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  2. 2. Management Accounting Indirect Tax RAJASTHANI SAMMELAN’S Ghanshyamdas Saraf College Affiliated to University of Mumbai REACCREDITED BY NAAC WITH ‘A’ GRADE R. S. Campus, S. V. Road, Malad (W), Mumbai: 400 064 Year: 2013-2014 CERTIFICATE I Prof. REKHA BHATIA here by certify that Ms. Jeenal Navratana Rathod a student of Ghanshyamdas Saraf College of MCOM PART II ACCOUNT (Semester IV) has completed Project on “MAHARASTRA VALUE ADDED TAX” in the Academic year 2013-2014. Thus information submitted is true and Original to the best of my Knowledge. External Examiner: Principal: Date: Project Co-ordinator: College Seal: Date: MVAT Page 2
  3. 3. Management Accounting Indirect Tax ACKNOWLEDGEMENT I take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me a chance to do this Project. I express my sincere gratitude to the Principal Mrs. Sujata Karmarkar, course co-ordinator Mrs. Dr. Lipi Bhattacharya, Guide Prof. Rekha Bhatia, our librarian and other teachers for their constant support and helping me for completing the project. I am also grateful to my friends for giving support in my project. Lastly, I would like to thank each and every person who helped me in completing the project especially MY PARENTS. Date: Signature of the Student : MVAT Page 3
  4. 4. Management Accounting Indirect Tax DECLARATION I Miss JEENAL NAVARATNA RATHOD a student of Ghanshyamdas Saraf College of Arts and Commerce, Malad (W) MCOM PART II ACCOUNT (Semester IV) hereby declare that I have completed project on “MAHARASTRA VALUE ADDED TAX” in the academic Year 2013-2014. This information submitted is true and original to best of my Knowledge. Date : Signature of the Student: MVAT Page 4
  6. 6. Management Accounting Indirect Tax MVAT 1.INTRODUCTION: VAT VAT is introduced in India. VAT Council of States, the body of State Finance Ministers and Standing Council Of Commissioners have agreed that the VAT should be implemented all over India From 1-4-2001. However, subsequently, after taking into consideration the fact that the groundwork is still in progress, the date has been extended to 1-4- 2002.One thing is certain that the word ‘VAT’ [Value Added Tax] is a symbol of Globalization and Liberalization, which is a universal phenomenon for the current age, is bond to be implemented in India. MVAT The system of Value Added Tax (VAT) has been implemented, in the State of Maharashtra, i.e. 1st April, 2005. As per the provisions of MVAT, a dealer is liable to pay tax on the basis of turnover of sales within the State. The term dealer has been defined u/s. 2(8) of the Act. It includes all person or persons who buys or sells goods in the State whether for commission, remuneration or otherwise in the course of their business or in connection with or incidental to or consequential to engagement in such business. The term includes a Broker, Commission Agent, Auctioneer, Public Charitable Trusts, Clubs, Association of Persons, Departments of Union Government and State Government, Customs, Port Trusts, Railways, Insurance & Financial Corporations, Transport Corporations, Local authorities, Shipping and Construction Companies, Airlines, Advertising Agencies and also any corporation, company, body or authority, which is owned, constituted or subject to administrative control of the Central Government, any State Government or any local authority. MVAT Page 6
  7. 7. Management Accounting Indirect Tax However an agriculturist, educational institution and transporters shall not be deemed to be a dealer (subject to fulfillment of conditions). SUCCESSFUL TAX SYSTEM: Among many other things, the successful tax system always tries to avoid Cascading effect of the tax. The VAT, being Value Added Tax, it presupposes That, if the tax is levied on sale value, all the taxes paid while making purchases as Well as all the taxes paid during the process of manufacture or import are to be Refunded. The CREDIT method or INVOICE method of VAT system ensures that the taxes shown in the purchase bills are given the credit to the dealers. The Uncontrolled incidence of tax always shrinks the industry and trade and keeps Away from the developing process of the national economy. The tax system has to be neutral so far as its effect on the choice of inputs and outputs for the Manufacturer and choice of the goods for a consumer is concerned. STEPS TOWARDS VAT: As pointed above VAT Council of States, and Standing Council of Commissioners have agreed that the VAT should be implemented from 1- 4-2002. It was also agreed that there should be floor rates common to all the States. Though Maharashtra State had introduced the floor rates from 1-1 2000.But due to the pressure from people they were corrected on 13- 1-2000 and 22-1-2000. However some fine-tuning of the classification has yet to be done Giving another look at the grouping of the goods in to four-rate categories and Floor-rates. Draft model of VAT legislation has been prepared by the National Institute of Public Finance and Policy. The circulation of papers on VAT will certainly be creating the atmosphere towards readiness to accept VAT. MVAT Page 7
  8. 8. Management Accounting Indirect Tax 2. EXPERIENCE OF VAT IN MAHARASTRA: During the period from 1-10-1995 to 31-3-1999 Maharashtra had VAT in a Limited sense. Initially the limit covering the dealers under VAT was Rest. One Core but was brought down on 1-7-1997 to Rest. 40 laces. Though the additional Tax and Turnover Tax was abolished the rates were over all increased to cover those taxes [most of the goods taxable at 10% were taxed at 13%]. Some 12 Industries and 100% export units were allowed the full set-off of the sale tax Paid on inputs. It is said that the VAT was abolished from 1-4-1999 due to fall in the Sales Tax Revenue. But the Economists do not agree to such reasoning. Since there was a General recession in the industry during 1996 to 1999 the got could not have expected the increase in the tax revenue on implementation of VAT. In fact the fall in the tax revenue augmented by the set-off policy of giving refund to Manufacturers manufacturing tax-free goods, 100% exporting Units, 12 Preferred industries and reduction in the burden of taxes on inputs from 4% to 3% to all manufacturers. Assessment under VAT: In Maharashtra state Bombay Sales Tax has been replaced by VAT from 1-4-2005. Attempt is made in this article to visualize the process of assessment under MVAT Act. The real picture will be clear only after 2 years when the actual process of assessment will start. 1. Long awaited VAT has seen the light of the day on 1-4-2005. Much was advertised by The Govt about the VAT. By now the time for submission of first return is over and the dealers as well as practicetioners in taxation, after filing the first return, are thinking of the stage of ‘assessment’ to come. MVAT Page 8
  9. 9. Management Accounting Indirect Tax 2. SELF ASSESSMENT AND NOTICES: Right from Mr. Chidambaram & Mr. Asim Das to Mr. Jayant Patil had said several times that the VAT brings the era of ‘Self assessment’. But the Maharashtra Value Added Tax Act 2002 [MVAT Act] does not contain a single provision about self assessment of Acceptance of returns except only Margin-heading of section 20. But this section 20 is in fact Is a provision for submission of returns. On the contrary under old Act, section 33[2] of BST Act 1959, in clear words provided that if the Commissioner is satisfied that the returns are Correct and complete he may assess according to the returns. Thus MVAT Act is more Regressive than the BST Act. The section 21 of the original MVAT Act was for self assessment. It provided for the intimation to be given about the dues or refund. It had also provided that if such intimation is Not received by the dealers, the acknowledgement of the returns will serve as the intimation. This means that the acknowledgement is the evidence of acceptance of the returns. But now amended section 21 does not provide, neither for assessment as per returns nor for the acceptance of the returns. Section 21 provides only for a restriction that the notice for assessment can not be issued after 2 years if the returns are filed in time; and after 3 years if the returns are not filed by the prescribed date. [However this limit is extended Upto 4 years In case of the period ending on 31-3-2008.] But what is the position of returns and assessment if the said notices are not issued is not clearly mentioned anywhere in MVAT Act. 3. ASSESSMENT OF DEALERS: The assessment in particular is provided in section 23 of MVAT Act. Surprisingly it starts with the provision for assessment in cases of MVAT Page 9
