DELHI VALUE ADDED TAX BILL, 2004 (As passed by the legislative assembly on December 21, 2004)

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DELHI VALUE ADDED TAX BILL, 2004(As passed by
the legislative assembly on December 21, 2004)
DEMISTIFIED

• Sushil AggarwalChartered Accountantanil.sushil_at_v
  snl.com

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DO YOU KNOW ?

• DESIGNED BY CHARTERED ACCOUNTANTS.
• ALLOWANCE FOR BAD DEBTS
• ARMS LENGTH CONCEPT INTRODUCED
• CONCEPT OF CASH BASIS OF ACCOUNTING INTRODUCED
• ADVANTAGE BUSINESSMAN

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NATURE OF TRANSACTIONS TO BE CONVERED UNDER VAT

• Transaction entered into by dealer /deemed
  dealer
• Normal sale transactions.
• Deemed sale purchase.
• Think of any transaction and it may be taxable as
  a sale.

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IMPORTANT DEFINITIONS

• DRAFTING ISSUES

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IMPORTANT DEFINITIONSDRAFTING ISSUES

• BUSINESS Sec 2 (d)
• Services included. Occasional sales included.
  Term Debit- Credit used. Far reaching
  implications.

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IMPORTANT DEFINITIONSDRAFTING ISSUES

• Dealer Sec 2(j)
• Vast definition.
• Banking Insurance covered.

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IMPORTANT DEFINITIONSDRAFTING ISSUES

• Fair Market Value
• Prices can vary in different conditions of time
  or weather not considered.

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IMPORTANT DEFINITIONS

• Related Person
• Hindu Gotras are simpler.
• Companies and firms will have relatives.
• Arms length transactions
• Duel Effect of transactions between related
  parties
• Seller deemed sale at fair market value.
• Buyer Input credit denied or reduced.

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IMPORTANT DEFINITIONS

• Goods
• all movable property excluding newspaper,
  actionable claims, stocks, shares, securities.
  Money is not specifically excluded.
• Sale
• With its grammatical variations and cognate
  expressions means any transfer of property
• This is language of agreements not Acts. Effort
  is not only to define Sale but also other terms
  which may mean alike.

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IMPORTANT DEFINITIONS

• Tax Invoice
• To be issued only on request of purchaser.
• To be prepared in Duplicate.
• Can not be issued by dealers who are
• a) Specifically exempt from tax (Schedule V)
• b) Who has opted for the composition scheme.
• c)  Making an interstate sale, or export sale.
• d)  not been issued the registration certificate.

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IMPORTANT DEFINITIONS

• Shall contain, in addition to routine
  requirements,
• a)Purchasers Particulars Registration No.
• b)Printers name, address, first last serial
  Nos. of tax invoice printed supplied.
• Retail Invoice
• Shall be issued in remaining conditions.
• Debit / Credit Notes
• A debit or a credit note can also be issued by
  the selling dealer where the tax shown in tax
  invoice is wrongly under / over charged.

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IMPORTANT DEFINITIONS

• ACCOUNTANT Sec. 2(a)
• MISSING CLAUSE
• Clause 2 (u) is altogether missing from the Bill.

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COMPUTATION OF TAX

• RATES OF TAX

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COMPUTATION OF TAX

• TAXABLE TURNOVER.
• INPUT TAX CREDIT.
• FOR WORKS CONTRACTS LABOUR AND SERVICES OR A
  PRESCRIBED PERCENTAGE SHALL ALSO BE REDUCED.

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COMPUTATION OF TAX

• IN PUT TAX CREDIT ON CAPITAL GOODS.
• INPUT CREDIT ON STOCK TRANSFER.

