Q. What is Value Added Tax (VAT)?
A. Value Added Tax is a multi-point tax on value addition which is collected at different stages of sale with a provision for set-off for tax paid at the previous stage/tax paid on inputs.
Q. What is meant by ‘Sale’ under Delhi VAT Law?
A. Sale includes:-
1. The conventional sale i.e. Transfer of property in goods;
2. Supply of goods by a society, club, firm, and company to its members;
3. Transfer of property in goods involved in execution of works contract;
4. Delivery of any goods on hire purchase or any other system of payment by installments;
5. Transfer of right to use any goods, whether or not for a specified period; and
6. Supply of good or other articles by the restaurants, hotels etc., by way of or as a part of service.
Q. Who is a dealer?
A. ‘Dealer’ means any person who carries on business in Delhi and includes-
1. any person who, for the purposes of or in connection with or incidental to or in the course of his business buys, sells, goods directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration;
2. any department of the Central Government or a State Government, a local authority, Panchayat, Municipality, Development Authority, Cantonment Board and each autonomous or statutory body or an industrial, commercial, banking, insurance or trading undertaking whether or not of the Central Government or any of the State Governments or of a local authority, if it buys, sells, supplies or distributes goods, in the course of specified activities which may be prescribed from time to time;
3. a factor, commission agent, broker, del credere agent, or any other mercantile agent by whatever name called, who carries on the business of buying, selling , supplying or distributing goods on behalf of any principal, whether disclosed or not;
4. an agent of a non-resident (where such non-resident is a dealer under any other sub-clause of this definition);
5. a local branch of a firm or company or association of persons, outside Delhi where such firm, company, association of persons is a dealer under any other sub-clause of this definition;
6. a club, association, society, trust, or cooperative society, whether incorporated or unincorporated, which buys goods from or sells goods to its members for price, fee or subscription, whether or not in the course of business;
7. an auctioneer, who sells or auctions goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;
8. a casual trader; or
9. any person who, for the purposes of or in connection with or incidental to or in the course of his business disposes of any goods as unclaimed or confiscated, or unserviceable or scrap, surplus, old, obsolete or as discarded material or waste products by way of sale;
Q. Will multi point tax lead to cascading?
A. VAT eliminates cascading by providing for set off for taxes paid on inputs and only taxing value addition, tax on sales would be shown separately while issuing tax invoice or calculating tax liability.
Q. What will happen to the Central Sales Tax Act?
A. CST Act would remain as it is. No VAT on inter-State Sales, shall be levied and the Central Statutory Forms, i.e, Form C,D,F, H etc., shall also continue. However, in future, it is proposed that the tax rate for sale against C form shall be gradually reduced from present 4% to 0%.
Q. Are there any Statutory Forms under the VAT?
A. There are no statutory forms in VAT, it is an invoice based system wherein input credit is allowed at the strength of tax invoice.
Q. VAT would increase the cost of compliance.
A. Cost of compliance would come down due to self-assessment, dealers would not have to approach the Department for statutory forms or for assessment.
Q. VAT requires extensive computerization, which traders cannot afford.
A. The document and papers that the dealers are maintaining under the present regime would suffice, in fact documentation needs should decrease due to self assessment and elimination of forms.
Q. VAT would spoil the distributive character of Delhi.
A. Lowering CST rate, input credit and credit for capital goods would reduce the cost of business and improve the margin of traders. Since Exports and Imports under VAT is zero-rated, VAT should give impetus to the distributive character.
Q. Cost of doing business would go up as dealers will have to pay tax on their purchases.
A. If we assume that the average length of time required for settling of amounts receivable and payable is the same as the length of time for remitting tax and processing any refund, no additional cost is imposed on trade or industry.
Q. Prices would go up due to VAT and consumer would suffer.
A. As against three slabs of 4, 8 & 12% in the present regime VAT would have only 2 major slabs of 4 & 12.5%; some commodities falling under 8% slab would come down to 4% slab thereby causing a downward pressure on prices. Further, input credit and credit allowed for purchase of capital goods should reduce the effective selling price.
Q. VAT is anti poor.
A. Items that are consumed by the poor are exempt. Besides the scheme of higher threshold and compounding for dealers having turnover upto Rs. 25 lakhs after paying notion tax of 1% on the turnover would take care of all such dealers from whom poor source their requirement.
