FREQUENTLY ASKED QUESTIONS ON VAT

 

Disclaimer: The following frequently asked questions have been collected from the several seminars held on VAT. The answers to the questions are not to be construed as clarification given by the Commercial Tax Department. These are meant for facilitating the understanding of VAT in general terms. The answers can not be cited as interpretation of VAT Act and Rules in any court and forum.

 

Qs.No.1.     What is VAT?

 

Ans.            Each commodity passes through different stages of production and distribution before finally it reaches the Consumer. Some value is added at each stage of the production and distribution chain. Value Added Tax (VAT) is tax on value addition at each stage. Under VAT system, a dealer collects tax on his sales, retains the tax paid on his purchase and pays balance to the Govt. Treasury. It is a consumption tax because it is borne ultimately by the final Consumer. The tax paid by the dealer is passed on to the buyer. It is not a charge on the dealer. Hence, VAT is a multipoint tax system with provision for set off of tax paid on purchases at each point of sale.

 

Qs.No.2.     How is VAT computed?

Ans.            The dealer pays VAT by deducting the tax paid on purchases (input tax) from his tax collected on sales (output tax). Hence, VAT = Output Tax – Input Tax. For example: A dealer pays Rs.10.00 @ 10% on his purchase price of goods valued Rs.100.00. He sells the goods at Rs.150.00 and collects tax amounting to Rs.15.00 (@ 10%). He will pay Rs.5.00 (Rs.15.00- Rs.10.00) as he has already paid Rs.10.00 to his seller while purchasing those goods.

Qs.No.3.     Why VAT?

Ans.            One of the major pitfalls of the present origin based Sales Tax system is cascading. Since there is no set off of tax paid on purchases, the tax paid on purchases gets embedded in cost price. For example: a Manufacturer purchases inputs / raw materials worth Rs.500.00 and pays tax of Rs.50.00 @ 10%. Since he is not getting input tax credit, he will add Rs.50.00 to the cost of inputs/ raw materials. If he adds Rs.450.00 towards his labour and service and other expenses to produce a commodity using the raw materials/ inputs which also includes his profit (value addition), the value of his product becomes Rs.1000.00. When he sells the product, he collects tax, say Rs.100.00 @ 10%, which contains Rs.50.00 tax collected on value of input which has already been taxed at the time of purchases, Rs.5.00 i.e. tax on tax of Rs.50.00 paid earlier. In this way, there is double taxation and tax on tax, resulting in cascading. The product may also be used as an input for manufacturing another product, further cascading.

                   Cascading increases the cost of production and makes the product uncompetitive. Further, since the existing sale tax system is a tax on sale without provision for set off of tax paid on purchases, it discourages ancillarisation. Ancillarisation means getting most of parts/ components manufactured from outside. To avoid paying tax, the large manufacturers instead of buying parts/ components from outside, manufactures themselves. This discourages the growth of small scale industry and increases concentration of economic power. The system has also an adverse impact on quality of the product, further reducing the competitiveness of the goods.

                   Under VAT system, there is not only provision for set off of tax paid on inputs/ raw materials, but also for capital goods. Input tax credit/ set off of tax paid on purchases eliminate double taxation and cascading, this also reduces the cost of production. Since VAT is a consumption type of tax, the tax load to be borne by the consumer, the goods are exported free of any load of tax in the commodity by way of allowing input tax credit in case of goods sold in course of inter-state trade and commerce and exported out of the country. The goods exported with no load of tax in it can have competitiveness in the market. VAT will create an environment where industry will grow and ultimately help growth of economy.

Qs.No.4.     How is VAT different from Sales Tax?

Ans.            VAT will have only four rates instead of large number of rats of Sales Tax, with off setting of tax on inputs against that on output; VAT does away with tax on tax. Claiming input tax credit under VAT ensures proper invoicing. Overall, these features of VAT encourage disclosure of complete information on business turnover.

Qs.No.5.     Who is to be covered by VAT?

Ans.            All business transactions carried on within a State by individuals, partnerships, Companies, etc. will be covered by VAT.

Qs.No.6.     Who will not be covered by VAT?

Ans.            VAT will not cover small business with a turnover below a certain limit. In Orissa, a general trader having annual turnover of Rs.2, 00,000/- or more will be covered under VAT. The dealer, who purchases goods from outside the State for resale inside the State, or sells to outside the State, is liable to pay tax on his first transaction. The taxable limit for works contractor is Rs.50, 000/- and for manufacturer is Rs.1, 00,000/-.

Qs.No.7.     What are the tax rates under VAT?

Ans.            There are just four rates under VAT- the zero rate (exempted goods), 1%, 4% and a general rate of 12.5%. These rates will be uniform in all States across the country. The same set of goods will be charged at the same rates in all the States. Most essential commodities are exempt from VAT or fall in the category of 4%.

Qs.No.8.     How does VAT help trade?

Ans.            Uniform rates of VAT will boost trade, 100% self assessment will reduce the tax payer’s need to visit tax department officer.

Qs.No.9.     How does VAT help industry?

Ans.            The provision of set of tax paid on purchase/input tax credit will eliminate cascading and double taxation. This will promote production efficiency of investment. Investment decisions will not, therefore, be based on tax consideration, tax holidays.

Qs.No.10.    How does VAT help exports?

Ans.            The goods exported are zero rated under VAT. That means, the rate applicable to such transaction will be zero and the exporter will get full input tax credit. This will make the exports competition.

Qs.No.11.    What is zero rating under VAT? How does it differ from exempt goods?

Ans.            Zero rate is applicable to goods for certain transactions under VAT and input tax credit is available on those transaction. Under VAT, the goods exported outside India, sold to an EOU and to a dealer having business under a Special Economic Zone (SEZ), Software Technology Park (STP), Electronic Hardware Technology Park (EHTP) are zero rated. In these transactions the tax rate will be zero and input tax credit will be available. The propose is that the goods exported or sold to outside the State will be free of any load of tax in it, which will increase competitiveness and encourage exports.

                   Exempt goods are those goods whose tax rate is zero, but input tax credit will not be available. Essential items such as agricultural implements manually operated or animal driven, books, periodicals, journals, fresh milk, etc. are in the exempted category.

Qs.No.12.    Why are sales to SEZ, STP, and EHTP & EOU zero rated?

Ans.            SET, STP etc. are being set up to promote industry and create industrial base. Sales to a unit under SEZ, STP, etc. are treated on a par with export. Hence, the goods sold to SEZ, STP are zero rated to encourage export.

 

Qs.No.13.    VAT is a multipoint taxation system. Will it not escalate prices of the goods?

 

Ans.             Input tax credit/ set off of tax paid on purchases will eliminate double taxation and cascading, thereby, it will reduce the cost of production. A dealer will not add the tax paid on purchase to the value of a commodity as tax paid is passed on to the buyer, ultimately to be borne by the consumer. In the existing sales tax system, sale price includes tax paid under the Act, but under VAT, sale price does not include tax paid under the Act. Hence, a dealer will not fix the sale price taking into account the tax paid on purchases. There is provision for set off of tax paid if the goods are exported or sold in course of inter-state trade and commerce. This is applicable to all the State’s VAT Law. For example, if a dealer has paid tax Rs.50.00 on his purchases of goods valued Rs.500.00, and adds value to the tune of Rs.450.00, under the sales tax system, he will sell the goods in course of inter-state trade at Rs.1000.00 + CST @4% (Rs.40.00). Under VAT, he will most likely sell the goods at Rs.950.00 + CST @ 4% (Rs.38.00) as he will get input tax credit of Rs.50.00. CST may be phased out completely within two years. Under VAT, a dealer in Orissa is likely to get the goods at Rs.988.00 instead of Rs.1040.00 and after two years, the goods will be available to the consuming state at Rs.950.00 instead of at Rs.1040.00.

