SIPOY SATISH www.cacwacs.wordpress.com sipoysatish@gmail.com VALUE ADDED TAX 25 MARKS Including EXAMINATION QUESTIONS CA IPCC MAY-2013/ NOV-2013 F.Y. 2012-13 F. A. 2012 100
VALUE ADDED TAX INDEX 2 Q1 (V. Imp.): Explain the concept of Value Added Tax / Explain Taxonomy (process of making groups) of VAT/ Different stages of VAT. Q2 (V. Imp.): Explain concept of input tax credit. Q3 (V. Imp.): Explain Central Sales Tax including rates under Central Sales Tax. Q4 (V. Imp.): Write a note on registration under State VAT Act and Central Sales Tax Act. Q5: Write a note on amendment in registration. Q6: Write a note on cancellation of registration certificate. Q7: Explain scope of input tax credit. Q8 (V. Imp.): Explain purchases not eligible for input tax credit. Q9 (V. Imp.): Explain provisions of Stock Transfer. Q10: Explain accounting treatment of VAT as suggested by ICAI. (not covered in syllabus rather it is only for self reading) Q11 (V. Imp.): What are the Variants (different types) of VAT. Q12: What are the rates under VAT. Q13: Explain non- creditable/non-vatable goods. Q14 (V. Imp.): Explain concept of excise duty (Central Value Added Tax). Q15 (V. Imp): Write a note on tax credit in case of manufacturer. Q16 (V. Imp): What is the common procedure for availing and adjusting cenvat credit for Excise Duty, Service Tax as per Cenvat Credit Rules, 2004. Q17 (V. Imp): What are methods for computation of Value Added Tax. Q18 (V. Imp.): Explain VAT Invoice / Tax Invoice Q19 (V. Imp.): Explain composition scheme for small traders. Q20 (Imp.): Write a note on filing of return under state VAT. Q21 (Imp.): Write a note on assessment under State VAT. Q22: Write a note on System of Cross Checking. Q23 (Imp.): Write a note on maintaining of books of accounts and records under State VAT. Q24 (Imp.): Explain the provisions of audit under State VAT. Q25 (V. Imp.): Explain merits of VAT. Q26 (V. Imp): Explain demerits of VAT. Q27: Explain role of ICAI in VAT. Q28 (Imp.): Explain role of Chartered Accountant in VAT. Q29: Explain White Paper.
Value Added Tax 3 DIRECT TAXES: Income Tax / Wealth Tax INDIRECT TAXES: Central Excise Duty/ Service Tax/Custom Duty/VAT DIRECT TAX / INDIRECT TAX If incidence of tax is borne by the person who is making payment of tax, such tax is called Direct Tax e.g. Income Tax or Wealth Tax but if incidence is borne by one person and payment is made by some other person, it is called Indirect Tax like Central Excise Duty, Service Tax, Custom Duty and Sales Tax. Income Tax and Wealth Tax are levied and collected by Central Government and are monitored by Central Board of Direct Taxes. Central Excise Duty, Custom Duty and Service Tax are levied and collected by Central Govt. and are regulated by Central Board of Excise and Custom. Sales Tax also called Value Added Tax is levied and collected by State Government and it is regulated by Acts of individual States. E.g. in case of Delhi the relevant Act is Delhi Value Added Tax Act, 2004 Central Board of Direct Taxes (CBDT) and Central Board of Excise and Custom (CBEC) work under Department of Revenue of Finance Ministry. Value Added Tax system is applicable only in Indirect Taxes. At IPCC level there will be one paper of Taxation and there will be 50 marks for Direct Tax and 50 Marks for Indirect Tax and at CA-FINAL level, there will be 2 papers of Taxation - Direct Tax 100 Marks (Income Tax 90 Marks/Wealth Tax 10 Marks) Indirect Tax 100 Marks (Service Tax + VAT 40 Marks / Excise 40 Marks / Custom 20 Marks) Constitutional Validity Parliament or State legislature can levy tax only if such authority is given in Indian Constitution and such authority is given in Seventh Schedule of Indian Constitution as per article 246 and there are three list in Seventh Schedule. 1. Union List If any matter is mentioned in Union List, parliament can make law with regard to such matter. 2. State List If matter is mentioned in State List, State legislature, can make law with regard to such matter. 3. Concurrent List If matter is mentioned in Concurrent List, both of the government can make law with regard to such matter. Some of the important entries in the Union List are as given below: 82. Taxes on income other than agricultural income. 83. Duties of customs including export duties. 84. Duties of excise on tobacco and other goods manufactured or produced in India except (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. 92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-state trade or commerce. 92C. Taxes on services. 97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists. Some of the important entries in State List are as given below: 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. 46. Taxes on agricultural income
VALUE ADDED TAX Concept of Value Added Tax was introduced first of all in France in 1954. Value Added Tax 4 It was introduced in India in Central Excise Duty w.e.f 1 st March 1986 and at that time it was called MODVAT (Modified Value Added Tax) but afterwards its name was changed as CENVAT (Central Value Added Tax). Central Excise Duty and Service Tax is charged by Central Govt. and its tax credit is called Cenvat and the rules for Cenvat Credit are given in Cenvat Credit Rules, 2004 (Applicable w.e.f 10.09.2004). Concept of tax credit was introduced in Sales Tax in the year 2005 and Sales Tax is being charged by the State Govt. and accordingly every State Govt. has its own Value Added Tax Act (For example in Delhi Delhi Value Added Tax Act, 2004) Tax credit rules are the same for different tax but there is some difference because some of the tax are charged by the Central Govt. and some of the tax are charged by State Govt. Question 1 (V. Imp.): Explain the concept of Value Added Tax / Explain Taxonomy (process of making groups) of VAT/ Different stages of VAT. Answer: Before VAT If a Manufacturer has sold goods to the Wholesaler and has charged sales tax and Wholesaler has further sold the same goods to the Retailer and has again charged sales tax, in this case there are two anomalies (defect): (i) Sales tax has been charged twice on the same item. (ii) There is sales tax on sales tax (it is called cascading effect) Example If a Manufacturer has manufactured certain goods and cost price is 1,00,000 and his expenses plus profit is 20,000 and sales tax is 10%, in this case goods shall be sold for (1,00,000 plus 20,000) + (10% of 1,20,000) = 1,32,000. If the Wholesaler is purchasing goods from Manufacturer for 1,32,000 and his expenses plus profit is 20,000 and is charging sales tax @ 10%, the goods shall be sold for (1,32,000 plus 20,000) + (10% of 1,52,000) = 1,67,200. The Retailer has added his expenses plus profit of 20,000 and is charging sales tax @ 10%, the goods shall be sold for (1,67,200 plus 20,000) + (10% of 1,87,200) = 2,05,920. In this case sales tax has been charged three times on the original amount of 1,20,000 (once by manufacturer, once by the Wholesaler and once by retailer) accordingly a single item has suffered sales tax three times. Further the Wholesaler has charged sales tax on the amount of the sales tax paid by him i.e. there is sales tax on sales tax which is called Cascading Effect. After VAT The above anomalies can be rectified with the help of VAT. Under VAT, the Wholesaler is allowed to take tax credit of 12,000 being the sales tax paid by him and he
