LATEST UPDATES ON VAT

 

Q.      What is Value Added Tax (VAT)?

Ans.  VAT is a multi-point system of tax on value addition which is collected at different stages of sale with a provisions for set-off for tax paid at the previous stage/ tax paid on inputs. The input tax paid on purchases can be setoff against the out put tax means tax charged on sales.

Q.      Who is a dealer?

Ans.  ‘Dealer’ means any person who carries on business in Delhi and includes –

(i)               any person who, for the purposes of or in connection with or incidental to or in the course of his business buys, sells, goods directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration.

(ii)             Any department of the Central Government or a State Government, a local authority, Panchayat, Municipality, Development Authority, Cantonment Board and each autonomous or statutory body or an industrial, commercial, banking, insurance or trading undertaking whether or not of the Central Governments or of a local authority, if it        buys, sells, supplies or distributes goods, in the course of specified activities which may be prescribed from time to time;

(iii)           A factor, commission agent, broker, del credere agent, or any other mercantile agent by whatever name called, who carries on the business or buying, selling, supplying or distributing goods on behalf or any principal, whether disclosed or not;

(iv)          An agent of a non-resident (where such non-resident is a dealer under any other sub – clause of this definition);

(v)            A local branch of a firm or company or association of persons, outside Delhi where such firm, company, association of persons is a dealer under any other sub-clause of this definition;

(vi)          A club, association, society, trust, or cooperative society, whether incorporated or unincorporated, which buys goods from or sells goods to its members for price, fee or subscription, whether or not in the course of business;

(vii)        An auctioneer, who sells or auctions goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;

(viii)      A casual trader; or

(ix)          Any person who, for the purposes of or in connection with or incidental to or in the course of his business disposes of any goods as unclaimed or confiscated, or unserviceable or scrap, surplus, old, obsolete or as discarded material or waste products by way of sale.

Q.      What is meant by ‘Sale’ under Delhi VAT Law?

Ans.  Sales includes –

a.                The conventional sale i.e. Transfer of property in goods;

b.                Delivery of any goods on hire purchase or any other system of payment by installments;

c.                 Supply of goods by a society, club, firm, and company to its members;

d.                Transfer of property in goods by an auctioneer;

e.                Transfer of repossessed goods by a banking or insurance company during the course of business;

f.                  Transfer of property in goods involved in execution of works contract;

g.                Transfer of right to use any goods, whether or not for a specified period; and

h.                Supply of goods or other articles by the restaurants, hotels etc., by way of or as a part of service.

Q.      Will multi point tax lead to cascading?

Ans.  VAT eliminates cascading by providing for set-off of taxes paid on inputs and only taxing value addition. The tax on sales would be shown separately under tax invoice.

Q.      What will happen to the Central Sales Tax Act?

Ans.  CST Act would remain as it is so. No VAT on inter-State Sales, shall be levied and the Central Statutory Forms, i.e, Form C,D,F,H etc., shall also continue. However, in future, it is proposed that the tax rate for sale against C form shall be gradually reduced from present 4% & to 0%.in near future

Q.      Are there any Statutory Forms under the VAT?

Ans.  There are no statutory forms under vat regime, dealers would not have to approach the Department for statutory forms.

Q.      VAT requires extensive computerization, which traders cannot afford?

Ans.  The document and papers that the dealers are maintaining under the present regime would suffice, in fact documentation needs should decrease due to self assessment and elimination of forms.

Q.      VAT would spoil the distributive character of Delhi?

Ans.  Lower VAT rate, input credit and credit for capital goods would reduce the cost of business and improve the margin of traders. Since Exports and Imports under VAT is zero-rated, VAT should give impetus to the distributive character.

Q.      Cost of doing business would go up as dealers will have to pay tax on their purchases?

Ans.  If we assume that the average length of time required for settling of amounts receivable and payable is the same as the length of time for remitting tax and processing any refund, no additional cost is imposed on trade or industry.

Q.      Prices would go up due to VAT and consumer would suffer?

Ans.  As against three slabs of 4,8 &12% in the present regime VAT would have only 2 major slabs of 4 & 12.5%; some of the items umder Delhi Sales Tax falling under 8% slab  have come down 4% slab thereby causing a downward pressure on prices. Further, input credit and credit allowed for purchase of capital goods have reduce the effective selling price.

Q.      VAT is anti poor?

Ans.  Items that are consumed by the poor are exempt. Besides the scheme of higher threshold and compounding for dealers having turnover upto Rs.50 Lakhs after paying notional tax of 1% on the turnover would take care of all such dealers from whom poor source their requirement.

