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Pursuant to the decision taken in the Conference
of Chief Ministers held in November, 1999, the Empowered Committee of State
Finance Ministers has been set up in New Delhi. After several rounds of
meetings, the States have agreed to implement VAT system in the place of
General Sales Tax.
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The main aims are, to create common Indian
market in the country, to remove the cascading effect to achieve neutrality,
to make the administration more transparent, to curtail tax exporting to the
other Sates, to broaden the tax base, to permit reduction in the rates of tax
etc.
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The A.P. State Legislature has passed the A.P.
Value Added Tax Act, 2005 (Act No.5 of 2005) (in short Act). The Act has also
received the assent of the President of India. The Act and the Rules made
thereunder came into force with effect from 1-4-2005. The APGST Act, which was
in force earlier has been repealed.
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For the purpose of Registration under the Act,
there is neither ‘yearly turnover concept’ nor ‘gross or total turnover
concept’. The parameters are ‘period of 12 consecutive months’ and ‘taxable
turnover.’ There are two categories of dealers i.e., Turnover Tax dealer (TOT
dealer) and Value Added Tax dealer (VAT dealer). (Section 17 deals with
registration).
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Dealers having a taxable turnover not exceeding
Rs. 5 lakhs in 12 consecutive months are exempt from registration and payment
of tax.
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Dealers having a taxable turnover exceeding Rs.
5 lakhs but not exceeding Rs. 40 lakhs in 12 consecutive months are to be
registered as TOT dealers.
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Dealers having a taxable turnover exceeding
Rs.10 lakhs in the preceding 3 months or exceeding Rs.40 lakhs in 12
consecutive months are to be registered as VAT dealers.
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Dealers mentioned in section 17 (5) are to be
compulsorily registered as VAT dealers, irrespective of their taxable
turnover. They are dealers having CST registration/interState
transactions/dealers liable to pay tax on Schedule VI goods/agents of
non-resident principals/dealers availing tax holiday/deferment/all hotels and
restaurants.
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There is also optional or voluntary registration
as VAT dealer vide sec. 17 (6). See Rule 8 for Voluntary Registration.
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There are six Schedules to the Act. Schedule I
deals with goods, which are generally exempt from tax. Schedule II deals with
zero rated transactions. Schedule III deals with Bullion and Specie and the
goods made therefrom, which are taxable at 1%. Schedule IV lists the goods
taxable at the rate of 4%. Schedule V is residuary; i.e., goods not mentioned
in any other Schedule are taxable at the rate of 12.5%. Goods in the VI
Schedule; i.e., liquor, diesel, petrol and ATF are taxable at special rates
mentioned therein. Goods in Schedule VI are taxable at the point of first sale
in the State. Works contracts and Lease transactions do not have uniform rate
of tax as in the case of APGST Act. Tax is levied at the rate applicable to
the goods.
(Charging section is 4)
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HSN code numbers are given to majority of
commodities in the Schedules through Notifications for the purpose of
interpretation and to avoid disputes pertaining to commodity classification.
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TOT dealers are liable to pay tax at the rate of
1% on the taxable turnover, irrespective of the rates of tax in the Schedules.
There is no composition for the TOT dealers. Payment of tax @ 1% by the TOT
dealer is automatic.
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VAT dealers have to pay tax on the sale of
taxable goods, other than those mentioned in Schedule VI, at every point of
sale at the rates mentioned in the Schedules.
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There is also contingent purchase tax in certain
circumstances, such as when taxable goods are purchased from non-VAT dealers
and used in the manufacture of exempt goods or when they are sent on transfer
basis to the other States, etc. Except Schedule III goods, the rate of
purchase tax is uniformly 4% for all other goods. (See sec. 4 (4).
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All dealers running hotels, restaurants, sweet
shops etc., and having a taxable turnover of Rs.5 lakhs in the preceding 12
months or Rs.1.25 lakhs in the preceding 3 months have to pay tax @ 12.5% on
60% of the taxable turnover. Thus the effective rate is 7.5%. (Section 4 (9).
They are also eligible for ITC.
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There are no concessional rates of tax.
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The main feature of the Act is ‘input tax
credit’ (ITC). ‘Input tax’ means the tax paid or payable under the Act by a
VAT dealer to another VAT dealer on the purchase of goods in the course of
business. See sec. 2(19) and Sec.13). Tax paid on the purchases under the CST
Act cannot be claimed as ITC. Only VAT dealers are eligible to claim ITC. TOT
dealers are not eligible for ITC. Certain goods are not eligible for ITC.
There are also certain restrictions as to quantum of eligibility of ITC. (Rule
20 deals with all such restrictions).
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Generally only when output tax is payable, then
only ITC is allowed. Output tax is the VAT payable on the sale of goods in the
State. However the Act provides for treating certain transactions as
zero-rated sales. See sec.2(47), sec. 8 and Schedule II. In respect of exports
to foreign countries, in respect of inter State sales falling under the CST
Act and in respect of sales made to the units located in Special Economic
Zone, no VAT is payable. However such sales are treated as zero-rated
transactions, making them eligible for ITC.
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Exempt sale and zero-rated transaction are
distinct and different. Both are not one and the same. In the case of an
exempt sale, ITC is not allowed.
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‘Tax invoice’ (sec.2(35) is the primary document
for claiming ITC.