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COMPUTATION OF TAX
First seller in state Second seller Retailer Total
Sale Price (Excl.Tax) 100 110 136.36
Tax Amount 10 10 11 13.64
Input Credit 0 10 11
Net Tax 10 1 2.64 13.64
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COMPUTATION OF TAX
Tax Payable net of goods returned. 70,000 O
Input Tax Credit /- Tax on purchase returns 2,00,000 I
Brought Forward Tax Credit 10,000 C
Net Tax (O-I-C) -1,40,000 Carried Forward
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RATES OF TAX

• Five slabs of tax
• 0 Primitive Agricultural Essential
• 1 Gold, bullion, jewellery
• 4 Agricultural, Declared, Preferential
• 20 Petrol,Liquor, lottery
• 12.5 for goods not specified any where

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SCHEME OF THE ACT

• Automatic registration of existing dealers.
• Overall tax remains the same.
• Local forms abolished.

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SCHEME OF THE ACT

• Composition scheme up Rs. 25 lac
• Deemed Assessment. Power to make additions
  ex-parte.
• TDS provisions circumvented.

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OTHER SIGNIFICANT FEATURES
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OTHER SIGNIFICANT FEATURES

• The liability to tax arises from transaction next
  to the one where taxable quantum is crossed
  irrespective of the last bill amount.
• Section 4(2) gives Govt. power only to reduce tax
  by notification. Increase can only be by
  amendment to Act.

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OTHER SIGNIFICANT FEATURES

• Presumptive taxability on transporters if goods
  move without proper documentation.
• Tax credit not available unless the dealer holds
  tax invoice. What if goods move on challan.
• Furnishing of Security/surety bonds is made
  mandatory at the time of applying for
  registration.
• Net tax to be deposited in 28 days from close of
  tax period. Why not last day of next month.

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OTHER SIGNIFICANT FEATURES

• Input credit also available on sale of second
  hand goods in contradiction to the concept of non
  creditable goods.
• Voluntary registration is also allowed for
  dealers whose turnover is below the taxable
  quantum.
• Common return and taxability under several Acts
  e.g. Sales Tax, WCT, Right to Use.

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RECORD REQUIREMENTS

• If goods used for sale and other purposes the
  basis of reducing input credit.
• Record for assessment of fair market value.
• Record for dealer of second hand goods.
• Record of relatives.
• Guidance note must come from institute for VAT
  accounts because input credit as period cost may
  effect profitability standards.

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TRANSITIONAL PROVISIONS

• Actions due immediate to implementation of VAT

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TRANSITIONAL PROVISIONSActions due immediate to
implementation of VAT

• Opening Stock Treatment
• Input Tax credit can be availed in respect of
  stock as on 31/3/05, subject to following
  conditions
• 1. A statement of trading stock held as on the
  date of commencement of the Act, is filed, with
  in four months from that date with the
  Commissioner along with the return.

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TRANSITIONAL PROVISIONSActions due immediate to
implementation of VAT

• 2.  Goods purchased prior to 1-4-2004 are not
  eligible.
• 3. Goods must have suffered first point tax and
  the dealer should have in his possession the
  related invoices.
• 4. Tax credit not available for finished goods
  already manufactured out of tax paid raw material
  and for the existing capital goods.

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TRANSITIONAL PROVISIONSActions due immediate to
implementation of VAT

• Tax credit also not available for goods which
  were taxable at last point under DST on the date
  of commencent of Act.
• For claiming tax credit in excess of Rs. 1 lac,
  a certificate from a CA is necessary.
• Entire tax credit shall be claimed in single
  statement to be accompanied with a return under
  VAT.

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TRANSITIONAL PROVISIONSActions due immediate to
implementation of VAT

• 8. Tax on opening stock of trading finished
  goods, is to be deposited by 31-5-05 by a person
  who was registered under DST but has no
  obligation to be registered under VAT and has
  also not sought voluntary registration with in 1
  month. Tax is payable only on stock which has not
  already suffered tax under DST. The tax is
  payable on the fair market value of such stock.