Q.  Is there any restriction on leasing out machines bought for own use.

Ans. There is no restriction on leasing out machines bought for own use.

Q.  How do I calculate my tax liability?

Ans.  Calculating tax liability under VAT is very simple. If a dealer is selling any item of 4% and he sells goods worth Rs. 1000/-. Amount of tax payable will be Rs. 40/- But same goods he had purchased for Rs. 900/- and at that time he had already paid Rs. 36/- so the net tax payable by him will be 40-36 =4 and he will pay to the Government only Rs. 4 on the sale of Rs.1000/- (@ 4% tax rate). The tax payable by him is tax rate multiplied by value addition, in the instant case (1000-900) x 0.04.

INPUT TAX CREDIT

Q.  What is input tax?

Ans. Input tax means tax on goods purchased by a dealer in Delhi in the course of his business. The eligible purchases would include any goods purchase by a dealer for re-sale or for use in the manufacture or processing or packing  or storing of other goods or any other use in business including capital goods excluding exceptions prescribed in Seventh schedule of the Act. No input tax credit is allowed for tax paid on inter-state purchases.

Q.  When can one claim input Tax Credit?

Ans. At the time of payment of output tax liability. Input tax credit is the credit for tax paid on inputs, Dealers has to pay tax after  deducting input tax which he had paid from total tax collected by him.

17. What proof is required to claim input tax credit?

Ans. Input tax credit can be claimed only on purchases from VAT registered Dealers. The original “Tax Invoice” is the proof required to claim input tax credit.

Q.              How is input tax credit to be claimed? Is there any requirement of a “one to one” correlation between input tax and output tax?

Ans. There is no need for “one to one” correlation between input tax credit and output tax. Quite a large number of small businesses are under the misconception that input tax has to be adjusted against output tax on a bill to bill basis.

The operation of the input tax mechanism is very simple. The dealer will be eligible to take credit of eligible input tax in a tax period as specified on the entire purchases. The dealer would charge VAT at the rate prescribed rate of tax as is being done in the present system of levy of sales tax. The VAT or Output Tax payable is compiled on a monthly/quarterly basis. The dealer can adjust the input tax eligible on the entire purchase in the tax period against the output tax payable irrespective whether the entire goods purchased is sold or not. For example, if the input tax credit in a particular month is Rs. 1000/-, the output tax payable is Rs. 500/- the excess input tax of Rs. 500/- can be carried forward to the next tax period. Assuming no further input tax credit in the following month and that the output tax payable is Rs. 700/- the dealer will pay Rs. 200/- alongwith the monthly return.

Q.              Will input tax credit be available on all purchases for the business?

Ans. Generally, input tax credit will be eligible on all goods purchased for resale, raw material and packing materials for use in the manufacture of goods and even capital goods.

Only goods purchased from VAT registered dealers in the State will be eligible for input tax credit. Input tax credit will not be available on Inter State purchases.

Q. Are there any non-creditable items under Delhi VAT?

Ans. The purchases on which you cannot claim a credit for your input tax are:

-   Automobiles, including commercial vehicle, unless you are in the business of dealing in such automobiles.

-    Spare parts for repair and maintenance of automobiles unless your business is dealing in such automobiles.

      - Petroleum products unless one is dealing in petroleum.

      - Goods used for personal consumption or gifts;

      - Air –conditioning units unless you are in the business of dealing in such units.

Q       Can input tax credit be availed on use of petroleum products?

Ans.  No. Tax on petroleum products cannot be availed as input credit. The input tax credit on petroleum products is covered by Schedule E wherein it is provided that in the following circumstances the input tax credit on Petroleum products and natural gas be taken as NIL.

·         When used as fuel

·         When exported out of state.

The second condition is more appropriate for trader dealers. In case they decide to stock transfer petroleum products out of state without sale, input tax on these products, if already availed on these products will have to be considered NIL.

However, the recent notification issued in October, 2005 entitles the Foreign diplomatic missions can claim refund for tax paid by them on petroleum products.

Q.  What is the applicable rate of tax on Packing material as Outputs?

Ans. Packing material or containers are always sold with some goods packed or contained in it. No separate rate of tax is applicable on sale of such packing material/ container. The rate of tax as applicable to the goods packed in such packing material. Where such goods are exempted from tax, the sale of packing material/ container will also be exempt from tax.

Q.  Can input credit on packing material be availed on use of petroleum products?

Ans.  The eligibility of input tax credit on packing material also depends on the item packed therein. In case items packed therein are dealt in the circumstances that input tax credit is not eligible therein, input tax credit will not be available on such packing material as well.

