Vat/ cst - basic concepts ( some important points )

SANYAM ARORA (“It's hard to beat a person who never gives up.”)   (20168 Points)

17 August 2011  

  VAT/ CST - Basic Concepts ( Some Important points )

Hey friends, Today i am here to discuss something very special for all of you. Today i will bring in all your kind notice " Concept of VAT/ CST  and its Implications "

1.  VAT / CST -  IT is a tax on sale or purchase of goods. Power to tax sale/ purchase of goods is with -

Center - For inter state sales

State - For local sales.

2.  Each state and union territory has formulated its VAT legislation except for " ANDAMAN & NICOBAR ".

3. Meaning of Sale - As per sale of good act, 1930, sale means transfer of property in goods from one person to another for a price.

If any of the ingredients are missing, then transaction does not amount to sale.

For this " GOODS " include all kind of materials,commodities,articles and all kind of movable property but does not include newspaper, actionable claims, stocks, shares and securities.

4. Transfer between two persons - 

A Person cannot make sale to himself.

The transaction has to be between two or more persons.

Persons include Artificial persons also.

5. Deemed Sales -

For the purpose of CST/VAT, the defination of " sale " has been expanded and certrain transaction which does not amount to sale as per Sale of good Act are deemed to be sales for sales tax / VAT purposes.

 

S.No.

Transaction

Treatment as per Accounting / Contractual Principles

Treatment under Sales Tax

1

Works Contracts - contracts for construction, installation - commissioning, repairs, etc.

There is contract to complete a work, not any sale of goods.

Tax on goods transferred during execution of works contract.

2

Lease - Right to use goods.

There is no transfer of property.

Tax on transfer of right to use property.

3

Hire Purchase transaction / sale on Installment.

Finance arrangement. Property usually transfers on payment of last installment.

For sales tax property gets transferred on delivery of goods under HP agreement.

4

Sale of food, drinks in Hotels/ restaurants.

Its primarily a service.

Tax on food, drinks served.

5

Supply of goods by unincorporated association or BOP to member thereof.

Members and BOP do not have separate legal existence.

There shall be sale between two parties.

So this was part 1 of my series. In my next series i will talk about " CST CONCEPT "

Best Regards

Sanyam Arora