Value Added Tax (VAT) is a multi-point tax collected on the value added at each stage of production and distribution. In India, VAT was introduced in 2005 and is governed by state laws like the West Bengal VAT Act of 2003. Under VAT, a dealer pays tax on sales (output tax) and claims a credit for tax paid on purchases (input tax) in the same tax period, usually a month. This eliminates the cascading effect of taxes being applied to previous taxes. While VAT streamlines taxation, India's federal structure restricts a pure VAT system, with the center and states collecting different taxes.

1. (AT A GLANCE)

2. INTRODUCTION
 Value Added Tax, as the name specifies is a multipoint tax collected
at each stage of production – distribution of chain. In other words
tax which is collected on value addition in the price of commodity
the final burden of which falls on end consumers.
 In India, VAT has evolved over certain years in 2005. In our state, it
is governed by West Bengal VAT Act, 2003.
 VAT for a dealer is the difference of tax payable on sales (output
tax) effected by the dealer during a tax period after deducting
therefrom the tax paid or payable (input vat) on purchases effected
during the same period, say a month.
 The essence of VAT is in providing set-off through the concept of
input tax credit or rebate.
 In India Federal structure of taxation is followed which restricts
implementation of pure VAT system. The present scenario is
manufacturer and service provider pays excise and service tax and
claim CENVAT credit and dealers pays VAT and claim VAT credit in
comparison to Foreign countries which pay only Tax i.e., VAT.

3. MERITS & DEMERITS -
 Merits of VAT
◦ It replaces many state taxes like sales tax, additional sales tax, turnover tax, etc.
◦ It reduces the possibility of tax evasion as submission of relevant invoices is must
to avail the input tax credit.
◦ It helps the commercial tax departments to cross check the declared transactions
between dealers claiming ITC and enable computerization and better tax
compliance.
◦ As a result of elimination of cascading burden of tax cost of goods is reduced.
 Demerits of VAT
◦ The price of certain goods may increase because of levy of high rate of VAT
specially when the benefit is not passed to the ultimate consumer.
◦ High compliance cost may induce the dealers to evade tax, which in turn, reduces
the revenue.
◦ Maintenance of accounts will become cumbersome specially when the dealer
deals with various products.

4. STATE SALES TAX vs VAT -
Sl
No.
Sales Tax VAT
1. It’s a single point tax (levied on first
point of sale)
It’s a multiple point tax (levied at all
stages of production and distribution
chain)
2. It is over-burdened by additional sales
tax, surcharge , etc.
No such additional tax is levied.
3. It is governed by Sales Tax Act. It is governed by WB VAT Act,2003
4. It leads to double taxation i.e., tax on
taxes is levied (known as cascading
effect).
It facilitates elimination of cascading
effect if tax burden by allowing input
tax credit.
5. It becomes complex in structure as
there are no. of rates in different
states.
It is simple and transparent as it is a
single tax with only two basic rates.
6. Illustration: Two dealers A and B are
involved. Cost of input to A is 200 and
profit is 20. Sales Tax is charged @
10% amounting to Rs. 22/-. Selling
Price of A is Rs. 222/-. B will add his
Illustration: Two dealers A and B are
involved. Cost of input to A is 200 and
profit is 20. VAT is charged @ 10%
amounting to Rs. 22/-. Selling Price of
A is Rs. 222/-. B will add his profit

5. VARIANTS OF VAT
Variants
of VAT
Gross Product
Variant
VAT is levied on sales and
deduction for tax paid on
input is allowed excluding
Capital inputs (discourages
investment).
Income Product
Variant
VAT is levied on sales with set-
off for tax paid on inputs and
depreciation is charged only on
capital goods (suitable when
tax is not charged separately in
invoice).
Consumption Type
Variant
VAT is levied on sales and
deduction for tax paid on all
consumption of raw
materials, components and
capital goods is allowed. It
is widely used.

6. COMPUTATION METHOD -
Sl
N0.
Addition Subtraction Tax Credit or
Invoice Method
1. This method
aggregates all the
factor payments and
profit on which VAT
liability is calculated.
Under this method
value addition is
calculated by
subtracting total
purchases from total
sales on which VAT is
levied.
VAT liability is the
difference of the
total tax on outputs
less tax on inputs.
2. This method is mainly
used with the Income
VAT. Factor Income
are wages, rent,
interest, profit, etc.
In case of Direct
Subtraction method
total purchases and
total sales is
considered exclusive
of tax. However under
Immediate Subtraction
Method inclusive of
tax figures are
considered.
It is widely used
method as it is also
suitable where tax
rates are different.