Q. Whether Input Tax Credit can be claimed on promotional items?

Ans. No, the input tax credit cannot be claimed on promotional items.

Q. Whether the dealer can get input tax credit on purchase of promotional itms like iron, wrist watches, T-shirts, etc when such item s are offered as gift / sales promotional items alongwith sale of main products?

Ans. No, while deciding the advance ruling filed by M/s LG Electronics India Pvt. Limited, the Commissioner has held vide order dated 31^st October, 2005 that no input tax credit would be allowed on purchase of such items.

Q.      Will input tax credit be available on capital goods used in the execution of works contract?

Ans. Yes input tax credit will be available on capital goods purchases after 1.04.2005 for execution of works contract in NCT of Delhi subject to conditions. However, in case a dealer, after availing tax credit, transfers the assets/ Capital goods, on which he had availed tax credit, out of NCT for executing other works not liable to be taxed in Delhi, the credits so allowed shall be reversed, tax shall have to be paid on such transfer of capital goods/ assets. The tax so payable shall be equivalent to unutilized portion of tax credit allowed by the Department less tax payable at usual rates on such transfer or sale.

Q. Can input tax credit be claimed on purchase of capital goods?

Ans. Yes, the input tax credit can be claimed on purchase of capital goods. The credit can be claimed in 3 installments; one in tax period in which the purchase is made and other 2 can be claimed in 2 successive financial years.

Q. Is there any need for one-to-one correlation between input tax and output tax?

Ans. No, there is no need to keep one-to-one correlation for the purpose of claiming input tax credit as the same can be claimed as soon as the goods are purchased.

Q.      Is there any restriction of availing of input tax depending on the manner of disposal of goods say as stock transfer?

Ans.  Yes. The input tax credit to the extent of 4% is reversed in the case of stock transfers/ consignment dispatches to outside the State.

Q.  Will input tax credit be available on inter state purchases?

Ans.  Input tax credit will not be available on Inter state Purchases, Delhi Govt. cannot be expected to give credit for the tax paid in another state.

Q. Will input tax credit be available for the entire tax paid on eligible purchases?

Ans. Yes, the input tax credit on local purchases is admissible in full. Any excess, if any, is carried over to next period.

Q. What proof is required to claim input tax credit?

Ans. Input tax credit can be claimed only on purchases from VAT registered Dealers. The original “Tax Invoice” is the proof required to claim input tax credit. The invoices must be preserved carefully to be produced in audit proceeding.

Q.  Are all dealers eligible to claim input tax credit?

Ans.  All VAT registered dealers can claim Input Tax Credit on the eligible purchases. However, those are opting for composition scheme whereby all dealers whose GTO is upto 50 lakhs can pay tax @ 1% of turnover are not eligible to claim input tax credit.

Q. What is the procedure for adjusting input tax paid against the output tax payable?

Ans.  In the return filed for the Tax Period there will be a column for input tax credit, which will have to be filled in. The tax invoices in support of the claim of input tax credit will have to be preserved and may have to be shown, if so desired by the Department.

Q.  How can dealer adjust the input tax against output tax when he makes taxable and exempt supplies? Will the input tax credit relating to exempt supplies lapse?

Ans.  If the purchases are used partly for making taxable supplies, input tax credit shall be allowed proportionate to the extent they are used for that purposes. However, no input tax credit is allowed for the portion of purchases that was used for making exempt goods.

Q.  What amount will be available as input tax credit in case machinery is used for manufacture of taxable goods and also manufacture of exempted goods?

Ans.  The input tax credit will be available on proportionate basis to the extent the machine is used for manufacture of taxable goods only.

Q.  Is Commissioning of plant a condition for availing the input tax credit?

Ans.  No there is no condition of Commissioning of machine for making the input tax credit which is available on plant and machinery on its purchase.

Q.  Do I have to sell all the goods that I have purchased to avail input tax credit for the taxes paid on all my purchases?

Ans. Yes. Taxes paid on all your purchases can be set off against your liability of tax on sales made by you during the relevant period in which the purchases are made and any excess can either be carried forward or you can claim refund.

Q.  Will input tax credit be available on components used in fabricating the machine in house?

Ans.  Yes, there is no bar on availing input tax credit on components and other parts used in fabricating machine in house, provided this machine is not used solely for the manufacture of exempted goods.

Q.  Is there any tax liability on scrapping any capital asset on which input tax credit has been availed? What will be the tax implication on sale of such scraped machines?

Ans.  Tax would be levied on the sale of scrapped machines. However, the tax liability is subject to set-off against any credit that may be available in your account.

Q.  Whether it is possible to avail credit for taxes paid on input if goods are sold interstate or are exported?

Ans.  Purchases intended for inter-State sale as well as exports are eligible for tax credit.