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Taxation of works contracts is altogether new.
Under section 4 (7) (a) it is compulsory scheme. There are three types of
composition schemes. Section 4 (7) (b) deals with composition by contractors
doing works to State Government and Local authorities and the rate of tax is
4% on gross consideration. Section 4 (7) (c) deals with composition by
contractors doing works to others and the rate of tax is 4% on gross
consideration. Section 4 (7) (d) deals with composition by the builders who
construct and sell houses, flats etc., and the rate of tax is 4% on 25%
(effective rate is 1%) of the consideration received or receivable or the
market value fixed for the purpose of stamp duty whichever is higher.
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If the contractor paying tax under composition
scheme brings/purchases goods from other States/countries/non-VAT dealers in
A.P., tax has to be paid at the rates of tax mentioned in the Schedules on the
value of such goods and not at the rate of composition.
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TCS provision in section 22(3) is meant for
contractors executing works for State Government and Local authorities. TDS
provision in section 22 (4) is for other contractors. These two provisions
were struck down by the Hon’ble High Court of AP in the case of L & T Limited
vs. State of AP and Others (43 APSTJ 31). Consequent on the said decision,
amendments are being made to these two sub-sections.
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In another decision in the case of L & T Limited
vs. State of AP and Others (43 APSTJ 77), the Honourable High Court of A.P.,
held that there can be only one taxable event of sale in the execution of
works contract and that either the main contractor or the sub- contractor has
to be taxed but not both under the VAT law.
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The tax payable every month is output tax minus
input tax credit. See Rule 19(3) for the formula.
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There is no registration fee for getting
registration. Every VAT dealer must be in possession of Tax-payer
Identification Number (TIN) and every TOT dealer must be in possession of
General Registration Number (GRN).
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Entry tax paid under Entry Tax Act, 1996 (for
motor vehicles) and Entry Tax Act, 2001 (for other notified goods) can be
adjusted against VAT payable in the same tax period. See sec. 22(5).
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Deputy Commissioner has power to grant
instalments in case of arrears of tax.
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There is no concept of yearly assessment. The
entire scheme is ‘self-assessment’. ‘Tax period’ is a calendar month. The
assessing authority may make an assessment, for example, for one month, 7
months, 13 months, 28 months etc. Audit by the Chartered Accountant/Sales Tax
Practitioner has not been provided under the Act.
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Provisions relating to appeals and revisions
continue to be the same as in the repealed APGST Act, 1957.
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ITC can be claimed in respect of the stocks held
as on 1-4-2005, if such goods including capital goods were purchased during
the period from 1-4-2004 to 31-3-2005. (See Rule 37). Inventory of stocks has
to be prepared by 7-4-2005 and the claim must be filed before 10-4-2005. The
amount of claim approved by the authority can be claimed in 6 equal
instalments from August, 2005.
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Amount representing excess ITC is to be refunded
to the exporter within 90 days of the claim. (sec.38). In respect of dealers,
other than exporters, refund of excess ITC is to be granted at the end of the
second year after 1-4-2005; i.e., in April, 2007. Thereafter, it would be
annual refund. However instructions have been issued in G.O.Ms. No.1580
Revenue dated 28-10-2006 to the effect that ITC up to Rs. 10,000 can be
refunded by 31-10-2006 without pre-audit, credits between Rs. 10,000 and Rs.
50,000 to be refunded by 31-12-2006 without pre-audit, subject to furnishing
of indemnity bond/bank guarantee, credits between Rs.50,000 and Rs.10 lakhs to
be refunded by 31-12-2006 after conducting audit and credits exceeding Rs.10
lakhs to be refunded in April, 2007.
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There is no power conferred on the Government to
grant any exemption or reduction in the rate of tax. Hence no Notifications
can be issued for this purpose by the Government.
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Sec. 41 (3). The Commissioner may get the books
of account maintained by any dealer audited by a Chartered Accountant or Cost
Accountant or an enrolled Sales Tax Practitioner for any tax period. No
circumstances and no guidelines are specified for getting such audit done.
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Border Check posts and way bills continue to be
there.
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New concept in VAT law is ‘Advance Ruling’. A
committee is constituted with Additional Commissioner as Chairman and two
Joint Commissioners as members. (sec. 67).
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Industrial Units availing tax holiday
(exemption) have to compulsorily get converted into tax deferment units. On
such conversion into tax deferment scheme, while the balance amount to be
availed as on 1-4-2005 remaining the same, the balance period available as on
1-4-2005 will be doubled. (Rule 67). After 1-4-2005, there are no Tax Holiday
units in A.P.
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Importance is given to ‘time to apply for
registration’. (Rule 5). ‘Effective date of registration’ has also its
importance.
(Rule 6.)
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Another new concept is ‘Start up business’. (See
Rule 9).
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There is provision to file revised return, which
is not there under the APGST Act. It has to be filed within six months of the
relevant month. (Rule 23 (6)(a).
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Where a VAT dealer fails to file a return, there
is ‘unilateral assessment’, in which case, no show cause notice will be
issued. (Rule 25 (1). If the return is filed, such assessment will be
withdrawn. However penalty as in sec. 54 (3) becomes payable.
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Rules 29 to 34 deal with the records to be
maintained by the dealers.
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Various authorities are prescribed under Rule
59.