  10. 10. Management Accounting Indirect Tax defaulters, as if the defaulters will be the order of the day in VAT regime. Under section 23[1], if the dealer files the return late, the Commissioner, [that is, the STO/AC/DC], will pass expert assessment order without issuing any notice and without any Opportunity of hearing. Such order can not be passed after three years. The power to pass the Best judgment assessment order against the principles of natural justice may be the singular Model among 126 countries where the VAT is said to have been introduced. The power of passing the order against the dealer without calling him and without giving hearing may Be the meaning of ‘transparency’ much published in White Paper and the Govt advertisements about VAT. If such expert order is passed by the STO/AC/DC, then the only way out for the Dealer is to file the writ in the High Court because under section 85[1] [1-b] such order is non appealable. If the dealer has filed the return and has paid the taxes then he can put the application in form 304 attaching the proof of submission of return and payment of taxes. Thereafter the STO/AC/DC will cancel the expert assessment order passed by him if the payment of tax was made before issue of notice. If the payment of tax is made after issue of the notice how it will affect the expert assessment and total payment of taxes is not clear in the MVAT Act. This section 23[1] is the best example of excessive delegation of the powers granted to STO/AC/DC to pass the order without notice and take it back if on his satisfaction. Looking In to the big volume and the task involved in collection of returns from the Banks and their Dispatch to the respective STO/AC/DC and the present experience in this respect, it is very evident that the new source of enormous work will be created for the STO/AC/DC.The dealers who have filed the returns in time will be MVAT Page 10
  11. 11. Management Accounting Indirect Tax assessed u/s 23[2]. By issue of notice in form 301 [similar to old form 27], the STO/AC/DC can call for the evidence on the basis of which the returns are filed by the dealer and after considering that evidence he will pass the assessment order. The date fixed for hearing should not be less than 15 days from the date of service [rule 21 of MVAT Rules 2005]. The assessment order will be in form 303 [similar to old form 30]. The notice can be served at any time but the assessment order can not be passed after the expiry of 3 years from the end of the year containing the period which is being assessed. The dealers who have filed the returns late will be assessed u/s 23[3]. But notice in form 301 has to be served with in 3 years and the assessment order has to be passed within 4 years. The dealers can be assessed for the unregistered period u/s 23[4] by issue of notice in form 301 within 5 years but such assessment order has to be passed within 8 years. 4. ASSSESMENT OF TRANSACTION: Section 23[5] provides for the assessment of the transaction or of the claim. The prescribed authority for this sub-section is not the Commissioner but, the STO. AC, DC, or Sr. DC is prescribed authorities under Rule 21[2]. The notice in form 302 [rule 21] can be issued to the dealer if the prescribed authority is satisfied that the tax is being evaded by not recording or by incorrect recording the transactions or any claim in incorrectly made. Even if the notice for regular assessment is issued by the STO/AC/DC, the notice under this sub section can be issued. If, during the search, the STO/AC/DC finds that the tax is being evaded, then the visiting officer can make the assessment of such transaction, even though the proceedings are not transferred to him u/s 59. The assessment order can be passed separately for each transaction. If there are 100 bills which could not be explained by the dealer to the satisfaction of the visiting offer at the time of visit, there will be 100 assessment orders in a MVAT Page 11
  12. 12. Management Accounting Indirect Tax single year. This is unique provision giving powers to the visiting officer who takes the search of the premises of the dealer to assess the dealer though he may not be within his jurisdiction. [Good example of excessive delegation to bureaucracy]. The STO/AC/DC having a regular jurisdiction can also take up the regular assessment of the dealer. Thus there will be two or more assessing authorities for one dealer, assessing the same period with out any transfer of proceedings. MVAT Act has really provided the polyandry in the days when even polygamy is condemned. However the MVAT Act is very kind to provide that no tax will be levied again in the regular assessment if it is already levied in transaction-wise assessment [provision to sec 23[5][d]]. 5. RE-ASSESSMENT BEFORE ASSESSMENT: The MVAT has found out, for the first time in taxation history of Maharashtra, the concept of reassessment of escaped turn over before the assessment. Section 23[6] gives powers to the STO/AC/DC to assess the dealer who in his opinion has, - Not disclosed the turn over of sales or purchases in the returns, - paid tax at a lower rate, - set-off has been wrongly claimed, - any deduction has been wrongly claimed. Notice in form 315 [similar to old form 28] is to be issued for this purpose and 15 days time from the date of service, has to be given for hearing [rule 21]. Though the notice in from 301 & 302 for assessment can not be issued after 2 years in case of dealer filing returns in time and 3 years in case of defaulters, the notice in form 315 for deemed reassessment u/s 23[6], can be issued with in 5 years from the end of the period which is to be assessed. The assessment order under this section has to be passed within 6 years. Looking into the past experience about MVAT Page 12
  13. 13. Management Accounting Indirect Tax allowance of claims and the dispute about rate of tax, each and every dealer is likely to be covered by 4 defaults mentioned above. Therefore the limit of 2 or 3 years kept for assessment will be meaning less and all the dealers will be covered by the time limit of 6 years, though they commit bonafide mistakes. 6. FRESH ASSESSMENT AFTER REMAND: Where the appeal is filed against the assessment order, the appellate authority [except Tribunal] has no power to remand the case for fresh assessment. In case the Tribunal remands the case for fresh assessment, the assessing authority has to complete the same within 36 months as provided in section 23[7]. The period of 36 months can be counted from the date of supply of the copy of the appeal order by the dealer to the assessing authority. Rectification under MVAT The provisions relating rectification under MVAT Act 2002, which is in force in Maharashtra State, are discussed in the article. In the earlier article, we have seen the assessment provisions under MVAT Act. When the assessment is over, the next step is concerned with the corrections to be made in the assessment order. From the view point of the dealer, two important corrective measures are Rectification and the other Appeal. Section 24 provides for Rectification and section 26 provides for Appeals. MVAT Page 13
  14. 14. Management Accounting Indirect Tax 3.REGISTRATION [Sec. 16, R 8]: Dealers liable to pay Tax: – [Sec. 3] The dealers, holding a valid registration certificate under the earlier laws, whose turnover of either of sales or purchases exceeds the specified limits during the financial year 2004-05, shall be deemed to be registered dealer under MVAT Act and shall, therefore be liable to pay tax i.e. 1st April, 2005. The dealers, holding a valid registration certificate under the earlier laws, whose turnover of either of sales or purchases has not exceeded the specified limits during the financial year 2004-05, but who have opted to continue their registration certificate (by applying to assessing officer in specified format), shall also be deemed to be registered dealer under MVAT Act and shall, therefore be liable to pay tax i.e. 1st April, 2005.New dealers, whose turnover of sales exceeds the prescribed limits during any year, commencing on or after 1st April, 2005, are liable to pay tax from the date on which such limit exceeds. A successor in business of any dealer shall become liable to pay tax on and from the date of succession. A dealer, applying for voluntary registration, shall be liable to pay tax from the date of registration. Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall apply electronically for registration to the prescribed authority, in Form 101, within 30 days from the date of such liability. Turnover limits for the purpose of Liability/Registration [Sec. 3(4)] MVAT Page 14
  15. 15. Management Accounting Indirect Tax It may be noted that while the total turnover of Rs. 1,00,000/- and Rs. 5,00,000/- is in respect of Turnover of Sales (which includes all sales whether tax free or taxable), the turnover limit of Rs. 10,000/- is in respect of taxable goods whether purchased or sold. Both the conditions have to be satisfied for the purposes of liability/registration under this category. [Sec. 3(4)] Documents required for the purposes of Registration The Commissioner of Sales Tax, Maharashtra, has issued a circular dated 4th May, 2005, whereby a dealer is required to submit following documents along with the application for registration in Form 101: – Documents to be submitted along with the application for registration: (Note: Copies of documents must be self-attested and are subject to verification from the original) IN CASE OF FRESH REGISTRATION: Proof of constitution of business (as appropriate): MVAT Page 15 Category of dealer Total turnover of sales Turnover of taxable goods purchased or sold Importer Rs. 1,00,000 Rs. 10,000 Others Rs. 5,00,000 Rs. 10,000
