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VAT – AN OVERVIEW
Maharashtra Value Added Tax, 2002 (MVAT)
INTRODUCTION
What is VAT?
VAT is a modern and progressive Tax System which provides uniformity in tax collection, payment,
assessment and administration and is used in over 130 countries around the world. It is charged and collected
by every dealer on goods sold to other dealers at every stage and to the customer. VAT paid by dealers on
their purchases is usually available for set-off against the VAT collected on sales.

Who is Liable for VAT


VAT applies to all types of businesses including Importers , Manufacturers, Distributors, Wholesalers,
Retailers, Work Contractors, Lessors.

How is VAT Charged


All registered dealers, regardless of where they are in the chain of manufacture and production, must charge
VAT on their sales of taxable goods and collect it from their customers. Registered dealers must issue a “tax
invoice” to other regd. dealers showing the VAT amount being charged as a separate amount. Registered
dealers who pay VAT on their purchases can normally claim a “set-off” for the VAT paid to their suppliers. As
a result, VAT is not a cost to the dealers. Dealers must ensure that tax is charged separately in their purchase
invoice in order to be eligible to claim set-off. Certain dealers who sell mainly to consumers at retail level can
opt for a simplified system of VAT calculation and payment under a “Composition Scheme”. Under the
Composition Scheme, dealers will not issue a tax invoice or show VAT as a separate amount on a bill or cash
memorandum.

What are the Obligations of Dealers registered under VAT


Dealers must – (a) Charge & collect VAT on their sales of taxable goods. (b) Issue proper “tax invoices”. (c)
Keep proper records & books of account. (d) Calculate the VAT due to Government based on VAT charged
on sales LESS any VAT available as a set-off on business purchases. (e) File VAT returns on a regular basis
declaring their VAT liability. (f) Pay any amount of VAT due to the Government with the VAT return.

Is registration under VAT needed if currently registered under BST Act


No. You will automatically be registered for VAT from 1 April 2005, if your annual turnover in the financial year
2004-05 is above the prescribed threshold limit of the new Act.
You must charge VAT on your sales and file VAT returns.

What are the benefits of VAT registration


When you calculate the amount of VAT you have to pay, you can claim set-off for the VAT you have paid on
your business purchases. You can issue tax invoices to your customers who are registered dealers. This will
enable them to claim a set-off for the VAT paid to you.

Turnover Limits for Registration


The threshold is based on the total turnover of sales and the level of taxable sales or purchases in a year
commencing 1 April. The threshold limit above which you must register, depends on the nature of your
business. If your are an importer and your total turnover exceeds Rs. 1,00,000 and your taxable sales or
purchases exceed Rs.10,000 in a year commencing 1st April, you must register and account for tax. If you are
not an importer and your total turnover exceeds Rs 5,00,000 and your taxable sales or purchases exceed
Rs.10,000 in a year commencing 1st April, you must register and account for tax. “Importer” for this purpose
means a dealer who brings any goods into the state or to whom any goods are despatched from any place
outside the state.

Application for Registration


Form 101 is the prescribed application form for registration and tells you what to do and what information and
documents you must provide. You must apply within 30 days of becoming liable for registration, that is when
your turnover first exceeds the thresholds mentioned above or you are liable to register for Central Sales Tax.
Single composite application can be made for all the places of business (if there are more than one place of
business). The essential documents mainly includes – proof of place of business, for example, electricity or
telephone bill · proof of transactions already undertaken · your Income Tax permanent account number (PAN)
· proof of your identity, such as a Ration Card, voter’s ID card, Passport · two passport sized photographs ·
details of your bank accounts

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COMPOSITION SCHEME
Who are eligible
The alternative method of calculating VAT is available to dealers who – (a) are Retailers - reselling goods at
retail counters or (b) run a restaurant, eating house, club, hotel (other than star hotels), refreshment rooms or
boarding establishment or (c) are caterers and serve food with non-alcoholic drinks or (d) run bakeries or (e)
are dealers in second hand passenger motor vehicles or (f) are engaged in executing works contracts.

How to join the scheme


If you are applying for a new VAT registration, you can opt to join the composition scheme by indicating this at
point no.7 of the VAT registration application Form 101. If you are already registered for VAT, you can join the
scheme by applying in Form 107.