Q.  If the input is used partly for making taxable goods and partly for exempted goods, whether input tax credit will be available?

Ans.  Where goods have been partly used for making the taxable sales (or inter-State Sales) and partly for making exempt goods, the amount of the tax credit shall be reduced proportionately. To illustrate, X purchased machinery for Rs. 1,00,000/- plus tax of Rs. 12,500/- for manufacture of taxable as well as exempted goods. At that time, he estimated that the machinery would produce 80% taxable goods. In such case, his input tax credit will be restricted only to 80% of Rs, 12500/- i.e. Rs. 10,000/-.

Q.  Is input tax credit available on goods stock transferred? If ineligible will the input tax credit relating to the goods stock transferred lapse?

Ans.  VAT Act provides for no input tax credit on goods dispatched on stock transfer. However, if the goods have been purchased locally on payment of tax and subsequently stock transferred after taking input tax credit, the input tax credit shall have to be reversed to the extent of 4%.

Q.   If a dealer opts for composition scheme, can he claim credit for input tax and issue tax invoice?

Ans.  No, because he has opted for composition and paid the tax at lump sum rate.

Q.      Is input tax credit available on inter state sale of goods?

Ans.  Yes, the input tax credit available shall first be adjusted against the output tax payable on the sale of goods. If excess credit is available the dealer may at his option adjust the credit against the CST payable and the balance input tax credit available can be carried forward to the next tax period.

Q.  What are the circumstances in which refund of input tax credit is permissible?

Ans.  Refund of Input Tax Credit is normally permissible in the case of a Zero Rated Sale. Zero Rated sales are specified in the VAT Acts. At present, only Exports out of the country is likely to be a zero rated. The input tax credit relatable to the export sales will be eligible for refund.

SECOND HAND GOODS

Q. What do you mean by Second Hand Goods?

Ans. The Act does not have definition of second hand goods. However, in common parlance, second hand goods are those goods which are not new and which are used by first purchaser.

Q. Is VAT payable on second hand goods?

Ans. Yes, the VAT is to be paid on sale of second hand goods.

Q. Will input tax credit be available on purchases of second hand machinery?

Ans. Yes, the credit shall be allowed subject to the certain conditions.

The Input Tax Credit shall be least of the following:

a)    Input tax borne by resident seller when he purchased the goods,

b)    Tax fraction of original cost of goods to resident seller,

c)    Tax fraction of FMV of the goods at the time of purchase by registered dealer, &

d)    Tax fraction of consideration paid by registered dealer for the goods.

For the above purpose, Tax Fraction is r/(r+100), r = Rate of Tax.

CREDIT/DEBIT NOTES

Q.  What is to be done by the purchasing dealer in case of downward revision of prices after the sale of goods to him?

Ans.  In respect of reduction in prices of goods already purchased by a dealer, such purchasing dealer shall issue to the selling dealer a duly signed debit note as soon as the amount of such de-escalation, whether interim or final, is settled between two.

Q.  What information should be contained in such debit note?

Ans.  The debit note issued by the purchasing dealer shall necessarily contain the following particulars:-

1. Date of DN.

2. Name of the Dealer  (with TIN where applicable) issuing DN.

3. Name of the Seller   (with TIN where applicable) to whom DN is issued.

4. Description quantity and amount of de-escalation in respect of goods whose value de-escalates.

5. Tax if any, relating to the amount of de-escalation.

Q. In which tax period such debit note be accounted for by the purchasing dealer?

Ans.  In case the agreement of sale provided for de-escalation in the prices of goods sold under the agreement and prices of goods could not have been determined at the time of their original sale, the purchasing dealer in such cases will adjust his purchases, reverse the proportionate input tax credit on the basis of such debit note in the tax period in which such debit note is raised by him.

Q.      Will output tax reduction be available to selling dealer on debit not raised on him?

Ans.  In case input tax credit has been reversed by the purchasing dealer, the selling dealer will be permitted to reduce the output tax liability to that extent on the basis of such debit note. Such tax credit will be available in the tax period in which such debit note is received by him.

Q.      What should be done by a purchasing dealer to return the rejected goods to the seller? What happens in case of such dealer is not registered under State VAT Act?

Ans.  In case the buying dealer is registered under VAT Act, he shall on returning the goods issue to the selling dealer duly signed delivery cum debit note (DDN).

In case the buying dealer rejecting the goods in not a registered dealer under some other state and who did not issue the DDN in respect of goods returned by him, the selling dealer may issue a credit note in respect of goods so returned to him and deduct the value of such goods from his gross turnover.