  16. 16. Management Accounting Indirect Tax I. In case of proprietary firm: No proof required. ii. In case of partnership firm: (Registered or unregistered) Copy of partnership deed. iii. In case of company: Copy of Memorandum of Association and Articles of Association. iv. In case of other constitution: Copy of relevant documents. Proof of permanent residential address* (please provide at least 2 documents out of the following documents): 1. Copy of passport. 2. Copy of driving license. 3. Copy of election photo identity card. 4. Copy of property card or latest receipt of property tax of Municipal Corporation/Council/Gram Panchayat as the case may be. 5. Copy of latest paid electricity bill in the name of the applicant. Proof of place of business MVAT Page 16
  17. 17. Management Accounting Indirect Tax 1. In case of owner: Proof of ownership of premises; viz., copy of property card or ownership deed or agreement with the builder or any other relevant documents. 2. In case of tenant/sub-tenant: Proof of tenancy/sub-tenancy like copy of tenancy agreement or rent receipt or leave and license or consent letter, etc. 3. Copy of Electricity Bill 4. Two latest passport size photographs of the applicant ** 5. Copy of Income Tax PAN Card (in case of Proprietary business: PAN of Proprietor; in case of partnership business: PAN of partnership firm and of all partners; and in case of registered company: PAN of the company; in case of HUF: PAN of HUF and Karta etc.). 6. Challan in original showing payment of registration fee. (As per new procedure, the amount of fees is payable through a bank draft to be deposited with the registering authority along with the application. The bank draft shall be prepared, for applicant in Mumbai, in the name of "Bank of Maharashtra A/c. MVAT", and in case of other places in the name of "State Bank of India A/c. MVAT).  REGISTRATION IN CASE OF CHANGE IN CONSTITUTION OF THE DEALER: 1. Proof of change in constitution (e.g., if proprietary dealer converted to partnership firm then copy of Partnership deed, etc.). 2. Copy of latest return-cum-challan. 3. Pay order for payment of fees. 4. PAN of new firm. 5. Proof of permanent residential address.  REGISTRATION IN CASE OF TRANSFER OF BUSINESS MVAT Page 17
  18. 18. Management Accounting Indirect Tax 1. All documents from 1 to 6 given in 'A'. 2. Copy of transfer deed. 3. Copy of latest return-cum-challan of the original dealer. * In case of partnership firm, proof of residence has to be provided for all the partners, in case of body corporate, proof of residence of applicant. ** In case of partnership firm, photographs of only applicant partner need to be submitted. In case of corporate bodies, the details of place of residence and PAN, etc. shall be required to be furnished only for the signatory to the application. Further, in case of Voluntary Registration, it is necessary that the applicant dealer is having a current bank account and such dealer has to be introduced either by a registered dealer or by an advocate, chartered accountant or sales tax practitioner. (The fees payable for voluntary registration is Rs. 5,000/- while for others it is Rs. 500/- only). In addition to payment of fees, as mentioned above, a dealer seeking Voluntary Registration, on or after 16th August 2007, has to be make an advance payment of Rs. 25,000/-. This advance may be adjusted by the dealer against tax, interest or penalty, if any, payable during the year of registration or in the immediate succeeding year. Any amount remaining unadjusted after the end of the 2nd year shall be refunded [For the time being, the amount of fees as well as the amount of advance payment has to be made by way of bank draft to be deposited with the registering authority along with the application for registration] RATE OF TAX: [SECS. 5 & 6] AS PER SCHEDULES MVAT Page 18
  19. 19. Management Accounting Indirect Tax Schedule ‘A’ – Essential Commodities (Tax free) Nil Schedule ‘B’ – Gold, Silver, Precious Stones, Pearls etc. 1% Schedule ‘C' – Declared Goods and other specified goods 4% Other goods i.e. 1/5/10 5% Schedule ‘D’ – Foreign Liquor, Country Liquor, Motor Spirits, etc. At specified rates Schedule ‘E’ – All other goods (not covered by A to D) 12.5% 4.APPEALS under MVAT: The provisions relating appeals under MVAT Act 2002, which is in force in Maharashtra State, are discussed in the article N.T.Nirale, Advocate In a leading case of Hoosier Kamas Dada the Supreme Court has pointed out MVAT Page 19
  20. 20. Management Accounting Indirect Tax that the right to appeal is not merely a matter of procedure; it is a matter of substantive right. [4 STC 114]. Right to appeal is vested in a dealer when the return is filed or on the date, the return was due. In case of Vijay Parsed [72 STC 324 SC], Hon Justice Sabyacachi Kukri has said, “Right to appeal is neither an absolute right nor an ingredient of Natural Justice. Right to appeal is a statuary right which is circumscribed by the conditions of grant”. VAT drafters are very kind that they have provided for right of appeal under section 26 and 27 of VAT Act. The provisions of section 26 govern the right of appeal under VAT Act, which is similar to old section 55 of BST Act. If the order is passed by the STO or AC the appeal can be filed to the Deputy Commissioner of Sales Tax. If it is passed by the DC or Sr. DC then the appeal will lie to Joint Commissioner. If the order is passed by the Jet. Commissioner, Addle Commissioner or the Commissioner then it will lie to the Tribunal. [The copy of the notification changing the designations of the Sales Tax authorities is not yet available with the PRO of the Sales Tax dept. It is said that all Class I STOs will be designated as ACs, all ACs will be designated as DCs and all DCs will be designated as Jet. Commissioners. After introduction of VAT, one has not yet experienced the increase in transparency, but there is certainly increase in the nominal structure of the authorities due to introduction of VAT.] The second appeal against the order passed in appeal by the DC or JT. Commissioner will lie to the Tribunal. Unlike to old provision giving option to file second appeal either to Commissioner or to the Tribunal, new provision of section 26[2] provides the second appeal only to the Tribunal. Non-appeable Orders: All orders are not appeable but section 85[2] bars filing of appeal against certain notices and order viz. -- I] Any notice, MVAT Page 20
  21. 21. Management Accounting Indirect Tax ii] Summons, iii] Exparte assessment order where any Return is not filed by the dealer by the prescribed date, iv] Installment order, v] notice or order for recovery as arrears of land revenue, vi] seizure order, vii] order transferring the proceedings, viii] part payment and stay order passed by appellate authority. [Though the appeal against the part payment order is barred, the admission of appeal is not dependent of the payment of the part payment amount.] As under old law, under new VAT Act also, all appeal orders are final, but they can be reviewed [revised] u/s 25 or rectified u/s 24 of VAT Act. The time limit for filing the appeal is 60 days from the date of communication of the order appealed against. The power of the appellate authority to condone the delay in filing the appeal for sufficient cause is not taken away under VAT Act. [See how kind is the King !] The provisions of section 4 & 12 of Limitation Act are made applicable by section 80 of VAT Act and the power to condone the delay is granted by section 81 of VAT Act. However, the delay cannot be condoned on the ground that any judgment or decision, on which reliance is placed, was delivered after the limitation period was over. Powers under appeal: The powers of appellate authorities u/s 26[5] have been classified under four categories, viz. a] Appeal against assessment orders - In this case the appellate authority gets the power to confirm, reduce, enhance or cancel the assessment. The power to remand the case is only with the Tribunal. It can only direct to make fresh assessment of the appellant. MVAT Page 21
  22. 22. Management Accounting Indirect Tax b] Appeal against the penalty, the appellate authority gets the power to confirm or cancel , or modify the penalty. The words “ in accordance with the provisions of the Act” are added under VAT Act, these words were not in the BST Act. When the appellate authorities are the officers appointed under the Act for the carrying out the purposes of the Act, there is no significance to the newly added words. Only the time will show the purpose of this addition. c] Appeal against the interest - Here the appellate authority gets the power to confirm, cancel or modify it in accordance with the provisions of the act. d] In case of appeal of any other kind, the appellate authority gets the power to pass ‘just and proper order.’ The BST Act section 55[7] had provided that the appellate authority could pass the appeal order against the point decided by the Tribunal, if the State had gone in reference against that decision to High Court. But VAT Act does not provide so in section giving powers to appellate authority. However section 23[8] provides for passing the appropriate order of assessment even against the judgment of the Tribunal. Whether this power can be used by the appellate authority is a question to be decided. Power to grant Stay: The appellate authority has u/s 26[6], a power to grant stay against the operation of the order appealed against. He can ask for the part payment and can put some conditions before granting such stay. Priorities and Senior citizen: In India, the law does not recognize a person of particular age to be senior citizen. For railway concession, Sr. Citizen should be 60 old, but for income tax, he should be 65 old. According VAT Act {proviso to MVAT Page 22