Rate of VAT & Filing Returns


VAT
TYPE OF RETURN RETURN
S.NO. DEALER FORM VAT RATE FILING
1. Retailer (90% of Form 8% of Taxable Sales minus taxable Half yearly
sales must be to No.204 purchases
non-dealers)
2. Restaurant, eating Form Registered Dealers 8%
house etc. No.205 Unreg. Dealers 10% If CST, BST,
VAT payable is :
3. Bakery Form Registered Dealers 4%
No.206 Unreg. Dealers 6% - for turnover upto 30 more than 1 lac
lacs. Turnover in excess of 30 lacs normal – monthly, more
VAT rates are applicable. than 12000 –
4. Second-hand car Form 8% - set-off on purchases available quarterly & less
dealer No.207 than 12001 –
5. Caterer Registered Dealers 6% half yearly
---
Unreg. Dealers 8%

SET-OFF PROVISIONS
a. Only registered dealers and dealers who are not covered by composition scheme can claim set-off.
b. Set-off which now called Input Tax Credit (ITC) can be claimed only if VAT is collected on sales by
issuing the specified VAT Invoice.
c. ITC can be claimed on taxes paid under – Maharashtra Value Added Act 2002, i.e VAT; Entry for
Motor Vehicles into Local Areas Act, 1987, i.e Entry Tax; Entry of Goods into Local Areas Act, 2003, i.e
Entry Tax but not on CST.
d. To claim ITC – you must be registered for VAT; you must not be paying tax by way of composition;
you must hold a valid tax invoice for the goods purchased in which the VAT must be shown separately;
you must maintain an account of all purchases in chronological order on which you are claiming set-off

TRANSISTIONAL RELIEF
Is Relief available for Stocks as on 1-4-2005?
Yes. Transitional Relief can be claimed in respect of the following taxes paid: · Sales Tax / Purchase Tax paid
under the Bombay Sales Tax Act, 1959. · Tax paid separately under the Maharashtra Sales Tax on the
Transfer of Property in Goods involved in the Execution of Works Contract Act (Re-enacted) Act, 1989 · Tax
paid separately under the Maharashtra Sales tax on the Transfer of the Right to use any goods for any
Purpose Act, 1985 · Tax paid separately under the Bombay Sales of Motor Spirit Taxation Act, 1958 · Entry
Tax paid under the Maharashtra Tax on Entry of Motor Vehicles into the Local Areas Act, 1987 · Entry Tax
paid under the Maharashtra on Entry of Goods into the Local Areas Act, 2002. You must arrange to take stock
of the goods you have on hand at the close of business on 31 March, 2005. And then submit a claim to your
local Sales Tax Office on or before 30 April, 2005.

Is Relief available for Sales tax paid before 1-4-2005?


Yes. You can apply for transitional relief provided – you are not entitled to claim set-off under the old sales tax
system (eg. set-off on raw-materials under Rule 41D of the BST Rules,1959) or you are not a retailer,
restaurant, eating house, bakery or second hand car dealer opting to pay VAT under a Composition Scheme.

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How is the relief calculated?


If you have evidence of the payment of sales tax on the goods on hand in the form of an invoice, bill or cash
memorandum showing the exact amount of tax paid, you may claim the full amount of the sales tax paid. If
you do not have evidence of the sales tax paid, then the relief will be based on 75% of the value of the goods
on hand as shown on the invoices that cover the purchases of the goods and which is supported by Form 31
issued by the seller. You must establish the appropriate rate of Bombay Sales Tax applicable to those goods
and calculate the notional amount of tax paid by applying the following formula to the value of goods on hand:-
3P X R 4 100+R+S+T+RT Where: P = Purchase price of the goods R = Rate of sales tax applicable to the
sales of the goods S = Rate of surcharge i.e 10% of sales tax applicable to the sales of the goods T = Rate of
turnover tax applicable to the sale of the goods RT = Rate of resale tax, applicable to the resale of the goods

How is the Application for Relief made and Allowed by ST Office?


You must complete form 213, Statement of Claim of Set-off relating to Stock held on the Appointed Day,
which is available from your local Sales Tax Office. The completed form should be submitted at your local
Sales Tax office. The ST Office will check that the form 213 is completed correctly and that you are eligible to
claim transitional relief. If you submit form 213 on or before 30 April, 2005, you can claim transitional relief by
claiming a set-off in the first return filed after 01 April, 2005

VAT RETURN
When & by what date VAT Returns are to be filed?
a. Monthly – if your total net tax liability in the previous year was more than Rs.1 lakh, you must file your
returns monthly.
b. Quarterly – if your total net tax liability in the previous year exceeded Rs.12,000 but was Rs.1 lakh or
less, you should file your returns quarterly for the periods to 30th June, 30th September, 31st December
and 31st March.
c. Six-monthly – if your total net tax liability in the previous year was Rs.12,000 or less, you should make
your returns every six months for the periods 1st April to 30th September and 1st October to 30th March.
d. Dealers who are retailers and who opt for a composition scheme must file six-monthly returns. Other
composition dealers must follow the rules for filing of return set out above.
e. Annual Returns are no longer required to be filed.
f. You are required to file a Nil Return even though there is no business activity during the period.