Value Added Tax 5 will be selling the goods for 1,40,000 (1,20,000 + 20,000), sales tax charged by him shall be 14,000. Since he has taken credit of 12,000, net sales tax payable by him shall be 2,000 and it will be called value added tax i.e. sales tax is only on the value addition of 20,000. Similarly, the Retailer shall be allowed to take credit for the tax paid by him and he will pay sales tax only on the value addition. The tax paid by the Wholesaler to the Manufacturer shall be called his Input tax (12,000) and tax charged by him from the Retailer shall be called Output tax (14,000) and tax payable by him shall be called Net tax (2,000). Value Added Tax is a Multi Stage tax and is being charged at every stage of sale and these stages are called stages of VAT and are as given below: 1. Manufacturer to Distributor 2. Distributor to Wholesaler 3. Wholesaler to Retailer 4. Retailer to Consumer Question 2 (V. Imp.): Explain concept of input tax credit. Answer: If any Registered Dealer is purchasing goods within a particular State and has paid value added tax and subsequently the goods were sold either in the same State or to some other State, in that case such Registered Dealer shall be allowed to take credit for input tax, however, tax credit is allowed only to the Registered Dealers and further registered dealer should purchase goods only from registered dealer i.e. if the goods have been purchased from unregistered dealer, no VAT credit is allowed. Registration is required if the sale turnover has exceeded the threshold limit (basic limit) of 10 lakh during the year. Voluntary registration is allowed to every dealer at any time. Example Mr. D is a dealer registered in Delhi and he purchased goods of 20,00,000 plus Delhi VAT @ 12.5% and sold the goods in Delhi for 30,00,000 plus Delhi VAT @ 12.5%, in this case, tax credit for input tax shall be allowed and computation of output tax, input tax and net tax shall be as given below: Sale 30,00,000 Output Tax @ 12.5% 3,75,000 Less: Input Tax credit (20,00,000 x 12.5%) 2,50,000 Net Delhi VAT Payable 1,25,000 If in the above case goods were sold to an unregistered dealer in UP and Central Sales Tax was charged @ 12.5%, in that case also tax credit is allowed and tax treatment shall be as given below: Sale 30,00,000 Output Tax Central Sales Tax @ 12.5% 3,75,000 Less: Input Tax credit (20,00,000 x 12.5%) 2,50,000 Net CST Payable 1,25,000 If the goods have been sold to some Registered Dealer in U.P. and Central Sales Tax was charged @ 2%, in that case also, tax credit is allowed and tax treatment shall be as given below: Sale 30,00,000 Output Tax Central Sales Tax @ 2% 60,000 Less: Input Tax credit (20,00,000 x 12.5%) 2,50,000
Value Added Tax 6 Balance VAT Credit (to be carried forward or refund can be taken) 1,90,000 If the goods have been purchased from outside the State and has paid Central Sales Tax to that particular State, tax credit for such INPUT TAX is not allowed. If in the above case goods were purchased from Punjab and CST was paid @ 2% and the goods were sold either in Delhi or in some others States, tax credit is not allowed and tax treatment shall be as given below: Example (a) Goods sold in Delhi Sale 30,00,000 Output Tax @ 12.5% 3,75,000 Input tax credit is not allowed Nil Net Delhi VAT Payable 3,75,000 (b) Goods sold to Unregistered Dealer in U.P. Sale 30,00,000 Output Tax Central Sales Tax @ 12.5% 3,75,000 Input tax credit is not allowed Nil Net CST Payable 3,75,000 (c) Goods sold to Registered Dealer in U.P. against Form C Sale 30,00,000 Output Tax Central Sales Tax @ 2% 60,000 Input tax credit is not allowed Nil Net CST Payable 60,000 Tax credit in case of goods exempt from output tax If raw material or other goods have been purchased and have been utilized in manufacturing, processing or packing of the product which is exempt from VAT, no VAT credit shall be allowed on such purchases. Tax credit in case of Export or supply to Special Economic Zone If the goods have been exported, in that case such export sales are exempt from excise duty or VAT etc but even then as a special case tax credit is allowed and export goods are also called zero-rated goods. Similarly if the goods have been sold in Special Economic Zone, there will be same procedure as in case of export. Special Economic Zone means a specific area which has been declared to be SEZ by the Government and the persons having their units in the SEZ shall be required to export the goods manufactured by them and there will not be any output tax. The persons selling goods or providing services in the SEZ shall not charge any tax from the buyers in the SEZ but the seller shall be allowed tax credit as a special case. Example Mr. X is a manufacturer and is registered in DVAT ACT, 2004 and he has purchased raw material for 20,00,000 and paid DVAT @ 4% and manufactured certain goods which were sold in Delhi for 30,00,000 and the goods are exempt from DVAT, in this case, tax credit is not allowed and tax treatment shall be as given below: Sale 30,00,000 Output Tax Nil Input tax credit is not allowed Net Delhi VAT Payable Nil If in the above case goods have been exported or goods have been sold in Special Economic Zone (SEZ), tax treatment shall be as given below: Sale 30,00,000
Value Added Tax 7 Output Tax Nil Input tax credit is allowed (20,00,000 x 4%) 80,000 Net Delhi VAT Payable Nil Dealer can claim refund for such unutilized input tax credit. Stock Transfer If any dealer has purchased goods within the state and the goods were stock transferred to some other state, in such cases VAT credit is allowed after retaining 2% of the input tax. Example ABC Ltd. has purchased raw material for 20,00,000 in the state of Delhi and paid DVAT @ 12.5% and goods were stock transferred to there branch in U.P., in this case input tax credit allowed shall be 20,00,000 x 10.5% (12.5% - 2%) 2,10,000 Question 3 (V. Imp.) : Explain Central Sales Tax including rates under Central Sales Tax. Answer: Central Sales Tax was introduced in 1956 through Central Sales Tax Act 1956. Prior to levy of CST, State Governments use to charge sales tax even in case of inter-state sales and there was multiple taxation on the basis of nexus theory e.g. If seller was in Punjab and buyer was in U.P., both of the States collected sales tax because of nexus i.e. connection of the sales transaction with each of the state. In order to check the problem of multiple taxation, Central Sales Tax Act was enacted (to pass a law) in 1956 and in case of Inter State sale, Central Sales Tax was levied and it was to be collected by the State Government from where the sales has taken place. It is collected by the State Government on behalf of the Central Government but as per provisions of Central Sales Tax Act, the tax so collected shall be retained by the respective State Government. As the purpose of levying of CST was not to collect Central Sales Tax by the Central Government rather the purpose was to check multiple taxation. If Central Sales Tax has been paid in one particular State as input tax and output tax is to be paid in some other State, tax credit shall not be allowed for such input tax e.g. A registered dealer of Delhi Mr. D has purchased certain goods from Punjab for 1,00,000 and paid Central Sales Tax to the Punjab Government 2,000 @ 2% and subsequently the same goods were sold in Delhi for 1,50,000 and has charged local sales tax @ 12.5% amounting to 18,750, in this case VAT credit of 2,000 shall not be allowed and entire amount of 18,750 shall be paid to the Delhi Government. If the Dealer has purchased goods from Delhi and has sold the goods in U.P. and has collected Central Sales Tax from the buyer in U.P., in this case such CST has to be paid to Delhi Government hence VAT credit for input tax paid in Delhi shall be allowed. Rates under Central Sales Tax If the goods have been sold to a dealer registered under Central Sales Tax, rate of CST shall be equal to LST but subject to highest rate of CST at 2%. If goods have been sold to any other person, rate of CST shall be equal to LST and it can be shown as given below: Rate of LST Sale to Dealer Registered under CST Sale to any Other Person 1% 1% 1% 2% 2% 2% 3% 2% 3% 10% 2% 10% 12% 2% 12%