  23. 23. Management Accounting Indirect Tax section 26[7]}, the person does not become old unless he attends age of 75 years. As per section 26[7] the appeals are to be decided on the prescribed priorities, but the rules have not yet prescribed the list of priorities. If the proprietor, partner or a director has attained the age of 75 years, as per Rule 34, he can apply in form 313, for th disposal of his appeal on priority. Appeal to High Court: Section 27 of VAT Act provides for appeal to High Court against the order of the Tribunal. Under sec 61 of BST Act it was called Reference, and it was to be routed through the Tribunal. Now, against the Tribunal decision, the appeal can be directly filed to Bombay High Court. However, such appeals are restricted to the points of Law only. Thus, Tribunal is still a final body on the points of Facts. However, unlike to the reference, the High Court can now decide the issue, which has not been determined by the Tribunal. The High Court has no power to grant stay when the appeal is filed to High Court. The Tribunal has to give the effect to the judgment of the High Court. Power to assess the turn over under any other Law: Section 28 of VAT Act gives unique power to assess the turn over under any other Law. If the appellate authority sets aside, any assessment on the grounds that it should have been assessed under any other law other than the law under which it was assessed, then such turn over can be by the Sales Tax authorities. The time limit of 5 years is put for correction of such assessments. Procedure for appeal: The appeal has to be filed in form 310. It is felt that under VAT the appeal cannot be filed on plain paper giving all the details required by VAT Rule 31. Under BST Rule 58 it was provided that the appeal should MVAT Page 23
  24. 24. Management Accounting Indirect Tax be ‘as far as possible in accordance with Form 37’ but VAT Rule 31 is differently worded and it says that, ‘the appeal including second appeal shall be made in form 310’. The details and enclosures to be given in appeal form are almost similar to old form No. 37 of BST Act. If the dealer wants stay order against the recovery as per order appealed against, the application in form 311 is to be made to appellate authority. The stay order will be issued inform 312. This form 312 is like old admission - cum - stay order. When the admission is not conditional on payment of the dues, it is not understood why this order is called as ‘admission memo cum stay order’? Before the stage of final hearing, the appeal can be summarily rejected under Rule 35, if the appeal memo omits to give the particulars required or if the authenticated copy of order is dispute is not enclosed or any other sufficient ground. But before rejecting the appeal summarily, the opportunity of hearing has to be given to the appellant to correct the omissions. The application for restoration can be made within 30 days. If the appellate authority is satisfied that the notice of hearing was not served on him or that, he was prevented by sufficient cause from amending the appeal memo or from appearing, then the summery rejection order can be set aside and the appeal can be restored. If the appellate authority does not pass any order on the restoration application within 30 days, it will be presumed that the appeal is restored. {Look how kind is the creator?} As per Rule 36, the intimation of fixing appeal for final hearing has to be given 10 days in advance. If any date is to be given, it should be after 10 days, unless the appellant agrees for earlier date. If on the date fixed the appellant remains absent the appeal can be decided expert. Such expert appeal order can also be restored on application if it is found that the notice was not served or that there was sufficient cause for his absence. MVAT Page 24
  25. 25. Management Accounting Indirect Tax Rule 36[2] expects the appellate authority including the Tribunal, to maintain the Register showing the date of filing of appeal and the disputed quantum in that appeal. Rule36[4] prescribes that the appellate authority including the Tribunal should in any month fix 50% appeals which are against the DDQ orders passed u/s 56 and old appeals and 50% out of appeals involving highest quantum of relief sought. Copy of the appeal order: The certified copy of appeal order is to be supplied free of cost by the appellate authority to the appellant as per Rule 37, and one copy has to be sent to the officer against whose order was appealed. Award of Costs by Tribunal: Rule 38 of VAT Rules empowers the Tribunal to award the costs at its discretion. However, before awarding the costs the dealer or the person against whom the costs are being awarded has to be given the opportunity of hearing. Court Fees: Rule 73 prescribes the court fees to be paid. The appeal memo requires the CF of Rs. 100/- if the amount of relief is less then Rs. 1 lac. If it is 1 lac or more then the CF is equal to 10% of the relief or maximum Rs. 1000/-. Where there is no amount in dispute the CF will be Rs. 100/-. There is no distinction as to first or second appeal or appeal to Tribunal. The CF for restoration application is Rs. 10/-. The CF for stay application is Rs. 25/-.On application by Sr. Citizen for taking, the appeal on priority there is no CF.There is no CF for application of condonation of delay. The adjournment application and the miscellaneous also do not require CF. 5. DECLARED GOODS: MVAT Page 25
  26. 26. Management Accounting Indirect Tax Some goods are declared as goods of special importance and restrictions are placed on power of State Governments to levy tax on such goods. Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads : ‘Taxes on the sale and purchase of goods other than newspapers, where such sale or purchase takes place in the course of Inter-state trade or commerce’. Entry 54 of list II - State List - reads : ‘Tax on sale or purchase of goods other than newspapers except tax on Inter State sale or purchase’. Thus, sale within the State (Intra-State sale) is within the authority of State Government, while sale outside State (Inter-State sale) is within the authority of Central Government. Sale where both buyer and seller are from same State is Intra-State sale e.g. from * Mumbai to Pune or * Ahmedabad to Surat * Howrah to Kolkata * Mysore to Bangalore etc. These are Intra-State sales. However, when buyer and seller are in different States, it is Inter-state sales. e.g. : Chennai (Tamil Nadu) to Trivandrum (Kerala) * Allahabad (UP) to Hyderabad (Andhra Pradesh) * Bhubaneshwar (Orissa) to Daman (Union Territory) etc. NEWSPAPER SPECIFICALLY EXCLUDED - It can be seen that ‘newspapers’ are specifically excluded from purview of both Union as well as State list. The obvious reason is that newspapers have a very vital role to play in a democratic society. Freedom of speech and free flow of information is the backbone of democracy and hence newspapers have been excluded from tax. TAXABLE EVENT IN SALES TAX - In re Sea Customs Act - AIR 1963 STC 437= (1964) 3 SCR 827 (SC 9 member bench), it was held that in case of sales tax, taxable event is the act of sale. It is not a tax directly on goods. MVAT Page 26
  27. 27. Management Accounting Indirect Tax Categories of Sales - Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. - Murli Manohar and Co. v. State of Haryana (1990) 4 CLA 304 (SC) = (1991) 80 STC 79 = 1990(2) SCALE 821 = (1991) 1 SCC 377 (SC 3 member bench). In this case, it was observed that they cannot conceive fourth category of sale. If sale or purchase to Marketing Agency is in same State, it will be an Intra-State sale even if goods are despatched outside the state as per instructions of the marketing agency. - ACC v. CST - AIR 1991 SC 1122. Tax on Inter-State sale is levied by Union (i.e. Central) Government while tax on Intra-State sale is levied by State Government of the State in which sale takes place. No tax is levied on sales during import or export. SALE WITHIN THE STATE IS ‘RESIDUARY SALE’ – As we will see later, ‘sale within State’ is residuary sale. Thus, first we have to decide if sale is ‘Inter State’. If not, we have to find if it is ‘Sale during export or import’. If not, then the sale is ‘Intra State’. Thus, if a sale is Inter State of during export or import, it cannot be ‘Sale within the State’. MODE OF A SALES TRANSACTION - Initially, buyer places an order on seller for supply of goods, called ‘Purchase Order’. After the goods ordered are ready, the buyer may come to the business place (godown, factory or warehouse) of seller and obtain delivery of goods. This will be ‘Sale within the State’. Alternatively, buyer may ask seller to send the goods by transport. In such cases, the seller will book the consignment by rail, road, ship or air as per requirement of buyer to the destination where buyer requires the goods. In such a case, generally, (a) if buyer and seller are in the same State, it is Intra-State sale (b) if they are in different States, it is Inter-State sale (c) if buyer is outside India, it is sale during export (d) if seller is outside India, it is sale during import. MVAT Page 27