7. TERMINOLOGIES IN VAT -
 Dealer : Dealer means a person who carries on the business of selling or purchasing
goods in West Bengal or any person u/s 14 and includes-
◦ An occupier or shipper of jute mill
◦ Government, local authority or statutory body
◦ Owner of establishment of selling or purchasing goods in WB
◦ a society including cooperative society, club which sell goods for commission,
consideration, remuneration.
◦ A factor, broker, a commission agent for handling or transferring goods.
 Casual Dealer : Casual dealer means a person other than a dealer whether as a
principal or agent has occasional transaction of buying, selling, distributing goods
in WB irrelevant of fixed place in WB. It includes owner or lessee or occupier of
warehouse, transporter, carrier or transporting agent.
 Goods : It all kinds of movable property but does not includes the following –
◦ Actionable claims, stocks, shares or securities.
◦ Country liquor
◦ Foreign liquor
◦ Lottery tickets
◦ Motor spirit of any kind.

8. TERMINOLOGIES IN VAT - (contd…)
 Sale and Purchase :
Sale / Purchase for
i. Local
ii. Inter state
iii. In the course of export
iv. In the course of import
Works contract and processing jobs
Lease transaction
Purchase/sale of capital asset
Disposal of scrapes and waste
Recovery from employees for meal
Sale of confiscated goods by bank/ financial institutions
Disposal of salvage by insurance companies
Royalty for Technical Know-how, Patents, Trademarks, Copyrights
Purchase of Patent , Trademark, Copyrights

9. TYPES OF SALES
 Intra State Sales : A sale is said to be take
place in the course of Intra State Trade or
Commerce if such sale means sale of goods
within the state. Tax on both point is collected
by WB govt.
 Inter State Sales : A sale is said to be take place in the course of Inter State
Trade or Commerce if such sale or purchase occasions movement of goods from
one state to another or by way of transfer of documents of title of goods during
movement of goods from one state to another.
Suppose transfer of goods commenced from dealer A of Jharkhand and
terminates in Jharkhand to dealer B. While movement of goods it passes through
territory of West Bengal. Whether it will be deemed to be sales in the course of
Inter state??
?
?
B of
WB
Sells
goods
A of
WB
X is a dealer of
UP
Sells goods through
movement or transfer
of documents
Y is dealer of
AP

10. WORKS CONTRACT
 As per sec. 14 of VAT Act, 2003 every registered dealer is required to
pay VAT on the amount of Contractual Transfer Price (CTP).
 There are options available to contractor who are engaged with works
contract for levy of Tax –
◦ Actual Labor Deduction Method.
◦ Standard Labor Deduction Method.
◦ Composition Method
 The dealer is required to get himself registered for works contract under
the act.
 If the input tax amount is not separately shown in invoice the contractor
cannot avail ITC.
 The party to whom service is provided is required to deduct Works
Contract Tax (WCT) normally known as TDS on VAT on the payment
being made to contractor.
 The dealer can claim the WCT deducted by party. The certificate for
TDS deduction is Form 18.

11. REGISTRATION UNDER VAT
 Compulsorily Registration : A dealer whose gross annual turnover is
above the VAT threshold limit is required for compulsorily
registration under VAT. The limit of turnover is Rs. 50 lakh. A new
dealer will be allowed 30 days time from the date of liability to get
registered, will be entitled to issue tax invoice from the very first day
of incurring liability.
 Voluntary Registration : Dealers with an annual gross turnover not
exceeding a prescribed limit i.e., Rs. 50 lakh can opt for a
composition scheme with a payment of tax at a small percentage of
gross turnover. Dealers are not entitled to input tax credit and
required to submit vat returns in a separate format. A dealer
purchasing from a composite dealer is not entitled for input tax credit.
A dealer whose annual turnover is less than Rs.5 lakhs is an
Unregistered Dealer and has been granted the status of a Consumer.
So, the VAT paid by an Unregistered Dealer is treated as his cost and
will not charge further VAT on his sale.

12. TAXPAYERS IDENTIFICATION NUMBER (TIN)
 All dealers registered under the VAT Act will have to use 11 digit
TIN or Taxpayer’s Identification Number.
 Dealers registered under the West Bengal Sales Tax Act, 1994 and
CST Act, 1956 have been allotted the TIN and intimated accordingly.
 Identification of TIN meant for VAT is very simple. The third digit
from right of 11 digit TIN indicates–
◦ (a) the West Bengal Sales Tax Act, 1994, if it is 1, for example
19578989139;
◦ (b) the Central Sales Tax Act, 1956, if it is 2, for example 19578989236;
and
◦ (c) the West Bengal Value Added Tax Act, 2003, if it is 0, for example
19578989042.

13. MAINTENANCE OF BOOKS & TAX INVOICE
 MAINTENANCE OF BOOKS
◦ A dealer is required to maintain and up to date account of quantity and value
of goods purchased, manufactured or sold by him or used in the execution of
work contract or held by him in stock.
◦ Books of account that a dealer normally maintain would continue to maintain
under the VAT Act.
◦ In case of dealers opting for compounded rate of tax only output tax account
need be maintained and gross sale value or gross amount of contractual
transfer price will suffice to calculate liability under VAT Act.
 TAX INVOICE
◦ Entire design of VAT with input tax credit is crucially based on
documentation of tax invoice, invoice, cash memo or bill.
◦ This tax invoice will be signed and dated by the dealer or his authorized
regular employee, showing the required particulars. The dealer shall keep a
counterfoil or duplicate of such tax invoice duly signed and dated. Failure to
comply with the above provisions will attract penalty.

14. RATES & SCHEDULES UNDER VAT
 BASIC RATES (FY 2014-15) :
◦ Basic necessities such as medicines and drugs, all agricultural and industrial
inputs, capital goods and declared goods - 5%
◦ Majority of remaining taxable commodities -14.5%
◦ Gold, silver, platinum and ornaments, tea sold through auction at tea auction
centers in West Bengal duly authorized by the Indian Tea Board - 1%
◦ Works contractors are liable to pay tax @ 5% on that part of their taxable
contractual transfer price which represents transfer of declared goods and the
remaining contractual transfer price will attract tax @ 14.5%
◦ A dealer registered under the VAT Act is liable to pay tax on his purchases as
Purchase Tax effected from unregistered dealers within West Bengal at the rate
equivalent to the rate of VAT on goods covered in Negative List.
◦ An occupier of jute mill and shipper of jute are liable to pay tax @ 2% on
purchases of raw jute effected from within the State.
◦ A dealer registered under normal composition scheme is required to pay tax @
0.25% on turnover of sales or such fixed amount as per rule 38 (3A) depending on
sales and @ 2% on turnover of contractual transfer price.
◦ Tax rate on liquor and tobacco sold on MRP is 27% and other than MRP @ 50%

15. RATES & SCHEDULES UNDER VAT
 SCHEDULES :
◦ Schedule A - Goods on sale of which no tax is payable
◦ Schedule AA - List of Goods taxable @ 0%
◦ Schedule B - List of Goods taxable @ 1%
◦ Schedule C (Part I) – List of Goods taxable at 5%
◦ Schedule C (Part II) – List of Items under category of IT Products @ 5%
◦ Schedule C (Part III) – Industrial Inputs and Packing Material @ 5%
◦ Schedule CA - List of Goods taxable at 14.5%
 TAX on MRP :
◦ An option is available to dealers on purchasing from manufacturers and importers of
certain goods to be notified/specified by the State Government in this behalf, for sales
effected in WB to pay tax on maximum retail price (MRP).
◦ A dealer (irrespective of registration) opting for the scheme will have to pay tax on the
sale of notified/specified goods by applying full VAT rate on MRP and not on his
actual sale price.
◦ The dealer purchasing goods against ‘Invoice for tax on MRP' will not get ITC against
such invoice but he will be entitled to claim re-imbursement of the exact amount, paid
or payable by him at the time of purchase of such goods, from the buyer, provided that
the MRP excludes tax.