Value Added Tax 8 12.5% 2% 12.5% The dealer selling the goods to the registered dealer shall obtain Form C from the purchasing dealer being the proof of his being a registered dealer. If the goods are sold to the Government department, it will not be considered to be registered dealer. Question 4 (V. Imp.): Write a note on registration under State VAT Act and Central Sales Tax Act. Answer: Registration under State Value Added Tax Act Compulsory Registration A dealer must apply for registration in the following cases: (i) If the turnover has exceeded 10 lakhs at any time during the year. (ii) He is registered under Central Sales Tax Act, 1956. (iii) He is purchasing goods from outside the state for sale within the state. Example Mr. X is an unregistered dealer in Delhi,. His sales turnover is 5,00,000 but he is purchasing some of the goods from outside Delhi, in this case, he should apply for compulsory registration. If in the above case, he is not purchasing goods from other States but he is selling some of the goods to other States, in that case also registration is required. If he is not purchasing goods from other States and also not selling goods to other states, registration is not required but if turnover is exceeding 10,00,000, registration is required. Voluntary Registration Any dealer may apply for voluntary registration under State Value Added Tax Act at any time. Only dealer registered under State Value Added Tax Act can charge VAT and can issue tax invoice and VAT Credit is only allowed on the basis of tax invoice. Registration under Central Sales Tax Act, 1956 Compulsory Registration If any dealer has effected any Sale from one state to the other, registration is required under Central Sales Tax Act. Voluntary Registration If a dealer is registered under State Value Added Tax Act, he may apply for registration under Central Sales Tax Act at any time. Registration under State Value Added Tax Act and Central Sales Tax Act shall be different. TIN (Tax Payer s Identification Number) is a code to identify a tax payer. It is the registration number of the dealer. The taxpayer s identification number will consist of 11 digit numerals throughout the country. First two characters will represent the State code as used by the Union Ministry of Home Affairs. The set-off of the next nine characters will be, however, different in different States. TIN will help cross-check information
Value Added Tax 9 on tax payer compliance, for example, the selective cross-checking of sales and purchases among VAT taxpayers. Question 5: Write a note on amendment in registration. Answer: Amendment in Registration certificate Registration certificate can be amended in the following situations: 1. If there is change in the name of business. 2. If there is change in the place of business. 3. If there is change in the nature of business i.e. Trading is converted into Manufacturing or Manufacturing is converted into Trading. 4. If one or more new goods have been included or one or more goods have been deleted 5. If there is change in the Constitution e.g. Partnership Firm is converted into Proprietary or Proprietary is converted into Partnership Firm. 6. If there is any other similar change. Amendment can be made at the request of the dealer or the department can make amendment on its own. Question 6: Write a note on cancellation of registration certificate. Answer: Cancellation of registration VAT registration can be cancelled on: (i) Discontinuance of business; or (ii) Disposal of business; or (iii) Death of the dealer (iv) Annual turnover falling below the specified limit e.g. In case of Delhi VAT if turnover becomes less than 10 lakhs (v) Violation of the provisions of State VAT Act leading to cancellation of certificate Illustration 1: Compute the invoice value to be charged and amount of tax payable under VAT by a Registered Dealer who had purchased goods for 1,50,000 (exclusive of VAT) from the same State and after adding for expenses of 12,000 and profit of 25,000 had sold in the same State. The rate of VAT on purchase and sales is 12.5%. Solution: Purchase price 1,50,000 Add: Expenses 12,000 Add: Profit 25,000
Value Added Tax 10 Amount to be billed 1,87,000 Add: VAT @ 12.5% - Output Tax 23,375 Total invoice value 2,10,375 VAT Payable VAT charged in the invoice - Output Tax 23,375 Less: VAT credit on input 12.5% of 1,50,000 - Input Tax (18,750) Net VAT Payable 4,625 (b) Presume the goods were sold in some other States to Unregistered Dealer. Solution: Purchase price 1,50,000 Add: Expenses 12,000 Add: Profit 25,000 Amount to be billed 1,87,000 Add: CST @ 12.5% - Output Tax 23,375 Total invoice value 2,10,375 CST Payable CST charged in the invoice - Output Tax 23,375 Less: VAT credit on input 12.5% of 1,50,000 - Input Tax (18,750) Net CST Payable 4,625 (c) Presume the goods were sold in some other States to Registered Dealer against Form C. Solution: Purchase price 1,50,000 Add: Expenses 12,000 Add: Profit 25,000 Amount to be billed 1,87,000 Add: CST @ 2% - Output Tax 3,740 Total invoice value 1,90,740 CST Payable CST charged in the invoice - Output Tax 3,740 Less: VAT credit on input 12.5% of 1,50,000 - Input Tax (18,750) CST Payable Nil Balance VAT Credit (to be carried forward or refund can be taken) 15,010 Illustration 2: Compute the VAT amount payable by Mr. A (Registered Dealer) who purchases goods from a manufacturer on payment of 4,50,000 (including VAT) and earns 15% profit on purchase. The goods have been sold to retailers and VAT rate on purchase and sale is 12.5%. Solution: Purchase price 4,50,000.00 Less: Input tax (4,50,000 x 12.5% / 112.5%) (50,000.00) 4,00,000.00 Add: Profit (4,00,000 x 15%) 60,000.00 Amount to be billed 4,60,000.00 Add: VAT @ 12.5% - Output Tax 57,500.00
Value Added Tax 11 Total invoice value 5,17,500.00 VAT Payable Output tax 57,500.00 Less: Tax credit (12.5% of 4,00,000) - Input Tax (50,000.00) Net VAT Payable 7,500.00 (b) Presume the goods were sold in some other States to Unregistered Dealer. Solution: Purchase price 4,50,000.00 Less: Input tax (4,50,000 x 12.5% / 112.5%) (50,000.00) 4,00,000.00 Add: Profit (4,00,000 x 15%) 60,000.00 Amount to be billed 4,60,000.00 Add: CST @ 12.5% - Output Tax 57,500.00 Total invoice value 5,17,500.00 CST Payable Output tax 57,500.00 Less: Tax credit (12.5% of 4,00,000) - Input Tax (50,000.00) Net CST Payable 7,500.00 (c) Presume the goods were sold in some other States to Registered Dealer against Form C. Solution: Purchase price 4,50,000.00 Less: Input tax (4,50,000 x 12.5% / 112.5%) (50,000.00) 4,00,000.00 Add: Profit (4,00,000 x 15%) 60,000.00 Amount to be billed 4,60,000.00 Add: CST @ 2% - Output Tax 9,200.00 Total invoice value 4,69,200.00 CST Payable CST-Output tax 9,200.00 Less: Tax credit (12.5% of 4,00,000) - Input Tax (50,000.00) CST Payable Nil Balance VAT Credit (to be carried forward or refund can be taken) 40,800.00 Illustration 3: Mr. X (Registered Dealer) is a trader in Delhi and he has purchased certain goods from Punjab for 4,00,000 and has paid central sales tax @ 2%. He has sold all the goods in the state of Delhi for 6,00,000 plus VAT @ 12.5%. He has purchased certain goods in Delhi for 5,00,000 and paid VAT @ 12.5% and all the goods were sold by him under inter state sale to a registered dealer in U.P. for 7,00,000 plus central sales tax @ 2%. Show VAT calculation.