You must file your return for January on or before the 20th February and your return for February on or before
the 20th March and all other returns by the 25th day of the following month.

Consolidated Return
If you have several places of business in Maharashtra, you can file a consolidated return but only with prior
approval of the Commissioner of Sales Tax. However, you cannot file a consolidated return for a place of
business for which you hold a Certificate of Entitlement under any of the Package Schemes of Incentives
(except the Power Generation Promotion Policy, 1998).

KEEPING RECORDS FOR VAT


What records are required to be kept?
a. Your records should have details of all the goods you have disposed of and the VAT you charged,
and all of your business purchases and the VAT you paid.
b. The tax invoices that you get from your suppliers will give details of what you have bought from
registered suppliers and the tax you have paid. The copies of the tax invoices you have issued to your
customers will similarly give details of the tax you have charged. To calculate your total sales and
purchases you will need to include: · the value of your sales to unregistered customers · the value of your
purchases from unregistered suppliers.
c. Sales – You should keep a complete record of the value of all your sales in order to complete your
return. The details you should keep include gross turnover of all sales (including branch transfers and any
tax charged); net turnover of sales at each VAT rate (excluding tax); tax charged on sales at each
different rate · total tax charged and payable; total of all tax-free sales (taxable at Nil rate); total of all
exports from India; total of all inter-state sales; total of all inter-state branch transfers.

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d. Purchases – To enable you to complete your VAT return, your records should enable you to calculate
· the total turnover of all purchases (including any tax paid or payable); the total of all purchases made at
each different rate (excluding tax); tax paid on purchases at each different rate; amount of tax not
available for set-off · total tax available for set-off; total of tax-free purchases; total of imports from outside
India; total purchases made from outside Maharashtra; total consignment transfers; total of local
purchases from registered dealers; total of local purchases from unregistered dealers.

What Other Records are to be kept?


You will also need to keep records of: · sales and purchases (including supporting documents such as
delivery records, order forms) · your stocks of goods · payments received for sales · payments made for
purchases as well as all your original tax invoices, bills and cash memoranda received, and copies of all tax
invoices, bills and cash memoranda that you issue. All documents should be arranged in an orderly manner.

TAX INVOICE
What is a tax invoice?
A tax invoice is the document you must · obtain when you purchase goods for your business and on which
you have paid tax. · give to your customers who are registered dealers and to whom you charge VAT.

Is there a prescribed Format?


No. A tax invoice can be in any form to suit your business. All tax invoices must show (a) the words `Tax
Invoice’ in bold letters either at the top or at a prominent place (b) a serial number (c) the date of the
transaction/sale/issue (d) description of the goods (e) the quantity or number of goods involved in the
transaction (f) the price of the goods (g) the amount of VAT charged on the goods (this must be shown
separately) (h) a declaration certificate stating “I / We hereby certify that my/our registration certificate under
the Maharashtra Value Added Tax Act, 2002 is in force on the date on which the sale of the goods specified in
this tax invoice is made by me / us and that the transaction of sale covered by this tax invoice has been
effected by me / us and it shall be accounted for in the turnover of sales while filing of return and the due tax,
if any, payable on the sale has been paid or shall be paid”. In addition, when you obtain a tax invoice it must
show (a) your supplier’s name, address and Registration Certificate number (b) your name and address.

When you issue a tax invoice, it must show (a) your name, address and Registration Certificate number (b)
your customer’s name and address.

Bill or Cash Memorandum (not a tax invoice) can be issued by a registered dealer wherein the tax amount is
not shown separately by dealers paying tax under composition (other than works contractors). A bill or cash
memo must show all the following information (a) name of the business, address and Registration Certificate
number (b) a serial number (c) particulars of the goods sold (d) sale price of the goods (e) date of issue (f)
your signature (g) a declaration certificate (as above).

BENEFITS / INCENTIVES
(a) Business friendly tax system. (b) Simple, transparent & progressive. (c) Mainly only 2 tax rates, hence
simplicity in administration. (d) Elimination of “tax on tax” existing in the present sales tax system. (e) Full set-
off available on most business purchases. (f) Simplification of tax forms & procedures. (g)Greater reliance on
self assessment and voluntary compliance by dealers. Incentive Schemes – There are broadly two types of
incentive schemes for an “Eligible Unit” in the form of an “Entitlement Certificate”. The first category is an
exemption scheme where a dealer is exempt from the payment of tax on sales as well as on purchases of raw
materials purchased against prescribed form, for a fixed period or/and up to a monetary limit. The second
category is a deferment where a dealer is allowed to postpone the payment of tax on sales and purchase tax
payable on raw materials purchased against prescribed form, for a fixed period or/and up to a monetary limit.

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