The selling dealer, in the above respect, may be asked by the authority to furnish evidence of the receipt of goods back by him, credit of the amount to such rejection of goods to the account of the purchaser of goods and payment there of to him.

CASH DISCOUNTS & TRADE DISCOUNTS

Q. Whether cash discount/trade discount can be given to the buyer under DVAT?

Ans. Yes, under DVAT the seller can provide cash / trade discount as prevailing in the trade and can claim the deduction from his taxable turnover.

Q. Whether the benefit of tax can be claimed on discounts?

Ans. Yes, the beenfit of cash discounts/trade discounts can be claimed by the seller and he can reduce his liability under DVAT by the tax portion on discount.

Q. Whether the seller can issue credit note for cash discount?

Ans. Yes, as per the provision sof DVAT the seller can issue credit notes for discounts and sales returns as per the provisions of Section of DVAT Act, 2004.

Q. Precautions to be taken by the seller if he allows cash discount / trade discount to the buyer?

Ans. A cash discount is allowed by the selling dealer to the purchasing dealer where the payment is made by the purchaser within prescribed time period. Normally, the same is allowed by way of credit notes and the same is not reflected in the tax invoice. With this practice, the purchaser claims input tax credit for the tax amount paid on purchases as per the tax invoice, and subsequently when the credit note in respect of cash discount is issued, the seller reverses the amount of tax liability on discount given. In this case, the purchaser ends up by claiming excess tax credit to the extent of tax element on discount given.

For example, suppose M/s ABC purchases goods worth Rs.11,250 (10,000/- plus VAT @ 12.5%) from M/s XYZ. Subsequently, a cash discount of Rs.1,000/- is allowed by M/s XYZ by way of credit note. In this case, the purchaser M/s ABC claims input tax credit of Rs.1,250/- as soon as the good are received on the basis of tax invoice. Now, subsequently, the seller reverses the VAT payable by Rs.125 (1000*12.5%) on account of credit note issue. There shall be a revenue loss of Rs.125 by way of excess claim of input tax credit [Rs.1250 (Input Tax Credit) – 1,125 ( VAT paid by seller)].

References: A reference of the reader is invited to the following order/notification:

a)    The Commissioner of Commercial Taxes, Kerala vide order No.C3 28339/05/CT dated 7^th December, 2005 disallowed discounts shown separately in tax invoice for working out taxable turnover.

b)    Also, the Andhra Pradesh Government has clarified that where a dealer issues credit note for cash discount, the tax component on the price mentioned in original tax invoice shall not be affected so as to keep the input tax credit by purchaser and VAT payable by seller intact (Notification No. GO Ms No.2201 revenue (CT II) Deptt. Dated 29^th December, 2005).

COMPOSITION SCHEME

Q.      What is composition scheme? What benefits it will have for small dealers?

Ans. If taxable quantum of a dealer does not exceed Rs. 50 lakhs in a year, and dealer does not import or export goods or makes Inter State Sales/purchases, or purchases goods from unregistered dealer in Delhi, the dealer can opt for composition scheme. Under this scheme he needs to pay only 1% of taxable turnover and he need not maintain detailed accounts.

Q.      What is fair market value and how it is to be calculated?

Ans.  If sales or purchases are under or over invoiced, department can subject the same to fair market value assessment of consideration to account for or computing input or output tax liability. It shall be recomputed on an arms’ length principle.

Q.      Composition Scheme is not applicable to exporter/ importers?

Ans.  Under section 16, the composition scheme has not been made applicable to the dealers who import or export goods to other States.

REGISTRATION & SECURITY

Q.     Is voluntary registration permissible under VAT?

Ans.    Yes, Any person, who is not required mandatory registration under the Act, may apply for registration if he is a dealer; or he intends form a particular date to undertake activities which would make him a dealer.

Q.    How will VAT affect small traders, would they also have to register?

Ans. Threshold for registration is Rs. 10 lakh. Thus, small dealers having turnover within Rs.10 lacs are not required to obtain registration.

Q.    Only cash surety will be required under VAT & surety bonds will  not be valid?

Ans.   No, present system of surety bond will be applicable alongwith other options.

Q.    Registration process will be complicated?

Ans.  Dealers will be registered as is being done in Tatkal scheme presently. He/ she will calculate his/ her surety him/ herself as per the formula and will be automatically registered. The registration application can be filed electronically and the same would be allowed on physically filing of prescribed documents.

REGISTRATION:

1. A link shall be provided in the web site of department for dealers seeking fresh registration as per the provisions of the proposed Delhi VAT Act, 2004.

