VALUE ADDED TAX

1. What is VAT?

VAT is a multi point levy where the tax paid on local purchases from the
registered dealer can be set off against the tax payable on the sale of
goods, other than special goods.

2.The main benefit of VAT is:

• Reduces tax evasion.

• Put an end to multiple taxes such as turnover tax, surcharge on
sales tax, additional surcharge etc. Thus, avoiding cascading
effect.
• Advocated an internal system of self assessment for VAT
liability.
• Tax structure becomes easier and more visible.
• Enhances tax compliance and results in higher revenue growth.
• Encourages competitiveness of exports

3. VAT replaces the following :

• General Sales Tax

• Resale Tax
• Surcharge
• Additional Sales Tax

HOWEVER, the following still continues:

• The Central Sales Tax Act, 1956 regulating the inter-state

transactions of sale and purchase

• The Entry Tax

4. Rates of tax under VAT

• 1%
• 4% on goods eligible for input tax credit.
• 12.5% on goods eligible for input tax credit.
• ZERO rate
 • Special rate of tax on certain goods (which are kept out of VAT) – No
input tax credit is allowable on these goods – example: Petrol

Dealers under VAT

A dealer is a person who purchases, sells, supplies or distributes the

goods in the course of his business for valuable consideration. The VAT
Act includes:

• Local authority, Company, Hindu undivided family,

Association of persons, Firm

• Casual trader, factor, commission agent, delcredere agent,

auctioneer, local branch of the firm or company situated
outside the State

• Person who effects transfer of property in goods other than

by way of sale

• dealer in hire purchase, works contract, person who

transfers right to use the goods

• Dealer in eatables including food and drinks (ie., hotels,

restaurants and sweet stalls).

• Port Trust, Railway Administration, Shipping, Transport and

Construction Companies, Air Transport Corporation and
Airlines.

• Any person holding permit for transport vehicles

• Tamil Nadu State Road Transport Corporation

• Customs Department, Insurance Company, Advertising

Agencies

• Corporation or Companies of State and Central Governments

REGISTRATION

• Those dealers whose total turnover in respect of purchase and sales

in the State is not less than Rs.10 lakhs for a year are to get
registered under the Act.
 • The other dealers whose total turnover for a year is not less than
Rs.5 lakhs shall get registered.

• Casual Traders, Agent of non- resident dealers and dealers in

Jewellery shall obtain Registration Certificate irrespective of their
quantum of turnover.

REGISTRATION CERTIFICATE:-

• Application in Form A
• Copy of Pan Card issued by Income tax Dept.
• Two passport size photograph of applicant(s)
• Self attested – sufficiently stamped envelop
• Address proof
• Lease agreement of the premises (if taken for lease)
• Partnership deed (in case of partnership firm)
• Details of Partners in Form B (in case of partnership firm)
• Memorandum and Articles of Association ( for Companies registered
under the Indian Companies Act.
• Registration fee of Rs. 500/- for principal place of business
• An additional fee of Rs. 50/- for each additional place of business
(godowns, depots)
• No Security deposit.
• It is permanent till it is cancelled by the dealer on stoppage of
business OR cancelled by the Department on other grounds
• There is no renewal of registration

REGISTERING AUTHORITY:-

• Head of the Assessment circle in whose jurisdiction the dealer’s

principal place of business is situated.

TIN (TAX PAYER IDENTIFICATION NUMBER):

• The Registration Number allotted to the dealer is known as TIN

• This is a eleven digit number to be quoted in all VAT Transactions,
documents and correspondence

LEVY OF TAXES:
 • On sale of goods
• On right to use any goods
• On transfer of goods involved in a works contract
• On food and drinks
• On bullion and jewellery
• On purchase of goods (in certain cases as purchase tax)

EXEMPTED SALE:-

• Sale on which no tax is levied, and no Input Tax Credit is allowed

ZERO RATE SALE:-

• Sale on which no tax is levied but the tax paid on local purchases is
refunded to dealer who effected such sale.
• Export sale (by self or to others within the state)
• Sale in the course of Export under CST Act, 1956 (i.e. sale to
exporters in other states)
• Sale to International Organisations
• Sale to customers in Special Economic Zones

COMPOUNDING SYSTEM OF TAX

• The rate is not exceeding 1% as notified by Government on the

turnover
• The effective rate notified by Government is 0.5%
• It is optional.
• Applicable to dealers (whose total turnover for a year is less than Rs.
50%) who effects second and subsequent sale within the state.
• Hotels, restaurants and sweet stalls where total turnover is not less
than Rs. 10 lakhs but not more than Rs. 50 lakhs
• No input tax credit.
• To maintain purchase and sales accounts only

WORKS CONTRACT TAX

• Works Contractors may opt to pay at compounded rate at 2% for civil

works and at 4% on others
• It is payable on the total contract value
• No input tax credit
 • Accounts to be maintained for the contracts and the amount
received against such contract. (separate account for each contract)
• The tax to be deducted at source by the person awarding the
contract

ACCOUNTS TO BE MAINTAINED BY DEALERS:-

• Rule 6 of The Tamil Nadu Valud Added Tax Rules, 2007 prescribes
the various documents to be maintained by every dealer

FILING OF RETURNS:-

• Return to be filed in the prescribed forms

• Due date for dealers whose turnover is below Rs. 200 crores in the
preceding year – before 20th of succeeding month
• Due date for dealers whose turnover is Two hundred crores and
above in the preceding year – before 12th of succeeding month
• Details of purchases and sales effected
• On line filing
• Return shall be accompanied with proof of payment of tax

MODE OF PAYMENT OF TAX:-

• By remittance into State Bank of India or any other bank

authorised by Government from time to time (or)

• By remittance in cash into a Government Treasury or to the

assessing authority or other officer empowered to make the demand
or authorized to make collection (or)

• By means of a crossed cheque in favour of the assessing authority

drawn on any one the banks situated within the city / town where
office of the assessing authority is situated (or)

• By means of a crossed demand draft / banker cheque drawn in

favour of the assessing authority (or)

• By any other mod as authorized by the Government from time to

time.
ASSESSMENT:-

• Self – assessment.
• The Department accepts the returns filed
• The dealers need not appear before assessing authority or produce
the accounts for annual assessment
• Assessment Order by the authority based on the returns filed.
• Detailed scrutiny by the Assessing Authority at random ( 20% of the
total assessment will be selected for scrutiny)
• The details of such selection for scrutiny shall be placed on notice
board in the assessment circle and in the department website. The
accounts which are selected for detailed check shall be called and
checked by the assessing authority. After check, the authority either
accept and confirm the self assessment or revise the assessment.

INPUT TAX CREDIT:-

• The tax paid on the goods purchased can be adjusted against the tax
payable on the goods sold subject to conditions stipulated in the Act
/ Rules.

• Input means “All purchases by a dealer in the course of his

business, including capital goods.

• These inputs may be meant for re-sale as such OR for use in

manufacture, process of other goods OR for packing of goods
manufactured.

• INDUSTRIAL INPUT – “Those goods which are notified by

Government AND generally go into manufacture of other goods and
they are taxable at 4% Vat rate.

• OUT PUT – “Sale of goods made by a registered dealer to other

registered dealers and consumers in the course of his business.

• OUT PUT TAX ‘ “ Tax collected on sale of goods from the buyer. The
output tax is calculated by applying the rate of tax on taxable
turnover of the goods.

• TAX INVOICE – “ Invoice OR Bill, which shoud contain details of

sale such as “Name of the seller, address and his TIN , Description
of goods sold, Quantity sold, name and address of the purchaser
with his TIN, Value of such goods, tax rate and the amount of tax
charged separately.”
• Tax invoice is to be issued in duplicate – Original for buyer and the
duplicate is to be retained by the seller.

• INPUT TAX CREDIT – “It is an aggregate total amount of tax paid by

a registered dealer on the total purchases made by him within the
state from other registered dealers (for a particular period); but not
eligible in some cases.

• Input tax credit includes the purchase tax paid under Section 12 of
the VAT Act.

• The input tax credit can be adjusted against the tax payable by the
purchasing dealer on his sales.

• There are certain restrictions and conditions on eligibility of input tax

credit which are given in detail under TNVAT Act., 2006.

• The input tax can be adjusted against the tax payable by the
purchasing dealer on his sales.

• The dealers are not eligible for input tax credit on all inputs. There
are certain restrictions and conditions on eligibility of input tax
credit. They are given in details under TNVAT Act., 2006.

• Input tax credut shall be claimed only on the basis of original

purchase tax invoice issued by registered selling dealer.

• If the original invoice is lost, credit can be claimed on the basis of

duplicate copy / carbon copy of the invoice obtained from seller.

• No input credit is available on sale where tax is paid on

compounding rate.

• TRANSACTIONS FOR WHICH INPUT TAX CREDIT NOT ELIGIBLE:-

(a) Sale of exempted goods

(b) Purchase of goods from outside state (CST purchase)
( c ) Goods used for personal facility of the proprietor, partner
and director
(d) Goods damanged in transit.
(e) Goods destroyed, lost or stolen
(f) Inter state sale without support of Form 'C'
(g) Stock transfer to depots in other states for sale without
support of Form 'F'
(h) Sales returns / Purchase returns
(i) Purchase from un-registered dealers
 • No one-to-one co-relation

• CREDIT ON CAPITAL GOODS:-

Capital goods” means, –

a) plant, machinery, equipment, apparatus, tools, appliances or

electrical installation for producing, making, extracting or
processing of any goods or for extracting or for bringing about
any change in any substance for the manufacture of final
products;
b) Pollution control, quality control, laboratory and cold storage
equipment;
c) Components spare parts and accessories specified at (a) and (b)
above;
d) moulds, dies, jigs and fixtures,
e) refractors and refractory materials,
f) tubes, pipes and fittings thereof; and
g) Storage tanks.

used in the State for the purpose of manufacture, processing,

packing or storing of goods in the course of business excluding civil
structures and such goods as may be notified by the Government

• No credit on closing of stock of capital goods

• Restriction on taking credit – First year of receipt 50% eligible –

Second or Third year balance 50% - If not taken within three years
credit laps.

• Not eligible if capital goods are used exclusively for the manufacture
of exempted goods.

• Eligible even if goods are obtained through lease

REVERSAL OF INPUT TAX CREDIT:-

• means – reduction of input tax credit to nullify input tax credit

wrongly claimed or availed.

• On damaged or destroyed or stolen goods

• Originally taken but subsequently found that the goods purchased

from bogus traders (bill traders)
 • Free samples

• On goods used by the owner, parter or director for personal use

INPUT TAX CREDIT ON GOODS CLEARED AS INTER-STATE STOCK

TRANSFER TO DEPOTS AT OTHER STATES:-

• Input tax paid in excess of 3% would be eligible.

• Assuming input purchased at 12.5% VAT – Credit of 9.5% fully

available – The balance 3% is not fully available.

• Amount reversible has to be calculated by finding out how much it

bears to the stock transfer. The following formula should be
adopted.

REFUND OF INPUT TAX CREDIT ON EXPORT GOODS:-

• Dealers, who makes zero rate clearance for export, can retain the
input tax credit on purchases and adjust the same against his out
put tax payable on local clearances OR he shall be entitled to
claim refund of input tax credit on the purchases.

• Claim to be filed in Form 'W'

• Time limit is 180 days from the date of making zero rate sale –
otherwise the credit will lapse.
IMPORTANT FORMS UNDER VAT:-

FORMS TITLE

A Application for Registration

D Certificate of Registration

H Production cum stock register

I VAT Monthly return

I-1 VAT Annual return

J VAT Monthly return (for goods under II Schedule)

N Return due to price variation

R Statement of TDS – works contract

W Application for refund of input tax credit by exporter

JJ Delivery note

KK Form to be filed by clearing & forwarding agent

LL Form of transit pass