vat-cst-wct.ppt

7/14/2019 VAT-CST-WCT.ppt

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Indian Business Tax Structure

Direct Tax

Income Tax Wealth Tax Gift Tax

Customs

Indirect Tax

Central Excise Service Tax Sales TaxOther

Commercial

Taxes



Constitutional Background• No tax shall be levied or collected except by authority of

law. Article 265

• State Govt. cannot impose tax on sale or purchase duringimports or exports; or tax on sale outside the state. Article286(1)

• Parliament is authorised to formulate principles for determining when a sale or purchase takes place (a)outside the state (b) in the course of import and export.

Article 286(2)

• Parliament can place restrictions on tax on sale or purchaseof declared as goods of special importance and the stategovernment can tax such declared goods only subject tothese restrictions. Article 286(3)



Constitution of India

7th Schedule

Union List – List I State List – List II

Entry 92A – Taxes on sale

or purchase of goods other

than newspaper where such

sale or purchase takesplace in the course of

interstate trade or commerce.

Entry no. 54 – Tax on sale

or purchase of goods other

than newspaper except on

interstate sale or purchase.

Central Sales Tax Act State VAT Acts



Indian Sales Tax Laws

CST

International cross Border Transactions

involving export and import of Goods – through

Indian customs frontiers

Interstate sale – involving movement of goods

interstate – origin state and destination state

Sale of Goods of special importance –

Declared goods, sold any where in India

0%

< or = 2%

< or = 5%

LST

Sale of Goods of special importance –Declared goods, sold any where in India

Other than Declared Goods –

unrestricted Sovereign Rights

< or = 5%

Any Rate



Interstate Sale

Sale of goods.movement of goodsinterstate that is from

one state to another.

• Inseparably connected

• Inextricably connected



A B

Ahmedabad Bangalore

• Is there Sale of goods ?

• Is there Movement of goods Interstate ?

• In which state does the ownership pass?

• Which is the appropriate state for collection of

tax ?

• He likes the goods.

• Provides the visiting card with details

• Provides a purchase order

• Makes a payment• Requests B to ship the goods to Ahmedabad

• Which state is the appropriate state for collection of tax

Illustration 1

Sale

happens in

KarnatakaKarnataka is

theappropriate

state to

collect CST



A B

Ahmedabad Bangalore

• Is there Sale of goods ?

• Is there Movement of goods Interstate ?

• In which state does the ownership pass?


tax ?

• He likes the goods.

• Provides the visiting card with details

• Provides a purchase order, Makes a payment

• Requests B to ship the goods to Ahmedabad• With a condition that goods will be accepted only if the

quality controller in Ahmedabad approves the goods.

• Quality controller approves the goods in Ahmedabad

Illustration 2

Sale

happens in

Gujarat

IS Gujarat

the

appropriate

state to

collect CST

ORIGIN

BASED

LAW



Interstate Sale

Sale of goods.movement of goodsinterstate that is from

one state to another.

• Inseparably connected

• Inextricably connected

ORIGIN

BASED

LAW.

CENTRAL

ENACTMENT

STATE

IMPLEMENTATION

STATE

COLLECTION

STATE

ENJOYMENT.



A B

Ahmedabad Bangalore

• A places order on B at Bangalore for supply of

goods

• B delivers the goods from the Hyderabad

factory, as he does not have sufficient stock at

Bangalore.


tax

Illustration 3

ORIGIN

BASED

LAW

Andhra

Pradesh is

the

appropriatestate to

collect CST

B

Hyderabad



A B

Bangalore Bangalore

• A is in Bangalore. B is also in Bangalore

• They are next door neighbours

• A places order on B to supply goods and deliver

at the project site in Madhya Pradesh

• Is it an interstate sale?

Illustration 4

ORIGIN

BASED

LAWKarnataka

is the

appropriatestate to

collect CST

A

Bhopal



Lessons learnt

• Whether ownership passes before the movement of goods or after the movement of goods is irrelevant

• Whether the ownership passes at the originating state or thedestination state is irrelevant

• The location of the buyer and sellers are also irrelevant

• The place where documentation is done is also irrelevant

• What is relevant is ᾿ From which state does the goods originate

from?῀

with respect to the contract of sale?