 

Qs.No.14.    Under VAT, value of goods and tax are mentioned separately on the invoice. Will not the buyer know the profit margin of a dealer?

Ans.            No. The price of the goods the dealer sells and the tax charged are to be indicated in the bill separately. For example, a dealer sells a TV at Rs.10, 000.00 and charges VAT @ 12.5%, he will indicate in the tax invoice the price of TV i.e. Rs.10, 000.00 and tax @12.5% i.e. Rs.1250.00. It will not be known to the buyer at what price the dealer has purchased the goods.

Qs.No.15.    The Gross Turnover for a general trader is only Rs.2, 00,000/- to be liable to pay VAT and get registered. What does it mean, Is it not low?

Ans.            Under the existing OST Act, the gross turnover for a general trader to be liable to pay tax and get registered is also Rs.2, 00,000/-. The same taxable limit is kept under VAT.

                   Gross turnover under OST Act means turnover of sales + turnover of purchases under section 3-B to be taxed on purchase turnover; the sale turnover of those goods (under Sec.3-B) are not taken into account while calculating gross turnover. Under VAT Act, gross turnover means turnover of sales plus turnover of purchases under section-12. In certain circumstances, some transactions are taxable on purchase turnover as per Section-12. The sale turnover of those transactions is not taken into account while calculating gross turnover. Moreover, under Sales Tax Act, turnover of sales includes tax paid under the said Act. But under VAT, the turnover of sales excludes the tax paid under VAT Act.

Qs.No.16.    Tax rate applicable to different goods under the VAT Act are 1%, 4%, 12.5% and 20%. The goods which are not specified in the Act are taxable @.12.5%. Is it not too high?

                   Under the Sales Tax Act, the goods are presently taxed at the rates of 1%,4%,8%,12% and 20%. The goods like Petrol, diesel, liquor, narcotics etc. are presently taxed at 20%. The goods, which have not been specified, are presently taxed @.12%.

                   Under VAT Act, the tax rates for different goods are taxable at 1%,4%,12.5% and 20%. The rate of 20% is applicable to goods like Petrol, diesel, liquor, narcotics etc. The goods, which have not been specified, are to be taxed @ 12.5%. The rates are uniform to all the states of India. Since the provision for set off of tax paid on purchases under VAT system will eliminate double taxation and cascading, this will most likely reduce the cost of production and prices of the commodities. Hence, 12.5% tax rate is not high, if we compare with the tax rates prevailing under Sales Tax Act, and take into account set off of tax on input cost.

 

Qs.No.17.    There is provision of set off of tax paid on purchases. Will not               the Govt. incur loss on account of introduction of VAT?

 

Ans.            Sales Tax is a single point taxation system. For administrative convenience, most of the goods are being taxed at first point. Then, the goods are sold as tax paid, the Govt. does not get the tax on value addition at subsequent points of sale. Under VAT the revenue collected on the first point of sale is assured, then tax is collectible on subsequent points of sales of a goods. Under VAT there will be no incentives/ exemptions to industries. The loss of revenue on account of set off/ input tax credit will be made up by tax collectible on subsequent stages of sale and withdrawal of incentives. The Revenue Neutral Rate (RNR) has also been so fixed so as not to incur any loss on account of introduction of VAT.

                   The Govt. of India will also compensate if there will be any loss in the initial years.

Qs.No.18.    Some say, maintenance of accounts under VAT will be                           complicated. Will it not increase cost of compliance for the                             dealer?

 

Ans.            Under the Sales Tax Act, a registered dealer is required to maintain (a) a true account of the value of goods bought and sold by him,(b) the books of accounts relating to his business (c) An annual account of the stock of goods purchased and sold by him showing the opening balance and the closing balance at the beginning and close of each accounting year. Besides, he is required to maintain accounts of forms such as Form-XXXIV and IPR related forms.

                   Under VAT, there is no need of these forms; hence the dealer will not keep account of these forms. Under VAT, the dealer is required to maintain books of account similar to that of OST Act, so as to justify the claim of set off/ input tax credit etc. In comparison to the requirement under the Sales Tax Act, it is rather simple under VAT.

Qs.No.19.    There is apprehension that under VAT, there will be much harassment by the Department Officers.

 

Ans.            The apprehension is unfounded. Under VAT Act, steps have been taken to encourage voluntary compliance. A dealer will assess his own tax liability and pay the tax. He will not be assessed by the Department Officer as it is being done under OST Act. There is no renewal of registration certificate. Once a dealer is registered,, he will continue to be registered. A dealer will not come to the Office for getting his registration certificate renewed every year for assessment.

                   There will be Audit based assessment. Selection for audit will be done on the basis of objective criteria. There will be no human bias in selecting a dealer for audit. Once selected, audit will be undertaken at dealer’s premises with prior notice. Audit will be taken up by a team, not by an individual. Audit visit report will be submitted to another Wing i.e. Assessment Wing. If there is material in the Audit visit report against the dealer, then assessment will be taken up. And notice of assessment will be issued along with supply of a copy of the Audit visit report. These are provisions under the Act and Rule so as to avoid harassment to the dealers by Department Officers.

                   Twenty percent of the dealers will be selected on random basis for audit in a year. That means, if a dealer is paying tax regularly, there is no charge received from any quarter against him, he will be audited once in five year.

 

Qs.No.20.    Some say prosecution provisions under VAT Act is very stringent. On slight mistake, a dealer can be sent to jail. How far is true?

 

Ans.   This is not true. The procedure for prosecution under VAT Act is similar to that of OST Act.

                   Like the provision under OST Act, no Court shall take cognizance of any offence except with the previous sanction of the Commissioner. No Court inferior to that of a Magistrate of the first class shall try the offence. Moreover, another safeguard is given under the VAT Act. The Commissioner will investigate an offence before giving sanction for prosecution.

                   The offence & prosecution provision under the OST Act have not been abused by the Department Officers. The apprehension that the provision under the VAT Act that to, with additional safeguard, will be misused by Department Officer is unfounded.

 

Qs.No.21.    What is output Tax?

 

Ans.            This is the VAT you charge your customer when you are a taxable person making taxable sales. A taxable person is an individual, Partnership, Corporation, etc. who is registered under VAT. Persons who make taxable sales above the prescribed limit are required to register. When you are registered, VAT is chargeable on all the taxable sales you make.

This is your output tax.

 

Qs.No.22.    What is Input Tax?

 

Ans.            The tax you pay on your purchases is input tax. Many of the things you buy will carry VAT charge, but if you are registered under VAT you can normally claim a credit for the VAT charges on most business purchases. It includes not only the VAT on your purchases of raw materials or on goods purchased for resale, but also the VAT on things like Capital goods, such as machinery or equipment for use in the business.

 

Qs.No.23.    Can I always claim credit for my input tax?

 

Ans.             Credit for input tax is allowed to registered dealers against tax paid in respect of sales or purchases made within the State. Input tax credit is allowed on goods if a registered dealer has purchased from registered dealers for the purpose of-

a)     sale or resale by him in the State

b)    use as inputs or as capital goods in the manufacturing or processing of goods [except in cases of negative list of goods, exempt goods and demerit goods such as liquor, petrol, narcotics, etc]

c)     sale to outside the State, Export, or sale to SEZ, STP, etc.

d)    for use as containers for packing of goods

e)     stock transfer to any place outside the State in excess of 4%.