Value Added Tax 12 Solution : Computation of VAT payable: Purchase from Punjab and sold in Delhi Purchase price 4,00,000 Add: Central sales tax @ 2% 8,000 Purchase Price 4,08,000 Sale 6,00,000 Add: VAT @ 12.5% - Output tax 75,000 Selling Price 6,75,000 Purchase from Delhi and sold in U.P. Purchase price 5,00,000 Add: VAT @ 12.5% - VAT credit 62,500 Purchase Price 5,62,500 Sale 7,00,000 Add: Central sales tax @ 2% - Output tax 14,000 Selling Price 7,14,000 State VAT 75,000 Less: VAT credit 62,500 Net State VAT payable 12,500 CST Payable 14,000 Illustration 4: Mr. X (Registered Dealer in Delhi) is a manufacturer and he has purchased raw material R1 from Punjab for 2,00,000 plus central sales tax @ 2%. He has purchased raw material R2 in Delhi for 3,30,000 inclusive of VAT @ 10%. His processing charges is 1,00,000 and profit margin is 1,00,000. Half of the goods were sold in Delhi and VAT payable is @ 10% and remaining half were sold to a person in U.P. under inter state sale and has charged central sales tax @ 2%. Show working for VAT. Solution: Computation of VAT payable: Raw material R1 Purchase price 2,00,000 Add: Central sales tax @ 2% 4,000 Purchase Price 2,04,000 Raw material R2 Purchase price 3,30,000 Less: Input tax (3,30,000 x 10 / 110) 30,000 Net purchase price exclusive of VAT 3,00,000 Cost of final product Raw material R1 2,04,000 Raw material R2 3,00,000 Processing charges 1,00,000 Profit margin 1,00,000
Value Added Tax 13 Total 7,04,000 Goods sold in Delhi Assessable value 3,52,000 Add: VAT @ 10% - Output tax 35,200 Sales value 3,87,200 Goods sold in U.P. Assessable value 3,52,000 Add: Central sales tax @ 2% - Output tax 7,040 Sales value 3,59,040 State VAT 35,200 Less: VAT credit 30,000 Net State VAT payable 5,200 CST Payable 7,040 Illustration 5: Mr. X (Registered Dealer) is a manufacturer sells goods to Mr. B (Registered Dealer), a distributor for 2,000. Mr. B sells goods to Mr. K (Registered Dealer), a wholesaler for 2,400. The wholesaler sells the goods to a Retailer (Registered Dealer) for 3,000. The retailer sold the goods to consumers for 4,000. All the above amounts are exclusive of VAT. Compute input tax credit, output tax and net tax under invoice method for each of the person and VAT rate is @ 12.5%. (b) Presume all the above amounts are inclusive of VAT @ 12.5%. Solution (a): Manufacturer (Mr. X) Sale price 2,000 Add: VAT @ 12.5% 250 Total invoice value 2,250 VAT A/C: Output tax 250 Less: Tax credit Nil Net Tax Payable 250 Distributor (Mr. B) Purchase price 2,000 Add: Profit 400 Amount to be billed 2,400 Add: VAT @ 12.5% 300 Total invoice value 2,700 VAT A/C: Output tax 300 Less: Tax credit 250 Net Tax Payable 50
Value Added Tax 14 Wholesaler (Mr. K) Purchase price 2,400 Add: Profit 600 Amount to be billed 3,000 Add: VAT @ 12.5% 375 Total invoice value 3,375 VAT A/C: Output tax 375 Less: Tax credit 300 Net Tax Payable 75 Retailer Purchase price 3,000 Add: Profit 1,000 Amount to be billed 4,000 Add: VAT @ 12.5% 500 Total invoice value 4,500 VAT A/C: Output tax 500 Less: Tax credit 375 Net Tax Payable 125 Solution (b): Manufacturer (Mr. X) Sale price 2,000 Output tax (2,000 x 12.5 % / 112.5%) 222 VAT A/C: Output tax 222 Less: Tax credit Nil Net Tax Payable 222 Distributor (Mr. B) Sale price 2,400 Output tax (2,400 x 12.5% / 112.5%) 267 VAT A/C: Output tax 267 Less: Tax credit 222 Net Tax Payable 45 Wholesaler (Mr. K) Sale price 3,000 Output tax (3,000 x 12.5% / 112.5%) 333 VAT A/C: Output tax 333 Less: Tax credit 267 Net Tax Payable 66
Value Added Tax 15 Retailer Sale price 4,000 Output tax (4,000 x 12.5% / 112.5%) 444 VAT A/C: Output tax 444 Less: Tax credit 333 Net Tax Payable 111 Question 7: Explain scope of input tax credit. Answer: Scope of input tax credit For the purpose of claiming input tax credit, the taxable goods should be purchased for any one of the following purposes: 1. for sale/resale within the State; 2. for sale to other parts of India in the course of inter-state trade or commerce; 3. to be used as containers or packing materials or raw materials or consumable stores, required for the purpose of manufacture of taxable goods or in the packing of such manufactured goods intended for sale; 4. for being used in the execution of a works contract (rendering of services alongwith supply of goods e.g. construction contract); 5. to be used as capital goods required for the purpose of manufacture or resale of taxable goods; 6. to be used as raw materials or capital goods or consumable stores and packing materials/containers for manufacturing/packing goods to be sold in the course of export out of the territory of India. Question 8 (V. Imp.): Explain purchases not eligible for input tax credit. Answer: Purchases not eligible for input tax credit Input tax credit shall not be allowed in the following circumstances: 1. Purchases from unregistered dealers; 2. Purchases from registered dealer who opt for composition scheme; 3. Purchase of goods as may be notified by the State Government; 4. Purchase of goods, which are being utilized in the manufacture of exempted goods; 5. Goods in stock, which have suffered tax under an earlier Act but under VAT Act they are covered under exempted items; 6. Goods imported from outside the territory of India; 7. Goods imported from other States. Illustration 6:
