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Maharashtra VAT ( Sales Tax) overview


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Maharashtra VAT ( Sales Tax) overview

  1. 1. Page 1 A overview of Maharashtra Value Added Tax Index 1) Introduction 2) VAT at Global level 3) VAT in India 4) VAT in Maharashtra 5) Present Act, Rules & basic concept 6) Registration 7) Tax Invoice 8) MVAT Rates & classification of Goods (Sec. 5 & 6) 9) Method for VAT calculation 10) Input Credit/ Set off 11) Payment of VAT & CST 12) Returns 13) TDS 14) VAT Audit
  2. 2. Page 2 1) Introduction: Unlike Direct Tax, Indirect Tax is levied at State as well as Central level. Central Government can levy and collect taxes like Excise Duty, Service Tax, Central Sales Tax & Custom Duty, where as State Government is empowered to levy and collect VAT, Professional Tax, Entry of Goods tax etc. VAT (Value added Tax) is a multi point sales tax with Set off available against VAT paid on purchases. It is basically Tax on Value addition on the product. It is an indirect Tax & burden of this tax is generally borne by the end user/Consumer. It is a tax that applies to all commercial activities involving Production or distribution activities. Here, I tried to focus on all important points of VAT which should be known to Businessman having Business in Maharashtra. 2) VAT at Global Level: Almost all countries levy Value added Tax on Goods and/or service. The nomenclature, rules & regulation of this tax is different in all countries. The rate of tax also varies from Country to country. The very system of Value Added Taxes or VAT was introduced for the first time in the market by the Modern French economist in 1954. Maurice Lauré who was the Joint Director of the French tax authority and the director general of the department of import, was the first person to introduce VAT or the value Added Tax with effect from 10th of April in the year 1954 in the cases of large businesses, and which are extended over time to all business sectors. In France, VAT became so important that it is now one of the most important sources of the state finance and accounts for almost 45% of state revenues. 3) VAT in India: In fact, India has imported the concept of VAT from other countries. The concept is just a decade old in India & it was implemented in between 2003 to 2006. Although, it is state level tax & all state governing authority has power to make rule on their own but Act & Rules are as per the recommendation of empowered committee of VAT at Centre Level. 4) VAT in Maharashtra: VAT in Maharashtra is governed by ‘The Maharashtra Value Added Tax Act, 2002’ (‘MVAT”). Recently, many issue like VAT on construction of Building, VAT on works contract, input credit of genuine purchase of material from dealers who turned into Hawala dealers etc in MVAT is debatable. The knowledge of the same issue is inevitable for businessman in Maharashtra. I have tried to cover all these issue in brief which may help to reader. 5) Present Act, Rules, & basic concept: a) The present MVAT system in Maharashtra is governed through follow: i) MVAT Act ii) MVAT Rules iii) Notifications iv) Trade Circulars
  3. 3. Page 3 b) Basic Concept: i) Output VAT: The VAT Collected by dealer on Sales made by him as a percentage of Gross Sales Value during the course of Business ii) Input VAT/Set off: Amount paid by a Dealer as a percentage of the Goods purchased which is used in further production or for further sales. It is also called Input tax credit (ITC). iii) Nil Rates: Goods which are taxable under MVAT Act but at present their rate of tax is Nil/Zero. Dealer can take full set off on purchases made for Sale of Goods taxable at Zero rate under MVAT. Dealer may claim refund in some cases. iv) Exempt Goods: Goods / Services exempt under MVAT Act are out of the purview of MVAT Rate schedule. Dealer of exempted goods can not avail set off on MVAT paid on purchase of taxable Goods. 6) Registration (Sec 3(4)) : Dealers covered under following criteria needs to be registered under MVAT, 2002 Act and/or CST Act,1956. Category of Dealer Limit of Turnover of Sales Other Conditions Importer Rs. 1,00,000/‐ Value of taxable goods sold or purchased during the year is not less than Rs. 10,000/ Others Rs. 5,00,000/‐ Value of taxable goods sold or purchased during the year is not less than Rs. 10,000/‐ Here, Importer means the dealer who brings any goods into the state from outside the state by any method or the dealer who imports the goods from other countries. Dealer needs to apply for registration through online portal of MVAT website & required to present in person or through Authorized person on the date mentioned on the Acknowledgement of Application made online. Dealer needs to submit all necessary documents at the Maharashtra Sales Tax Department. There are two types of registration, namely, Voluntary & Compulsory: In case of Voluntary Registration, Registration fees is Rs.5, 000/- & there is Deposit of Rs.25, 000/- In case of Compulsory Registration, there is no deposit & registration fees is Rs. 500/-