Input Tax credit shall not be allowed

i)                   if goods are purchased for sale, but given away as free sample or gift

ii)                 to a dealer under composition scheme

iii)               in case of negative capital goods such as capital goods purchased prior to 1.4.05, capital goods not connected with the business of the dealer, etc.

iv)               against CST paid, or tax paid in any other State

v)                 in respect of stock of goods remaining unsold at the time of closure of business

vi)               in respect of goods, which are not sold because of theft, damage or destruction

vii)             if invoice is not available

viii)           if goods purchased from a dealer whose R.C. has been suspended

ix)               in case of exempt goods

x)                 in respect of schedule ‘C’ goods such as liquor, petrol, narcotics, etc.

 

Qs.No.24.    What if I make exempt sales?

 

Ans.            If you are making exempt sales as well as taxable sales, you may only be entitled to claim a credit for the part of input tax related to taxable supply. Input tax credit for exempt sales is not available.

 

Qs.No.25.    What proof do I need to claim Input Tax?

 

Ans.            You must have a copy of a Tax invoice to substantiate a claim for Input Tax credit.

 

Qs.No.26.    How do I claim my Input Tax credit?

 

Ans.            When you complete your VAT return for the month/quarter as the case may be, you can claim deduction for Input Tax credit against the VAT collected by you on your taxable sales.

                   If the claim for Input tax credit exceeds the amount payable by you on the output in the return, the excess input tax credit will be carried forward to the next tax period/periods. The excess amount will be carried forward till it is adjusted or up to 24 months. After 24 months you can claim refund or opt for further carry forward. If you are an exporter, you will get refund of Input Tax on your purchases on month-to-month basis, on application.

 

Qs.No.27.    Who has to be registered under VAT Act?

 

Ans.            The following dealers have to be registered

(I)               A dealer whose gross turnover exceeds the taxable limit during a period of 12 consecutive months. Taxable limit in relation to a

(a)  dealer who purchases goods from or sells to outside the State is Nil

(b) works contractor               Rs.50,000/-

(c)  manufacturer                     Rs.1,00,000/-

(d) general trader                     Rs.2,00,000/-

(II)            who is liable to be registered under Central Sales Tax Act

(III)         who is registered or liable to be registered under OST Act or CST Act

(IV)         The dealer who is registered under Orissa Sales Tax Act and his registration certificate is valid on the day before the appointed day is deemed to be registered under the VAT Act.

A persons who intends to establish business for purpose of manufacturing or processing of taxable goods exceeding Rs.2 lakh in a year may take voluntary registration, even though his turnover does not exceed taxable limit

 

Qs.No.28.    What is Gross Turnover?

 

Ans.            Gross Turnover of a dealer is the turnover of sales plus turnover of purchases under Section 12 of the VAT Act. Section 12 provides the circumstances where tax is leviable on purchase turnover. In those cases, instead of sale turnover of the goods, purchase turnover is taken into account while calculating the gross turnover.

 

Qs.No.29.    What is Taxable Turnover?

 

Ans.            Taxable turnover means the turnover on which the dealer is liable to pay tax. Taxable turnover is determined after making the following deductions from the Gross turnover:

(a)  the turnover of goods exempt from tax

(b) the turnover of sale of goods sold in course of inter State trade and commerce, to outside the territory of India, sold to a unit under SEZ, STP, EHTP or to an EOU.

(c)  All amounts allowed as cash discount, or trade discount

(d) Cost of outward freight by a dealer for transportation of goods for the purchases.

(e)  In case of works contract, the expenditure incurred towards labour and service.

 

Qs.No.30.    Who will come under composition scheme?

 

Ans.            Composition scheme is for the small dealers/retailers. A dealer having gross annual turnover within Rs.10 lakh will come under composition scheme, provided

-         he is not a manufacturer

-         he neither purchases or receives goods from outside the State nor sells goods to outside the State and

-         ordinarily effects sales to consumers

                   A dealer under composition will pay tax at a low flat rate on his taxable turnover and he will not avail input tax credit.

                   If a dealer under composition scheme wants, he can become a VAT dealer on application, pay VAT and avail input tax credit.

                   Small contractors can opt to be under the composition scheme. They will pay VAT at a low rate to be prescribed and will not avail input tax credit.

 

Qs.No.31.    As a registered dealer under OST Act, I shall be deemed to be registered under VAT. What about my registration number? Will it remain the same?

 

Ans.            Every VAT dealer will be allotted a Tax Identification Number (TIN) and the dealers under the composition scheme will be allotted small retailers Identification Number (SRIN). TIN is an 11 digit number, the first two given for State code; SRIN is a seven digit number, first two given for identifying the Circle.

                   A dealer having business in more than one place in the State will be given one registration certificate and one TIN. He will display the registration certificate in his places of business.

 

Qs.No.32.    Will there be renewal of certificate?

 

Ans.            There is no provision of renewal under VAT Act. A dealer once registered will continue to be registered.

 

Qs.No.33.    What will be the amount of security to be deposited under VAT Act at the time of registration?

 

Ans.            Security is not mandatory under VAT Act; there will be no ritual of security. Only in cases, where there will be apprehension of loss of revenue, security will be demanded.

 

Qs.No.34.    Will the provision of suspension of registration certificate be misused by the officers?

 

Ans.            The Registration Certificate of a dealer will be suspended if a dealer contravenes the provisions of the Act or does not comply with the provisions of Act & Rules. Prior permission of the Commissioner is to be obtained before an officer suspends the registration certificate of a dealer. If the R.C. of a dealer is suspended, notice will be issued immediately and the dealer to produce the relevant documents to rebut suspension within 30 days from the date of suspension. If the dealer makes do the deficiency for which his R.C. was suspended, his R.C. will be restored.

 

Qs.No.35.    How do I calculate my output tax when I am selling to consumers without separately showing the VAT?

 

Ans.            For taxable sale, VAT charged to be indicated separately on the invoice. If tax inclusive invoice has been issued, the amount of VAT included in the value of the sales of the goods can be calculated by applying the tax fraction to the gross value of sales at each tax rate.

                             Tax fraction is       r             in which ‘r’ represents the rate of tax applicable to the sale.                                      r   + 100     

           

 

Q.No.36.     What is a tax period?

 

Ans.            A dealer is required to file return for a period, which is called tax period. A tax period is a month or a quarter. A quarter means a period of three months ending on 31st March, 30th June, 30th September and 31st December. For big tax payers, the tax period is one month and for small dealers a quarter. The Commissioner is to decide the tax period for a dealer.

 

Q.No.37.     When is the dealer required to file return?

 

Ans.            A dealer is required to furnish return within 21 days from the expiry of a tax period.

 

Q.No.38.     What happens if a dealer discovers an omission after he has filed the return?

 

Ans.            The dealer can file revised return before the date on which the return for next tax period becomes due.

 

Q.No.39.     What happens when a dealer defaults in filing return?

 

Ans.            In case of default, the dealer is required to pay interest @2% per month from the date the return was due to the date of payment.

 

Q.No.40.     How will a dealer be assessed?

 

Ans.            There is no regular assessment as in the OST Act. The dealer will assess himself for each tax period. He will calculate his output tax, deduct from it the input tax he has paid and pay the balance along with the return. The return will be accepted as assessed subject to adjustment of any arithmetical error apparent on the face of the return.   

                             If a dealer does not file return, provisional assessment will be taken up. If the dealer furnishes return along with producing evidence of payment of tax, the provisional assessment shall stand revoked.

                             There will be audit based assessment.

 

Q.No.41.     What is audit procedure?

