heavily on the poor than the rich. This criticism is validwhen VAT payments are expressed as a proportion of current income. Howeverif, following the premise that welfare is demonstrated by the level ofconsumption rather than income, consumption is used as the denominator theimpact of VAT would be proportional. A proportional burden would also bedemonstrated if lifetime income rather than current income is used. A lifetimeincome concept considers the fact that many income recipients are onlytemporarily at lower income brackets as their earnings increase. In order toaddress the regressivity of VAT the following measures can be taken:♦ The VAT itself can be used to differentiate taxation of consumer itemsthat are consumed primarily by the poor such that they pay less or at zero rateor to tax luxury goods at a higher than standard rate. -8-
  • 10. Value Added Tax♦ VAT exemptions may also be granted on goods and services that areconsumed mostly by the poor.♦ Equity concerns may also be addressed through other ways, outside theVAT system, such as other tax and spending instruments of government. Thiscould be in the form of lower basic income tax rates on the poor or somepro-poor expenditures of government. The use of multiple rates of VAT hashowever been widely discouraged for various reasons. These include:♦ The fact that sometimes it is almost impossible to differentiatebetween higher quality expensive products – e.g. food, consumed by the richand ordinary products consumed by the poor. Thus any concessions extendedmay tend to benefit the rich much more than the poor.♦ Increased costs of VAT administration as a differentiated ratestructure brings with it problems of delineating products and interpretingthe rules on which rate to use.♦ significantly increased costs of tax compliance for small firms, which areusually unable to keep separate records/accounts for sales of differently taxeditems. This results in the use of presumptive methods of determiningthe tax liability, which leads to more difficulties in monitoring thecompliance. The higher compliance cost resultant from differentiation of VATrates may also be regressive with respect to income since smaller firms withlower income tend to bear proportionately more of the burden than do largerfirms.Exemptions refer to situations where output is not taxed but taxes paid oninputs are not recoverable. The rationale behind exemptions is to reducenegative distributional effects of tax through the effect on incomes. The effectsof exemption may be as follows: -9-
  • 11. Value Added Tax♦ falling of revenues – exemptions break the VAT chain. If exemptions aregranted at prior to the final sale, it results in a loss of revenue since valueadded at the final stage escapes tax.♦ Un-recovered taxation of some intermediate goods may lead toproducers substituting away from such inputs thus distorting the input choicesof the said producers.♦ Exemptions may create incentives to “self supply” i.e. tax avoidance byvertical integration.♦ Exemptions tend to feed on each other giving rise to a phenomenoncalled “exemption creep”. This arises from the fact that each exemption givesrise to pressures on further exemption. For example creating an exemption toreduce the tax burden on a particular commodity or goods may lead toincreased pressure for exemption or zero rating of inputs used for theproduction of such a commodity.Based on the above, it is important that care is taken when introducingexemptions in order to avoid distortions in the production process as well as tominimize revenue loss resulting from such distortions.Given the fact that the primary purpose of VAT is to raise government revenuein an efficient manner and with as little distortions of economic activity aspossible, distribution effects are perhaps better addressed by other forms oftax and government expenditure policies which can often be better targeted atthese aims. - 10 -
  • 12. Value Added TaxVAT EFFECT ON ECONOMIC GROWTHEconomic growth can be facilitated through investment by both governmentand the private sector. Savings by both parties are required in order to financeinvestment in a non-inflationary manner. Compared to other broadly basedtaxes such as income tax VAT is neutral with respect to choices on whetherto consume now or save for future consumption. Although VAT reduces theabsolute return on saving it does not reduce the net rate of return on saving.Income tax reduces the net rate of return as both the amount saved as well asthe return on that saving are subject to tax. In this regard VAT may be said tobe a superior tax in promoting economic growth than income tax. Since VATdoes not influence investment decisions on firms, by increasing their costs, itseffects on investment can be said to be neutral.FEATURES OF VAT 1. Rate of Tax VAT proposes to impose two types of rate of tax mainly: a. 4% on declared goods or the goods commonly used. b. 10-12% on goods called Revenue Neutral Rates (RNR). There would be no fall in such remaining goods. c. Two special rates will be imposed-- 1% on silver or gold and 20% on liquor. Tax on petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT system as they would be continued to be taxed, as presently applicable by the CST Act. 2. Uniform Rates in the VAT system, certain commodities are exempted from tax. The taxable commodities are listed in the respective schedule with the rates. VAT proposes to keep these rates uniform in all the states so the goods sold or purchased across the country would suffer the same tax rate. Discretion has been given to the states when it comes to finalizing the RNR along with the restrictions. This rate must not be less - 11 -
  • 13. Value Added Tax than 10%. This will ensure By doing this that there will be level playing fields to avoid the trade diversion in connection with the different states, particularly in neighboring states3. No concession to new industries Tax Concessions to new industries is done away with in the new VAT system. This was done as it creates discrepancy in investment decision. Under the new VAT system, the tax would be fair and equitable to all.4. Adjustment of the tax paid on the goods purchased from the tax payable on the goods of sale All the tax, paid on the goods purchased within the state, would be adjusted against the tax, payable on the sale, whether within the state or in the course of interstate. In case of export, the tax, paid on purchase outside India, would be refunded. In case of the branch transfer or consignment of sale outside the state, no refund would be provided.5. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax on the full price of the goods sold and shows separately in the sell invoice issued by him6. VAT is not cascading or additive though the tax on the goods sold is collected at each stage, it is not cascading or additive because the net effect would be as follows: - the tax, previously paid on the sale of goods, would be fully adjusted. It will be like levying tax on goods, sold in the last state or at retail stage. - 12 -
  • 14. Value Added TaxWHAT’S THE BIGGEST ADVANTAGE?The biggest benefit of VAT is that it could unite India into a large commonmarket. This will translate to better business policy. Companies can startoptimizing purely on logistics of their operations, and not on based ontax-minimization. Lorries need not wait at check-points for days; they canzoom down the highways to their destinations. Reduced transit times and lowerinventory levels will boost corporate earnings. Following are the some moreadvantage of VAT: - 1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%, 10%, 12%, 20% and 25%. However, under the present VAT system, there would only be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the most usual cause of litigation. It also helps to determine the relevant stage of the tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or the last stage differ. Consequently, the question of which stage of tax it falls under becomes another reason for litigation. Under the VAT system, tax would be levied at each stage of the goods of sale or purchase. 2. Adjustment of tax paid on purchased goods Under the present system, the tax paid on the manufactured goods would be adjusted against the tax payable on the manufactured goods. Such adjustment is conditional as such goods must either be manufactured or sold. VAT is free from such conditions. 3. Further such adjustment of the purchased goods would depend on the amount of tax that is payable. VAT would not have such restrictions. CST would not have the provisions on refund or carry over upon such goods except in case of export goods or goods, manufactured out of the country or sale to registered dealer. Similarly, on interstate sale on tax-paid goods, no refund would be admissible. - 13 -
  • 15. Value Added Tax4. Transparency The tax that is levied at the first stage on the goods or sale or purchase is not transparent. This is because the amount of tax, which the goods have suffered, is not known at the subsequent stage. In the VAT system, the amount of tax would be known at each and every stage of goods of sale or purchase.5. Fair and Equitable VAT introduces the uniform tax rates across the state so that unfair advantages cannot be taken while levying the tax.6. Procedure of simplification Procedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT system so as to minimize any interface between the tax payer and the tax collector.7. Minimize the Discretion the VAT system proposes to minimize the discretion with the assessing officer so that every person is treated alike. For example, there would be no discretion involved in the imposition of penalty, late filing of returns, non-filing of returns, late payment of tax or non payment of tax or in case of tax evasion. Such system would be free from all these harassment8. Computerization the VAT proposes computerization which would focus on the tax evaders by generating Exception Report. In a large number of cases, no processing or scrutiny of returns would be required as it would free the tax compliant dealers from all the harassment which is so much a part of assessment. The management information system, which would form a part of integral computerization, would make the tax department more efficient and responsive. - 14 -