Q. Will input tax credit be available on capital goods used in the execution of works contract?
A. Yes input tax credit will be available on capital goods purchased after 1.4.2005 for execution of works contract in NCT of Delhi subject to conditions. However, in case a dealer, after availing tax credit, transfers the assets/Capital goods, on which he had availed tax credit, out of NCT of Delhi for executing other works not liable to be taxed in Delhi, the credits so allowed shall be reversed, tax shall have to be paid on such transfer of capital goods/assets. The tax so payable shall be equivalent to unutilized portion of tax credit allowed by the Department less tax payable at usual rates on such transfer or sale.
Q. Is there any restriction on leasing out machines purchased for own use? If no, what will be it’s tax implications under VAT?
A. There is no restriction on leasing out machines bought for own use.
Q. How do I calculate my tax liability?
A. Calculating tax liability under VAT is very simple. If a dealer is selling any item of 4% tax and he sells goods worth Rs. 1,000/-. Amount of tax payable will be Rs. 40/- But same goods he had purchased for Rs. 900/- and at that time he had already paid Rs. 36/- so the net tax payable by him will be 40-36= 4 and he will pay to the Government only Rs. 4 on the sale of Rs. 1000/- (@ 4% tax rate). The tax payable by him is tax rate multiplied by value addition, in the instant case (1000-900) X 0.04.
Q. Whether it is possible to avail credit for taxes paid on input if goods are sold interstate or are exported?
A. Purchases intended for inter-State Sale as well as exports are eligible for tax credit.
Q. If the input is used partly for making taxable goods and partly for exempted goods, whether input tax credit will be available?
A. Where goods have been partly used for making the taxable sales (or inter-State sales) and partly for making exempt goods, the amount of the tax credit shall be reduced proportionately. To illustrate, X purchased machinery for Rs. 1,00,000/- plus tax of Rs. 12,500/- for manufacture of taxable as well as exempted goods. At that time, he estimated that the machinery would produce 80% taxable goods. In such case, his input tax credit will be restricted only to 80% of Rs. 12,500/- i.e., Rs. 10,000/-.*******
Q. What is input Tax?
A. Input tax means tax on goods purchased by a dealer in the course of his business. The eligible purchases would include any goods purchased by a dealer for re-sale or for use in the manufacture or processing or packing or storing of other goods or any other use in business including capital goods excluding exceptions prescribed in seventh schedule of the Act.
Q. When can one claim input Tax Credit?
A. Input tax credit is the credit for tax paid on inputs. Dealer has to pay tax after deducting Input tax which he had paid from total tax collected by him.
Q. What proof is required to claim input tax credit?
A. Input tax credit can be claimed only on purchases from VAT Registered Dealers. The original “Tax Invoice” is the proof required to claim input tax credit
Q. How is input tax credit to be claimed? Is there any requirement of a “one to one” correlation between input tax and output tax?
A. There is no need for a “one to one” correlation between input tax credit and output tax. Quite a large number of small businesses are under the misconception that input tax has to be adjusted against output tax on a bill to bill basis. The operation of the input tax mechanism is very simple. The dealer will be eligible to take credit of eligible input tax in a tax period as specified on the entire purchases. The dealer would charge VAT at the prescribed rate of tax as is being done in the present system of levy of sales tax. The VAT or Output Tax payable is compiled on a monthly basis as is done now. The dealer can adjust the input tax eligible on the entire purchase in the tax period against the output tax payable irrespective whether the entire goods purchased is sold or not. For example, if the input tax credit in a particular month is Rs. 1,000/-, the output tax payable is Rs. 500/-, the excess input tax of Rs. 500/- can be carried forward to the next tax period. Assuming no further input tax credit in the following month and that the output tax payable is Rs. 700/- the dealer will pay Rs. 200/- along with the monthly return.
Q. Will input tax credit be available on all purchases for the business?
A. Generally, input tax credit will be eligible on all goods purchased for resale, raw material and packing materials for use in the manufacture of goods and even capital goods.
Only goods purchased from VAT registered dealers in the State will be eligible for input tax credit. Input tax credit will not be available on Inter State purchases.