2. The dealer opting for the on line registration module would be required to furnish information regarding some vital aspects online. An illustrative list of such information is proposed below.

a.                  Details of the bank account of the firm / company.

b.                  PAN No. of the firm / company.

c.                  Constitution of the firm/ company alongwith details of partners/ prop/ directors.

d.                  Details of the business premises of the firm/ company.

e.                  Ground for seeking registration etc.

3. Once a dealer provide the mandatory information online, he would be allotted a unique application ID No. by the system.

4. Simultaneously, taking into consideration the information furnished by the dealer online, a list of documents required to be submitted would be displayed online.

5. The dealer would be allowed to submit the documents requisitioned within a prescribed period quoting the unique application ID No. The submission for documents may be acknowledged by an online system generated receipt which may simultaneously, update the documents awaited position online.

After all the documents requisitioned are submitted by the dealer, the same may be checked by the prescribed authorities within a stipulated time frame and in cases deemed fit, registration of the dealer would be conveyed online besides a hard copy of the intimation regarding registration dispatched to the premises of the dealer.

Q.    Amendments in the Registration Certificate will be as complicated as now?

Ans.    Amendments in the registration certificate will be simpler as it will be done based on dealer’s application in Form DVAT 07 immediately.

Q.    Surety will be fixed uniformly for new and old dealers. In fact, old dealers should be given different treatment?

Ans.  While fixing surety criteria distinction will be made between the dealers already registered with DST Act and new Registrants. Act provides that in case of old dealers, surety be reduced proportionately.

Q.        No criteria has been fixed for asking security?

Ans.  There will be a transparent criteria based on credit rating and risk assessment of demanding additional surety under section 25.

RETURNS

Q. Will filing of returns be complicated?

Ans.  There is a simple return form DVAT 16 (alongwith Schedule I) where the dealer himself/ herself computed his tax liability.

Q.    Revised returns cannot be filled?

Ans.   There is a provision to revise returns within 4 years of filling original returns.

Q.    Return periodicity will change?

Ans.   The periodicity of filing returns will remain same as is applicable now.

RETURNS:

(a)              The monthly returns under DVAT Act are required to be E-filed compulsorily within 25 days of the end of the relevant month.

(b)               A link for online filling of returns would be provided on the web side of the department. This link can be accessed by registered dealers through their registration no. and password.

(c)               On login into the online return module, the dealer can access the prescribed return form and enter the GTO for the period of return along with the breakup of the GTO head-wise. A check shall be introduced in the system to ensure that the return is not accepted online if the  GTO does not tally with the total of the quantum of sales reported under each head.

(d)              The system can automatically calculate the amount of tax payable by the dealer for the period of return under the DVAT Act, 2004 and Central Sales Tax Act 1956 separately.

(e)              A hard copy of the return generated online shall have to be deposited with the department along with the proof for deposit of tax within 28 days of the end of relevant month.

SUMMARISED COMPLIANCE PROVISIONS WITH REGARD TO RETURNS AND TAX UNDER DELHI VAT

NOTE:

1. For calculating the above period, the year shall be construed as financial year i.e., 1^st April to 31^st March. For eg., quarter shall be construed as quarter ending June/September/December/March. Similarly, half year shall be construed as half year ending on 30^th September/31^st March.

2. In case of dealers opting for composition scheme, the return shall be filed under DVAT 17 in place of DVAT 16, however, the other provisions will be same as above.

REVISION OF RETURNS

A dealer can file revised return within one month of the discovery of mistake requiring further payment of tax. The period of limitation for filing revised return is within 4 years of the making of assessment.

IF UNDER, REVISED RETURN

                TAX LIABILITY                                                     TAX LIABILITY

                INCREASES                                                       DECREASES  

 SHAPE  \* MERGEFORMAT

(Note: Recently, the Commissioner of DVAT has issued a circular No.  dated 31^st May, 2006 with regard to revision of returns which is placed in our book at Page No.)

RATES OF TAX

The rate of VAT chargeable on products is given under Schedules of the Delhi VAT Act, 2004:

Note: The above-mentioned schedules in respect of products chargeable to VAT are placed in Part IV of this book (Yellow pages).

PAYMENT OF TAX, ASSESSMENT & REFUNDS

Q.  What is the due date for payment of tax?

Ans. Tax shall be paid within 28 days of the conclusion of tax period.

Q.  What are the provisions of assessment?

Ans.  There is no assessment under VAT. The VAT is based on concept of self-assessment.

Q. Will all Returns filed be picked up for audit or scrutiny?

Ans. No, a transparent criteria will be evolved under which a small number of cases will be picked up for deep scrutiny to check malpractices.