  • 16. Value Added Tax VALUE ADDED TAX IN MAHARASHTRAQuick Flash BackSales tax was first introduced in India in the then Bombay Province as early asMarch 1938 where a tax was imposed on sale of tobacco within certain urbanand suburban areas. In the year 1946, a general sales tax was introducedlevying sales tax at the last stage of sale of goods.The Bombay Sales Tax Act, 1959 introduced in 1959 underwent many changesthereafter and in July 1981, first point tax was introduced wherein goods wereclassified into three main schedules, broadly covering tax free goods,intermediate products and finished goods. The BST Act was repealed andMaharashtra Value Added Tax Act, 2002 came into force w.e.f. 1st April, 2005 tousher in the progressive value added tax system in place of the old sales taxsystem.VAT is a progressive and transparent system of taxation which eliminates thecascading impact of multiple taxation through a multipoint taxation and set-offprinciple. It promotes transparency, compliance and equity and therefore, isboth dealer friendly and consumer friendly.VAT being a multi point tax, envisages an increase in the number of dealers andis based on the concept of self-assessment and self-compliance. It is therefore,inevitable that the Sales Tax Department transforms itself into a dealer friendly,focused and dynamic department to cater to the ever increasing expectations ofboth the Government and the Trade & Industry.Sales Tax Department has taken up the challenge to transform their selves andbe available for assisting the dealers in complying with the provisions of the law.They are in the process of installing a state-wide networked IT system tocomputerise entire tax administration and hope to provide online service to thedealers in due course. They are also realigning their organisational structure tomeet the challenges of the new system and stakeholders expectations. - 15 -
  • 17. Value Added TaxPart1 - IntroductionBackgroundMaharashtra is one of the 21 States which have introduced the Value Added Tax(VAT) system of taxation from 1st April 2005. With the introduction of VAT, theSales Tax Department has moved to a globally recognized sales taxation systemthat has been adopted by more than 130 countries.The design of Maharashtra State VAT is generally guided by the bestinternational practices with regard to legal framework, as well as operatingprocedures. Another key factor in preparation of the design of State level VAT isthe national consensus on certain issues. The consensus has been arrived atthrough the discussions in the Empowered Committee of State FinanceMinisters on implementation of State level VAT.On 1st April 2005, VAT replaced the single point sales tax. Single point salestax had a number of disadvantages, primarily that of double taxation. VAT is amodern and progressive taxation system that avoids double taxation. Inaddition to offering the possibility of a set-off of tax paid on purchases, VAThas other advantages for both business and government. It eliminates cascading impact of double taxation and promotes economic efficiency. It is primarily a self-policing, self-assessment system with more trust put on dealers. It provides the potential for a stronger manufacturing base and more competitive export pricing. It is invoice based, and as a result it offers a better financial system with less scope for error. - 16 -
  • 18. Value Added Tax It has an improved control, mechanism resulting in better compliance. It widens the, tax base and promotes equity.VAT in Maharashtra is levied under a legislation known as the MaharashtraValue Added Tax Act (MVAT Act), supported by Maharashtra Value Added TaxRules (MVAT Rules). VAT is levied on sale of goods including intangible goods.The meaning of “goods” for VAT purposes“Goods” means every kind of moveable property including goods of incorporealand intangible nature but there are some exclusion, such as newspapers,actionable claims, money, shares and securities and lottery tickets.Businesses engaged in. the buying and selling of goods within the scope of theVAT law are referred to as dealers.The meaning of sale for VAT purposesA transaction of sale can be a: normal sale of goods; sale of goods under hire-purchase system; deemed sale of goods used I supplied in the course of execution of works contract; deemed sale of goods given on lease.The rate of tax applicable to the goods sold under various classes of sales isuniform. However, in respect of normal sales of goods and deemed sales ofgoods under works contract and specified deemed sale of goods given on lease,the Act provides for an optional method for discharging tax liability by way ofcomposition. Being so, the tax liability has to be determined with reference tothe option exercised by the dealer for discharging tax liability. - 17 -
  • 19. Value Added TaxBusinesses covered by VATThe VAT system embraces all businesses in the production and supply chain,from manufacture through to retail. VAT is collected at each stage in the chainwhen value is added to goods. 1t applies to al1 businesses, including importers,exporters, manufacturers, distributors, wholesalers, retailers, works contractorsand lessors. - 18 -
  • 20. Value Added TaxPart 2 - Registration under VATRules for registrationIf a dealer’s annual turnover exceeds the below mentioned threshold, then itmust register with the local office of the Sales Tax Department. All Figures in Rs. Category Annual Turnover Turnover of sales Fees payable on of Sales or purchase of registration taxable goods not less thanImporter 1,00,000 10,000 100Others 5,00,000 10,000 100If the dealer’s turnover is less than the above threshold, then they are not liableto collect and pay VAT. However, if a dealer wishes to avail the benefits of beinga registered dealer, then they may apply for voluntary registration by paying afee of Rs.5,000/ -.Benefits of being a registered dealerAs a registered dealer, they are entitled to: collect VAT on the sales; claim set-off of tax (input tax credit) paid on purchases; Issue tax invoices and, be competitive. - 19 -
  • 21. Value Added TaxEffective date of registrationThe effective date of registration, that is, the date front which a dealer maycharge VAT on sales; will depend on the date they first become liable to payVAT. This date will be determined as follows:a) New businesses:If a dealer is not registered because their annual turnover is less than thethreshold; their liability to account for VAT starts from the date they cross thethreshold.b) Existing businesses:If a dealer took over an existing business that is registered for VAT, then theywill be liable to pay tax on sales from the date they took over the business.c) Voluntary registration:If a dealer is registered on a voluntary basis, then he will be liable to accountfor VAT from the date shown on the certificate of registration.d) Late registration:If a dealer’s turnover has exceeded the appropriate threshold but they haveapplied late for registration, then he can charge VAT on his sales only after theyare registered, i.e., from the date shown on the certificate of registration.Further, having crossed the threshold, it is an offence to be engaged inbusiness as a dealer without a certificate of registrationCertificate of registrationA dealer should prominently display the certificate and hologram, or a copy ofthe certificate and hologram, at each place where they carry can on theirbusiness. - 20 -
  • 22. Value Added TaxIf a dealer has more than one place of business, then Sales Tax Office willprovide them, upon their request, one copy of the certificate of registration andhologram for each additional place of business.If a dealer loses his / her certificate of registration or hologram, or it isaccidentally destroyed or defaced, then they may obtain a duplicate copy of thecertificate of hologram from their sales tax office.The certificate of registration and hologram is personal to the dealer to whom itis issued and is non-transferable.Changes to business circumstancesIf, following dealer register, there are any amendments to the details they canbe reported while applying for registration, it must done within 60 days of thechange, inform us in writing. Where the amendment involves a: change in the name of the business; change in the constitution of the business without dissolution of the firm; change in the trustees of a Trust; change in the guardianship of a ward; change in the Karta of a Hindu Undivided Family; conversion of Private limited Company to a Public limited Company; change in the place of business; addition of new place of business; formation of a partnership with regard to the business, an application made by a dealer for insolvency or liquidation of their business; - 21 -
  • 23. Value Added Tax an application made against dealer’s business for insolvency or liquidation; opening or closing of a bank account;A dealer will not need to make a fresh application for registration. However, thecommunication to the Registering Authority concerned should be made withinsixty days of the change or occurrence of the event.Cancellation of registrationA dealer will be liable to pay VAT while their registration is effective. If however,their turnover falls below the threshold, he may choose to apply for cancellationof his registration. However, he should continue to collect and pay VAT in thenormal way until his registration is formally cancelled. Alternatively, they maybe allowed the registration to continue.If a dealer: discontinue the business; dispose of or sell or transfer the business;A dealer must inform the Sales Tax Department within 30 days of the event. Incase of disposal or sale of business, their successor will need to apply for afresh registration certificate.For cancellation of registration a dealer should submit form 103 which isavailable with the local sales tax office. It can also be downloaded from thewebsite www.vat.maharashtra.gov.inIf the Sales Tax Department cancels the dealer’s registration, they must returnthe Certificate of Registration - 22 -