  28. 28. Management Accounting Indirect Tax 6.TAX PAYERS, RETURNS AND METHODS OF COMPUTATIONS, CASE STUDY OF MVAT: Tax payable by a dealer: – [Sec. 4] A dealer is liable to pay tax on the turnover of sales of goods, within the State, as per the rates specified in the schedules. The tax so payable for any tax period shall be reduced by the amount of input tax credit (set off) for which the dealer is eligible during the same tax period. Tax Period Tax Period in relation to a dealer may be a calendar month, quarter (a period of three months; i.e., Apr. to June, July to Sep., Oct. to Dec. and Jan. to Mar.) or six months (prescribed period of six months; i.e., April to September and October to March). FILING OF RETURNS AND PAYMENT OF TAXES Every registered dealer shall be required to file correct, complete and self- consistent return, in prescribed form, by the due date. [Sec. 20, Rules 17 to 20] Sr. No . Category Periodicity 1. A ) Newly registered dealers (up to 30/4/10) Half yearly B ) Retailers opted for composition Scheme C ) Tax liability, in the previous year, up to Rs. 1 lakh or Refund entitlement up to Rs. 10 lakhs. 2. A Dealers under Package Scheme of Incentive Quarterly MVAT Page 28
  29. 29. Management Accounting Indirect Tax ) B ) Tax liability, in the previous year, exceeds Rs. 1 lakh but up to Rs. 10 lakhs or refund entitlement exceeds Rs. 10 lakhs but up to Rs. 1 crore. C ) Newly registered dealers (w.e.f. 1-5-10) 3. All other dealers whose tax liability, in the previous year, exceeds Rs. 10 lakhs or refund entitlement exceeding Rs. 1 crore. Monthly Periodicity and due date:– For the periods commencing from 1-4-2008 The due date for filing return and for payment of taxes continues to be same i.e. within 21 days from the end of month/quarter as the case may be. For half yearly it is extended to 30 days from 1-5-2010. Further all returns can be uploaded within further period of 10 days from the end of due date as per Trade Circular Nos. 16T of 2008, dated 23-4-2008 and 31T of 2008, dated 8-9-2008. Tax Liability for the purpose means aggregate of taxes payable by a registered dealer, in respect of all places of business within the State of Maharashtra, under the Central Sales Tax Act and MVAT Act after adjustment of amount of set off claimed. The sales tax department is determining, from time to time, periodicity of returns of all dealers and is made available on website. The dealers are required to file return as per the periodicity determined by the department. If there is any mistake in it, the dealers are required to approach the concerned officer for correction in it. It may be noted that failure to file return as per prescribed periodicity, within the prescribed due date, attracts mandatory penalty of Rs. 5,000/- per return and order of penalty is not subject to any appeal. MVAT Page 29
  30. 30. Management Accounting Indirect Tax Return Forms and Payment of Tax: From 1st April 2009, all dealers, whether required to file monthly, quarterly or six monthly returns, have to submit their returns in electronic format only.There are separate return forms prescribed for various categories of dealers, i.e., Form Nos. 231 to 235. A dealer has to use appropriate form as may be applicable to him. All these forms have to be submitted electronically within the prescribed due date. A dealer shall first make payment of tax due in to the Government treasury through challan Form No. 210, (Form MTR-6 for payment of CST dues), and thereafter upload the return in appropriate form as may be applicable. A grace period of 10 days has been permitted for uploading of e-returns but the tax due, if any, has to be paid within the prescribed due date.It may further be noted that from 1st June, 2010 it is now mandatory for the dealers required to file monthly returns to make payment of taxes electronically.In case of delayed payments, interest is payable @ 15% p.a. Such interest is mandatory and shall be paid before filing of return. Refunds of any period can be adjusted in the return/s for subsequent or any other period/s within the same financial year. As per the provisions of MVAT, refund cannot be adjusted against liability of the subsequent year; i.e., refund cannot be carried forward to the next financial year. However, for refunds relating to financial years 2005-06 as well as for 2006-07, the Commissioner has issued Trade Circulars whereby the refund for these financial years could be carried forward to the subsequent year. The Commissioner of Sales Tax has also issued a Trade Circular (No. 15T of 2010 dated 15-4-2010) whereby the dealers have been permitted to adjust the refund due for financial year 2009-10 against tax payable for the current year; i.e., financial year 2010-11, provided that the refund due as per return for the period ended 31st March 2010 is less than rupees MVAT Page 30
  31. 31. Management Accounting Indirect Tax one lakh and the dealer has not filed an application for refund (in Form 501) for such refund. Revised Returns Revised return, for any period, can be filed within 9 months from the end of the year in which such tax period falls or before receipt of notice for assessment, whichever is earlier. [Sec. 20(4)) Calculation of VAT Payable (1) Subject to sub rule 2 of this rule the tax payable on a taxable turnover is calculated by applying the rate of VAT specified in the Act on the "Sale Price(s)" of the transaction. (2) Where the "Sale Price(s)" is inclusive of tax and the VAT payable shall be calculated by the Formula R X Sale Price 100 + R where R is the rate of tax. (3) The tax payable by a VAT dealer for a tax period shall be calculated by the Formula, X-Y where ‘X’ is a total of the VAT payable in respect of all taxable sales made by the VAT dealer during the tax period, and ‘Y’ is the total input tax credit the VAT dealer is eligible to claim in the tax period under the Act. INPUT TAX CREDIT (ITC) (SET OFF):– [Sec. 48, Rules 51 to 56] Eligibility: – All registered dealers, whether manufacturer or traders, are eligible to take full set off of the taxes paid on inputs; i.e., Value Added Tax paid, within the State of Maharashtra, on purchases of Raw Material, Finished Goods and Packing Material, or any goods debited to profit and loss account. MVAT Page 31
  32. 32. Management Accounting Indirect Tax Entry Tax: – The amount of entry tax, paid by a registered dealer on the goods the sale of which is liable for VAT under MVAT, will be eligible for full set off. ITC on Capital Goods: – Tax paid on certain items of capital goods (defined) such as machinery, components, parts and spares etc. are also eligible for full set off. (On certain other items of capital assets such as furniture and fixtures, office equipments, etc. set off is admissible, subject to retention @ 3%, w.e.f. 8-9-2006) ITC on Miscellaneous Goods: – The amount of Vat paid on purchase of miscellaneous goods, debited to Profit & Loss A/c. (such as printing and stationery, repairs, sales promotion etc.) also eligible for full set off. ITC on Fuel: – Tax paid on purchase of goods, which is used as fuel, shall be eligible for set off, in excess of 3%. Reduction in set off: The amount of set off, available to a registered dealer, shall be reduced to the extent as provided, under the following circumstances: - i. 3% of the purchase price of respective goods, if taxable goods used as fuel. ii. 2% of the purchase price of respective goods, if taxable goods used in manufacture of tax-free goods. [No such reduction, if tax free goods so manufactured (covered by Schedule 'A’) are exported out of India]. iii. 2% of the purchase price of respective packing material used in the packing of tax-free goods.(No such reduction, if such tax free goods is covered by Schedule 'A’ and the same are exported out of India.) iv. 2% of the purchase price of respective goods, if taxable goods sent to any other State in India as Branch Transfer or on Consignment. MVAT Page 32
  33. 33. Management Accounting Indirect Tax (No such reduction if such branch transferred goods is received back in the State within a period of 6 months whether after processing or otherwise). v. Specified percentage of set off, if taxable goods used in Works Contract for which the dealer has chosen to pay tax under the Composition Scheme. (Reduction @ 4% of purchase price in respect of goods used in notified construction contracts, and, @ 36% of eligible amount of set off in case of other contracts). vi. In case of Liquor, sold by dealers holding Liquor Vendor Licence in Form FL-II, CL-III, and CL/FL/TOD/III, as per formula, if the actual sale price is less than MRP. vii. In case of dealers, whose total receipts on account of sale are less than 50% of total gross receipts of business then set off restricted to corresponding purchases, which are sold within 6 months from the date of purchase. In case of Hotels and clubs covered by this Rule, in addition to set off on goods sold as above, the set off will be available on capital assets and consumables pertaining to kitchen and service of foods and drinks. In case of Manufacturer of goods (not a job worker) covered by this Rule, set off can be claimed on plant and machinery & its PCA & packing materials only in respect of period of first 3 years from effective date of certificate of registration. viii. In case of closure of business, the set off on goods held in stock (other than capital assets), on the date of closure, to be disallowed and accordingly be reduced fully. ix. 3% of the purchase price of office equipment, furniture & fixture treated by the claimant dealer as capital assets. This is not applicable to dealer who leases these goods. MVAT Page 33