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TRANSITIONAL PROVISIONSActions due immediate to
implementation of VAT

• The contractors enjoying composition scheme as
  on 31.03.2005 under the DST on WC Act, shall be
  governed by the composition scheme as enunciated
  in the VAT Act i.e. to pay _at_ 1 in case the
  turnover does not exceed Rs.25 Lac as on
  31.03.2005.

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PENALTIES
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PENALTIES

• Penalties are made harsh. Some of the instances
  to impose penalty are as under
• Rs.1000/- per day for delay in applying for
  registration subject to a maximum of
  Rs.100,000/-.
• Rs.100/- per day for delay in applying for
  amendment in RC, cancellation of RC, surrender of
  RC, non-filing of return/revised return or
  attachment thereof say challan etc. subject to a
  maximum of Rs.5,000/-.
• Rs.100,000/- or equal to the tax wrongly
  collected which ever is greater for
  misrepresenting himself as registered dealer.
• Rs.10,000/- in case the dealer obtaining
  voluntary registration but not starting the
  activities from the requisite date.

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PENALTIES

• Rs.10,000/- or the amount of tax deficiency which
  ever is greater for furnishing a false/
  misleading/ deceptive return.
• Rs.10,000/- for omitting any information in the
  return filed, without which the return is false/
  misleading/ deceptive.
• Rs.10,000/- or the amount of tax credit wrongly
  claimed which ever is higher for claiming tax
  credit for which the dealer is not entitled or
  excess tax credit.
• Rs.50,000/- or 20 of tax deficiency which ever
  is greater for not preparing the records and
  accounts in prescribed manner.
• Rs.100,000/- or the amount of tax deficiency for
  preparing false/ deceptive/ misleading books of
  accounts.

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PENALTIES

• Rs.5,000/- or 20 of tax deficiency which ever is
  greater for issuing an incomplete tax/retail
  invoice.
• Rs.100,000/- or tax deficiency which ever is
  greater for issuing tax invoice without being
  authorised for doing so.
• Amount of tax payable on goods being carried by
  transporter without proper documents.
• Rs.50,000/- or tax deficiency which ever is
  greater for making a false/ deceptive/ misleading
  statement, omit any matter without which the
  statement is false/ deceptive/ misleading.
• Penalty amount shall be reduced to 20 and
  enhanced to 100 under certain circumstances.

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OPPORTUNITIES FOR CAs

• Stock Valuations as on March 31, 2005 shall have
  to be certified.
• Section 49 Accounts to be audited and a report
  in prescribed form is to be issued where sales
  exceed 40 lacs.

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SOME ADVERSE IMPACTS

• VAT may precipitate inflation.
• Certain items have been put to higher rate list.
• Interstate movement of goods shall not remain
  free unless CST goes.
• Delhi bears re-distributive character and
  manufactures little. Refunds shall accrue in many
  cases resulting on lock-in of funds.

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THE GREENER SIDE

• Tax to GDP may improve.
• It is the best proposed utilisation of
  Information Technology.
• Multiple taxes and transaction cost may reduce.
• Transparent system.

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THE GREENER SIDE

• TDS Gone.
• Bad Debts.
• Capital Goods Tax setoff.
• Forms to go.
• Level playing field.
• Deterrent penalties.
• Continuous return-adjustment procedure.
• Automatic stay on filing of objections.

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E-COMMERCE TRANSACTIONS

• Laws and the Governments have come of age but the
  newly proposed law does not take into account
  e-commerce transactions.
• A person sitting on net may purchase a product
  from abroad and consume with in his state without
  going through the various distribution channels
  and pay no taxes. If an importer imports and
  delivers the same product the tax is applied.

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UNANSWERED QUESTIONS

• There were several nature of transactions which
  were excluded specifically from the ambit of WCT
  (e.g. Printing, dyeing). The future of these
  transactions is uncertain.
• WCT continues to be a contentious issue. The
  debate on divisibility of contracts goes on.

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Sushil AggarwalChartered Accountantanil.sushil_at_v
snl.com
Thank You