 

Ans.            Selection of dealers for audit will be done on the basis of risk parameters or on random basis. Twenty percent of dealers may be selected to be audited in a year. Audit will be undertaken at dealer’s premises with prior notice. Audit is to be done by a team.  

                             Audit Visit Report will be submitted with seven days from the date of completion of the audit. If there is material in the Audit Visit Report against the dealer, assessment will be taken up by officer of assessment wing. Notice for assessment will be issued along with a copy of the Audit Visit Report, so that a dealer can know in advance the charges against him and prepare his defence.

 

Qs.No.42.    How can a dealer get his refund?

 

Ans.                      Refund flowing from an order shall be given to the dealer within 60 days from the date of receipt of the order. The dealer need not apply for such refund.

                             In case of export, the dealer will make an application for refund. Refund will be granted to an exporter within 90 days from the date of application after an audit. The audit has to be completed within one month from the date of application.

                             In case of delay, interest @ 8% per annum will be paid after 60 or 90 days as the case may be.

 

Qs.No.43     Appeal against an order will be entertained after full payment of admitted tax and twenty percent of the amount in dispute. Is it not unfair?

 

Ans.            The amount of tax admitted by a dealer due to the Govt. should be paid in full.

                             As discussed earlier, there is no regular assessment as in the OST Act. There will be audit based assessment. There is little scope for arbitrary assessment in the procedure to be followed for audit and audit based assessment. Abundant caution has been taken so that assessing authority can not act arbitrarily. If there is no material against the dealer in the Audit Visit Report, assessment will not be taken up. If there is some material in the Audit Visit Report, assessment will be taken up with prior supply of a copy of the Audit Visit Report to the dealer.

                             Since there is little chance of arbitrariness in the assessment a dealer is required to pay 20% of amount in dispute for his appeal to be entertained along with payment of admitted tax in full.

 

Qs.No.44.    Jurisdiction of the Act.

 

Ans.            The VAT Act is applicable to the transactions made inside the State. However, the VAT Act has been prepared by the      States taking into consideration the national consensus on the issues to bring in uniformity in all State Vat laws. Gradually State VAT will lead to emergence of an Indian common market.

  

Qs.No.45  How many countries have adopted VAT?

 

Ans.         Now more than 130 countries including neighboring, Pakistan, Bangladesh, Nepal, Sri Lanka and China have adopted VAT.

 

Qs.No.46. Can VAT be successful in a federal country like  India?

 

Ans.         VAT has been successful in federal countries like Canada and Brazil. It is marvel to find States in Indian Union agreeing to a general consensus on critical points relating to VAT. States have agreed to a common tax rate. It is a land mark in cooperative federalism. States have shown keen interest in implementing VAT soon.

 

Qs.No.47. Why America has not accepted VAT?

 

Ans.         In America there is retail sales tax which means tax is paid on the last consumer sale point, which includes all the value additions made in previous stages.

        VAT at each stage ensures flow of right tax at right time. It helps planning of income and expenditure.

 

Qs.No.48. What will be the fate of Sales Tax revenue under VAT in the State? Will there be any loss?

 

Ans.         Ideally there should not be any loss on account of introduction of VAT. This has been evidenced from the experience of Haryana which had introduced VAT in the year 2003-04. Haryana had a sales tax growth of 15% during the year 2003-04. It also sustained the growth rate more vigorously during the year 2004-05. The growth till September is 29%.

                In the event of any loss of sales tax revenue on account of introduction of VAT, the Central Government will compensate the loss each month @ of 100% in the first year, 75% in the second year and 50% in the third year.

 

Qs.No.49. What is the methodology for calculation of compensation?

 

Ans.         The year 2004-05 will be taken as the base year. Going backwards for five years, the average of 3 best years will be taken as the growth rate of the State. Taking the growth rate the sales tax which would have been collected during the year 2005-06 under the present regime will be calculated. The actual collection under the VAT regime will be deducted from the sales tax revenue which would have been collected under the OST regime to arrive at the loss.

 

Qs.No.50. What about CST Act and CST rate?

 

Ans.         CST Act will continue. The present CST rate @ 4% will also continue for the year 2005-06. It will be gradually phased out.

 

Qs.No.51  What about the Entry Tax, Luxury Tax, Profession Tax and Entertainment Tax?

 

Ans.         In Orissa Entry Tax is in lieu of Octroi. So it will continue and Empowered Committee had approved it. Luxury Tax will also continue but it may be subsumed in VAT later on.  Profession Tax, Entertainment Tax will continue as those are not tax on sales.

 

Qs.No.52. Will there be any surcharge under VAT?

 

Ans.         There will be no surcharge under VAT as it was under OST.    

Qs.No.53. What about input tax credit on opening stock?

 

Ans.         In put tax credit will be given in respect of the goods in the opening stock which were purchased within one year before the date of introduction of VAT.  The dealers are required to furnish a statement of their opening stock within one month from the date of introduction of VAT. Input Tax credit on opening stock will be given within 6 months after 3 months from the date of introduction of VAT.

 

Qs.No.54. What about IPR exemptions and concessions?

 

Ans.         Exemptions and concessions have been withdrawn in the VAT Act. Un-availed period of exemptions will be converted into deferrals.

  

Qs.No.55. What about sales to International Organizations?

 

Ans.         There will be no tax exemption on sales to International Organizations but tax paid by them will be refunded.

 

Qs.No.56  Will there be input tax credit for capital goods?

 

Ans.         There will be input tax credits on capital goods purchased from inside the State after introduction of VAT. Input tax credit on capital goods will be given within 36 months after commercial production and first sale. Input tax credit on capital goods costing less than Rs.1.00 lac will be given in lump sum.

 

Qs.No.57. What about CST Sales and Branch Transfers?

 

Ans.            C.S.T. will be zero rated. It means there will be zero tax rates on C.S.T. sales. Input tax credit is available on C.S.T. sales. In case of branch transfer/consignment sale input tax credit is available in excess of 4%.

 

Qs.No.58.    What is turnover of sales in course of import? ( Section-11).

 

Ans.            The turnover of import (Sec.11 (2) (b) (iii) means the turnover of goods imported from out of the territory of India.

 

Qs.No.59.    Whether declared goods will be subject to tax at single point or multipoint?

 

Ans.            Declared goods will be subject to tax at multipoint. Section 15 of the CST Act has since been amended

 

Q.No.60.     A registered dealer under VAT receives free medicine as    quantity discount from a Company and resells the same in the State      of Orissa. Whether he is liable to pay tax on the receipt value of such       free medicines received?

 

Ans.   No. But he is liable to pay tax on the sale turnover of such free medicines

 

Q.No.61.     A branch of a company intends to establish business in Orissa for trading of medicine. Whether he will get registration after his taxable limit exceeds Rs.2, 00,000/- or he can be granted R.C. as an importer?

 

Ans.             If the company receives or purchases stock from outside the state,      it is liable to pay tax from its first sale in Orissa. The taxable limit for          an      importer is Nil. [Sec.10 (4) (a)].

 

Q.No.62..    A medicine whole seller purchases T.V. and refrigerator from     the registered dealers of Orissa on payment of tax for distribution   among doctors in connection with promotion of his sales. Whether he           will be entitled to avail ITC?

 

Ans.             No. [Sec.20. (8) (a)].In case of taxable purchases, when distributed     free of cost, no input tax credit is available.

 

Q.No.63.     Whether penultimate sale in course of export is Zero rated?

 

Ans.             Treatment of penultimate sale in course of export is regulated     under the provisions of the CST Act and the CST Act remains unchanged       after introduction of VAT. The goods sold in course of export out of the      territory of India are zero rated. [Sec.18 (b)].