The purchases on which you cannot claim a credit for your input tax are:
1. Automobiles, including commercial vehicle, unless you are in the business of dealing in such automobiles.
2. Spare parts for repair and maintenance of automobiles unless your business is dealing in such automobiles;
3. Petroleum products unless one is dealing in petroleum
4. Goods used for personal consumption or gifts;
5. Air-conditioning units unless you are in the business of dealing in such units”.
Q. Can input tax credit be availed on use of petroleum products?
A. No. Tax on petroleum products cannot be availed as input credit. The input tax credit on petroleum products is covered by Schedule E. It provides that in the following circumstances the input tax credit on Petroleum products and natural gas be taken as NIL.
1. When used as fuel
2. When exported out of state
The second condition is more appropriate for trader dealers. In case they decide to stock transfer petroleum products out of state without sale, input tax on these products, if already availed on these products will have to be considered NIL.
Q. What is the applicable rate of tax on Packing materials as Outputs?
A. Packing material or containers are always sold with some goods packed or contained it. No separate rate of tax is applicable on sale of such packing material/container. The rate of tax applicable to the goods packed in such packing material will be the rate of tax applicable on this packing material. Where such goods are exempted from tax, the sale of packing material/container will also be exempt from tax. Example: spark plugs packed in plastic bags are taxed@ 12%. Thus rate of tax applicable on sale of this plastic bag is 12%. In case of these spark plugs are purchased by some other dealer e.g. automaker company, the applicable rate is 4%, thus applicable rate of tax on plastic bags in which such plugs are packed will be only 4%.
Q. Can input credit on packing material be availed on use of petroleum products?
A. The eligibility of input tax credit on packing material also depends on the item packed therein. In case items packed therein are dealt in the circumstances that input tax credit is not eligible therein, input tax credit will not be available on such packing material as well.
Q. Is there any restriction of availing of input tax depending on the manner of disposal of goods say as free gifts or on stock transfer?
A. Yes. Input tax credit will be available on output tax payable on sales within the State and on Inter State Sale.
Restricted input tax credit is available on stock transfer/consignment dispatches to outside the State.
Q. Will input tax credit be available on Inter State Purchases?
A. Input tax credit will not be available on Inter State purchases, Delhi Govt. cannot be expected to give credit for the tax paid in another state.
Q. Will input tax credit be available for the entire tax paid on eligible purchases.
A. Input tax credit will be available on the entire VAT paid on purchases. (except interstate purchases).
Q. What proof is required to claim input tax credit?
A. Input tax credit can be claimed only on purchases from VAT Registered Dealers. The original tax invoices is the proof required to claim input tax credit. The invoices must be preserved carefully to be produced in audit proceedings.
Q. Are all dealers eligible to claim input tax credit?
A. All VAT registered dealers can claim Input Tax Credit on the eligible purchases. However, those opting for compounding scheme, where-by all dealers whose GTO is upto 25 lakhs can pay 1% tax on their GTO and are not eligible to claim input tax credit.
Q. What is the procedure for adjusting input tax paid against the output tax payable?
A. In the return filed for the Tax Period there will be a column for input tax credit, which will have to be filled in. The tax invoices in support of the claim of input tax credit will have to be preserved and may have to be shown, if so desired by the Department.
Q. How can dealer adjust the input tax against output tax when he makes taxable and exempt supplies? Will the input tax credit relating to exempt supplies lapse?
A. If the purchases are used partly for making taxable supplies, input tax credit shall be allowed proportionate to the extent they are used for that purposes. However, no input tax credit is allowed for the portion of purchases that was used for making exempt goods.
Q. What amount will be available as input tax credit in case machinery is used for manufacture of taxable goods and also manufacture of exempted goods?
A. The input tax credit will be available on proportionate basis.
Q. Is Commissioning of plant a condition for availing the input tax credit?
A. No there is no condition of commissioning of machine for making the input tax credit which is available on plant and machinery on its purchase.
Q. Do I have to sell all the goods that I have purchased to avail input tax credit for the taxes paid on all my purchases?
A. Taxes paid on all your purchases can be set off against your liability of tax on sales made by you and any excess can either be carried forward or you can claim refund.
Q. Will input tax credit be available on components used in fabricating the machine in house?
A. Yes, there is no bar on availing input tax credit on components and other parts used in fabricating machine in house, provided this machine is not used solely for the manufacture of exempted goods.
Q. Is there any tax liability on scrapping any capital asset on which input tax credit has been availed? What will be the tax implication on sale of such scraped machines?
A. Tax would be levied on the sale of scraped machines. However, the tax liability is subject to set of against any credit that may be available in your account.