Q.   Refund of tax would be delayed?

Ans. There is provision of providing refund within one month under the Act. In case refund is delayed, interest will be paid to the dealers.

Q.   Can a dealer whose input tax credit exceeds the output tax payable in tax period claim refund of the excess credit of input tax?

Ans. Yes. Dealer can claim refund of excess tax credit after adjusting the same with output tax liability.

Q.  Cases for assessment can be opened even after 8 years?

Ans. No, normally, assessment cannot be opened after 4 years of filing the returns.

Q. In case of re-assessment by the Deptt. What is the remedy available to dealers?

Ans.  In case dealer refutes the claims of the Department, regarding tax assessment/ interest calculations / penalty, he has to simply file an objection (which is like an appeal at present) and his demand will be automatically stayed and he need not deposit any stay amount provided admitted tax has been paid by him.

Q.        There is a provision that refund can be withheld?

Ans. The provisions of section 39 are meant only for exceptional cases where an audit or proceeding, suspected evasion or any doubtful activity with intension to evade tax is pending against a dealer.

Q.  There is a provision of default assessment where demand will be fixed arbitrarily and without hearing, which is against the provisions of natural justice?

Ans.   The provisions under section 32 regarding default assessments also exist under section 23(1) of the DST Act. Actually this assessment is not an assessment but a notice of assessment; against which objection can be filed under section 74 and a dealer, if aggrieved, can obtain automatic stay by filing an objection.

RECOVERY OF TAX, INTEREST  & PENALTIES

Q. Dealers will have to maintain invoices and detailed accounts?

Ans. They would only be required to maintain invoices and normal documents that they are doing in any case under the present regime.

Q.  Penalties will be imposed without giving an opportunity which is against the basic law of natural justice?

Ans.  Under section 33 penalties are not imposed but notice of assessment or penalty will be served upon the dealer and once objection is filed, the imposition of penalty is automatically stayed.

AUDIT, INVESTIGATION & ENFORCEMENT

Q.  VAT provides for compulsory audit for the dealer?

Ans.  No specific audit for VAT is necessary. However, it is mandatory for all those firms whose turnover exceeds 40 lakhs to get their accounts audited as per IT Act and the same audit report would suffice for VAT Act also.

Q. Provision of audit and scrutiny would lead to harassment?

Ans. Scrutiny would only be undertaken in small number of cases after detailed assessment of the profile of the trade and trader; it would be based on analysis of risk of evasion probability and propensity of evasion through MIS and Source based information.

Q. Audit can take place of any person and there is no limitation period?

Ans.  Only cases where evasion and avoidance are suspected are to be picked up for audit. Honest taxpayers need not worry. However, there will be a clear and transparent criteria for audit to avoid selective targeting without justification.

Q. It is not clear as to what will be place for audit?

Ans. The business premises of the dealer will be the place for audit.

Q. VAT gives unfettered powers for inspection of records, enter premises and seize records and goods?

Ans. Powers under VAT are similar to power available under the DST Act.

Q.  Auditing will cause inconvenience to dealer?

Ans. Audit is a friendly interaction to seek clarification about information submitted by a dealer in a self-assessment regime like VAT.

Q. Does VAT give sweeping powers for conducting audit?

Ans.  Since dealer will not come for assessment so in exceptional cases where additional information is required, the Department has powers to ask for additional information or carry out audit through a Chartered Accountant.

The provisions relating to audit can be more clearly specified with the help of the following table:

OBJECTIONS, APPEALS, DISPUTES & QUESTIONS.

Q.  What will be the procedure of filling objection in assessment?

Ans. The assessment of tax, interest and penalty can be disputed, however, no objection against an assessment shall be entertained unless the amount of tax, penalty, interest not in dispute is paid. Disputed demand will be considered stayed automatically once the same is objected.

Q.  There is a provision that tax be paid before filing objections?

Ans. Provision is to deposit admitted tax, interest, etc. prior to filing objections because stay is automatic in Delhi VAT. So only admitted tax is to be paid, disputed amount will be automatically stayed.

Q.  There is only one opportunity of appeal before one can go to Tribunal?

Ans.  In a self-assessment regime one opportunity is adequate. Moreover, it would check unnecessary litigation.

Q    What will be the fate of a dispute under the DST Act after the commencement of this Act?

Ans.  The dispute shall be disposed off within a period of five years from the date of commencement of this Act.

Q. Who can appear before any authority in proceedings?

Ans.           1.  Any person authorised in writing bearing a signature as a regular

                        employee.