 

Q No.64.     When original tax invoice is lost & the dealer produces other       evidences in support of such purchases effected & tax paid on such        purchases, then can he avail ITC?

 

Ans.             No. The only evidence for claiming input tax credit is the Tax Invoice issued by the selling dealer.

 

Q.No.65.     A medicine sub-whole seller receives free medicine &          distributes the same among his friends and family members. What   will be his tax liability?

 

Ans.            He is liable to pay tax on the prevailing market price of the          medicines received free of cost by him, if it is part of a transaction of   sale.

 

Q.No.66.     A dealer dealing in FMCG (fast moving consumer goods) received one packet of FMCG free in 5 packets and effects consignment sale     thereof. What will be his tax liability in this score?

 

Ans.             He is liable to pay tax on the prevailing market price or on          purchase price of the packet received by him free of cost and on   transfer of    stock outside the state, he will be entitled to input tax credit on which tax has been paid on purchase price to the extent it      is       more than 4%

 

Q.No.67.     Whether retail invoice will be tax inclusive?

 

Ans.   Retail invoice and tax invoice have to be tax exclusive. In other words,          tax charged on the goods sold shall be shown separately in the       Tax/Retail invoice issued.

 

Q.No.68.     a) A dealer has effected purchase of turmeric from a cultivator    of Kandhamala and effects consignment sale thereof. What will be his liability?

                    b) Whether he will pay tax as per purchase price or prevailing     market price?

 

Ans.             He is liable to pay tax on the purchase turnover of turmeric or at          prevailing market price of the goods purchased from the cultivators and when turmeric so purchased is sold to consignment agents outside the state, purchase tax paid thereon shall be allowed as input tax credit to the           extent in excess of 4%

 

Q.No.69.     A dealer has effected purchase of paddy from a cultivator and     has sold it in the State of Orissa. Whether he is liable to pay tax on         his purchase turnover?

 

Ans.             No, he is liable to pay tax on his sale turnover.

 

Q.No.70.     A registered dealer has effected purchases of flour from a registered dealer of Orissa on payment of tax & has used in the       manufacture of bread which is tax free. Can be avail of ITC?

 

Ans.             Unbranded bread is only tax free. When taxable goods are        purchased and used in manufacturing of tax free goods, no input tax          credit is available.[Sec.20(8)(k)].

 

Q.No.71.     A dealer effects purchase of paddy from a cultivator and has       sold the same in course of inter-state trade. Whether he is liable to pay tax on such purchases effected ?

 

Ans.             No. But he is liable to pay tax on his sale under the CST Act.

 

Q.No.72.     A dealer effects purchases of 1000 bags of paddy from a     cultivator. He has sold 950 bags in Orissa & has kept 50 bags for          family consumption. What will be his tax liability?

 

Ans.             He is liable to pay tax on the sale turnover of 950 bags of paddy          and tax on the purchase price at the prevailing market rate on 50 bags of paddy.

 

Q.No.73.     A medicine dealer effects purchase of medicine from a        Company and receives some quantity discount which in turn also is supplied to retailers as quantity discount-. Whether he is liable to    pay tax on the purchase /receipt value of such free medicine     received?

 

Ans.             Yes. He is required to pay tax on the purchase price of the medicine received free of cost, or at the prevailing market rate.   (Sec.12.)

 

Q.No.74.     A medicine dealer effects purchase from a Company and    receives some quantity discount which in turn are supplied to doctors        as samples. Whether he is liable to pay tax on the purchase turnover         of such free medicine received?

 

Ans.             Yes. He is required to pay tax on the purchase price of the medicine received free of cost, or at the prevailing market rate. (Sec.12)

 

Q.No.75.     Can the input tax credit for the tax paid on capital goods    financed on lease be availed against tax payable on finished goods?

 

Ans.             If the capital goods have been purchased from inside the state on         payment of tax, the tax paid on purchases shall be allowed as          input tax      credit. However, if the capital goods have been received         on transfer   of      right to use on payment of lease rental, no input tax credit is admissible as          the purchase has been made by the person,   who has transferred the right       to use of such goods.

 

Q.No.76.     Can tax paid on goods not related to manufacturing be taken       as input tax credit?

 

Ans.             In case of manufacturing, goods purchased by a dealer which    directly goes into composition of finished product or consumables    directly used in such processing or manufacturing are eligible for input      tax credit[Sec.20(3)(b) read with [Sec.2 (25)].Goods purchased but  not          related to manufacturing, are not eligible for ITC.

 

Q.No.77.     How to ascertain the registration of a dealer is cancelled/             suspended?

 

Ans.             The fact of suspension/ cancellation shall be published in                    Commercial Tax Gazette, Official Website etc.

 

Q.No.78.     What is the rate of VAT for interstate sales without ‘C’ form?

 

Ans.   There is zero VAT for sales in course of inter state trade and      commerce, against declaration in form ‘C’. Such sales are taxed under the     CST Act.

 

Q.No.79.     Whether the goods purchased for own use is subjected to   purchase tax?

 

Ans.             The goods purchased for own use is not subject to purchase tax.

 

Q.No.80.     What is the status of ITC for the sale of goods which are    deemed to be exempted from VAT?

 

Ans.             ITC is not available in case of exempt goods {Sec.20. (8)(k)},   since no tax is payable on the purchase of tax free goods. There is no        concept of ‘deemed exempt’ under the VAT Act.

 

Q.No.81.     Whether copy of the bills to be furnished to audit for their           verification?

 

Ans.             Tax invoice is an important document for availing ITC. If audit is         undertaken, the audit team may require tax invoice for verification of the   claim of input tax credit and correctness of the accounts      maintained, etc.

 

Q.No.82.     What is the procedure of procurement of goods by a consumer    from outside the State?

 

Ans.             No procedure is prescribed for a consumer to procure goods from outside the state.

 

Q.No.83.     What is the impact of such procurement on (a) local traders (b)   local industry/ manufactures?

 

Ans.             If a regd. Dealer purchases goods from outside the State, he avails       of the concessional rate of tax @ 4% against declaration in Form ‘C’, but      the tax so paid is not eligible for input tax credit. If a consumer purchases           goods from outside the state, he is required to Pay CST     @10% or VAT      rate of tax, whichever is higher, and no input tax shall be available to him

 

Q.No.84.     Whether the sale in transit (E-1) is available in VAT Regime?

 

Ans.             Sale in transit is in accordance with the provisions of CST Act and      there is no change in such provision on introduction of VAT.

 

Q.No.85.     Sugar, Textile, Tobacco is not taxed at present but when VAT     will be applicable to these items?

 

Ans.             VAT will not be applicable to Sugar, Textile, and Tobacco                  presently.

 

Q.No.86.     In the VAT system whether the provision of statutory forms         like way bills, ‘C’ forms and ‘F’ forms  will be continued or not ?

 

Ans.             Way bill will continue. All the forms provided under CST Act will continue.

 

Q.No.87.     In case, the dealer has various output goods and some are exempted of VAT, then the input credits are to be availed on          proportionate basis. Would you kindly address the way or modalities         of such proportionate calculation?

 

Ans.            Modalities of calculation are given in VAT Rules. In case, where the dealer is dealing both in taxable and tax exempt goods, ITC   shall be calculated applying the formula:

 

          P x Q           ‘P’ is the total amount of input tax.

             R             

         'Q’ is the taxable turnover of sales including zero  rated sales and

         ‘R’   is the total amount of all sales including exempt  sales.

