Get Value Added Tax Act Notes / ebook

| November 13, 2016 | 1 Comment

Get Value Added Tax Act (VAT) Notes / ebook:

In previous post we have given Central Sales Tax Notes

and  5 heads of income i.e.

1) Income From Salaries (Sec 15-17) Notes / ebook

2) Income From House Property (Sec 22-27) ebook / notes

3) PGBP (Profits and Gains from Business or Profession) ebook / Notes

4) Capital Gains (Sec 45-55) Notes

5) Income From Other Sources (Sec 56-59).

Today we are providing Value Added Tax (VAT) ebook / Notes for CA , CMA, CS & for other Taxation students.

                                                                         Value Added Tax (VAT)

Meaning of Value Added Tax:

VAT is a multipoint levy of sales tax that enables the person to claim set off of tax which he pays on the purchases. The system  of VAT is so designed that the final levy and burden of the tax on the goods is borne by the final consumer of the goods.

Levy of Value Added Tax:

VAT is levied at every stage of production. It is levied only on the value added by the last  seller. The  seller is  accordingly liable  to pay tax on  the net value added  to  the gross value as reduced by the value of intermediate materials purchased.

How is VAT different from the Sales Tax?:

Sales Tax Under VAT
1. Tax levied at the stage of the first sale or at the final stage 1. Tax levied and collected at every point of sale
2. Successive sales (resale) of goods on which tax is already paid do not attract tax 2. Tax collected at every point of sale and the tax already paid by the dealer at the time of purchase of goods will be deducted from the amount of tax paid at the next sale
3. Dealers reselling tax paid goods do not collect any tax on resale and file NIL returns 3. Dealers reselling tax-paid goods will have to collect VAT and file returns and pay VAT at every stage of sale (value addition)
4. Computation of tax liability is complex 4. It is transparent and easier
5. Sales Tax is not levied at the time of purchases against statutory forms but there is misuse of such forms resulting in tax evasion. 5. VAT dispenses with such forms and sets off all tax paid at the time of purchase from the amount of tax payable on sale
6. Returns and challans are filed separately and the dealers have to give numerous details 6. The returns and the challans are filed together in a simple format after self-assessment done by the dealer himself
7. A large number of forms are required 7. At the most a few forms are required
8. Tax on goods only 8. Tax on goods and services both.
9. Assessment done by the department 9. Self-assessments by dealers
10. Penalty for defaulters/evaders not strict 10. Penalties will be stricter
ADVANTAGES OF Value Added Tax:
1) The cases under Value Added Tax are more likely to be accepted as such and  only limited  cases  would  be  taken for  scrutiny.  The  method  would be more or less identical  to the one  followed under  the  Excise law.
2) There  are  minimum  exemptions and  hence reduced  complications and complexities.
3) The cost of compliance by the dealer is less and is transparent.
4) There  are  limited possibilities  of litigation and  the  protracted  litigation can be avoided.
5) It is easy to administer the levy of VAT due to its simplicity.
6) The possibility of tax evasion is less, as the dealer is liable only for part of the amount of tax. Hence, one may not indulge into  tax evasion techniques for a small amount.
7) Further,  the  dealer  would  not  indulge  into  purchase  of  goods out of books since otherwise he would not get any set off  tax paid.
8) The VAT does not have a cascading effect.
9) The cost of purchase reduces, as the dealer is able to claim set off tax paid on purchase against tax payable on sales.
Limitations of Value Added Tax:
1) There could be cases where the Value Added Tax is collected by the dealer,  but not paid to the Government. As a result, the set off of such VAT  paid  by the  purchaser  may not  be  allowed  to  the  purchasers.  A  mechanism has to  be  devised  to  tackle  such situations.
2) A  situation of refund would  arise  is no  VAT is  payable  on the  final sale.  As a result,  the  set  off  cannot  be  availed.  In such cases,  the  tax paid  becomes the cost  or  the same  has to  be  claimed as refund.  Hence,  the mechanism of  refund has to  be framed.
3) VAT  would  also contain multiple  rates of  tax due  to multiple  types of items.
4) In countries such as India where  in there  exist sales  taxes  already covering a wide range of commodities, replacement of  those  taxes by a revenue­neutral value added  tax should lead  to no inflationary consequences.
5) The dealers will now be required to maintain upto date records of  purchase  and  sales  in order  to  claim  set  off.  Many small  dealers maintain only primitive accounts, which were accepted  by the department.
6) Since Central Sales Tax Act continues to remain in force, there  can be conflict between the VAT and CST.
Eligible purchases for availing input tax credit:
The input tax credit is available only when the taxable goods are purchased for the following purposes—(1) For sale/resale within the State;
(2) For sale in the course of inter State trade or commerce; i.e. Goods are sold to any other State or Union Territory of India;
(3) To be used as—
(i) Containers or packing materials;
(ii) Raw materials; or
(iii) Consumable stores,
and the goods so manufactured by the use of the above raw-materials, packing materials are sold within the State or in the course of inter State trade commerce;
(4) For being used in the execution of a works contact;
(5) To be used as capital goods required for the purpose of manufacture of taxable goods;
(6) To be used as—(a) Raw materials;
(b) Capital goods;
(c) Consumable stores; and
(d) Packing materials/containers
and goods so manufactured by the use of above items are sold in the course of export out of the territory of India.

Calculation of Value Added Tax:

Value Added Tax is calculated by deducting tax credit from tax collected during the payment period.

Further, every time the VAT is charged, it is not an expense to the person who pays it, but just an advance to the government via the supplier. This is true for all except the final customer who cannot claim the VAT deduction. Actually, he is the only one who pays the full amount.

 Methods of Computation of Value Added Tax:

(A) Invoice method/Tax credit method:

Tax credit method involves payment of tax by the seller i.e. manufacturer or dealer at full selling price and credit of tax is allowed, which he has paid at the time of purchase. Thus, the tax is levied on full sale price, but credit is given of tax paid on purchases and effectively, tax is levied only on ‘Value Added’ only.
It’s an easy and simple way to ensure that tax is paid. It helps elimination of cascading effect of tax on consumers.

(B) Subtraction method:

Under subtraction method, the purchase price is deducted from selling price and tax is paid on the net amount only i.e. value added. Thus, when the tax is paid on net amount, dealer’s margin is disclosed.
This method is unpopular and cumbersome. It is practically impossible when various inputs are used in the manufacture of numerous outputs. It is also not preferred by dealers as their margin gets disclosed.

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Category: CA, CA IPCC, CMA, CMA Inter, CS

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