2. Legal persons or a CA otherwise not disqualified.

3. Value Added Tax functionaries not otherwise disqualified.

SUMMARISED PROVISIONS WITH REGARD TO APPEALS UNDER DVAT ACT

PENALTIES & OFFENCES

Q. Are provisions of penalty under proposed VAT harsh? The penalties provisions are more in pecuniary terms?

Ans. There is increase in pecuniary limits, original provisions were made 30 years back Moreover, deterrence is required in a trust – based system.

Q. The penalty provisions are harsher than the DST Act?

Ans.  Under penalty provisions, the imprisonment has been kept up to 6 month, which is equal to DST Act.

ACCOUNTS & RECORDS

Q. What is an Invoice?

Ans.  Invoices are crucial documents for administering VAT because they record supply of goods, whether taxable or exempt. They are to be issued by all registered dealers for each of their sales. An invoice establishes the tax liability of the supplier as well as the deduction (credit) to the registered purchaser. There are two kind of invoices that can be issued under VAT:

(a)  Tax Invoice; and          (b)      Retail Invoice

Q.  Issue of tax invoice is a complicated process?

Ans. Tax invoice will be simpler to retail invoice except that word tax invoice will be written and amount of tax charged will be indicated separately.

Q. There will be a need to print the name & Address of printers on tax invoice which is draconian?

Ans.  Under section 50 (2) (g) to print the name and address of printer is essential, it is only to check fake invoices and misuse of invoices by uncurious elements.

Q. If original tax invoice is lost, no duplicate can be issued?

Ans. No duplicate tax invoice can be issued.

Q. Large number of records needs to be preserved?

Ans. Copies of tax invoices received and issued need to be kept by a registered dealer.  This record is to be kept till 7 years.

WORK CONTRACT TAX (WCT)

Q. Is there a separate Act for provisions of WCT?

Ans. No, the definition of sale includes the Works Contract and hence, the same is governed by the Delhi VAT Act.

Q. Is composition scheme still available under Works contract?

Ans. Yes, the composition scheme has been made effective only for civil contracts w.e.f. 1^st April, 2006.

Q. What is the rate of composition on civil contract?

Ans. 2.5% of entire turnover, if contractor makes all purchase and sales within Delhi. Otherwise 3% of turnover.

Q. Is input tax credit available under composition scheme?

Ans. No, the input tax credit is not available under Composition scheme.

Q. What is the rate of TDS on Works Contract?

Ans. 2%.

Q. Difference between transaction of sale and works contract?

Ans. SALE -Contract whose main object is transfer of property inclusive of any work incidental or ancilliary to sale.

Works Contract –If the primary object of the contract is the carrying out of work by use of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour.

Q. Major categorization of a transactions involving material and labour?

Ans. The following are the major 4 types of transactions in which we can categorize the transactions wherein both labour and/or material are involved:

COMPLAINCES WITH REGARD TO WORKS CONTRACT (TDS)

RIGHT TO USE

Q. Is there a separate Act for provisions of Right to Use?

Ans. No, the definition of sale includes the Right to Use and hence, the same is governed by the Delhi VAT Act.

Q. Whether transactions of lease are covered under right to use?

Ans. Yes, the lease is covered under the provisions of right to use under Delhi VAT.

Q. Whether lease rentals are liable to VAT?

Ans. Yes, the lease rentals are subjected to VAT as right to use is treated as deemed sale under Delhi VAT.

DETERMINATION OF DISPUTED QUESTION (SECTION 84)

Q. Manner of filing an application for determination of disputed question?

Ans. An application for this purpose shall be made in DVAT 42 accompanied by a DD for Rs.500/-. The applicant shall furnish a concise statement of the case stating briefly the question to be determined and basis for the question.

Q. Time limit for disposal of application?

Ans. The application shall be dispose off within 6 months from the date of submission of question.

Q. Is there is provision for deemed disposal of the case?

Ans. Where the Commissioner fails to dispose off the application within 6 months and the applicant has stated the answer for the question to be determined, then the question shall be deemed to have been determined in favour of the applicant.

Q. Is there any restriction as to the question raised for determination?

Ans. Yes, the question raised for determination by the Commissioner shall not have arisen out of an order passed under the Act or under DST Act, 1975 or under DST on Works Contract Act, 1999 or under DST on Right to Use Act, 2002.

Q. How many transactions can be included in an application?

Ans. Only one transaction can be included in single application.

Q. Can Commissioner make assumptions as regards transaction?

Ans. Yes, the Commissioner is empowered to make an assumption as to future events or aspects of transaction proposed for determination. However, an assumption as regards the facts of the case cannot be made.

OTHER COMPLIANCES

*The source of questions and some answers has been taken from Departmental publication.