Q.No.88.     Whether quantity discounts passed on to customers based on       quantity purchased on a half yearly or yearly basis are eligible for   VAT adjustment?

 

Ans.             No.

 

Q.No.89.     Stocks returned by our purchasers:

                             a) is there any input tax credit. ?

                             b) any time limit?

 

Ans.             In case of stocks returned by the purchasers, there will be          adjustment of sale price or tax in relating to a taxable sale by way of    issue of credit note and debit note.

 

Q.No.90.     In whose name payments will be made? Earlier it was sales tax  officer.

 

Ans.             Payment will be made in the name of sales tax officer, if the dealer is under the composition scheme, in the name of Asst. Commissioner of Sales Tax, if the dealer is a VAT dealer.

 

Q.No.91.     What is the safeguard available to an exporter against the department with holding VAT refund arising after 2004 against OST/ CST demand pertaining to earlier years?

 

Ans.             Refund under OST/ CST Act to an exporter is regulated under the provisions of the said Acts. Refund under VAT Act to an exporter will be granted within 90 days from the date of receipt of application for such refund. In case, refund is not granted within the period of 90 days, interest @ 8% per annum will be paid to the Exporter.

 

Q.No.92.     Whether input tax credit will be available on works contract?

 

Ans.             Yes.

 

Q.No.93.     What are the arrangements of input tax credit of purchases in     raw food stuffs by hoteliers or Tiffin houses?

 

Ans.             If you mean raw food stuff as fresh vegetables, then fresh vegetables being exempt from tax, no ITC is available. ITC is   available on taxable items.

 

Q.No.94.     Is there any specific provision for payment of security for   voluntary RC, under VAT regime?

 

Ans.             Security is not mandatory under VAT Act. In case, there is anapprehension of evasion of tax, the sales tax officers may ask for        security. This is also applicable to the dealers applying for     voluntary registration under the VAT Act.

 

Q.No.95.     Will input tax credit be adjusted against CST payable by the        assessee?

 

Ans.             ITC will be adjusted against arrears of tax, interest and penalty   payable under the VATAct.

 

Q.No.96.     For tax credit whether credit will be given if a dealer purchases   or receives goods after 1.4.2005 but invoice raised before 31.3.2005.

 

Ans.             No. The time of sale to be construed as the date of issue {Sec.11 (4) (b)} of invoice which is before the date of implementation of          VAT.           The goods received after 1.4.2005 can not also be treated as          opening stock on 1.4.2005 so as to be eligible for input tax credit.

 

Q.No.97.     IDCO being engaged in allotting job of civil construction (90%)   out of budgetary allotment of Govt. of Orissa, assessed as a dealer earlier under OST Act. Should VAT be implemented in IDCO? If yes, please specify the rate of VAT.

 

Ans.             Yes. In case of works contract, the goods utilized in the execution       of works shall be subject to output tax with provision for input      tax     credit.

 

Q.No.98.    Whether sales tax will be paid on Entry Tax under VAT or  not?

 

Ans.             Since Entry Tax is included in the sale price of the goods, VAT is to be levied on the value of goods sold including Entry Tax.

 

Q.No.99.     In case of goods and grocery, purchased from dealers in Orissa what will be the VAT rates and how we are to pass on the same to the   consumer?

 

Ans.             The rates of tax on different items are given in schedule ‘A’,      Schedule ‘B’ and Schedule ‘C’. While selling goods a registered        dealer will issue a retail invoice to a consumer, wherein,       the value of the     goods sold and tax charged thereon shall be shown separately. The           tax     to be paid is to be collected from the buyer. 

Q.No.100.   We are a company having three plants outside Orissa and one     warehouse in Bhubaneswar. (a) What is the impact of VAT on        dealer, Customer and the plant (b) if dealer purchases material      directly from the plant outside Orissa (c) if dealer purchases           from depot at Bhubaneswar (i.e. material, stock transfer from     outside the Orissa)

 

Ans.             If a dealer in Orissa purchases goods from your plant outside     Orissa, he will not  get full input tax credit as the CST paid on such purchases is not eligible for input tax credit, but when he purchases from           the depot in Bhubaneswar, he is entitled to full input tax credit    and sales           by you to the dealer shall be subject to output tax at the applicable rate.        

                 So far as the stock transfer from the plant outside the state to the           depot at Bhubaneswar is concerned, the plant can claim input tax credit in         excess of 4% in the state of its location. However, if the goods are          received at Bhubaneswar on transfer of stock from the plant and sold to    customer, there is incidence of output tax, but no input tax credit is      available.

 

Q.No.101.   Whether a producer outside Orissa will have advantage to sell    their product in Orissa in comparison to local producer?

 

Ans.             That depends upon several factors. If the local producer purchases      capital goods, inputs, etc. inside the State he will get full input tax credit.           He can sell goods at a lower rate. Dealers inside the state will        prefer to      purchase from him to avail input tax credit. Purchases of goods from       outside the state will attract CST, which is not eligible for input tax       credit.

 

Q.No.102.   Treatment of input tax on closing stock in cases of tax suffered    cases? E.g. If goods subject to Ist point tax paid are purchased from        the 2nd line dealer.

 

Ans.             Input tax credit on closing stock will be available both for the     goods purchased on payment of tax and goods, which suffered tax at the         first point of sale.

 

Q.No.103.   Input tax credit in cases of tax suffered cases e.g. suppose tax      paid on Ist  point goods is at present 8% and at VAT regime it will be   4% ?

 

Ans.             Input tax credit on closing stock is available for the actual tax     charged i.e. @ 8% in this case.

 

Q.No.104.   Whether input credit is available for purchase tax?

 

Ans.             Yes.

 

Q.No.105.   Definition of turnover for audit purpose- if it is GTO, then whether gross turnover including tax collection or gross aggregated turnover i.e. Sales and  purchases?

 

Ans.             Gross turnover means aggregate of turnover of sales of goods   subject to sales tax and turnover of purchases subject to purchase tax under section 12 under the VAT Act. Tax paid on purchases, which is    eligible for input tax credit, is not a part of sale price.

 

Q.No.106.   Is there any mandatory provision in VAT so that CCT office        will provide clarification on classifications of a certain goods or   clarification of a certain VAT Act or rule if asked for by a dealer, Tax practitioner / association or chamber of commerce.

 

Ans.             There is no mandatory provision in VAT Act for CCT Office to          provide clarification on statutory matters or classification of any goods.

 

Q.No.107.   When there is total turnover of an organization is 40 lakh   audits by CA is required, but if there is sale of Rs.38 lakh and service charges of Rs.4 lakh is audit by CA required?

 

Ans.             If the Gross Turnover of a dealer exceeds Rs.40 lakh in a year he is     required to get his accounts audited by a C.A. If services rendered are     separately charged and is not a part of the sale price, the charges on          account of service rendered is not taxable under the VAT Act and,           therefore, is not a part of the gross turnover, Audit by chartered or cost         Accountant shall not be required if the gross turnover does not exceed       Rs.40 lakh in any year.

 

Q.No.108.   Interstate sales (CST sales) zero rated, which means full ITC      will be available. However, what is the likely scenario after three years when CST becomes zero?

 

Ans.             When CST becomes zero, there will be no taxes in purchases made     in course of inter state trade or commerce and when such goods are sold      inside the state; sales will be subject to output tax.

 

Q.No.109.   What steps should be taken by the purchasing dealer who has     taken the credit and utilized it by paying sales tax or VAT when the   selling dealer has not paid the same tax earlier?

 

Ans.             The onus is on the selling dealer to pay the tax. The purchasing dealer may not be held responsible for non-compliance of tax liability by    the selling dealer.