• That Originating state is the appropriate state for collection of taxes.



Types of CST Transactions

• Interstate Sale at concession rates

• Sale in transit

• Branch transfer and consignment sales• Sale in the course of export

• Sale to SEZ units – Deemed Exports

• Sale to special entities – WHO, UNESCOdiplomatic missions, consulate offices.



Form Raj

• Form A – Application

• Form B – Registration Certificate

• Form C - Declaration of continuing registration status

• Form D – sale to Governments

• Form E – Sale-in-transit

• Form F – Branch Transfers

• Form G – Indemnity Bond on loss of forms

• Form H – Sale in the course of Export

• Form I – Sale to SEZ Units – Deemed Export

• Form J – Sale to Special Entities



IN - TRANSIT - SALE

Maharashtra Gujrat Gujrat Gujrat

R

R R R

BA C D



IN - TRANSIT - SALE

Tamil Nadu Karnataka Andhra Pradesh Kerala

R

R R R

BA C DC FormC FormC Form



IN - TRANSIT - SALE

Tamil Nadu Karnataka Andhra Pradesh Kerala

R

R R R

BA C D

E2 FormE2 FormE1 Form

C Form C Form C Form



Movement of goods otherwise than

by way of sale

Movement of goods interstate for purposes of

• Exhibition and return

• Repair and return

• Job work and return

• Stock and future sale of goods in the destination

state

– Of generic goods (without customer identity) – Not against pre-existing order of sales (premeditated

sales)



Documentary Proof – Form F

• Movement of goods otherwise than by way

of sale has to be supported by

– F form from the destination state

– Lorry receipt from the transporter

– Delivery note issued by the sales tax dept

• Way bill

• Road permit• Delivery note [ VAT 515 in Karnataka]



Loss of Statutory Forms –

Indemnity in Form G

• Make police complaint for loss of forms

• Make newspaper advertisement for loss of forms

– One in local vernacular language – One in English Daily

• Execute a indemnity document in Form G

– Promise to make good any consequential loss that

may arise to the Government due to misuse or abuseof the lost forms by any body else



Sale in the course of Export – Form H• The penultimate sale, preceding the ultimate export sale,

is exempt from tax – The export order should be first received, by the merchant or

trader exporter

– The goods should be then purchased for export. This benefit isnot available for manufacturer exporter

– The goods purchased and the goods exported must be same.Example of packing of PRAWNS and Dressing of PINEAPPLES. Primary form of prawn and pineapple ismaintained.

– Export cannot be out of stock, but only from purchases for purposes of export

– Exporter should issue H form – Exporter should provide the proof of physical export, that is bill of

lading, packing list etc attested by customs.

– Packing materials purchased for export is also eligible for this taxexemption



Sale to SEZ – Form I

• Sale to SEZ or developer of SEZ is deemed to be export.

• The sale should be to a unit residing in the specialeconomic zone

• The goods are to be used for export

• The buyer should issue form I

• The form I should be countersigned by the ExportCommissioner under whose jurisdiction the SEZ islocated.

• Even the developer of the SEZ is eligible for the

exemption



Sale to Special Entities – Form J• Govt of India has entered into a treaty to exempt

the special entities from consumption tax [indirecttaxes]

• Sale to special entities are exempt, against Issue

of form J.

• The special entities are – UN organizations like WHO UNESCO etc

– Diplomatic missions embassies – Consulate General offices of other countries.

• They are not allowed to resell, but they can takethe goods to their own country.



VAT: An Example

A: Supplier of Raw material; B: Manufacturer;C: Wholesaler; D: Retailer Tax rate = 10%

SALES TAX DEPARTMENT

A B C D

1010 5

5

100+10 200+20 250+25 300+30

Consumer

Note: Total tax collected = 10+10+5+5 = 30

Which is also equal to 10% of 300 = tax paid by consumer.



BManufacturer

Sale Value Rs. 200.00

Gross VAT 10%; Rs. 20.00

Net VAT Rs. 20-10=10.00

Different Stages of VATC

Wholesaler



Net VAT Rs. 30-20=10.00

ARaw Material Producer



Net VAT Rs. 10.00

DRetailer



Net VAT Rs. 40-30=10.00

Note: Total VAT collected at four point; 10+10+10+10 = Rs. 40.00



Vat Issues• Interstate purchases is not vatable against local sales tax collected.