  • 24. Value Added TaxThe cancellation of their certificate does not affect their liability to pay any tax,interest or penalties in respect of any period prior to the date of cancellation oftheir registration. - 23 -
  • 25. Value Added TaxThe obligations of a registered dealerFollowing are the registration, which dealer’s are obliged to: display prominently their certificate of registration and hologram in their place of business, and a copy of the certificate and hologram in each of the other places where they carry on their business; inform their sales tax office of any changes in the details previously reported to the sales tax office; collect VAT on all sales at appropriate rates; calculate the tax due and submit correct, complete and self¬ consistent returns and pay the amount of tax due on or before the due dates; issue tax invoice / bill or cash memorandum to all customers; maintain adequate records and retain them for a period of five years from the end of the tax year to which they relate; extend co-operation to the officers of the Sales Tax Department at dealer’s business premises and provide all assistance to them to discharge their duties. - 24 -
  • 26. Value Added TaxPart 3 - Explaining VATHow VAT worksWhen a dealer sell goods, the sale price is made up of two elements; the sellingprice of the goods and the tax on the sale. The tax is payable to the StateGovernment.The tax payable on sales is to be calculated on the selling price. The tax paidon purchases supported by a, valid tax invoice is generally available as set-off(input, tax credit) while discharging the tax liability on sales.ExampleThe following example shows how the VAT works through the chain frommanufacturer to retailer.Company A buys iron ore and other consumables and manufactures stainlesssteel utensils; Partnership firm B buys the utensils in bulk from Company Aand polishes them; shopkeeper C buys some of the utensils and purchasespacking, material from vendor D, packages them and sells the packed utensilsfor the public. - 25 -
  • 27. Value Added Tax(The sale and purchase figures shown in the example are excluding tax) Particulars Amount VAT @ (Rs.) 4% (Rs.)Company ACost of iron are and consumables 50,000 2000Sales of unpolished stainless steel utensils 1,50,000Value added 1,00,000Company A is liable to pay VAT on Rs.1,50,000/- @ 60004%Less Set Off (2000)Net VAT amount to pay with the Return (Note: Tax 4000invoice issued by Company A will show sale price asRs.1,50,000/- tax as Rs.6,000/-. Therefore, thetotal invoice value will be Rs.1,56,000/-)Partnership BPurchases unpolished stainless steel utensils. 1,50,000Sales polished stainless steel utensils 1,80,000Value added 30,000Partnership B is liable to pay V AT on Rs.1,80,000 at 7,2004%But can claim set off of tax paid on purchases (6,000)Net VAT amount to pay with the Return 1200Shopkeeper CPurchases polished stainless steel utensils 1,80,000Packing material 5,000Total Purchases 1,85,000 - 26 -
  • 28. Value Added TaxSales 2,25,000Value added 40,000Shopkeeper C is liable to pay V AT on Rs.2,25,000 @ 9,0004%Set off of tax paid on purchases (Rs.7,200 + Rs.200 7,400of packing material)Net VAT amount to pay with the Return 1,600Vendor DTax paid costs NilSales 5,000Value Added 5,000Vendor D is liable to pay VAT on Rs.5,000 @ 4% 200The VAT due on the value added through the chain, 9,000i.e., 4% on Rs.2,25,000 is :The State Government received the tax in stages. The payments of tax were asfollows: Particulars Amount (Rs.) Suppliers of Company 2,000 A Company A 4,000 Partnership B 1,200 Shopkeeper C 1,600 Vendor D 200 Total 9,000 - 27 -
  • 29. Value Added TaxThus, through a chain of tax on sale price and set off on purchase price, thecascading impact of tax is totally eliminated. - 28 -
  • 30. Value Added TaxSince set-off of tax on purchases is given only on purchases from registereddealers where tax is collected separately, dealer’s purchases from unregistereddealers, imports, inter-state purchases and purchases from registered dealerswithout separate tax collection are not entitled to set-off.In practice, the tax is finally borne by the ultimate consumer, who is not aregistered dealer, in this case, people who buy utensils from the shopkeeper C.Rates of value added taxThere are two main rates of VAT 4% and 12.5%. The goods are grouped into fiveschedules as under:Schedule Rate of Illustrative Items tax A 0% Vegetables, milk, eggs, bread B 1% Precious metals and precious stones and their jewellery C 4% Raw materials, notified industrial inputs, notified information technology products and a few essential items D 20% and Liquor, petrol, diesel etc above E 12.5% Other than items specified in schedules A, B, C & D.(The list is illustrative and not exhaustive. Please refer to the schedules fordetails) - 29 -
  • 31. Value Added TaxDifference between tax free goods and exempt salesIt is sometimes confusing to have goods that are tax free and sales that areexempt. Both result in no VAT being charged, so what is the difference?Tax free goods do not attract tax at any stage of sale or in any type oftransaction, whereas, exempted sales are certain types of transactions, viz.,export sales which are exempt from tax.Composition schemesCertain dealers may find it difficult to keep detailed records for claiming set-off.For such dealers, a simpler and optional method of accounting for VAT hasbeen introduced. This method is the composition scheme. It may be noted thatcomposition scheme is not meant to be a tax concession scheme but only asimplification of tax calculation and payment system.Tax payable by dealers opting for composition in lieu of VATThe following classes of dealers are eligible for option to pay tax undercomposition: Resellers selling at retail, i.e., to consumers, Restaurants, eating houses, hotel (excluding hotels having gradation of Four Star’ and above), refreshment rooms, boarding establishments, clubs and caterers, Bakers, Dealers in second-hand passenger motor vehicles and Works contractors Dealers engaged in the business of providing mandap, pandal, shamiana. - 30 -
  • 32. Value Added TaxAccordingly, if the dealer has opted for payment of tax liability undercomposition, the tax liability has to be determined in terms of the guidelinesgiven in the relevant Notification in this regard. Apart from the terms andconditions governing each of the composition schemes, the Notificationexplains the methodology for computation of turnover liable to tax and the rateof composition payable.A dealer can opt for the composition option at the beginning of the financialyear and has to continue to be a composition dealer at least till the end of thatfinancial year. If dealer wishes to switch, over to normal VAT, he can do so onlyat the beginning of the next financial year. However, a new dealer can opt forcomposition at the time of registration.In respect of works contract, the contractor can choose to discharge tax liabilityunder composition option. Moreover, such an option can be exercised by thecontractor on contract to contract basis. - 31 -
  • 33. Value Added TaxPart 4 - Calculating tax liabilityIn, order to calculate how much tax a dealer has to pay, he must, firstdetermine his turnover of sales and turnover of purchases. The second stage isto ascertain the amount of tax due for payment.Calculating turnover of sales and purchasesThe turnover of sales is the total of the amounts received or receivable(excluding VAT charged separately) in respect, of the sale of goods, less theamount refunded to a purchaser in respect of goods returned, within sixmonths of the date of the sale.Similarly, the turnover of purchases is the total of the amounts paid or payable(excluding VAT charged separately) in respect of the purchase of goods less(the amounts repaid to dealer in respect of goods they return, within sixmonths of the date of purchase.Credit notes and debit notes.If the sale price, or the purchase price, of any goods is varied and either a creditnote or a debit note is issued, then the credit note or the debit note, as the casemay be, should show separately, the tax and the price. be accounted for in the period in which the appropriate entries are made in their books of accounts. - 32 -
  • 34. Value Added TaxSpecial casesAuctioneersIf dealer is an auctioneer, then they must include in their turnover, the price ofthe goods they auction for their principalHotelsThere are special rules for hotels and other establishments that provideboarding and lodging for an inclusive amount.The rules provide a formula to enable them to calculate their turnover of salesfor meals (food and beverages) which they provide.The supply of food in a restaurant also includes an element of service. But thefull amount charged is the sale price for the purposes of calculating turnoverand tax.Works contractsVAT applies only to the sale of goods. Supply of services is not liable to VAT.Works contracts are deemed sales where both, goods and services are providedin a transaction and cannot be separated.A works contract may involve the creation of immoveable property, e.g. a house,a factory or a bridge. Some other examples of works contracts are photography,repairs & maintenance etc.To calculate the amount a dealer should include it in their turnover of sales, sothat they may deduct it from the total contract price, the costs of labour and service charges. amount paid to sub-contractors. charges for planning and designing, and any architects fees. hiring charges for machinery and tools. cost of consumables, such as, water, gas and electricity. Dealer’s administrative costs relating to labour and services and any other similar expenses. any profit element that relates to the supply of labour and services. - 33 -