 

Q.No.110.   In case of zero tax VAT dealers, say exporters, there will be        cases of refunds on inputs. As exporters more than 40 lakh turnover         are tax audited by CA as per both VAT and IT Act, why should      refund again be subject to audit further delaying the refund?

 

Ans.             Tax audit contemplated for sanction of refund in case of exporters       is for determination of the genuineness of the claim for refund and its quantification with reference to records, documents and such other     materials and is conducted before sanction of refund. The report of annual     audit by chartered/ cost accountant is due after seven months of the     expiry of the year i.e. much after the claim of refund is made and     sanctioned. If annual audit report is awaited for sanction of refund, the      dealer will suffer. Moreover, audit is to be completed within one month   after receipt of the application. If there will be delay, interest to be paid          after 90 days from the date of receipt of application.

 

Q.No.111.   Is tax paid on bullion purchases inside the state 1% special          rate, be adjusted in the sale of jewelry at 1% VAT?

 

Ans.             Yes.

 

Q.No.112.   Explain the situation in the new VAT system where a customer    purchases the same product outside Orissa and inside Orissa from the same company warehouse?

 

Ans.             If the customer not being a regd. Dealer, purchases goods from outside the State, he will pay local VAT as applicable to the goods and bear the cost of transportation. If he purchases from inside the State, he will also pay local VAT applicable to the goods here, but may not have to           bear the cost of transportation. Besides, for an importer, the taxable limit       is ‘nil’ and the unregistered dealer will be liable to pay tax in the state on the sales again.

 

Q.No.113.   Whether input tax credit / set off shall be based on input tax         paid on purchases? What could be the procedure for producing      documents in support of input tax credit availed?

 

Ans.             In case of traders, set off/ input tax credit is available on the tax paid on purchases. Tax invoice is the evidence for claiming input tax    credit.

 

Q.No.114.   What will be the treatment of stock holding as on 31.3.05 both    tax paid purchases and taxable purchases (outside purchases)

 

Ans.             Input Tax Credit on closing stocks held on 31.3.2005 is available,        where the stock is purchased on or after 1.4.2004  and if the goods in the stock have been purchased within the State of Orissa on payment of tax       or which have suffered tax at the first point of sale in a series of sale. CST          paid on goods purchased in course of interstate trade or commerce is not           eligible for input tax credit.

 

Q.No.115.   How VAT is applicable to a restaurant which is buying       vegetables from daily market and grocery from un-regd.  Dealers.      Are they liable to pay tax on purchase of raw material and collect    and pay tax on sales?

 

Ans.             Vegetables are tax free. Grocery items are taxable. If restaurant   owner purchases goods from unregistered dealer and prepares food and     sells, he will pay output tax and will not be entitled to any input tax credit    as he has not paid any tax on purchase of vegetables. Tax paid on taxable         grocery items is eligible for input tax credit provided the dealer has       purchased from registered dealer paying tax.

 

Q.No.116.   Which type of accounts is to be maintained by the composite        dealer and works contractor?

 

Ans.             A registered dealer is required to maintain books of accounts so as      to establish his claim of output tax charged and input tax credit availed. A          dealer under the composition scheme shall have to maintain accounts of     purchase and sales. A works contractor will however, have to maintain     accounts of purchase, sales, and stock in addition to other accounts    required to establish figures furnished in the periodic returns

 

Q.No.117.   Now a days, purchase bills of cloves, black peeper, mixtures are not available. After the VAT, what steps will be taken for available of      the said purchase bills?

 

Ans.             Tax invoice is the evidence to avail input tax credit. If a dealer does      not issue tax invoice, the buying dealer will not get input tax credit.       Hence, the buying dealer will demand invoice from him.

 

Q.No.118.   If a dealer has purchased materials outside the state of Orissa     and also inside the state of Orissa and has been engaged in the          execution of works contract. Whether it will get set off against the   gross bill and tax will be adjusted against the rate of tax in respect of   works contract?

 

Ans.             The contractor will avail ITC on goods purchased from inside the        State of Orissa. He will not get ITC on purchases from outside the State   of Orissa. The amount of tax admissible as input tax credit is adjustable against the output tax payable during a tax period.

 

Q.No.119.   In VAT system surcharge will be levied or not?

 

Ans.             There will be no surcharge under VAT.

 

Q.No.120.   If a dealer purchased goods from non-VAT dealers whether it     will be set off?

 

Ans.             No.

 

Q.No.121. Can purchase from exempted manufacturing unit and trading        for the same product be exempted from VAT?

 

Ans.             Exemption from payment of tax to manufacturing industries is not        available under VAT. Exemptions availing by an industry will be     converted into deferral. That means the manufacturer dealer will collect tax on his sales, he will defer payment. Hence, the dealer who purchases    the goods from him pays tax and he will get set off of tax paid, on his sales.

 

Q.No.122.   Existing regd. dealer required to apply for TIN under VAT          Act?

 

Ans.   No. TIN will be allotted by the Department. The existing registered       dealer shall be deemed to be registered under the VAT Act.

 

Q.No.123.   Whether certificate of CA is required for submission of annual    return?

 

Ans.             No. A dealer having a Gross Turnover exceeding Rs.40 lakh in any      year will get his accounts audited by a CA or cost accountant within 6      months from the expiry of that year and submit a copy of the report to the       Commissioner by the end of the month following expiry of the period of          six months (Sec.65).

 

Q.No.124.   What is the status of ITC for the sale of goods, which are   deemed to be exempted from VAT?

 

Ans.             There are no goods deemed to be exempt from VAT.ITC is not          available for exempt goods.

 

Q.No.125.   For getting credit on purchases, what records to be maintained   in case of manufacturers? Whether copy of the bills to be furnished   to audit for their verification?

 

Ans.             In case of audit, the dealer is required to justify his claim of input         tax credit. The books of accounts required to justify such claims may      have to be produced. The audit team may require the copy of bills/tax       invoice during audit.

 

Q.No.126.   What will happen to a retailer paying turnover tax whose   GTO           exceeds Rs.10 lakh during the year or at the end of the year. Whether he will be made liable to pay normal VAT?

 

Ans.             If the GTO of a dealer under the composition scheme exceeds   Rs.10 lakhs, he will intimate the registering authority, and surrender the registration certificate and the SRIN assigned. Thereon, the dealer will be         issued with a fresh registration certificate along with TIN. From the date   of assignment of TIN, he will pay output tax and claim input tax credit.

 

Q.No.127.   How much VAT credit can be available to the manufacturers of those (stock and spare) held for more than 10 years kept for manufacture whose tax elements paid is not readily traceable/available?

 

Ans.            ITC on closing stock available on goods purchased within one year prior to the appointed day.

 

Q.No.128.   Tax is paid within due date but return is not filed in time, what     will be the consequences?

 

Ans.             The dealer is to be noticed to file return as the proof of due        discharge of tax liability is to be verified with reference to the return furnished. If the dealer does not comply with the notice other penal action under the Act shall be initiated.

 

Q.No.129.   If a manufacturer during set up of a plant / factories brings          capital goods from outside the state of Orissa, then how the   manufacturer can get the input credit on capital goods?

 

Ans.             ITC is not admissible on tax paid on goods purchased from outside    the State.

 

Q.No.130.   Is a manufacturer eligible to get input credit under CST sale?

 

Ans.             The manufacturer will get input tax credit; if he sells goods in     course of inter state trade and commerce. {Sec.20 (i)}

 

Q.No.131.   Whether cloth is coming under VAT or not? If yes, how he will    maintain stock because thousands of item a cloth dealer is keeping.

