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Discussion on Value Added Tax, Karnataka - Part 2

SANTHOSH. ASHOK 
on 14 January 2016

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Business includes:-Section 6

(a) any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in furtherance of gain or profit and whether or not any gain or profit accrues there from; and

(b) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.

Place of business means  (Section 23)

any place where a dealer purchases or sells goods and includes

a) Any Warehouse, godown where dealer stores or processes the goods.
b Any Place of  manufactures or production.
c) Any Place where dealer keeps his accounts /documents (inld the place of business of agent)

Taxable sale means (Section 31)

any sale of goods, which is taxable under the provisions of this Act.

Tax invoice means (Section 32)

a document specified under Section 29 listing goods sold with price, quantity and other information as prescribed

Section 76 of  KVAT act explains Penalties relating to tax invoices, bills of sale, credit notes and debit notes – A registered dealer who has failed to provide a tax invoice (as under Sec 29) , debit note (sec 30(1)) or credit note (Sec 30(2)). OR   provides a tax invoice or debit note or credit note otherwise then the manner mentioned in Section 29 or U/S 30

1) shall be liable to a penalty

a) if the offence is first during F Y then, penalty shall be two thousand rupees or an amount equivalent to the tax payable on the transaction, whichever is higher.

b) if the offence is not the first offence during the a F Y then, penalty shall be five thousand rupees or an amount equivalent to the tax payable on the transaction, whichever is higher

2) A registered dealer who fails to issue a bill of sale as required by act shall be liable to a penalty

a) If the offence is first during the F Y then one thousand rupees.

b) If the offence is not first time during the F Y a penalty of two thousand rupees.

3) The power to levy the penalty under this section shall be vested in the officer authorised under section 52.

Taxable turnover means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of interstate trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India and the value of goods transferred or dispatched outside the State otherwise than by way of sale.

Taxable turnover = Total turnover – Turnover in course of interstate trade

Total turnover means (Section 35)

the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale in the course of interstate trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India and the value of goods transferred or dispatched outside the State otherwise than by way of sale.

Maximum retail price or MRP shall mean the price marked on the package in which the goods are contained.

Goods covered under MRP

Section 4 of KVAT Act provides a mechanism whereby a dealer dealing in pharmaceutical products may pay VAT at the applicable rate on the basis of the MRP of the product. If so, subsequent dealers would be exempted from payment of VAT. A clarification has also been issued to state that the taxable turnover shall not include the tax payable and the same shall be deducted from the MRP.

 Output tax in relation to any registered dealer means (Section 10 (1))

The tax payable under this Act in respect of any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue of a prescribed declaration by such agent.

Input means (Section 19)

Any goods including capital goods purchased by a dealer in the course of his business for re-sale or for use in the manufacture or processing or packing or storing of other goods or any other use in business.

Input tax is not deductible in the following cases –

Input tax paid on purchases attributable to the sale of goods exempted u/s 5 unless such  goods are sold in the course of export out of the territory of India.

Input tax paid by an agent purchasing or selling goods on behalf of any other person  other than a non- resident principal.

Input tax paid on goods specified in the Fifth Schedule and subject to such conditions as may be specified, purchased and put to use for purposes other than for resale or manufacture or any other process of other goods for sale.

Tax paid on purchase of goods as may be notified by the Govt. or the Commissioner subject to specified conditions.

Input tax paid on purchases attributable to naphtha, liquefied petroleum gas, furnace oil, superior kerosene oil, kerosene and any other petroleum product, when used as a fuel in motor vehicles.

Input tax paid on purchase of fuel from unregistered dealers.

Input tax on goods purchased by a dealer who is required to be registered under the Act, but has failed to register.

Partial rebating – Rule 131 read with section 17

Where a registered dealer deducting input tax,

a) makes sales of taxable goods and goods exempt u/s 5 or

b) in addition to those sales, dispatches taxable goods or goods exempted u/s 5 outside the  state otherwise than a direct result of sale or purchase in the course of interstate trade or

c) puts to use the inputs purchased for any other purpose (other than sale, manufacturing processing , packing or storing of goods),

d) falls under any of the above clauses and also purchases any petroleum product for use as fuel in production of any goods or captive power. 

In addition to the use in course of his business, he shall be required to apportion and attribute the input tax between such sales/dispatches and other purposes.

The scheme of partial rebating would also apply to petroleum products (eligible for set off).

The rule deals with finding out the non-deductible input tax as follows -

(Sales of exempt goods + non taxable transactions) X total input tax
           Total sales (including non-taxable transactions)

This amount has to be deducted from the total input tax to arrive at the deductible amount of

Input tax.

Note: - All input tax directly relating to sale of exempt goods is not available. All input tax directly relating to taxable sales may be deducted, subject to provisions of Section 11. Purchase of petroleum items/fuel items specified u/s 11(6) shall be subjected to special rebating u/s 14 and if used towards both taxable as well as exempted activity/stock transfers outside state, to partial rebating u/s 17 as well.

Below is illustration for better understanding of the concept

Let Total Sales be Rs.1,00,000/- of the total sales Local Sales Rs.40,000/-,Interstate Sales Rs.35,000/-, Export-Rs.15,000/- & Stock transfer –Out-Rs.10,000/-. Total Purchases- 30,000/- Input Credit -4350/-.

Compute non-deductible input tax.

Particulars

Local

Interstate

Export

Stock Transfer

Total

Total sales

40,000

35,000

15,000

10,000

100,000

Sales Proportion

40

35

15

10

100

Local Purchases in sales proportion

12,000

10,500

4,500

3,000

30,000

VAT paid in proportion of purchases

1,740

1,523

653

435

4,350

Tax to be borne @ 2 % (stock transfer)

-

-

-

(60)

(60)

Net VAT credit

1,740

1,523

653

375

4,290

                                                                        Or

Partial Rebating under Section 17 of KVAT Act read with Rule 131 & 132 of KVAT Rules

 

Particulars

Amount in Rs

 

Local Turnover + Tax

               40,000

Interstate Turnover + Tax

               35,000

Exports & Form- I Sales

               15,000

Stock Transfer Out

               10,000

Total Turnover

              100,000

Input Credit                                              (A)

                 4,350

Non deductible Input Tax disallowed to the extent of 2% (Prevailing CST Rate)

Non Deductible Input Tax             (B)                     60
Deductible Input Tax                   (A-B)                 4290

Points to be noted:

1. Rule 131- Apportionment of input tax in the case of a dealer falling under section 17 shall be calculated as follows

a) All input tax directly relating to sale of goods exempt under section 5 other than such goods sold in the course of export out of the territory of India, is non-deductible (Deemed Export).

b) All input tax directly relating to taxable sales may be deducted, subject to the provisions of section 11.

c) Any input tax relating to both sale of taxable goods and exempt goods, including inputs used for non-taxable transactions, that is, the non-identifiable input tax, may be deducted, based on above mention formula.

Total Sales Means total turnover less-

i)  the amount specified in clause (a) of sub-rule (1) of rule 3:

The above mentioned Rules states as below

The total amount paid or payable by the dealer as the consideration for the purchase of any of the goods in respect of which tax is leviable under sub-section (2) of Section 3.

ii)  The deductions specified in clause (e) of sub-rule (2) of rule 3.

The above mentioned Rules states as below

All amounts received from the seller in respect of goods returned to them by the dealer, when the goods are taxable under sub-section (2) of section 3

Provided that the goods are returned within period of six months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which the refund was made and the amount of such refund.

In Simple
Total Sales = Total Turnover – Tax paid on URD Purchases – Sale return related to URD Purchases

Thanks & Regards
Santhosh.A.G


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