  • 35. Value Added TaxAlternatively, in lieu of the deductions as above, a dealer may choose todischarge the liability arising on works contracts by referring to the tableprescribed in the rules.If the dealer finds that it is too complicated to calculate the deductions, thenthey may opt for a composition scheme for any works contract.Sales and purchases not liable to tax under VATThe VAT law specifically excludes from value added tax all imports, exports andinter-state transactions. These transactions are covered by the CST Act.Similarly, transactions that take place outside Maharashtra are not within thescope of MVAT Act.Point of levy in certain casesHire purchaseWhere there is a hire purchase agreement or an agreement for sale byinstallments, the date of the sale is deemed to be the date of the delivery ofgoods. This is despite the fact that legal ownership of the goods only passes tothe buyer after payment of the final installment.If the hire-purchase agreement specifies the interest component then incalculating the sales price, dealer should disregard the interest componentincluded in the agreement.Calculating the amount of VAT due on salesDealer should also make some adjustments to the total turnover of sales toarrive at the amount on which tax is due.From the total sales one should deduct the total of exports and inter-State sales. the total of sales of goods that are tax free, and branch / consignment transfers to locations in Maharashtra as well as other States. - 34 -
  • 36. Value Added Tax the tax collected.To calculate the tax due, dealer should start allocating their turnover of sales inthe return period (net of the above deductions) to the rates of tax they havebeen charged. They should also ensure that the correct tax rates are applied.The information should be readily available from their records. This gives thetotal of sales tax due.Calculating the turnover of purchasesRecords will provide the total figure, but they may not have paid VAT on alltheir purchases. They must now deduct the total value of imports from out of India. inter-State purchases. purchases of tax free goods. direct purchases from exempted units under the Package Scheme of Incentives. consignment transfers, and local purchased from unregistered dealers. local purchases from registered dealers not supported by tax invoice.The resulting figure represents purchases against tax invoices from registereddealers.Calculating the amount of set off due (VAT paid on purchases)This is the next stage of tax calculation. At this stage VAT is charged on totalpurchases. Dealer must, however, make some adjustments to this amount for,in certain cases, the full set off of the VAT paid on purchases is not available.Adjustments to tax available for set off If dealer’s purchases include goods, used o as fuel, or o for the manufacture of any tax-free goods, or o as packaging for tax-free goods, this goods should be sold. - 35 -
  • 37. Value Added TaxThen a dealer must calculate the value of those items and deduct tax @ 4% ofthe corresponding purchase price from the amount otherwise available for setoff. (Not applicable to PSI dealers other than the New Package Scheme ofIncentives for Tourism Projects, 1999 and also to manufacturers of tax-freesugar or fabrics covered by Entry A 45 and where such goods are sold in thecourse of export falling under section 5 of the CST Act, 1956).Similarly, if the goods are stock transferred by way of branch / consignmenttransfer to a place outside the State, deduct tax @ 4% (1 % in respect of goodscovered by Schedule B) of the corresponding purchase price from the amountotherwise available for set off.Dealer must also make further adjustments as follows: - If they have been used any goods (other than capital assets) as part of a works contract for which they have been opted for payment composition @ 8% on the total contract value, they must also deduct 36% of the amount from the set off otherwise available (4% of purchase price in respect of construction contracts for which they have been opted for payment of composition @ 5% on total contract value). Where a dealer’s sales are less than 50 % of their gross receipts, then they can claim set off only on those purchases of goods or packing materials effected in that year where the corresponding goods are sold within six months of the date of purchase or consigned within the said period to another State by way of stock transfers. In respect of office equipment, furniture or fixtures which have been treated as capital assets, a dealer should reduce set-off otherwise entitled by an amount equal to 4% of the purchase price. If a dealer is the retailer of liquor vendor and its actual sale prices are less than the Maximum Retail Price, there is a special formula for calculating the amount of the adjustment. Effectively this means that, if a dealer sells - 36 -
  • 38. Value Added Tax at 75% of the MRP then they can claim set off only to the extent of 75% of the tax paid. A dealer can not claim any set off for the tax paid on any purchases that remain unsold on the date when business discontinues.All this information should be available from their records, including taxinvoices and bills or cash memorandum they have issued, and the tax invoicesthey have received. - 37 -
  • 39. Value Added TaxSet off not availableThere are various items on which set-off is not available such as, goods ofincorporeal or intangible character other than those specified, passenger motorvehicles, motor spirits, crude oil, building material used for construction etc.Conditions for claiming set offA dealer can claim set off only for VAT paid on purchase if they have a valid taxinvoice for that transaction and they had maintain account of purchasesshowing the specified details.Tax payableThe amount of set-off admissible can be adjusted against tax payable. Theamount of net tax payable is the total of sales tax collected on sales less theset-off available.Refund casesIf the amount of set-off admissible during the period is more than the amountof tax payable, then dealer’s return would reflect a balance refundable to thedealer. The amount of set-off can be more than the tax payable for a variety ofreasons, such as ¬ Inputs are taxable at higher rate as compared with the rate of tax on output. Outputs are tax-free goods while inputs carry tax. Outputs are export sales. Outputs are CST sales which are taxable at the concessional rate of CST. - 38 -
  • 40. Value Added Tax Manufactured goods or trading goods are transferred to branches outside the State or are sent on consignment transfers.Apart from part of the admissible set-off which can remain unutilized, excesscredit can be on account of: unutilised portion of tax deducted at source or refund payment order or ad-hoc payment made is more than tax payable.Whatever may be the reason for credit in excess of tax due and payable duringa tax period, dealers are eligible to claim refund of such excess credit. For thepurpose of granting refund, dealers have been classified under two categoriesviz. a) specified class of dealers and b) other dealersRefund to specified class of dealersSpecified classes of dealers are ¬: - Exporters exporting out of the country or dealers selling to an exporter against form H. A unit set-up in SEZ or STP or EHTP or a 100% EOU unit. These units have to be certified by the Commissioner of Sales Tax. An Entitlement Certificate holder availing of the benefit of incentives under the Package Scheme of Incentives (PSI).Specified class of dealers and the dealers who have made a sale in the course ofinter-State trade or commerce and in the return he has shown any amount tobe refundable are eligible to claim refund in each of the returns filed by them.Full amount of excess credit can be claimed as refund due for the return period. - 39 -
  • 41. Value Added TaxThe dealer eligible to claim refund has to file refund application in Form 501.The application has to be filed with the Refund Branch. The Refund Branch mayask for Bank Guarantee and any relevant information for checking correctnessof refund claimed. Normally, refund would be granted within one month fromthe receipt of Bank Guarantee or within three months from the date of receiptof refund application in Form 501, or as the case may be, the date of receipt ofthe additional information, whichever is later.Refund to other dealersOther dealers are not eligible to get refund in each of the return filed. They arerequired to carry forward excess credit to the next return within the samefinancial year and claim refund of excess credit in the return for the periodending March.The dealer claiming refund in March return has to make refund application inForm 501. The application has to be filed with the Refund Section. Normally,refund would be granted within six months of the end of the year to which thereturn relates. However, refund would be granted within six months to the newdealer’s at the end of the year succeeding the said year.Audit of refund claimsThe refund granted to dealer would be subject to audit by the Refund AuditSection. The audit may be taken up before granting the refund or after therefund is granted. Normally, refunds made against Bank Guarantee would betaken up for audit after the refund has been granted. During the course of theaudit, the audit team will check dealer’s eligibility to claim refund and thecorrectness of the amount of refund claimed by them.Interest on delayed refund - 40 -
  • 42. Value Added TaxNo interest is payable on the refund due to a dealer as per returns filed by adealer. However, if granting of refund is delayed beyond the above mentionedperiods, dealer is eligible for interest for delayed payment. Simple interest atthe rate of 6% per year would be payable for the period from the due date to thedate of refund.Some tips for getting timely refundDealer’s claim of refund would be processed faster if: - They had filed the return with the Returns branch as per the prescribed time schedule. The return filed by the dealer’s should be correct, complete and self-consistent. They should have claimed refund as per the appropriate periodicity. The amount of refund due to them should be computed correctly. Refund application in Form 501 is filed with the Refunds branch in time. They should have promptly furnished Bank Guarantee and other details when called for. They should keep ready all the documents and records for audit. They should file the return for a period for which they are required to file.Thus, if they are required to file a quarterly return, but they file a monthlyreturn, then the refund would not be granted for the monthly return. In order tobe eligible for refund, they would have to file a quarterly return. - 41 -
  • 43. Value Added TaxPart 5 - Filing a return and paying the taxVAT is a self-assessment system and dealer’s are expected to make self ¬assessment for a given tax period and declare their VAT liability by filingreturns. The returns have to be filed in the prescribed form and by the specifieddates. Further, they are also required to pay the tax due as per the return filed.In Maharashtra, return form is return-cum-chalan. As such, filing of returnsalong-with payment of tax on or before the due date at the notified bank wouldbe considered as sufficient compliance. However, where any amount of taxincluding interest or penalty is due as per a fresh or revised return, then theyshould first pay such amount in Government Treasury and file the return in thelocal office of Sales Tax Department along with a self attested copy of thechalan. If no payment is due or a refund is claimed as per the return, they arealso required to file the return in the local office of the Sales Tax Department.Return formsThe return forms prescribed are as follows. Form To Be Used By No.221 All VAT dealers other than dealers executing works contract, dealers engaged in leasing business, composition dealers (including dealers opting for composition only for part of the activity of the business), PSI dealers and notified Oil Companies.222 All composition dealers whose entire turnover is under composition (excluding works contractors opting for composition and dealers opting for composition only for part of the activity of - 42 -
  • 44. Value Added Tax the business).223 VA T dealers who are also in the business of executing works contracts, leasing and dealers opting for composition only for part of the activity of the business.224 PSI dealers holding Entitlement Certificate (Transactions by PSI dealers relating to the business of execution of works contracts, leasing, frading and composition only for part of the activity of the business to be included in a separate return in Form 223).225 Notified Oil Companies (Transactions by OIL Companies relating to the business of execution of works contracts, leasing and composition only for part of the activity of the business to be included in a separate return in Form 223).A dealer can refer to the instructions given in the form before filling the return.Please ensure that the return for a tax period covers all the transactions of sales,purchases, branch transfers received, branch transfers made etc. Further, theymust ensure that all the columns of the return are duly filled in and are clearlylegible. If a particular column is not relevant, please do not leave it blank butmention" not applicable". The return filed by them must be correct, completeand self-consistent.Time schedule for filing returnsPeriodicity of filing returns is as follows: -¬ Retailers who have opted for composition should file six-monthly returns. Newly registered dealers should file quarterly returns until the end of the year in which they first register. All package scheme dealers should file quarterly returns. - 43 -
  • 45. Value Added Tax All other dealers should file returns as given below :-¬ o Dealers whose tax liability in the previous year was less than Rs.1,OO,OOOj- (Rs.1lakh) or whose entitlement for refund was less than Rs.10,OO,OOOj- (Rs.10lakh) should file six-monthly returns. o Dealers whose tax liability in the previous year was more. than Rs.10,00,000- (Rs.10lakh) or whose entitlement for refund was more than Rs.l,00,00,000- (Rs1crore) should file monthly returns. o All other dealers should file quarterly returns.Filing and payment dates for return-cum-chalan are as follows: Return Filing / Payment date FrequencyMonthly 21 days from the end of the return periodQuarterly 21 days from the end of the return periodSix Monthly 21 days from the end of the return periodScrutiny of returns filedThe return filed by the dealer should be correct, complete, and self-consistentin every respect. The Sales Tax Office will check the return to ensure that thereare no obvious errors in consistencies or contradictions in calculations. If thischeck reveals discrepancies, then the dealer’s will be advised and invited tosubmit a fresh return. The department will issue this defect notice within fourmonths of receiving their return. Then they should file their fresh return within30 days of the notice. If they fail to do so, it will be deemed not to have filedthe return within the time allowed, and will so liable to a penalty charge.At the same time, as the department issues the defect notice, dealers will besent a show cause notice, explaining that a penalty may be imposed. - 44 -
  • 46. Value Added Tax - 45 -
  • 47. Value Added TaxOffences relating to filing of returns and payment of taxThe following are the offences liable for interest / penalty / prosecution etc. Short- payment / non- payment of tax due Failure to file returns Delay in filing returns Knowingly furnishing false returns Filing of incorrect or incomplete or inconsistent returnsConsequences for filing a return, which is not correct, complete andself-consistentEach of the returns filed by them is checked to confirm that the same is correct,complete and self-consistent. In case the return is defective, a defect notice isissued by the Returns Branch pointing out the error or the omission. On receiptof the notice, it is required to file fresh return which is correct, complete andself-¬consistent and should also pay differential tax due, if any.The return filed by them in response to defect notice is termed as Fresh Returnand the dealer should indicate so on the return in the space provided for thesame.Fresh return rectifying the defects has to be filed within the time limit specifiedin the defect notice. Failure to comply with the notice would be construed asnon-filing of return and consequently, a unilateral (ex-parte) assessmentorder would be passed. - 46 -
  • 48. Value Added TaxFailure to file a returnIf dealer’s fails to file a return within the time allowed, then they are committingan offence and, in addition to any tax and interest that may be due, which isliable to a penalty.As no return has been filed by them, a unilateral assessment without givingthem a notice will be made. This unilateral assessment order is non-appealable.However, they can get this assessment order cancelled only by filing the returnand paying the tax and interest due as per the return. For this purpose theyshould file application in Form 304 and submit to Returns Branch.Paying the tax dueAll the dealer’s or the person must file their return and should pay the tax due,in a bank that is authorized to accept the return. If they are required to file arevised return, and the tax due exceeds the amount which they had paid whensubmitted earlier form, then they should pay the balance amount which is duenow.The bank will give them an acknowledgement of the receipt of their return andpayment. If there is any doubt that where to file the return and pay the tax due,then can ask to their local sales tax office.Revised returnSubsequent to filing the return, in case dealer notices any error or omission,then they can file a revised return before expiry of eight months from the endof the financial year to which the return relates or before a notice forassessment is served, whichever is earlier. Such return should be accompaniedby payment of tax and interest, if any. In case the return filed by them is a - 47 -
  • 49. Value Added Taxrevised return, then they should indicate it on the return form in the spaceprovided for the same.The various types of returns and their description have been summarised asunder: Type Of Description ReturnOriginal The return filed by the dealer originally along with the payment in the bank.Fresh The return filed by the dealer after the department issues a defect notice.Revised The return filed by them to correct any error or omission.Filing of returns in special casesThe first return for the newly registered dealer is for the period up to the end ofthe quarter containing the date of its registration.Example 1The turnover exceeds the threshold on 1st November. Then they should applyfor registration, which is granted on 30th November and the date of effect is1st November. The first return is for the quarter ended 31st December coveringthe period 1st, April to 31st December; and the second return is for the quarterending following 31st March.Example 2If turnover exceeds the threshold on 1st November. But dealer apply late forregistration i.e. on 10th December, and the registration is granted on l0thDecember, then the date of effect registration is 10th December i.e., Date of - 48 -
  • 50. Value Added Taxapplication. The first return is due for the quarter ending on 31st December(covering. the period 10th December to 31st December). . - 49 -
  • 51. Value Added TaxFiling of return in case of cancellation of registrationDealer’s registration may be cancelled if they discontinue, transfer or sell thebusiness. They may also choose to cancel their registration if their turnoverfalls below the threshold limit¬.ExampleIf dealer’s file the returns quarterly and their, last return was for the quarterending 30th September. If a dealer closes the business on 15th November, thentheir final return will be for, the period 1st October to 15th November. Thereturn should be filed within one month, that is, before 15th December.Dealer under the Package Scheme of IncentivesIf dealer’s hold a Certificate of Entitlement granting an exemption frompayment of tax or deferment of payment of tax, it should be for the unit whichis eligible for the incentives, file a quarterly return, in Form 224. They mustcontinue to file quarterly return till the Certificate of Entitlement remains valid.When the validity of the Certificate of Entitlement ends, then dealer must file:-¬ a quarterly return, in form 224, for the period from the first day of the quarter in which the event occurs to the date the Certificate of Entitlement ceases, and a quarterly return, in form 221 or 222 or 223 as the case may be, for the remainder of that financial year. For succeeding years, the period and frequency of the returns will be determined on the basis of the tax liability or entitlement for refund of the preceding financial year. - 50 -