  34. 34. Management Accounting Indirect Tax x. 2% of purchase price of goods which are used in the distribution or transmission of electricity (including the goods treated as capital assets), if the claimant dealer is holding a licence for transmission or distribution of electricity under the Electricity Act, 2003. Wherever such reduction in set off is required to be done, it shall be done in the tax period in which such contingency arises. If, for the purpose of reduction of set off, wherever required, it is not possible to identify the corresponding purchases then proportionate reduction on FIFO basis. Condition for grant of set off: 1. Set off to be allowed only to a registered dealer. 2. A valid Tax Invoice is must to claim set off. 3. Proper maintenance of account of all the purchases in a chronological order stating therein the date on which the goods so purchased, the name and registration number of the selling dealer, tax invoice number & date, the amount of purchase price paid and the amount of tax paid separately. 4. The set off on eligible goods, purchased on or after 1st April 2005, has to be claimed in the tax period in which the goods has been purchased (entered in the books of account). 5. In case of newly registered dealers, set off can be claimed on the goods (including capital assets) purchased before the date of registration, within the same financial year, provided that the goods so purchased is not sold or disposed of before the date of registration. (Effective from 8-9-2006) 6. Tax on earlier transaction is received in Government Treasury. No set off:- MVAT Page 34
  35. 35. Management Accounting Indirect Tax No set off, under any Rule shall be admissible in respect of; a. Purchase of passenger motor vehicles and parts components and accessories thereof unless the dealer is engaged in the business of trading in motor vehicles or transferring the Right to Use (Leasing). b. Purchase of motor spirit by any dealer other than a dealer in motor spirit. c. Purchase of Crude Oil, used by an oil refinery for refining. d. Any purchase of consumables or capital assets by a job worker (pure labour job), whose only sales are waste or scrap of goods obtained from such labour job. e. Any purchase made by a dealer holding Entitlement Certificate under a Package Scheme of Incentives. (Such units are entitled for refund of tax paid on purchases). f. Any purchase of goods of incorporeal or intangible nature other than: i. Import Licences, Export Permits/licences or Quota, DEPB, SIM Cards and DFRC. ii. Soft wares in the hands of a trader in Soft wares. iii. Copyrights, if resold within 12 months from the date of purchase. Except above, all other intangible goods are debarred from set off. g. Tax paid by way of works contracts in the erection of immovable property (other than plant & machinery). h. Purchases of building material used in the erection of immovable property (other than plant & machinery). However, a contractor, who undertakes construction of immovable property by way of works contracts, is eligible to claim setoff on purchase of such goods. MVAT Page 35
  36. 36. Management Accounting Indirect Tax i. Office Equipments, Furniture & Fixtures, Electric Installations, etc., (treated as capital assets), purchased during the period from 1-4- 2005 to 7-9-2006. (Such assets, if purchased on or after 8-9-2006, are eligible for set off subject to retention @ 4% or 3% as the case may be). j. Small dealers/retailers, hoteliers, caterers, bakers, mandap decorators etc., opting for Composition Scheme, u/ss. 42(1), 42(2) and 42(4) of MVAT Act, are not entitled for any set off. k. There is no set off of CST paid on inter-state purchases. l. There is no set off for any other taxes paid such as excise duty, import duty, service tax, octroi or such other levy or levies. m. In case of hotelier, the set off on capital assets is prohibited where such capital assets are not pertaining to sale or service of food/drinks. Credit C/f and Credit B/f: – If during a tax period (month/quarter/six months) the tax on total turnover of sales is less than the amount of input tax credit, then such excess amount of credit may either be adjusted by the dealer against his tax liability under the CST Act for the same period or may be c/f to the next period. The unadjusted credit c/f of one period shall become the credit b/f for the next period. The excess credit may be carried forward in this manner till the end of the accounting year. The balance, if any, thereafter shall be claimed as a refund in Form 501 from the department, within a period of three years from the end of the year for which it relates. Goods Return, Debit/Credit Notes: – Section 63(5) and (6) of the MVAT Act provides that the amount of goods returned during any period shall be reduced from the total turnover of sales/purchase of that period in which the goods returned, provided that the goods has been returned MVAT Page 36
  37. 37. Management Accounting Indirect Tax within a period of six months from the date of sale or purchase thereof as the case my be. Similarly other debit and credit notes, which are in the nature of increasing or reducing the sale price and/or the purchase price shall be given effect in the month in which such debit/credit note has been entered in the books of account of the dealer. Thus the amount of set off, for that period, shall get increased or reduced to the extent it related to purchase return and debit/credit notes having impact on the purchase price of goods. Exports: – Exports are treated as zero-rated. Thus no tax is payable on export of goods out of India. However full set off is available of input tax paid on purchases, from within the state of Maharashtra, used in such exports. As there are no concessional forms under MVAT, the exporters may have to claim refund of the VAT paid on their purchases (inputs). However, the trading exporters (who were earlier purchasing goods against Form 14B), may purchase such goods against Form H of CST Act, provided all other conditions of section 5(3) of CST Act are fulfilled. Inter-State Sales: – The transactions of inter-state sales and inter-state movement of goods are governed by the CST Act. Thus the tax on such sale is levied according to the provisions of CST Act. Such transactions are not liable for VAT. However full input tax credit is available for the value added tax paid in Maharashtra. (Except in case of branch transfers/consignments, where there will be retention @ 4% or 3% or 2% as the case may be). TAX INVOICE: Essential ingredients of a Tax Invoice: – Under the scheme of VAT, the most important document is tax invoice. A registered dealer is entitled to claim set off only on the basis of a valid tax invoice. Set off is not available on purchases affected through a bill or cash memorandum. A 'Tax Invoice’ is must to claim input tax credit (set off). To be a valid tax MVAT Page 37
  38. 38. Management Accounting Indirect Tax invoice, section 86(2) provides that it shall contain the following particulars: – i. The word Tax Invoice in bold letter at the top or at a prominent place. ii. Name, Address and Registration Number of Selling Dealer. iii. Name, Address and Registration Number of the Purchasing Dealer. iv. Serial Number and Date. v. Description, Quantity and Price of the Goods sold. vi. The amount of tax charged, to be shown separately. vii. Signed by the selling dealer or a person authorized by him. viii. A declaration u/r. 77(1). METHODS OF COMPUTATION OF TAX: There are two methods for computation of tax liability in respect of Works Contract transaction.1. Determination of sale price of goods (u/r 58): a) Actual Expenses b) Fixed Percentage (Table)2. Composition u/s 42(3) & (3A): a) Construction or Non-construction contract b) Builder / Developer. SALE PRICE OF GOODS USED IN W.C. u/r 58(1)ENTIRE VALUE OF CONTRACT LESS:- a) Labour & Service charges for the execution of works; b) Amounts paid by way of price for sub-contract, if any to sub- contractors; c) Charges for planning, designing, & architect`s fees; d) Charges for obtaining on hire or otherwise, machinery & tools for the execution of the works contract; MVAT Page 38