16. REVERSE CREDIT
 Where a registered dealer avails of input tax credit for purchase of goods and
subsequently disposes of such goods not in accordance with the provisions of the VAT
Act, then the ITC so availed of shall be deducted from the input tax credit of the tax
period during which such occasion arises.
 ITC reversal is computed by either Self Accounting (ascertainable from books of
accounts) or as per formula given in rule 23(4).
 Following are some of instances where reversal of input tax credit will take place:
◦ (a) goods purchased and subsequently returned to the seller for any reason
whatsoever;
◦ (b) goods purchased for business but used for personal consumption, gift or given
out as free samples;
◦ (c) goods stolen or destroyed;
◦ (d) goods remaining in stock at the time of closure of business.
 Stock Transfer : Goods purchased in West Bengal and subsequently transferred to
other States, otherwise than by way of sale in case of branch transfer or transfer to an
agent, will lead to a reversal of ITC to the extent of 4%.
◦ For example, a dealer purchases television sets on payment of VAT at the rate of
14.5% in West Bengal in May, 2015 and avails of full input tax credit but
subsequently transfers the same to his branch office outside the State in July, 2015.
He will have to reverse 4% of input tax credit in July, 2005. In other words the
dealer is entitled to avail of only 10.5% of input tax as input tax credit and 4% is
ineligible.

17. RETURN FILING & LATE FEE
 The dealer is required to furnish quarterly return disclosing the amount of net tax
and interest paid or payable along with receipt within the prescribed time limit in
Form 14e.
 The return is to be filed within 30 days of an English calendar month from the end
of quarter.
 In case of non – filing of return within the prescribed limit, dealer is
attracted towards late fee. The provision of the same w.e.f from 01.04.2010
as per trade circular no. 9/2010 dated 02.08.2010 –
Sl. No. Quarter Due date
1. April – June 30th July
2. July – September 30th October
3. October – December 30th January
4. January – March 30th April
Case Net Tax Payable Liability
A Exceeds ten
thousand rupees
Rs. 1000 /- for 1st month & Rs. 250 for
subsequent month of default or part
thereof
B Is ten thousand Rs. 300 /- for 1st month & Rs. 100 for

18. PAYMENT OF VAT & INTEREST
 The net tax payable to appropriate govt. treasury should be monthly
within the time limit prescribed u/s 33 of WB VAT Act,2003.
 The net tax payable is arrived by deducting ITC from the output tax
payable (both VAT and CST). The ITC includes ITC c/f from last
month.
 The due date of payment are –
 Interest liability arises in case of delay in payment of tax within the
due date and pay a simple interest at the rate of 12% p.a. for the
period of delay (in days).
 The dealer is allowed to adjust excess payment of tax with tax
liability of next month.
Sl No. Particulars Due Date
1. For first two months of
each quarter
21st of the following
month
2. Last month of the quarter Return filing date

19. AUDIT & ASSESSMENT
 ASSESSMENT :
◦ The VAT liability will be self-assessed by the dealers themselves in terms
of submission of returns by setting off the input tax credit against the
output tax.
 AUDIT :
◦ The correctness of self-assessment will be checked through a system of
Departmental Audit.
◦ A dealer is required to get his audit done and submit statements, accounts
or declarations u/s 30 if he has acquired TIN and his turnover exceeds the
prescribed limit as specified.
◦ The prescribed limit of turnover is Rupees 5 crore during the FY for
which audit is to be done.
◦ Every dealer who is a company is required to get his audit done whether
his turnover exceeds the limit specified.
◦ The dealer whose turnover lies between 1.5 crores to 5 crores is required
to file a self declaration being termed as Self-Audit Statement in Form
88A to department.

20. AUDIT & ASSESSMENT (contd….)
 A dealer whose turnover exceeds the prescribed limit is required to submit
VAT Audit report in Form 88 in hard copy to department within 31st
December. The Audit report basically states the difference if any, of liability
as per quarterly return and as found upon audit of books.
 The Audit is required to state the reason of differences if any, noticed while
conducting the audit.
 If the dealer fails to furnish details with the prescribed authority, is liable to
pay penalty not exceeding 5000/- for each default.

21. Points to Keep in Mind :
 While calculating Late Fee one should consider period of default as
per part of month too. For Instance – If return filing date is 30th
November, and return is filed on 2nd of December the month of
default will be considered 2 months.
 The due date for return filing in case of extension should be
considered such extended date.
 The dealer is required to submit e-filed return in paper form to
department and get it duly stamped.
 While computing liability of interest delay in period should be
considered from the due date of filing till the previous date when the
payment is done.

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