 

Ans.             Cloth will not come under VAT for the time being.

 

Q.No.132.   Purchase from an unregistered dealer, given as gift/free     sample, whether liable for tax?

 

Ans.             If the purchaser is a registered dealer and the goods purchased are taxable, then the purchaser will pay tax on the purchase price.

 

Q.No.133.   Purchased goods in April-2005 from a dealer, whose certificate   is suspended in May 2005, whether input credit is available or not?

 

Ans.             ITC is available.

 

Q.No.134.   Will tax set off on purchases be allowed proportionate to    production of quantity inside the State?

 

Ans.             ITC is adjustable against output tax against output tax i.e. tax     collected on sales.

 

Q.No.135.   List of goods subject to PT has not been prescribed under VAT   Act.

 

Ans.             Under VAT Act, no particular commodity is subject to tax on    purchase price. However, all taxable goods are subject to tax on purchase          price under the circumstances where no tax is leviable on sale of those        commodities. (Sec. 12)

 

Q.No.136.   Definition of turnover for audit by CA, etc. purpose, if it is:

                   -        Gross turnover including tax collected

                   -        Gross aggregated turnover- sales and purchases.

 

Ans.             Gross turnover means the aggregate of turnover of sales and the          turnover of purchases subject to tax under section 12. The turnover of         sales means the aggregate of the amounts of the sale price received or   receivable by a dealer. The sale price under VAT Act does not include the       tax paid or payable under VAT Act.

 

Q.No.137    If CST is phased out, any Govt. Department or a consumer          buying from outside the State will pay no tax. How will a local dealer     compete, who will have to collect output tax under VAT? How State will get its revenue?

 

Ans.             When CST is phased out, the rate of tax will be zero against       declaration in Form ‘C’. Under VAT regime, there will be uniform Tax rate for each commodity all over the country. Hence, the tax rate will     remain the same for the goods purchased either from inside or from           outside. On the other hand, those who will purchase from outside the state     will have to bear the transportation cost. No such cost will be borne by      anybody who purchases from inside the state.

 

Q.No.138   As regards to damage and expired goods, how this has been        adjusted in the VAT system, please explain?

 

Ans.             A trader gets input tax credit in respect of each tax period in which      the goods are purchased. If the trader has already availed of input tax     credit and the goods have been damaged/ expired, there will be reverse      input tax credit.

 

Q.No.139.   Whether professional tax will continue after VAT or not?

 

Ans.             Yes. Tax on profession, Trade and Callings will continue after    VAT.

 

Q.No.140.   Whether ITC is available on the stocks held on the date of registration?

 

Ans.   ITC will be allowed on stocks purchased within three months prior to the      date of registration.

 

Q.No.141.   Whether waybill will exist? If yes, then what will be the fate of     a dealer who procures goods without way bill?

 

Ans.             Way Bill will continue under VAT. If a registered dealer transports       goods without way bill or fails to furnish the same on being noticed, there         is provision for imposition of penalty.

 

Q.No.142.   If tax has been paid at check gate, how it will be adjusted?

 

Ans.   Payment of tax by a registered dealer at the Check gate will be adjusted          against the output tax.

 

Q.No.143.   How long will entry tax continue? Please clarify ITC on      Branch Transfer 

 

Ans.             There is no proposal to discontinue Entry Tax for the time being. In     case of Branch Transfer, ITC is available in excess of 4%. For example, the value of inputs is Rs.500/- and tax paid on input @ 12.5% is Rs.62.50.    The dealer will get ITC @8.5 %( 12.5-4) on Rs.500 which is calculated at          Rs.42.50 as input tax credit in case branch transfer.

 

Q.No.144.   How the tax paid by previous seller to be transparent to last         seller?

 

Ans.             The most important document under VAT is tax invoice. In the tax      invoice, the dealer is to indicate the value of goods and amount of tax           charged on the goods separately. But the last dealer can not know the     amount of tax paid by the seller on the goods purchased by him.

 

Q.No.145.   What is provision regarding works contract assessment and        what about tax deduction at source?

 

Ans.             The provision for assessment to works contractor is the same as in      the case of other dealers, works contractor will assess himself. The TDS    provisions under the VAT Act are similarly to that of OST Act.

 

Q.No.146.   Why there is the limit of input tax credit for the goods purchased within one year only. What will be the fate of other tax paid on stocks?

 

Ans.             ITC on opening stock held on 1.4.2005 is available for the goods         purchased within one year prior to the appointed day as per the opinion of the states and ratified by the Empowered Committee of the Finance          Ministers of States and UTs. Other taxes paid will not be given credit.

 

Q.No.147.   It is clear now that no input tax credit on CST will be allowed.     Whether this will be applicable to industries also or industries will be      allowed credit on CST?

 

Ans.             CST paid on purchases is not eligible for input tax credit to any dealer including industries

 

Q.No.148.   Whether 3-B goods i.e. Black gram, moong, ground nut, paddy   will be taxed on purchase price from cultivators or will it be on sale price?

 

Ans.             There is no concept of levy of purchase tax on goods under the VAT Act. In certain transactions, tax is levied on the purchase price of the goods. However, when goods are sold by a registered dealer there will be tax on sale price and not on purchase price.

 

Q.No.149.   Explain from which date the period of refund i.e. 60 days will      be calculated?

 

Ans.             Refund flowing from any order shall be granted without    application and within 60 days from the date of receipt of the order giving     rise to the refund.

 

Q.No.150.   Under the VAT, entry tax was to be abolished, but recently          entry tax rule is revised. Why?

 

Ans.             It has been decided by the Empowered Committee that Entry Tax        in lieu of Octroi will continue. In Orissa, Entry Tax is in lieu of Octroi        and hence, it will continue.

 

Q.No.151.   Whether VAT is applicable to a restaurant?

 

Ans.             Yes.

 

Q.Nio.152.   What will happen to sales tax and central tax?

 

Ans.             Orissa VAT Act will replace Orissa Sales Tax Act, CST Act will         continue.

 

Q.No.153.   What will be the status of industries enjoying tax holidays?

 

Ans.             Exemption will be converted into deferrals; so that the VAT chain        is not broken.

 

Q.No.154.   What shall be the fate of litigated cases under sales tax regime?

 

Ans.             Though Orissa Sales Tax Act will be repealed, the provisions of          the said Act including settlement of litigation have been saved.

 

Q.No.155.   Whether a dealer registered under Sec 9-C of the OST Act will   continue till commercial production or directly convert to VAT     dealer?

 

Ans.             All dealers whose registration certificates are valid on the day     immediately preceding the appointed day shall be deemed to be       registered     under VAT Act. They will be VAT dealers.

 

Q.No.156.   As required a dealer is to be audited once in 5 years. Please         clarify whether the dealer will be audited for all the 5 years or for the         year only in which audit take place.

 

Ans.             The dealer is to be audited ordinarily for the tax period(s) /year for       which audit is due. If during audit, it is noticed that discrepancies or       evasion of tax relate to further tax periods, then such other tax periods        shall also be included in the audit.

 

Q.No.157.   Whether ITC is available to manufacturers as per provisions of   Sec 20(3)?

 

Ans.             ITC is available on inputs and capital goods purchased by the    manufacturers excepting those mentioned in Schedule A, C, and D.
 

Disclaimer: The following frequently asked questions have been collected from the several seminars held on VAT. The answers to the questions are not to be construed as clarification given by the Commercial Tax Department. These are meant for facilitating the understanding of VAT in general terms. The answers can not be cited as interpretation of VAT Act and Rules in any court and forum.