  39. 39. Management Accounting Indirect Tax e) Cost of consumables such as water, electricity, fuel used in the execution of the contract, the property in which is not transferred in the course of execution of the works contract; f) Cost of establishment of the contractor to the extent to which it is relatable to supply of the said labour & services; g) other similar expenses relatable to the said supply of labour & services, where the labour and services are subsequent to the said transfer of property;• h) Profit earned by the contractor to the extent it is relatable to the supply of labour & services: SALE PRICE OF GOODS: FIXED PERCENTAGE (Table U/R 58)• Where proper evaluation of such expenses [a to h of Rule 58(1)] is not possible, fixed percentage of deduction is prescribed from 15% to 40%• various activities enlisted in the table, e.g. Installation of Plant & Machinery – 15%, Painting – 20%, Pipeline – 20%, other works contracts- 25%.• Either dealer or department may chose lump-sum deductions if books are not intelligible.• Construction contracts of flats: cost of land is also allowed as deduction. Ready reckoner rates on 1st Jan of the year in which the agreement to sell the flat is signed. COMPOSITION METHOD U/S 42(3) & (3A)• 8% for all contracts up-to 20.06.2006.• 8% for All contracts except Construction contract. ( w.e.f. 21.06.2006)• 5% for notified construction contracts w.e.f. 21.6.2006, (Notifi- dt.- 30.11.2006),• 1% for construction of flats / buildings, etc. w.e.f. 01.04.2010. (Notifi dt.- 09.07.2010) Construction contracts are notified by Government vide notification no. VAT-1505/CR- 134/Taxation-1 DT.30.11.2006,• e.g. Buildings, Roads, Dams, Swimming Pool, Canals, Drainage, Jetty, etc. On Going Works Contract (S -96)• MVAT Page 39
  40. 40. Management Accounting Indirect Tax Provisions of old Works Contract Act are applicable if works started prior to 1.4.2005 and continued thereafter.• Works Contracts started prior to VAT Act – If tax was paid under composition scheme under old Act before 01.04.2005 , then tax is payable at the same rate under VAT, if contract continues.• No set off is allowable for such ongoing contract. SET OFF (ONLY FOR - RD)• Normal Method: U/R 58(1) = Full set off Subject to conditions U/R 55, 54, 53 & 52• Composition : Tax @ 8% = 64% of set off [Rule – 53(4)] Tax @ 5% = 4% Reduction [Rule – 53(4)] Tax @ 1% = no set off (As per notification)• On Going Contracts : No set off is allowed for RD purchases. CASE STUDY VAT CREDIT IN CASE OF INPUTS/SUPPLIES Illustration 1 1. A dealer purchases the following goods in a State during the month of March 20x6: Particulars Total Amount (Rs.) Input Tax Paid (Rs.) Net Amount (Rs.) 4% VAT Goods 10,40,000 40,000 10,00,000 12.5% VAT Goods 9,00,000 1,00,000 8,00,000 VAT Exempt Goods 2,00,000 - 2,00,000 Total 21,40,000 1,40,000 20,00,000 2. The input tax paid on purchase of goods is eligible for VAT credit. 3. Sales made by the dealer during the month are as below: MVAT Page 40
  41. 41. Management Accounting Indirect Tax Particulars Gross Amount (Rs.) Output Tax Collected (Rs.) Net Sales Consideration (Rs.) 4% VAT Goods 11,44,000 44,000 11,00,000 12.5% VAT Goods 10,12,500 1,12,500 9,00,000 VAT Exempt Goods 2,50,000 - 2,50,000 Total 24,06,500 1,56,500 22,50,000 Suggested Accounting Treatment 1. The dealer passes the following entry to record the goods purchased and input tax paid thereon: 4% VAT Goods Purchase A/c Dr. Rs. 10,00,000 12.5 % VAT Goods Purchase A/c Dr. Rs. 8,00,000 VAT Exempt Goods Purchase A/c Dr. Rs. 2,00,000 VAT Credit Receivable (Inputs) A/c Dr. Rs. 1,40,000 To Bank A/c Rs. 21,40,000 (Being goods purchased and input tax paid) 2. The dealer passes the following entry to record the goods sold and VAT collected thereon: Bank A/c Dr. Rs. 24,06,500 To 4% VAT Goods Sales A/c Rs. 11,00,000 To 12.5 % VAT Goods Sales A/c Rs. 9,00,000 To VAT Exempt Goods Sales A/c Rs. 2,50,000 To VAT Payable A/c Rs. 1,56,500 (Being goods sold and VAT collected) 3. The dealer passes the following entry to record the liability for VAT payable met by using the balance in the VAT Credit Receivable (Inputs) Account: VAT Payable A/c Dr. Rs. 1,40,000 To VAT Credit Receivable (Inputs) A/c Rs. 1,40,000 (Being liability for VAT payable met by using the balance in the VAT Credit MVAT Page 41
  42. 42. Management Accounting Indirect Tax Receivable (Inputs) Account) 4. Net credit balance of Rs. 16,500 (i.e., Rs. 1,56,500 – Rs. 1,40,000) in VAT Payable A/c is disclosed in the balance sheet as below: Extracts from the Balance Sheet Current Liabilities: Rs. VAT Payable Account 16,500 5. Accounting Standard (AS) 2, ‘Valuation of Inventories’, does not require disclosure of components of the cost of inventories as a part of significant accounting policies. However, the dealer may, if he so desires, include the following sentence in the accounting policy regarding valuation of inventories to specify the treatment regarding VAT credit available on purchases: ‘The cost of inventories is net of VAT credit.’ 6. The dealer may include the following sentence in the accounting policy regarding revenue recognition to specify the treatment of output tax: ‘Sales are exclusive of VAT.’ 7. Suppose the dealer makes payment of outstanding VAT liability at the beginning of the next month. To record the payment, the dealer passes the following entry: VAT Payable A/c Dr. Rs. 16,500 To Bank A/c Rs. 16,500 (Being payment made for VAT liability) VAT CREDIT IN CASE OF CAPITAL GOODS Illustration 1 On June 1, 20x6, a dealer purchases one machine in a State for the total cost of Rs. 93,60,000 which includes input tax of Rs. 3,60,000. As per the State VAT laws, input tax paid on purchase of machinery is adjustable as VAT credit over 36 equal monthly instalments beginning July 1, 20x6. Till the end of the year, the dealer has not utilised the VAT credit available on the machine. Suggested Accounting Treatment MVAT Page 42
  43. 43. Management Accounting Indirect Tax 1. The dealer passes the following entry to record the machinery purchased and input tax paid thereon: Machinery A/c Dr. Rs. 90,00,000 VAT Credit Deferred (Capital Goods) A/c Dr. Rs. 3,60,000 To Bank A/c Rs. 93,60,000 (Being machinery purchased and input tax paid) 2. When the VAT credit becomes actually available, the dealer passes the following entry to recognise the same every month: VAT Credit Receivable (Capital Goods) A/c Dr. Rs. 10,000 To VAT Credit Deferred (Capital Goods) A/c Rs. 10,000 (Being a portion of VAT credit on purchase of machinery becoming available) 3. The dealer charges depreciation on the cost of machinery excluding VAT credit (i.e., Rs. 93,60,000 – Rs. 3,60,000 = Rs. 90,00,000). 4. Balances in VAT Credit Deferred (Capital Goods) A/c and VAT Credit Receivable (Capital Goods) A/c are disclosed in the balance sheet as on March 31, 20x7 as below: Extracts from the Balance Sheet Assets Amount (Rs.) Loans and Advances VAT Credit Deferred (Capital Goods) A/c 2,70,000 VAT Credit Receivable (Capital Goods) A/c 90,000 VAT CREDIT IN CASE OF OPENING STOCK AT THE INCEPTION OF VAT SCHEME Illustration 1 On April 1, 20x5 (the date on which VAT scheme comes into effect), a dealer has an opening stock of Rs. 9,36,000 and the dealer has paid sales tax of Rs. 36,000 on purchase. As per the State VAT laws, these goods are eligible for MVAT Page 43
  44. 44. Management Accounting Indirect Tax availing VAT credit in respect of the tax paid. This VAT credit will be available over a period of 6 months after an interval of 3 months needed for verification. Suggested Accounting Treatment 1. On April 1, 20x5, the dealer passes the following entry to record the VAT credit that will be available in respect of the opening stock: VAT Credit Deferred (Opening Stock) A/c Dr. Rs. 36,000 To VAT Credit Available on Opening Stock A/c Rs. 36,000 (Being VAT credit in respect of opening stock at the inception of the VAT scheme) 2. On July 1, 20x5, when first instalment of VAT credit becomes actually available, the dealer passes the following entry to recognise the amount becoming available: VAT Credit Receivable (Inputs) A/c Dr. Rs. 6,000 To VAT Credit Deferred (Opening Stock) A/c Rs. 6,000 (Being a portion of VAT credit on opening stock becoming available) 3. The dealer will repeat the entry mentioned at 2 above for the next 5 months to record the amount of VAT credit becoming available. 4. The dealer discloses opening stock and VAT credit availed in respect thereof in the profit and loss account in the following manner: Extracts from the Profit and Loss Account Particulars Amount (Rs.) Opening Stock Rs. 9,36,000 Less: VAT Credit Available on Opening Stock Rs. 36,000 Rs. 9,00,000 TREATMENT OF OUTPUT TAX ON A DEBTOR BECOMING INSOLVENT Illustration MVAT Page 44
  45. 45. Management Accounting Indirect Tax On January 15, 20x6, A Ltd. sells on credit 1,000 units of product ‘X’ to ‘B’ for Rs. 100 per unit plus 12.5% VAT. On June 30, 20x6, ‘B’ becomes insolvent. As per the relevant State VAT laws, in this situation, ‘A’ Ltd. is not liable to pay VAT. Suggested Accounting Treatment 1. On January 15, 20x6, ‘A’ Ltd. passes the following entry: B A/c Dr. Rs. 1,12,500 To Sales Rs. 1,00,000 To VAT Payable Account Rs. 12,500 (Being sale of goods on credit to ‘B’) 2. On June 30, 20x6, ‘A’ Ltd. passes the following entry: VAT Payable A/c Dr. Rs. 12,500 Bad Debts A/c Dr Rs. 1,00,000 To B Rs. 1,12,500 (Being bad debts written off on B becoming insolvent) 7.BUSINESS AUDIT,RECOVERY,OFFENCE AND PENALTY UNDER MVAT: Business Audit is a new function of the Sales Tax Department. This will be conducted by the Sales tax officials ordinarily at the dealer's place of business. This audit is independent from the audit by a Chartered Accountant. Business Audit is however, not an activity of enforcement for search and seizure at dealers' business premises. Objectives of Business Audit The objective of a Business audit is to close any possible gap between the tax declared by' a dealer and the tax legally due. It aims to ensure optimum revenue collection and voluntary compliance. The aim of MVAT Page 45
  46. 46. Management Accounting Indirect Tax Business audit is to encourage the highest possible level of voluntary compliance in a system of self-assessment. Selection for audit The main purpose of an audit is to ensure tax compliance, cross check of transactions and initiate corrective actions, if necessary. The returns filed by the dealers will be examined for discrepancies. Based on such examination and pre-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. A dealer who consistently and regularly complies with the VAT law and files correct, complete and self consistent returns will normally not be selected for audit. The selection of audit cases will be by exception rather than as a rule. The Business Audit Process If any of the dealers business is selected for an audit, then Sales Tax Office will inform 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 he may require to enable him to carry out the audit effectively and speedily. The audit officer may like to understand dealer’s business process and examine their stocks of goods. He may also like to interview the person or its employees for this. The audit officer cannot remove any books of accounts or documents from their premises. However, audit officer can request for copies. Results of the audit If the audit shows that the returns filed do not reflect the true picture of the dealers business, then the auditor may discuss the matter with the MVAT Page 46
  47. 47. Management Accounting Indirect Tax dealer and will give guidance to them to prevent recurrence and will also explain them about what action should be followed. The audit may result in additional tax demand or a refund. Additional tax demand If any additional tax is due, the auditor will issue a notice explaining the additional demand. If the dealer accepts the additional demand shown, then they should file a revised return along-with the payment of tax. However, if the dealer disagrees with the findings of the auditor, then they may proceed to assess their case and issue an assessment order unless they are able to provide evidence and convince the audit officer not to assess them for additional demand. The assessment order will also include interest due from the date they should have paid the tax to the date of the assessment. In addition, they may also impose a penalty. They should pay the dues as per the assessment order or they may prefer an appeal against this order. Time limit for audit There is no time limit prescribed for conducting Business Audit. Normally, they may carry out an audit within two years of filing the return. They may follow the timelines as prescribed for completion of assessments under the MVAT Act and MVAT Rules. Investigation Normally, the Sales Tax Department will make Business Audit visits by appointment. However, if the department suspects any tax evasion, it may conduct investigation of the business including search and seizure operations at any time without giving notice. Such investigation will be carried out by a duly authorized investigation officer (not audit officer). Recovery, Offences and Penalties: Recovery of unpaid tax VAT is a self-assessed tax. In order to operate effectively, the self- assessment system relies on the expectation that every dealer will deal MVAT Page 47
  48. 48. Management Accounting Indirect Tax with his 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 deter dealers from trying to avoid paying tax. The self-assessment return requires the dealer to pay the tax due at the time of submission of the return. If this dealer does not pay the tax that he has declared, or if only pays a part of the tax due, interest is payable in addition to the tax due. Attachment of Bank Account Where any tax, interest or penalties remain unpaid, the department may issue an attachment notice to the dealer's bank and to his debtors. If necessary, officials of the Sales Tax Department may call for the records from the defaulting dealer to examine and obtain the necessary details. Attachment proceedings The department may also recover the amounts due by attaching the defaulting dealer's moveable or immoveable property under the provisions of Maharashtra Land Revenue Code. If the department is still unable to recover the amounts of tax, interest and penalties plus any costs incurred in the attachment proceedings, it will initiate prosecution proceedings through police. The VAT law outlines a number of offences and the financial and other consequences that follow. In addition, interest will be charged on any tax paid late at the rate of 15% per year. Offences The principal offences, each of which has been referred to in the text of this guide, are as follows: - If a person - • poses as a registered dealer when they not registered. • files a false return. MVAT Page 48
  49. 49. Management Accounting Indirect Tax • 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 In 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 be imposed. 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. MVAT Page 49
  50. 50. Management Accounting Indirect Tax Financial penalties or fines There are various financial penalties, each depending on the nature of the offence: Tax related Some offences attract a maximum penalty in proportion to the amount of tax 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 tax The penalty is an amount equal to the tax due. If the dealer avoids paying the correct amount of tax as a result of issuing bogus, false tax invoices, the maximum penalty is an amount equal to half of the tax under assessed or Rs.100/-, whichever is higher. Non Tax Related Penalties If the dealer fails to file a return, within the time allowed, the penalty is Rs.2,000/-. If dealer files the return late but before any penalty proceedings have started, the penalty will be reduced to Rs1,000/-. If the dealer’s return is not correct, complete and self-consistent, the penalty is Rs1,000/-, but this is without prejudice to any other penalties that may be imposed. If, after the issue of summons, the dealer fails to attend any proceedings or to produce books of account, registers or documents, the Tribunal or the Sales Tax authorities may impose a fine, not exceeding Rs.5,000/-. Most other offences attract a penalty of Rs.1,000/- although there is also a provision for some offences to attract a penalty of Rs.2,000/- plus a continuing daily penalty of Rs.100/- Payment of Penalty or Fine MVAT Page 50
  51. 51. Management Accounting Indirect Tax As 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 the order. Dealer should make the payment using Form 210 through the bank where he normally files his return. 8.APPENDIX: List of important forms referred to in the Guide Sr.No. Form No. Subject 1 101 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, 2002 MVAT Page 51
  52. 52. Management Accounting Indirect Tax 4 221 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, 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. MVAT Page 52
  53. 53. Management Accounting Indirect Tax 11 311 Application for grant of stay against order of assessment, penalty, interest or fine 12 414 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. 9.CONCLUSION: The system of Value Added Tax (VAT) has been implemented, in the State of Maharashtra, w.e.f. 1st April, 2005. As per the provisions of MVAT, a dealer is liable to pay tax on the basis of turnover of sales within the State. MVAT, a dealer is liable to pay tax on the basis of turnover of sales within the State. The term dealer has been defined u/s. 2(8) of the Act. It includes all person or persons who buys or sells goods in the State whether for commission, remuneration or otherwise in the course of their business or in connection with or incidental to or consequential to engagement in such business. The term includes a Broker, Commission Agent, Auctioneer, Public Charitable Trusts, Clubs, Association of Persons. Draft model of VAT legislation has been prepared by the National MVAT Page 53
  54. 54. Management Accounting Indirect Tax Institute of Public Finance and Policy. The circulation of papers on VAT will certainly be creating the atmosphere towards readiness to accept VAT. Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall apply electronically for registration to the prescribed authority, in Form 101, within 30 days from the date of such liability. The provisions relating appeals under MVAT Act 2002, which is in force in Maharashtra State, are discussed in the article N.T.Nirale, Advocate In a leading case of Hoosier Kamas Dada the Supreme Court has pointed out that the right to appeal is not merely a matter of procedure; it is a matter of substantive right. [4 STC 114]. Right to appeal is vested in a dealer when the return is filed or on the date, the return was due. 10.BIBLOGRAPHY:  Internet      mvat-audit-repor...  MVAT Page 54
  55. 55. Management Accounting Indirect Tax  Text Book All India Taxes (A Ready Referencer) CA Alok Kr Agarwal & CA Shailendra Mishra All India VAT Manual (Covering All States VAT Acts, Rules, Rates and Notifications) (in 4 Vols.) Balram Sangal & Jagdish Rai Goel MVAT Page 55