  • 52. Value Added TaxFiling multiple returnsDealers are required to file a single return at its principal place of business forall its businesses or places of business. If they desire to file separate returns forseparate places / divisions, then they must apply for Form 211 for permissionto file multiple returns. Dealer should ensure that correct, complete andself-consistent returns are filed at all the locations in the State.Tax deduction at source by an employer in a works contractThe works contractor is obliged to pay the tax on the works contracts executedby him. However, the employer i.e. the notified person who has engaged theworks contractor is obliged to deduct tax at the specified rate from the amountpayable to the works contractor, excluding the amount of tax, if any, separatelycharged or service tax levied by the contractor.. The tax amount so deductedand paid to the Government treasury IS considered as a payment made onbehalf of the works contractor.The employer is required to deposit this tax and issue a certificate of taxdeduction at source in the prescribed format based on which the workscontractor is allowed to take the credit of the same while discharging his taxliability. - 51 -
  • 53. Value Added TaxPart 6 - Records and accountsKeeping recordsProper records are an essential part of effective management and control oftheir business. Dealers are required by law to keep a true and accurate accountof the transactions effected by them. This will also help them to correctlyquantify their tax liability or refunds, as the case may be.They should keep all their accounts, registers and documents relating to theirstocks of goods, purchases, sales and deliveries of goods, at their place ofbusiness. If they wish to keep them at a different location they may do so, butonly if they have the permission of the Commissioner of Sales Tax.Nature of recordsNormally, this department will not expect them to keep any special records forVAT purposes. However, the records that they do keep should have sufficientdetails to enable them to correctly calculate the amount of VAT due forpayment and file their return.If Sales Tax Office happens to find that their records are not properlymaintained, then they will issue a notice, informing dealers about what recordsthey must keep.A dealer should maintain the following records¬: - to identify the nature and value of goods purchased and sold; distinguish between - o local sales, interstate sales & exports. o local purchases, interstate purchase & imports. - 52 -
  • 54. Value Added Tax indicate value of - o sale and purchase of tax free goods. o sales exempted from tax. o purchases from URD. o rate-wise purchases & sales. o local purchases from registered dealer with VAT shown separately. record payments for the purchases and sale of goods in cash book / bank book. include a summary of VAT paid separately on purchases, VAT charged on sales, VAT paid to the State treasury and VAT refundable / refunded to the dealers. contain adequate proof that goods have been exported or imported; be supported by invoices for all goods purchased, and copies of invoices, and bills or cash memoranda, issued for goods sold.Tax invoices and memoranda of sales or purchasesAs a registered dealer, they should issue a tax invoice when they sell goods toanother registered dealer and charge VAT. For sales made to consumers andunregistered dealers, they must issue a tax invoice, or a bill or cashmemorandum. However, if a dealer is a composition dealer other than a workscontractor, they must issue a bill or cash memorandum only and not a taxinvoice. Failure to issue a tax invoice or a bill or cash memorandum may resultin a penalty.The tax invoice must contain: - the words Tax invoice, printed in bold letters at the top or at a prominent place; dealers name, address and registration number (TIN). the name, address and the registration number of the purchaser; - 53 -
  • 55. Value Added Tax serial number of the invoice; date of issue; description of the goods, the quantity and price of the goods sold; rate and the amount of the tax charged and indicated separately; prescribed declaration regarding validity of the registration and payment of tax;And it must also be signed either by dealer or by someone who is authorized bythe dealer.If a dealer issues a bill or cash memorandum, it must contain: - words Bill / cash memorandum, printed in bold letters at the top or at a prominent place; if a dealer is a composition dealer (other then works contractor) then the words Composition Dealer at the top of the bill / cash memorandum; dealers name, address and registration number (TIN); the name and address of the purchaser; serial number of the bill / cash memorandum; date of issue; description of the goods, the quantity and price of the goods sold; prescribed declaration regarding validity of the registration and payment of tax;And it must also be signed either by dealer or by someone who is authorized bythe dealer.Retention of recordsA dealer must keep all their records including tax invoices / bill / cashmemorandum, relating to their stock of goods, purchases, sales, deliveries and - 54 -
  • 56. Value Added Taxpayments made or received for the purchase or sale of goods for a minimum offive years from the end of the year to which they relate.However, in case any legal proceedings are pending; the records pertaining tothat period should be retained till the proceedings reach finality. - 55 -
  • 57. Value Added TaxIndependent audit of accounts by a Chartered AccountantIf dealers’ annual turnover of sales exceeds Rs.40lakhs, or if they hold a licensefor the manufacture or sale of liquor, then they must have their books ofaccounts audited by a practicing chartered accountant.The Chartered Accountants audit report, to be made on Form 704 and it mustbe submitted within 8 months from the end of the financial year. If they fail tosubmit the audit report to the Sales Tax Department within the prescribed time,then they may be liable to a penalty.Production and inspection of accounts and documentsIf the concerned sales tax authorities have reason to believe that there mayhave been attempts to evade the payment of tax, they may require dealer toproduce all their books of accounts.If a dealer fails to comply with such a requirement, it may commit an offenceand will be liable to a penalty. - 56 -
  • 58. Value Added TaxPart 7 - Business AuditBusiness Audit is a new function of the Sales Tax Department. This will beconducted by the Sales tax officials ordinarily at the dealers place of business.This audit is independent from the audit by a Chartered Accountant. BusinessAudit is however, not an activity of enforcement for search and seizure atdealers business premises.Objectives of Business AuditThe objective of a Business audit is to close any possible gap between the taxdeclared by a dealer and the tax legally due. It aims to ensure optimumrevenue collection and voluntary compliance. The aim of Business audit is toencourage the highest possible level of voluntary compliance in a system ofself-assessment.Selection for auditThe main purpose of an audit is to ensure tax compliance, cross check oftransactions and initiate corrective actions, if necessary. The returns filed by thedealers will be examined for discrepancies. Based on such examination andpre-determined criteria, some dealers will be selected for audit. Generally,cases selected for audit will include those dealers – who file its returns late in whose case they have reason to believe that the return may not be correct or a detailed scrutiny is necessary chosen randomly, on the basis of certain criteria. - 57 -
  • 59. Value Added TaxA dealer who consistently and regularly complies with the VAT law and filescorrect, complete and self consistent returns will normally not be selected foraudit. The selection of audit cases will be by exception rather than as a rule.The Business Audit ProcessIf any of the dealers business is selected for an audit, then Sales Tax Office willinform them and then fix a suitable date.The audit officer will inspect the books of accounts and supporting documents.At that time dealer should make available any information or documents that hemay require to enable him to carry out the audit effectively and speedily.The audit officer may like to understand dealer’s business process and examinetheir stocks of goods. He may also like to interview the person or its employeesfor this.The audit officer cannot remove any books of accounts or documents from theirpremises. However, audit officer can request for copies.Results of the auditIf the audit shows that the returns filed do not reflect the true picture of thedealers business, then the auditor may discuss the matter with the dealer andwill give guidance to them to prevent recurrence and will also explain themabout what action should be followed. The audit may result in additional taxdemand or a refund. - 58 -
  • 60. Value Added TaxAdditional tax demandIf any additional tax is due, the auditor will issue a notice explaining theadditional demand. If the dealer accepts the additional demand shown, thenthey should file a revised return along-with the payment of tax.However, if the dealer disagrees with the findings of the auditor, then they mayproceed to assess their case and issue an assessment order unless they are ableto provide evidence and convince the audit officer not to assess them foradditional demand. The assessment order will also include interest due fromthe date they should have paid the tax to the date of the assessment. Inaddition, they may also impose a penalty. They should pay the dues as per theassessment order or they may prefer an appeal against this order.Time limit for auditThere is no time limit prescribed for conducting Business Audit. Normally, theymay carry out an audit within two years of filing the return. They may follow thetimelines as prescribed for completion of assessments under the MVAT Act andMVAT Rules.InvestigationNormally, the Sales Tax Department will make Business Audit visits byappointment. However, if the department suspects any tax evasion, it mayconduct investigation of the business including search and seizure operationsat any time without giving notice. Such investigation will be carried out by aduly authorized investigation officer (not audit officer). - 59 -