  4. 4. Page 4 After that submission of documents as required by Sales Tax registration officer, he will allot Registration number along with Registration Certificate. Dealer need to E-register himself on web site. After E-Services registration, mandatory filing of acknowledgement within 10 days to the concerned authority specified in Rule 17(2) is required. 7) Tax Invoice (Sec. 86(2)) : Registered Dealers need to issue Tax invoice for all Sales Transactions. Following points must be taken into consideration while issuing the Invoice. i) Name & Address of the Dealer ii) Name of Purchaser iii) Serial Number & Date iv) Description, Quantity& Price of the goods v) VAT/CST number of the seller & Effective date vi) Disclosure vii) TAX INVOICE is to be printed on the top of the every invoice. viii) Bifurcation of Taxable Value & VAT/CST along with rates. ix) Signed by the dealer or authorized person x) A Declaration u/s. 77(1). Dealer also required taking VAT registration number in case of registered purchaser under MVAT Act 2002 or Central Sales Tax Act, 1956 “CST” so that purchase can easily avail the set off/input. 8) MVAT Rates & classification of Goods (Sec. 5 & 6): The rate of taxable goods is based on classification of goods. MVAT Department has published the rate schedule according to classification. The Goods are classified into 5 Schedules viz. A, B, C, D & E as shown below: Schedule Nature of Commodities Rate (%) A Essential Commodities Nil B Gold, Silver, Precious Stones, Pearls Etc 1% C Declared Goods & other specified goods 5% D Foreign liquor, Country Liquor, Motor Spirit Etc At specified Rate E All other goods (Goods not covered by Sch.A to Sch. D) 12.5% 9) Methods for VAT Calculation: There is no method specified in Act to calculate the VAT liability but according to provision we may use following methods.
  5. 5. Page 5 (A) Other than Works Contractor: a) Normal Method: In this, dealer bifurcate the goods rate wise & liability is calculated taking set off on eligible goods. Full set off on input is allowed other than capital goods. b) Composition Scheme (Sec. 42) : Section 42 provides for Composition Schemes for various classes of dealers, as may be notified by the State Government from time to time. The dealers opting for such composition schemes shall pay tax at such rates, with such conditions, as may be prescribed in the scheme. Accordingly, the Government of Maharashtra has notified different types of composition schemes for following classes of dealers: – (1) Restaurants, Clubs, Hotels and Caterers (2) Bakers (3) Retailers and (4) Dealers in 2nd Hand Motor Vehicles and (5) Dealers, who are in the business of giving on hire (leasing) of mandap, shamiana, tarpaulins, etc. (B) For Works Contractor : a) Works contractor has following composition method to calculate the VAT liability. i) For Builder: W.e.f. 1-4-2010 Sec. 42(3A) was inserted. Accordingly, Composition scheme is introduced for the dealer who undertakes construction of flats, dwelling or buildings or premises and transfer them in pursuance of an agreement along with the land or interest underlying the land. The rate of tax is 1% of Agreement value or stamp duty rate, whichever is higher. ii) For Construction Contract: In case of notified works contract, where dealer has chosen to pay composition @5%, the set off of input is available subject to retention of 4%. iii) For other works contract: In case of notified works contract, where dealer has chosen to pay composition @8%, the set off of input is available to the extent of 64% of Input tax credit. b) Normal Method: In this type, the fixed percentage is deducted from Sales value excluding all other taxes. Dealer should bifurcate rate wise sales in the proportion to Purchase. Thus, dealer will get his tax liability for the particular period. Under this method, Dealer is entitled to take full Input tax credit. In case of Builder, first Land cost will be deducted from sales price. The cost of land will be the value determined for payment of stamp duty as per ready reckoner applicable as on 1st January or cost, whichever is higher.