Here I buy interstate and sell locally and lose the interstate tax as it isnon redeemable.

• Interstate sale is vatable against the local purchase tax paid. Govtloose. Here I buy locally and sell interstate and local govt. Redeemsall the the input tax which may be higher than the output tax.

• Input tax is allowed to be rebated only if you collect out put tax. Other wise input tax will become your cost. In VAT Law Exemptionmeans punishment

• Exporter is refunded the input taxes paid on inputs relatable toexport. This is called zero rating of input taxes

• Zero Rating of input taxes is allowed even to persons sellingagainst H form or I form.

• With respect to Branch transfer, input tax credits are allowedeven though there is no output tax. Input tax only to the extentof 2% is not Vatable. Input taxes paid in excess of 2 % are

VATABLE.



VAT Rates• Schedule of Exempted goods 0%

• Schedule of Vulnerable goods 1%

• Schedule of Concessional goods 5% – Industrial inputs to the extent notified

– Information technology goods as notified

– Capital goods to the extent notified

– Goods of Local Importance

• Declared goods 5%

• Goods not covered above 14%

• Works contract, lease of goods, 14%

• Non VAT goods – no input credit – any rate of output tax

• Input tax restricted goods



Input tax restricted goods

• Motor Vehciles and their parts

• Stationery items

• Food and food articles• Cutlery & crockery etc

• Building materials

• Electrical goods and their parts



Capital Goods

• They are used in the business of the dealer – for resale, or use in the manufacture for sale – Plant and equipment

– Goods carriage vehicle

– Material handling equipment – Pollution control equipment

– Cold storage equipment, storage equipment

– Billing equipment, including computers

• The input taxes paid on purchase of suchequipment is allowed to be used for payment of output tax liabilities.



Works contracts

• Works contracts are composite, indivisible contracts,containing cost elements such as goods, services andalso profit.

• These indivisible works contracts are allowed to beartificially divided into goods services and profits, so asto arrive at the taxable value of goods that can besubject to levy of VAT.

• 46

th

Constitutional amendment has introduced theconcept of deemed sales, wherein, the Governments areallowed to divide the contracts so as to arrive at thevalue of goods and put them to tax.



• Works contacts can be broadly divided into

two parts

Works Contracts

Goods Non-Goods

i) COST OF Labour

ii) COST OF Outsourced labour (contract labour)

iii) COST OF Labour Like Charges/establishment

iv) COST OF Designs, Drawings, etc

v) COST OF Testing fees, certification fees etc

vi) COST OF Architect fees /Eng fees

vii) COST OF Consumables which cease to Exist

i) Local Purchases

ii) Interstate Purchases

iii) Imported Purchases

iv) Sale-in-transit

v) Inter state movement of

contractors own goods

PLUS FAIR SHARE OF PROFITS

vi) Free Supplies



Works contracts

Owner

contractee

Contractor Local Purchases

Inter-State Purchases

Imported Purchases

Interstate movement of own goods

Free Supplies from owner

Principle of accretion

Registered In the local State

Used or consumed

in the execution

of the works contract



Assessable Value – Merit – I approach

6,000Taxable value of goods used in the works contract5.

720Tax at 12%6.

120Less Input tax credits on local purchases7.

600Net out put tax payable8.

4,000Less: Actual cost of labour together with share of profits4.

10,000Revised Gross Value3.

2,000Less: Assessable in Originating State (Exclusion)2.

12,000Gross Value of Contract1.

Rs.Value in Crores



Assessable Value – Merit – II approach

7,000Taxable value of goods used in the works contract5.

840Tax at 12%6.

120Less Input tax credits on local purchases7.


3,000Less: Standard Deduction as per prescribed say @30%4.




Rs.Value in Crores



Composition

10000Taxable value of goods used in the works contract5.

400Tax at 4% composition rate6.

NILLess Input tax credits on local purchases7.


NILLess: Labour deductions4.




Rs.Value in Crores

• Input tax credit not allowed

• Output tax cannot be collected

• Tax invoice cannot be issued

• No interstate purchases or import purchases.

vat-cst-wct.ppt

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