  • 61. Value Added TaxPart 8 - AppealsA dealer may appeal against an assessment order if they do not agree with theamount assessed. They may also appeal against an order for the charging ofinterest or the imposition of a penalty. They can also file an appeal against anyother order passed in their case. Appeals cannot be filed against certaininterlocutory proceedings or orders. Also, they can not appeal against anunilateral assessment order passed as a consequence of non filing of returns.There are two appeal bodies; the first is the departmental appeal officers andthe second is the Maharashtra Sales Tax Tribunal (Tribunal).Appeal bodiesNormally, dealer’s appeal will be, in the first instance, to the departmentalappellate authority. However, where the Commissioner, or a Joint or AdditionalCommissioner issues the order, its appeal is directly to the Tribunal. (The orderwill show the designation of the officer.)If the dealer is not satisfied with the decision of the departmental appellateauthority, then they may make a second appeal to the Tribunal.The TribunalThe Tribunal consists of equal number of judicial and technical members. Thelatter are ordinarily, senior ex-officers of the Sales Tax Department. - 60 -
  • 62. Value Added TaxFiling an appealDealer’s appeal must be made, using Form 310, within 60 days of the date ofservice of the order against which they are appealing. They can get a copy ofthe form from the local sales tax office or can download it from the Sales TaxDepartment website www.vat.maharashtra.gov.inA dealer must make sure that the form is fully and correctly completed. If thereare any mistakes or omissions, then they will be advised and given anopportunity to correct them. If again they fail to do so, then their appeal will berejected.Before making an appeal, dealer must pay a fee through a challan in Form 210.If the amount involved in their appeal is one lakh rupees or more, the fee is onetenth of a percent (0.1%) of the amount in dispute, subject to a maximum ofRs.1000/-. In all other cases, the fee is Rs.100/-.Application to stay the orderIn case dealers prefer as an appeal against an order of demand, then they mayapply for stay an order to the extent of any amount to be paid by the appellantpending disposal of their appeal. Dealer must make their said application onForm 311 which can be simultaneously filed along-with the appeal.Appeal rejectedIf the dealer’s appeal is rejected on the ground of non-attendance, then theymay apply, it again within 30 days for the restoration of the appeal citingsufficient reasons. The appellate authority will take appropriate decision. - 61 -
  • 63. Value Added TaxAppeal acceptedIf dealer’s appeal is admitted, then the appellate authority will give them aminimum of 10 days notice of the date, place and time of the appeal hearing(unless they request an earlier hearing). The hearing may be adjourned orpostponed upon the dealer’s request if deemed fit by the appellate authority.The Appeal hearingAt the appeal hearing, dealer and legal adviser if any together - will be given anopportunity to explain their reasons for making the appeal and to support theircase by producing evidence.After considering their arguments and evidence, the appeal officer will confirmor modify the order under appeal.If the dealer is not satisfied with the appeal officers decision, then they may filea second appeal within 60 days to be heard by the Tribunal ¬Appeal to TribunalDealer should file their appeal to the Tribunal in Form 310, taking care toensure that they provide all the information relevant to their appeal as requiredby the form. And they must pay the appropriate fee through a challan in Form210.The proceedings before the Tribunal will be similar to those outlined above.Dealer may present their case and evidence before the Tribunal through theirlegal representative. - 62 -
  • 64. Value Added TaxAfter examining their arguments and evidence, the Tribunal will passappropriate order confirming or modifying the order under appeal orremanding the case for fresh order to the lower authority with appropriatedirections.In addition, there are two important differences: - 1. The Tribunal has the discretionary power to award costs. 2. The decision of the Tribunal is final, especially on points of facts, subject only to an appeal to the High Court if the case involves a substantial question of law.If the dealer fails to attend the hearing by the Tribunal, then they will be liableto such costs as the Tribunal may award.If the dealer, or the department, are not satisfied with the decision of theTribunal and believe that the disagreement involves a substantial question oflaw, an appeal can be filed before the High Court. However, such filing of anappeal to the high court shall not affect their liability for payment of tax / claimof refund as per the order of the Tribunal.Appeal to the High CourtDealer may appeal to the High Court within 120 days of receiving the orderfrom the Tribunal. A statement setting out in detail the point(s) of law to bedecided must accompany the appeal memo.Late appealsA late appeal may be admitted provided that they have a good reason for notmaking the appeal within the time allowed. - 63 -
  • 65. Value Added TaxBut they must demonstrate that, having become aware that their appeal waslate, then they had made the appeal without further delay. - 64 -
  • 66. Value Added TaxPriority hearings for senior citizensAppeals are normally heard keeping in view the two criteria of the age of theappeal and the stakes involved. However, if the dealer is a senior citizen aged75 years and over, then they may apply (using Form 313) for priority to begiven to the hearing of their appeal. - 65 -
  • 67. Value Added TaxPart 9 - Tax Payer ServicesSales Tax Office expects from the dealer to comply with the law and fulfill theirobligations to pay their taxes correctly, and timely. Sales Tax Office will providecertain services and facilities to help the dealer in this regard. Some of theimportant ones are listed below.Advisory visitsIn case of a newly registered dealer, an advisory visit will follow shortly after thedealer receives their new VAT Registration Certificate. The Sales TaxDepartment will then contact them to arrange a visit to the dealer’s place ofbusiness at a convenient time.The purpose of the advisory visit is to ensure that the dealer understand how tomaintain books of accounts, claim set-off, file their return and pay their taxcorrectly. Dealer can also use this opportunity to get their queries, doubtsclarified.By providing such information, the Sales Tax Department is trying to ensurethat the dealer do not incur any penalties or interest by failing to comply withthe legal requirements of being a registered dealer.The advisory visit team will also verify the details submitted by the dealer at thetime of registration. Dealers are expected to make available the necessaryinformation and documents at the time of the visit.The Sales Tax Department would appreciate the dealer’s feedback on theusefulness of the advisory visit. Dealer’s valued suggestions / input will helpthe Sales Tax Office to improve their system and will serve the dealer better. - 66 -
  • 68. Value Added TaxCentral Repository for Issuance of Statutory FormsA Central Repository has been set up in every Sales Tax Office havingRegistration branch. Each Central Repository issues various statutory formsprescribed under the CST Act, to the dealers registered within the jurisdiction ofthe concerned registration office.However, Form I will be issued to the SEZ units from the office of theCommissioner of SEZ.The Dealer has to submit an application in the prescribed format for supply ofstatutory forms along with the Statement of Requirement which is available inevery Sales Tax Office or can be downloaded from the Sales Tax Office websitewww.vat.maharashtra.gov.inDealers will be issued the requisite number of forms on payment of thefollowing fees by way of court fee stamps only: SR.No. Type of Fee per form Form (Rs.) 1 C 3.00 2 F 3.00 3 H 3.00 4 E-I 1.00 5 E-II 1.00The statutory forms will be issued on a quarterly basis only after thetransactions of the said quarter are completed. However, form F will be issuedon a monthly basis. - 67 -
  • 69. Value Added Tax - 68 -
  • 70. Value Added TaxTINXSYSTax Information Exchange System (TINXSYS) is a centralized exchange of allCST dealers spread across various States and Union territories of India. TINXSYScan be used by any dealer to verify authenticity of his counter part dealer in anyother State.The TINXSYS will also help the States in cross checking the inter¬statetransactions on a real time basis.The pilot phase of TINXSYS has commenced and the Maharashtra Sales TaxDepartment is an active partner in the system.Determination of disputed questionsIf the dealer wants to find out the correct interpretation on certain issuesrelated to the taxation matter, also dealer may apply to the commissioner fordetermination of the particular question. An illustrative list of such questions isgiven below: whether a person is liable to be registered as dealer. what is the rate of tax on a particular commodity. whether a particular transaction is a sale. the price on which tax is payable. whether set off can be claimed in a particular transaction.Dealer will be given an opportunity to present their case before theCommissioner makes an order. If the dealer disagrees with the commissionersruling, then they may appeal to the Tribunal against the order. - 69 -