  6. 6. Page 6 10) Input Credit/ Set off : a) As per Rule 54 Input on following is NOT AVAILABLE to Dealer. i) Passenger Motor Vehicles and its parts, components and accessories thereof unless the dealer is engaged in the business of trading in motor vehicle or in the business of Leasing ii) Motor Sprits iii) Purchase of Crude Oil & used by oil refinery for refining. iv) Job worker (doing pure labuor work) whose only sales are waste or scraps. v) Entitlement Certificate Holders under a packaged scheme of Incentives. vi) Purchase of Intangible assets other than :- - Import licences, Export permit/licenses or Quota, DEPB, SIM cards & DFRC. - Software in the hands of trader in software. - Copyright, if resold within 12 months from the date of purchase. vii) Works Contract resulting in immovable property (other than Plant & Machinery). viii) Purchase of Goods, the property in which is not transferred to any other person, which are used in the erection of immovable property other than Plant and Machinery. ix) Small Dealers/ retailers, hoteliers, caterers, bakers, mandap decorators etc. opting for composition scheme u/s 42(1), 42(2) & 42(4) x) Purchase of Capital Goods by Hotels where such capital asset are not pertaining to sale or service of foods or drinks. xi) There is no set off of any other taxes paid. xii) In case of purchase from dealer who subsequently proved Hawala Dealer, the buyer needs to pay taxes on Hawala purchase. On one side VAT department is trying to reduce unethical practice of dummy sales, on the other side, sometimes dealer who made genuine purchase incur the loss if seller turned in to Hawala. b) Reduction in Set off (Rule 53): Sr. No. Particular In case of following full Set off Reduction in set off(%) 1 Taxable goods used as fuel - 3% 2 Taxable goods used in manufacture of Tax free goods Manufactured Tax free goods exported out of India 2% 3 Taxable goods sent to any other state in India as Branch Transfer or on consignment. If such transferred goods received back in the state within a period of 6 months whether after 2%
  7. 7. Page 7 processing or otherwise 4 Works Contractor who chosen to pay tax under the composition scheme Specified Rate 5 Furniture & Fixture used as capital asset 3% 11) Payment of VAT & CST (Sec. 4) : There are 3 frequency of payment in Maharashtra VAT Department : Monthly, Quarterly & Half yearly. The frequency is decided & published by department on the basis of last year VAT/CST liability paid by the dealer. The Schedule is as follow: Sr. No. Monthly Criteria Due date of payment Previous Year Tax Refund 1 Half Yearly a) Retailer opted for composition Scheme b) Tax liability in the previous year was up to Rs. 1,00,000/- 30th of Next month Up to Rs. 10,00,000/- 2 Quarterly a) Newly Registered Dealer. b) Tax liability in the previous year between Rs. 1 Lakhs to. 10 Lakhs 21st of Next month Exceeds Rs. 10 Lacks but up to Rs. 1crore. 3 Monthly a) Tax liability in the previous year exceeds Rs. 10 Lakhs. 21st of Next month Exceed Rs. 1 crore Note: I) Interest in case of delay in payment is 1.25%p.m. II) Tax must be paid through E Net banking system of any Nationalized Bank. 12) VAT Returns (Sec 20, Rule 17 to 20): Due date of Returns is as follow. Sr. No. Frequency of Dealer In case of Tax payment In case of No tax liability or Refuund 1 Monthly & Quarterly 21st of Next month + 10 days 21st of Next month 2 Half yearly 30th of Next month + 10days 30th of Next month
  8. 8. Page 8 All the returns are necessarily to be E filed on Maharashtra VAT website though dealer login. There are 5 different forms to file the VAT return for different type of Dealer viz. Form 231, 232, 233, 234 & 235. Also there is one form for CST viz. Form III (E). For Dealers who are not covered under the MVAT Audit, are required to file J1, J2 Annexure before filling the last return of the financial year. J1, j2 Annexure consists list of party wise sale & purchase made during the whole financial year. There is a provision of penalty of Rs.5,000/- for delay in uploading the return in the MVAT Act. Till last year, Dealer were able to upload the return after due date without any penalty but since almost one year there is compulsory penalty of Rs.5,000/- per Return in case of delay in filling of VAT & CST returns. (Delay of one day will also attract the penalty of Rs.5,000/- per Return). Thus, if Dealer is liable to file the return for VAT as well as CST, delay in furnishing the return will cost him Rs.10,000/- (Rs.5,000/- for VAT & Rs.5,000/- for