Value Added Tax 16 Mr. X is a Dealer Registered in Delhi Value Added Tax Act, 2004 and also under Central Sales Tax Act, 1956 and he has submitted the informations as given below: (i) Purchased Goods A from Delhi 1,00,000 and paid VAT @ 4% and sold the goods in Delhi for 1,50,000 and charged VAT @ 4%. (ii) Purchased goods B from U.P. for 2,00,000 and paid central sales tax @ 2% and sold goods in Delhi for 2,50,000 and charged VAT @ 12.5%. (iii) Purchased goods C from Delhi for 4,00,000 and paid VAT @ 12.5% and sold the goods to a registered dealer in Orissa for 4,75,000 and charged central sales tax @ 2% (iv) Purchased goods D for 5,00,000 in Delhi and paid VAT @ 12.5% and sold the goods for 5,50,000 to an unregistered dealer in Punjab and charged central sales tax @ 12.5%. (v) Purchased goods E from Madhya Pradesh for 3,00,000 and paid central sales tax @ 1% and sold goods in Maharashtra for 3,50,000 and charged central sales tax @ 1%. (vi) Purchased goods F from Delhi 7,00,000 and paid VAT @ 1% and the goods were sold to an unregistered dealer in Maharashtra for 7,50,000 and charged central sales tax @ 1%. (vii) Purchased goods G for 6,00,000 in Delhi and paid VAT @ 12.5% and goods were stock transferred to some other state. (viii) Purchased goods H for 8,00,000 in Delhi and paid VAT @ 4% and goods were exported for 8,50,000 and no VAT was charged (because as per section 6 Central Sales Tax Act, 1956, CST can not be charged in case of export sale.) (ix) Purchased goods I for 9,00,000 in Delhi and paid VAT @ 12.5% and sold the goods to a manufacturer in SEZ for 10,50,000 and no VAT was charged. Show the tax treatment for VAT and also compute his income tax liability for the assessment year 2013-14. Solution: (i) Purchased Goods A from Delhi 1,00,000 Add: VAT @ 4% 4,000 Purchase Price 1,04,000 Input tax credit 4,000 Goods sold in Delhi 1,50,000 Add: VAT @ 4% 6,000 Selling Price 1,56,000 (ii) Purchased goods B from U.P. 2,00,000 Add: Central sales tax @ 2% 4,000 Purchase Price 2,04,000 Input tax credit Nil Goods sold in Delhi 2,50,000
Value Added Tax 17 Add: VAT @ 12.5% 31,250 Selling Price 2,81,250 (iii) Purchased goods C from Delhi 4,00,000 Add: VAT @ 12.5% 50,000 Purchase Price 4,50,000 Input tax credit 50,000 Goods sold in Orissa 4,75,000 Add: Central sales tax @ 2% 9,500 Selling Price 4,84,500 (iv) Purchased goods D from Delhi 5,00,000 Add: VAT @ 12.5% 62,500 Purchase Price 5,62,500 Input tax credit 62,500 Goods sold in Punjab to unregistered dealer 5,50,000 Add: Central sales tax @ 12.5% 68,750 Selling Price 6,18,750 (v) Purchased goods E from Madhya Pradesh 3,00,000 Add: Central sales tax @ 1% 3,000 Purchase Price 3,03,000 Input tax credit Nil Goods sold in Maharashtra 3,50,000 Add: Central sales tax @ 1% 3,500 Selling Price 3,53,500 (vi) Purchased goods F from Delhi 7,00,000 Add: VAT @ 1% 7,000 Purchase Price 7,07,000 Input tax credit 7,000 Goods sold in Maharashtra to unregistered dealer 7,50,000 Add: Central sales tax @ 1% 7,500 Selling Price 7,57,500 (vii) Purchased goods G from Delhi 6,00,000 Add: VAT @ 12.5% 75,000 Purchase Price 6,75,000 Goods Stock transferred 6,00,000 VAT credit allowed in stock transfer (6,00,000 x 10.5%) 63,000 (in case of stock transfer, VAT credit shall be allowed after retaining 2%) (viii) Purchased goods H from Delhi 8,00,000 Add: VAT @ 4% 32,000 Purchase Price 8,32,000 Input tax credit 32,000
Value Added Tax 18 Goods exported 8,50,000 (ix) Purchased goods I from Delhi 9,00,000 Add: VAT @ 12.5% 1,12,500 Purchase Price 10,12,500 Input tax credit 1,12,500 Goods sold to manufacturer in SEZ 10,50,000 VAT A/C Particulars OUTPUT TAX VAT CST Goods A 6,000 --- Goods B 31,250 --- Goods C --- 9,500 Goods D --- 68,750 Goods E --- 3,500 Goods F --- 7,500 Goods G (Stock transfer) Not applicable --- Goods H (Export) Nil -- Goods I (Sale to SEZ) Nil -- 37,250 89,250 LESS: INPUT TAX CREDIT Goods A 4,000 Goods B Not allowed Goods C 50,000 Goods D 62,500 Goods E Not allowed Goods F 7,000 Goods G 63,000 Goods H 32,000 Goods I 1,12,500 3,31,000 After adjusting output VAT of 37,250 and CST of 89,250, there will be unutilised VAT credit of 2,04,500 and it can be set off from other output tax or it can be carried forward or refund can be claimed but procedure differs from State to State. At the year end it should be shown on the assets side of the balance sheet under the head CURRENT ASSETS, LOAN AND ADVANCES. Computation of income tax liability Particulars Purchases Amount Particulars Sales Amount Goods A 1,00,000 Goods A 1,50,000 Goods B 2,04,000 Goods B 2,50,000 Goods C 4,00,000 Goods C 4,75,000 Goods D 5,00,000 Goods D 5,50,000 Goods E 3,03,000 Goods E 3,50,000 Goods F 7,00,000 Goods F 7,50,000 Goods H 8,00,000 Goods H 8,50,000 Goods I 9,00,000 Goods I 10,50,000
Value Added Tax 19 Net profit 5,18,000 44,25,000 44,25,000 Income under the head Business/Profession 5,18,000 Gross Total Income 5,18,000 Less: Deduction u/s 80C to 80U Nil Total Income 5,18,000 Tax on 5,18,000 at slab rate 33,600 Add: Education cess @ 2% 672 Add: SHEC @ 1% 336 Tax Liability 34,608 Rounded off u/s 288B 34,610 Income shall be computed exclusive of VAT because any VAT collected shall be paid to the Government and it will not be considered to be income. Similarly VAT paid by the dealer is collected from the customer hence it will not be considered to be expense. If any balance is left in VAT credit, it will be shown as asset in the Balance Sheet on the last day of the relevant financial year. Further, the stock transfer of goods G is having a netural effect and thus ignored for calculation of business/profession income. Illustration 7: Mr. X is a Dealer Registered in Delhi Value Added Tax Act, 2004 and also under Central Sales Tax Act, 1956 and he has submitted the informations as given below: (i) Purchased Goods A from Delhi 1,00,000 inclusive of VAT @ 4% and sold the goods in Delhi for 1,50,000 inclusive of VAT @ 4%. (ii) Purchased goods B from U.P. for 2,00,000 inclusive of central sales tax @ 2% and sold goods in Delhi for 2,50,000 inclusive of VAT @ 12.5%. (iii) Purchased goods C from Delhi for 4,00,000 inclusive of VAT @ 12.5% and sold the goods to a registered dealer in Orissa for 4,75,000 inclusive of central sales tax @ 2% (iv) Purchased goods D for 5,00,000 in Delhi inclusive of VAT @ 12.5% and sold the goods for 5,50,000 to an unregistered dealer in Punjab inclusive of central sales tax @ 12.5%. (v) Purchased goods E from Madhya Pradesh for 3,00,000 inclusive of central sales tax @ 1% and sold goods in Maharashtra for 3,50,000 inclusive of central sales tax @ 1%. (vi) Purchased goods F from Delhi 7,00,000 inclusive of VAT @ 1% and the goods were sold to an unregistered dealer in Maharashtra for 7,50,000 inclusive of central sales tax @ 1%. (vii) Purchased goods G for 6,00,000 in Delhi inclusive of VAT @ 12.5% and goods were stock transferred to some other state. (viii) Purchased goods H for 8,00,000 in Delhi inclusive of VAT @ 4% and goods were exported for 8,50,000 and no VAT was charged (because as per section 6 Central Sales Tax Act, 1956, CST cannot be charged in case of export sale.)
Value Added Tax 20 (ix) Purchased goods I for 9,00,000 in Delhi inclusive of VAT @ 12.5% and sold the goods to a manufacturer in SEZ for 10,50,000 and no VAT was charged. Show the tax treatment for VAT and also compute his income tax liability for the assessment year 2013-14. Solution: (i) Purchased Goods A from Delhi Purchase Price 1,00,000 VAT (1,00,000 x 4% / 104%) 3,846 Purchase price net of Tax 96,154 Input tax credit 3,846 Goods sold in Delhi Selling Price 1,50,000 VAT (1,50,000 x 4% / 104%) 5,769 Selling Price net of Tax 1,44,231 (ii) Purchased goods B from U.P. Purchase Price 2,00,000 Central sales tax (2,00,000 x 2% / 102%) 3,922 Input tax credit Nil Goods sold in Delhi Selling Price 2,50,000 VAT (2,50,000 x 12.5% / 112.5%) 27,778 Selling Price net of Tax 2,22,222 (iii) Purchased goods C from Delhi Purchase Price 4,00,000 VAT (4,00,000 x 12.5% / 112.5%) 44,444 Purchase price net of Tax 3,55,556 Input tax credit 44,444 Goods sold in Orissa Selling Price 4,75,000 Central sales tax (4,75,000 x 2% / 102%) 9,314 Selling Price net of Tax 4,65,686 (iv) Purchased goods D from Delhi Purchase Price 5,00,000 VAT (5,00,000 x 12.5% / 112.5%) 55,556 Purchase price net of Tax 4,44,444 Input tax credit 55,556 Goods sold in Punjab to unregistered dealer Selling Price 5,50,000 Central sales tax (5,50,000 x 12.5% / 112.5%) 61,111 Selling Price net of Tax 4,88,889 (v) Purchased goods E from Madhya Pradesh
Value Added Tax 21 Purchase Price 3,00,000 Central sales tax (3,00,000 x 1% / 101%) 2,970 Input tax credit Nil Goods sold in Maharashtra Selling Price 3,50,000 Central sales tax (3,50,000 x 1% / 101%) 3,465 Selling Price net of Tax 3,46,535 (vi) Purchased goods F from Delhi Purchase Price 7,00,000 VAT (7,00,000 x 1% / 101%) 6,931 Purchase price net of Tax 6,93,069 Input tax credit 6,931 Goods sold in Maharashtra to unregistered dealer Selling Price 7,50,000 Central sales tax (7,50,000 x 1% / 101%) 7,426 Selling Price net of Tax 7,42,574 (vii) Purchased goods G from Delhi Purchase Price 6,00,000 VAT (6,00,000 x 12.5% / 112.5%) 66,667 Purchase price net of Tax 5,33,333 Goods Stock transferred 6,00,000 VAT credit allowed in stock transfer (6,00,000 x 10.5% / 112.5%) 56,000 (in case of stock transfer, VAT credit shall be allowed after retaining 2%) (viii) Purchased goods H from Delhi Purchase Price 8,00,000 VAT (8,00,000 x 4% / 104%) 30,769 Purchase price net of Tax 7,69,231 Input tax credit 30,769 Goods exported Selling Price 8,50,000 Output tax Nil Selling Price net of Tax 8,50,000 (ix) Purchased goods I from Delhi Purchase Price 9,00,000 VAT (9,00,000 x 12.5% / 112.5%) 1,00,000 Purchase price net of Tax 8,00,000 Input tax credit 1,00,000 Goods sold to manufacturer in SEZ Selling Price 10,50,000 Output tax Nil Selling Price net of Tax 10,50,000 VAT A/C Particulars
Value Added Tax 22 OUTPUT TAX VAT CST Goods A 5,769 --- Goods B 27,778 --- Goods C --- 9,314 Goods D --- 61,111 Goods E --- 3,465 Goods F --- 7,426 Goods G (Stock transfer) Not applicable --- Goods H (Export) Nil --- Goods I (Sale to SEZ) Nil --- 33,547 81,316 LESS: INPUT TAX CREDIT Goods A 3,846 Goods B Not allowed Goods C 44,444 Goods D 55,556 Goods E Not allowed Goods F 6,931 Goods G 56,000 Goods H 30,769 Goods I 1,00,000 2,97,546 After adjusting output VAT of 33,547 and CST of 81,316, there will be unutilised VAT credit of 1,82,683 and it can be set off from other output tax or it can be carried forward or refund can be claimed but procedure differs from State to State. At the year end it should be shown on the assets side of the balance sheet under the head CURRENT ASSETS, LOAN AND ADVANCES. Computation of income tax liability Particulars Purchases Amount Particulars Sales Amount Goods A 96,154 Goods A 1,44,231 Goods B 2,00,000 Goods B 2,22,222 Goods C 3,55,556 Goods C 4,65,686 Goods D 4,44,444 Goods D 4,88,889 Goods E 3,00,000 Goods E 3,46,535 Goods F 6,93,069 Goods F 7,42,574 Goods H 7,69,231 Goods H 8,50,000 Goods I 8,00,000 Goods I 10,50,000 Net profit 6,51,683 43,10,137 43,10,137 Income under the head Business/Profession 6,51,683.00 Gross Total Income 6,51,683.00 Less: Deduction u/s 80C to 80U Nil Total Income 6,51,683.00 Rounded off u/s 288A 6,51,680.00 Tax on 6,51,680 at slab rate 60,336.00 Add: Education cess @ 2% 1,206.72 Add: SHEC @ 1% 603.36
Value Added Tax 23 Tax Liability 62,146.08 Rounded off u/s 288B 62,150.00 Income shall be computed exclusive of VAT because any VAT collected shall be paid to the Government and it will not be considered to be income. Similarly VAT paid by the dealer is collected from the customer hence it will not be considered to be expense. If any balance is left in VAT credit, it will be shown as asset in the Balance Sheet on the last day of the relevant financial year. Further, the stock transfer of goods G is having a neutral effect and thus ignored for calculation of business/profession income. Illustration 8: Mr. X is a Dealer Registered in Delhi Value Added Tax Act, 2004 and also under Central Sales Tax Act, 1956 and he has submitted the informations as given below: (i) Purchased Goods A from Delhi 1,00,000 and paid VAT @ 4% and sold the goods in Delhi at a profit of 50% on purchase price and charged VAT @ 4%. (ii) Purchased goods B from U.P. for 2,00,000 and paid central sales tax @ 2% and sold goods in Delhi at a profit of 50% on purchase price and charged VAT @ 12.5%. (iii) Purchased goods C from Delhi for 4,00,000 and paid VAT @ 12.5% and sold the goods at a profit of 50% on purchase price to a registered dealer in Orissa and charged central sales tax @ 2% (iv) Purchased goods D for 5,00,000 in Delhi and paid VAT @ 12.5% and sold the goods at a profit of 50% on purchase price to an unregistered dealer in Punjab and charged central sales tax @ 12.5%. (v) Purchased goods E from Madhya Pradesh for 3,00,000 and paid central sales tax @ 1% and sold goods at a profit of 50% on purchase price in Maharashtra and charged central sales tax @ 1%. (vi) Purchased goods F from Delhi 7,00,000 and paid VAT @ 1% and the goods were sold at a profit of 50% on purchase price to an unregistered dealer in Maharashtra and charged central sales tax @ 1%. (vii) Purchased goods G for 6,00,000 in Delhi and paid VAT @ 12.5% and goods were stock transferred to some other state. (viii) Purchased goods H for 8,00,000 in Delhi and paid VAT @ 4% and goods were exported at a profit of 50% on purchase price and no VAT was charged (because as per section 6 Central Sales Tax Act, 1956, CST can not be charged in case of export sale.) (ix) Purchased goods I for 9,00,000 in Delhi and paid VAT @ 12.5% and sold the goods at a profit of 50% on purchase price to a manufacturer in SEZ and no VAT was charged. Show the tax treatment for VAT and also compute his income tax liability for the assessment year 2013-14. Solution: (i) Purchased Goods A from Delhi 1,00,000 Add: VAT @ 4% 4,000 Purchase Price 1,04,000 Input tax credit 4,000 Cost 1,00,000
Value Added Tax 24 Add: Profit {1,04,000-4,000(as VAT credit is available)} x 50% 50,000 Sale Price before VAT 1,50,000 Goods sold in Delhi 1,50,000 Add: VAT @ 4% 6,000 Sale Price 1,56,000 (ii) Purchased goods B from U.P. 2,00,000 Add: Central sales tax @ 2% 4,000 Purchase Price 2,04,000 Add: Profit (2,04,000 x 50%) 1,02,000 Sale Price before VAT 3,06,000 Input tax credit Nil Goods sold in Delhi 3,06,000 Add: VAT @ 12.5% 38,250 Sale Price 3,44,250 (iii) Purchased goods C from Delhi 4,00,000 Add: VAT @ 12.5% 50,000 Purchase Price 4,50,000 Cost 4,00,000 Add: Profit {4,50,000-50,000(as VAT credit is available)} x 50% 2,00,000 Sale Price before CST 6,00,000 Input tax credit 50,000 Goods sold in Orissa 6,00,000 Add: Central sales tax @ 2% 12,000 Sale Price 6,12,000 (iv) Purchased goods D from Delhi 5,00,000 Add: VAT @ 12.5% 62,500 Purchase Price 5,62,500 Cost 5,00,000 Add: Profit {5,62,500-62,500(as VAT credit is available)} x 50% 2,50,000 Sale Price before CST 7,50,000 Input tax credit 62,500 Goods sold in Punjab to unregistered dealer 7,50,000 Add: Central sales tax @ 12.5% 93,750 Sale Price 8,43,750 (v) Purchased goods E from Madhya Pradesh 3,00,000 Add: Central sales tax @ 1% 3,000 Purchase Price 3,03,000 Add: Profit (3,03,000 x 50%) 1,51,500 Sale Price 4,54,500 Input tax credit Nil Goods sold in Maharashtra 4,54,500 Add: Central sales tax @ 1% 4,545 Sale Price 4,59,045
Value Added Tax 25 (vi) Purchased goods F from Delhi 7,00,000 Add: VAT @ 1% 7,000 Purchase Price 7,07,000 Cost 7,00,000 Add: Profit {7,07,000-7,000(as VAT credit is available)} x 50% 3,50,000 Sale Price 10,50,000 Input tax credit 7,000 Goods sold in Maharashtra to unregistered dealer 10,50,000 Add: Central sales tax @ 1% 10,500 Sale Price 10,60,500 (vii) Purchased goods G from Delhi 6,00,000 Add: VAT @ 12.5% 75,000 Purchase Price 6,75,000 Goods Stock transferred 6,00,000 VAT credit allowed in stock transfer (6,00,000 x 10.5%) 63,000 (in case of stock transfer, VAT credit shall be allowed after retaining 2%) (viii) Purchased goods H from Delhi 8,00,000 Add: VAT @ 4% 32,000 Purchase Price 8,32,000 Cost 8,00,000 Add: Profit {8,32,000-32,000(as VAT credit is available)} x 50% 4,00,000 Sale Price 12,00,000 Input tax credit 32,000 Goods exported 12,00,000 (ix) Purchased goods I from Delhi 9,00,000 Add: VAT @ 12.5% 1,12,500 Purchase Price 10,12,500 Cost 9,00,000 Add: Profit {10,12,500-1,12,500(as VAT credit is available)} x 50% 4,50,000 Sale Price 13,50,000 Input tax credit 1,12,500 Goods sold to manufacturer in SEZ 13,50,000 VAT A/C Particulars OUTPUT TAX VAT CST Goods A 6,000 --- Goods B 38,250 --- Goods C --- 12,000 Goods D --- 93,750 Goods E --- 4,545 Goods F --- 10,500 Goods G (Stock transfer) Not applicable --- Goods H (Export) Nil ---
Value Added Tax 26 Goods I (Sale to SEZ) Nil --- 44,250 1,20,795 LESS: INPUT TAX CREDIT Goods A 4,000 Goods B Not allowed Goods C 50,000 Goods D 62,500 Goods E Not allowed Goods F 7,000 Goods G 63,000 Goods H 32,000 Goods I 1,12,500 3,31,000 After adjusting output VAT of 44,250 and CST of 1,20,795, there will be unutilised VAT credit of 1,65,955 and it can be set off from other output tax or it can be carried forward or refund can be claimed but procedure differs from State to State. At the year end it should be shown on the assets side of the balance sheet under the head CURRENT ASSETS, LOAN AND ADVANCES. Computation of income tax liability Particulars Purchases Amount Particulars Sales Amount Goods A 1,00,000 Goods A 1,50,000 Goods B 2,04,000 Goods B 3,06,000 Goods C 4,00,000 Goods C 6,00,000 Goods D 5,00,000 Goods D 7,50,000 Goods E 3,03,000 Goods E 4,54,500 Goods F 7,00,000 Goods F 10,50,000 Goods H 8,00,000 Goods H 12,00,000 Goods I 9,00,000 Goods I 13,50,000 Net profit 19,53,500 58,60,500 58,60,500 Income under the head Business/Profession 19,53,500.00 Gross Total Income 19,53,500.00 Less: Deduction u/s 80C to 80U Nil Total Income 19,53,500.00 Tax on 19,53,500 at slab rate 4,16,050.00 Add: Education cess @ 2% 8,321.00 Add: SHEC @ 1% 4,160.50 Tax Liability 4,28,531.50 Rounded off u/s 288B 4,28,530.00 Income shall be computed exclusive of VAT & CST because any VAT & CST collected shall be paid to the Government and it will not be considered to be income. Similarly VAT paid by the dealer is collected from the customer hence it will not be considered to be expense. Further, the stock transfer of goods G is having a neutral effect and thus ignored for calculation of business/profession income. Illustration 9:
Value Added Tax 27 Mr. X is a Dealer Registered in Delhi Value Added Tax Act, 2004 and also under Central Sales Tax Act, 1956 and he has submitted the informations as given below: (i) Purchased Goods A from Delhi 1,00,000 and paid VAT @ 4% and sold the goods at a profit of 50% on sale price in Delhi and charged local sales tax @ 4%. (ii) Purchased goods B from U.P. for 2,00,000 and paid central sales tax @ 2% and sold goods at a profit of 50% on sale price in Delhi and charged VAT @ 12.5%. (iii) Purchased goods C from Delhi for 4,00,000 and paid VAT @ 12.5% and sold the goods at a profit of 50% on sale price to a registered dealer in Orissa and charged central sales tax @ 2% (iv) Purchased goods D for 5,00,000 in Delhi and paid VAT @ 12.5% and sold the goods at a profit of 50% on sale price to an unregistered dealer in Punjab and charged central sales tax @ 12.5%. (v) Purchased goods E from Madhya Pradesh for 3,00,000 and paid central sales tax @ 1% and sold goods at a profit of 50% on sale price in Maharashtra and charged central sales tax @ 1%. (vi) Purchased goods F from Delhi 7,00,000 and paid VAT @ 1% and the goods were sold at a profit of 50% on sale price to an unregistered dealer in Maharashtra and charged central sales tax @ 1%. (vii) Purchased goods G for 6,00,000 in Delhi and paid VAT @ 12.5% and goods were stock transferred to some other state. (viii) Purchased goods H for 8,00,000 in Delhi and paid VAT @ 4% and goods were exported at a profit of 50% on sale price and no VAT was charged (because as per section 6 Central Sales Tax Act, 1956, CST can not be charged in case of export sale.) (ix) Purchased goods I for 9,00,000 in Delhi and paid VAT @ 12.5% and sold the goods at a profit of 50% on sale price to a manufacturer in SEZ and no VAT was charged. Show the tax treatment for VAT and also compute his income tax liability for the assessment year 2013-14. Solution: (i) Purchased Goods A from Delhi 1,00,000 Add: VAT @ 4% 4,000 Purchase Price 1,04,000 Cost 1,00,000 Input tax credit 4,000 Since, Profit is 50% of sale price, Cost of 1,00,000 is 50% of Sale Price Hence, Sale Price shall be 1,00,000 x 100% / 50% = 2,00,000 Goods sold in Delhi 2,00,000 Add: VAT @ 4% 8,000 Selling Price 2,08,000 (ii) Purchased goods B from U.P. 2,00,000 Add: Central sales tax @ 2% 4,000
Value Added Tax 28 Purchase Price / Cost 2,04,000 Since, Profit is 50% of sale price, Cost of 2,04,000 is 50% of sale price Hence, Sale Price shall be 2,04,000 x 100% / 50% = 4,08,000 Input tax credit Nil Goods sold in Delhi 4,08,000 Add: VAT @ 12.5% 51,000 Selling Price 4,59,000 (iii) Purchased goods C from Delhi 4,00,000 Add: VAT @ 12.5% 50,000 Purchase Price 4,50,000 Input tax credit 50,000 Since, Profit is 50% of sale price, 4,00,000 is 50% of sale price Hence, sale price shall be 4,00,000 x 100% / 50% = 8,00,000 Goods sold in Orissa 8,00,000 Add: Central sales tax @ 2% 16,000 Selling Price 8,16,000 (iv) Purchased goods D from Delhi 5,00,000 Add: VAT @ 12.5% 62,500 Purchase Price 5,62,500 Input tax credit 62,500 Since, Profit is 50% of sale price, 5,00,000 is 50% of sale price Hence, Sale Price shall be 5,00,000 x 100% / 50% = 10,00,000 Goods sold in Punjab to unregistered dealer 10,00,000 Add: Central sales tax @ 12.5% 1,25,000 Selling Price 11,25,000 (v) Purchased goods E from Madhya Pradesh 3,00,000 Add: Central sales tax @ 1% 3,000 Purchase Price / Cost 3,03,000 Input tax credit Nil Since, Profit is 50% of sale price, 3,03,000 is 50% of sale price Hence, sale price shall be 3,03,000 x 100% / 50% = 6,06,000 Goods sold in Maharashtra 6,06,000 Add: Central sales tax @ 1% 6,060 Selling Price 6,12,060 (vi) Purchased goods F from Delhi 7,00,000 Add: VAT @ 1% 7,000 Purchase Price 7,07,000 Input tax credit 7,000 Since, Profit is 50% of sale price, 7,00,000 is 50% of sale price Hence, Sale Price shall be 7,00,000 x 100% / 50% = 14,00,000 Goods sold in Maharashtra to unregistered dealer 14,00,000