  • 71. Value Added TaxHowever, if the Sales Tax Department has commenced assessment proceedingsor if the case is pending in appeal, dealer can not apply for determination ofdisputed, question.Tax clearance certificatesIf dealer wishes to apply for a tax clearance certificate, Sales Tax Office willprovide the same within 15 days of their request.Sales Tax Office will issue the certificate based on the dealer’s record. It willshow the periods for which dealer have filed returns. periods for which dealer has not filed a return. periods for which Sales Tax Office have made al1 assessment. status of any pending proceedings, and any amounts of tax outstanding and due for payment.Dealer should apply for a certificate using Form 414.Service CellThe service cell meetings are held at the Head Quarters in Mumbai once inevery quarter. Dealer can actively participate and can provide their valuablefeedback / suggestions during these meetings.The Website (www.vat.maharashtra.gov.in)Sales Tax Office has developed a Website for serving all the dealers or person ina more efficient and faster way. The website has been divided into five sectionsas under: - 70 -
  • 72. Value Added TaxWhats new?Dealer will get all the latest notifications / circulars that are issued by the SalesTax Department in this section. - 71 -
  • 73. Value Added TaxGeneral InformationThis section, contains general information on the Sales Tax Department such asstatistical information with regard to the, tax collection location of all theiroffices in the State.Knowledge CenterThis section is a repository of the MVAT Act & MVAT Rules and, also includesthe notifications and Circulars issued under the MV AT Acts as well as earlierActs.Tax Payer ServicesThis section contains the soft copies (downloadable format) of the forms thathave been prescribed. This section also contains the information as required bythe Right to Information Act. Dealer can find out their Tax IdentificationNumber (TIN) and also TIN of other dealers by using various search criterion.Dealer can also obtain various declaration forms as prescribed under theCentral Sales Tax Act, through online requisition of these forms. The web linksmenu of this section connects dealers to the relevant important websitesincluding the websites of other States Sales Tax Department.Communication CentreThis section facilitates the communication process wherein dealer can posttheir queries. Dealer may also be able to post their valuable feedback /suggestions. - 72 -
  • 74. Value Added TaxPart 10 - Recovery, Offences and PenaltiesRecovery of unpaid taxVAT is a self-assessed tax. In order to operate effectively, the self¬-assessment system relies on the expectation that every dealer will deal withhis tax matters promptly and honestly.But there will be occasions when a dealer does not pay the tax that is due.And so, there is a system designed to recover unpaid tax and to deterdealers from trying to avoid paying tax.The self-assessment return requires the dealer to pay the tax due at thetime of submission of the return. If this dealer does not pay the tax that hehas declared, or if only pays a part of the tax due, interest is payable inaddition to the tax due.Attachment of Bank AccountWhere any tax, interest or penalties remain unpaid, the department mayissue an attachment notice to the dealers bank and to his debtors. Ifnecessary, officials of the Sales Tax Department may call for the recordsfrom the defaulting dealer to examine and obtain the necessary details.Attachment proceedingsThe department may also recover the amounts due by attaching thedefaulting dealers moveable or immoveable property under the provisionsof Maharashtra Land Revenue Code. - 73 -
  • 75. Value Added TaxIf the department is still unable to recover the amounts of tax, interest andpenalties plus any costs incurred in the attachment proceedings, it willinitiate prosecution proceedings through police.The VAT law outlines a number of offences and the financial and otherconsequences that follow.In addition, interest will be charged on any tax paid late at the rate of 15%per year.OffencesThe principal offences, each of which has been referred to in the text of thisguide, are as follows: -If a person¬ - poses as a registered dealer when they not registered. files a false return. keeps false account of the value of goods bought or sold. produces false accounts, registers or documents or provides false information. issues any document (including bills, cash memoranda, vouchers or any other certificate or declaration) which the dealer knows or has reason to believe is false.He may be liable for criminal proceedings including imposition of fine - 74 -
  • 76. Value Added TaxIn addition, dealer is committing an offence and if he fails to register when his turnover exceeds the, threshold. provides information about changes to his business. declares the name of the manager. provides to Sales Tax Department the PAN allotted to the business. files a return. get his accounts audited, when required. keeps proper accounts, when required to do so by the Sales Tax authorities because the existing records are inadequate. produce his accounts for inspection, when required issues a tax invoice, bill or cash memorandum.In these circumstances, the dealer may be prosecuted and a fine may also beimposed.There are two other events that may also give rise to a penalty. If the dealer: transfers any assets of his business with the intention of not paying tax, or fails to respond to a notice requiring him to provide statistical information.Dealer will be liable to a fine and may also face prosecution.Financial penalties or finesThere are various financial penalties, each depending on the nature of theoffence: - 75 -
  • 77. Value Added TaxTax relatedSome offences attract a maximum penalty in proportion to the amount oftax due.If the dealer: - conceals or misclassifies any transaction or provides inaccurate information or claims a set off in excess of the amount due or, issues or produces a documents, including tax invoice, bill or cash memorandum, that results in a person or dealer not paying the correct amount of taxThe penalty is an amount equal to the tax due. If the dealer avoids payingthe correct amount of tax as a result of issuing bogus, false tax invoices, themaximum penalty is an amount equal to half of the tax under assessed orRs.100/-, whichever is higher.Non Tax Related PenaltiesIf the dealer fails to file a return, within the time allowed, the penalty isRs.2,000/-. If dealer files the return late but before any penalty proceedingshave started, the penalty will be reduced to Rs1,000/-.If the dealer’s return is not correct, complete and self-consistent, thepenalty is Rs1,000/-, but this is without prejudice to any other penalties thatmay be imposed.If, after the issue of summons, the dealer fails to attend any proceedings orto produce books of account, registers or documents, the Tribunal or theSales Tax authorities may impose a fine, not exceeding Rs.5,000/-. - 76 -
  • 78. Value Added TaxMost other offences attract a penalty of Rs.1,000/- although there is also aprovision for some offences to attract a penalty of Rs.2,000/- plus acontinuing daily penalty of Rs.100/-Payment of Penalty or FineAs a result of proceedings, such as audit, investigation, assessment etc.,Sales Tax Authority may issue a demand notice containing details of tax,interest and penalties, if any, that are imposed.The dealer should pay the amount due within 30 days of the date of theorder. Dealer should make the payment using Form 210 through the bankwhere he normally files his return. - 77 -
  • 79. Value Added TaxAppendix 1List of important forms referred to in the GuideSr. Form SubjectNo. Number1 101 Application for Registration under the MV AT Act, 2002.2 103 Application for cancellation of Registration Certificate.3 210 Chalan in respect of payment made otherwise than with return by a dealer under the MVAT Act, 20024 221 Return-cum-chalan for all VAT dealers other than dealers executing works contract, dealers engaged in leasing business, composition dealers (including dealers opting for composition only for part of the activity of the business), PSI dealers and notified Oil Companies.5 222 Return-cum-chalan for all composition dealers whose entire turnover is under composition (excluding works contractors opting for composition and dealers opting for composition only for part of the activity of the business).6 223 Return-cum-chalan for VAT dealers who are also in the business of executing works contracts, leasing and dealers opting for composition only for part of the activity of the business.7 224 Return-cum-chalan for PSI dealers holding Entitlement Certificate. (Transactions by PSI dealers relating to the business of execution of works contracts, leasing, - 78 -
  • 80. Value Added Tax trading and composition only for part of the activity of the business to be included in a separate return in Form 223).8 225 Return-cum-chalan for Notified Oil Companies. (Transactions by OIL Companies relating to the business of execution of works contracts, leasing and composition only for part of the activity of the business, to be inc1uded in a separate return in Form 223).9 304 Application for cancellation of assessment order under section (1) of section 23 of the Maharashtra Value Added Tax Act, 2002.10 310 Appeal against an order of assessment, interest, penalty or fine.11 311 Application for grant of stay against order of assessment, penalty, interest or fine12 414 Application for tax clearance certificate.13 501 Application for refund under sub-section (1) of section 51 of the Maharashtra Value Added Tax Act, 2002.14 704 Audit report under section 61 of the Maharashtra Value Added Tax Act, 2002. - 79 -
  • 81. Value Added TaxList of Sales Tax Offices in the State of MaharashtraThere are total 40 Sales Tax Office located all over the Maharashtra. Outwhich some of them are in: Mumbai (Head Quarters), Bandra, Raigad(Division), Thane (Division), Kalyan, Nalasopara, Palghar, Pune (Division),Solapur, Kolhapur (Division), Satara, Sangli, Ratnagiri, Nasik (Division),Ahmednagar, Aurangabad (Division), Nagpur (Division), Wardha, Amaravati(Division), Akola, and many more… - 80 -
  • 82. Value Added TaxConclusion - 81 -
  • 83. Value Added TaxBibliography 1. Value Added Tax – By Sales Tax Department. 2. www.google.com 3. www.tax4india.com 4. www.vat.maharashtra.gov.in - 82 -

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