CST return). If there is no Inter-state transaction, dealer is not required to file the CST return as per circular No.52Tof 2007 dated 31-07-2007for that period provided that VAT return filed by the dealer shown Nil Inter-state sales. Also, in case of continuing default in filling the return by the dealer, Return officer, after giving sufficient time to file the return, has power to assess his liability & freeze the amount in Bank or giving order to Bank to pay the specified amount to Sales Tax Department. In my view, fixed penalty provision is very harsh for Dealer especially small dealer or whose tax liability is negligible. Penalty should be based on either day basis or tax liability basis. 13) TDS: Specified Employer needs to deduct the TDS in case of Works contract. Following are the specified employer. Sr.No.Classes of Employers (1) The Central Government and any State Government (2) All Industrial, Commercial or Trading undertakings, Company or Corporation of the Central Government or of any State Government, whether set up under any special law or not, and a Port Trust set up under the Major Ports Act, 1963 (3) A Company registered under the Companies Act, 1956 (4) A local authority, including a Municipal Corporation, Municipal Council, Zilla Parishad, and Cantonment Board (5) A Co-operative Society including a Co-operative Housing Society registered under the Maharashtra Co-operative Societies Act, 1960 (6) A registered dealer under the Maharashtra Value Added Tax Act, 2002 (7) An Insurance or Finance Corporation or Company; and any Bank included in the Second Schedule to the Reserve Bank of India Act, 1934, and any Scheduled Bank recognized by the Reserve Bank of India (8) Trusts, whether public or private (9) A co-operative housing society, registered under the Maharashtra Co-operative Societies Act,
  9. 9. Page 9 1960, which has awarded contract of value aggregating to rupees ten lakhs or more in the previous year or as the case may be in the current year. All such employer shall have to deduct tax wherever their liability arise, deposit the TDS amount as per due date, issue a TDS certificate in form 402, maintain necessary records & submit the return in form 405 within three months from the end of Financial year. There are other conditions which need to be taken into consideration while deducting TDS. 14) VAT Audit : At present, following dealers are required to get their accounts audited ; a) Sales or purchase, as the case may be, exceed Rs. 60Lakhs b) Dealer who holds i) Form P.L.L. under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966, or ii) Form B-RL under the Maharashtra Manufacture of Beer and Wine Rules, 1966, or iii) Form E under the Special Permits and License Rules, 1952, or iv) Forms FL-I, FL-II, FL-III, FL-IV under the Bombay Foreign Liquor Rules, 1953, or v) Forms CL-I, CL-II, CL-III, CL/FL/TOD III under the Maharashtra Country Liquor Rules, 1973, vi) PSI unit holding certificate of entitlement (from 1-5-2010) The due date for the same is 30th November as of now. VAT Audit has to be certified by the Chartered Accountant & it should be E-filed before the due date. The penalty for non compliance is 0.1% of the Turnover. To sum up, From department side, there are many point because of which ultimately dealer suffers like, 1) department is not giving any access to dealer through which dealer can verify their Input tax credit 2) A single dealer gets different notices from many officers who ask for same details e.g. Refund officer, Desk Audit, Assessment etc. 3) now a days, department is very keen for Ex party assessment even for dealer who has not filed their return since 4-5 months & they even issue a notice to bank to freeze the dealer’s account.
  10. 10. Page 10 I can say that if the dealers are regular in executing compliance, the system is good. But there is high penalty & consequence if dealer fails to meet the statutory obligation. Also, Dealer simply cannot avoid this part as some time margin of the dealer is less than VAT rate, avoiding the same may result into the loss for business. Even as of now, many registered dealer are not regular or have stopped payment of & filling the VAT returns. THANKING YOU Vira & Gor (Chartered Accountants) Jenish vira Mumbai Disclaimer : This material and the information contained herein prepared by author, is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of Vira & Gor ’s officials or their related entities is, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser.