Vat on mrp

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 April 2016 Dear All,

One of my client "A Pvt Ltd." ( registered dealer in west bengal) purchase Food supplements & medicines from another dealer "B" in west bengal & pay VAT on MRP. Now the question is:-

1. If "A" sold these products in west bengal, then whether they have to collect VAT from customer & claim Input of VAT paid. I think this will be immaterial because VAT is already paid on MRP ??

2. If A Pvt Ltd. again sold these products outside West Bengal to their franchisee, then what will be the VAT implication? Whether franchisee will again collect VAT from their customer & pay to their state government??

3. If A pvt Ltd. transfer these goods to there own retail outlet outside West Bengal for sale? Then whether the retail outlet will again collect VAT from customer & paid to their state government?

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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16 April 2016 In 1 Case Wholesellerwill charge Vat on MRP. So subsequent dealer Get input on MRP..

2. Interstate Sale CST is applicable not Vat , So Distributor Collect CSt instead of VAT , so Franchise will not get Input Tax benefit.

Querist : Anonymous

Querist : Anonymous (Querist)

16 April 2016 In case 2:- Whether franchisee need to collect VAT at the time of sale in their state & deposit to Government?

What will happen in Case 3??

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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16 April 2016 you have to colleact MRP Value but Franchise will not get in put Benefit.

in case 3 Goods will be Branch transfer without vat discharge vat in other state

End customer will not affect only Dealers will not get input in 2 and 3rd case

Querist : Anonymous

Querist : Anonymous (Querist)

16 April 2016 But Sir, In case 2 & 3 VAT is paid to government twice on same products. One in west Bengal & Another in the 2nd state..Is it viable??

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Great questions! VAT on MRP and inter-state sales can get tricky, so here’s a clear breakdown based on your scenarios:

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### Scenario 1: Purchase and Sale within West Bengal (WB)

* Dealer B sells to A Pvt Ltd. in WB **charging VAT on MRP**.
* Dealer A sells to customers in WB, charging VAT on MRP again?

**Answer:**

* The **wholesaler (Dealer B) charges VAT on MRP**. Dealer A gets input VAT credit on that VAT paid.
* When A sells to retail customers within WB, **they also charge VAT on MRP**, but input VAT can be claimed on purchases.
* This avoids VAT cascading because input credit is adjusted against output VAT.

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### Scenario 2: Dealer A sells goods from WB to franchisee in **another state** (interstate sale)

* This sale is treated as **interstate sale**, so **Central Sales Tax (CST)** applies instead of VAT on inter-state transfer.
* Franchisee in other state sells to end customers, charging VAT applicable in their state.

**Answer:**

* Dealer A charges CST to franchisee on transfer from WB.
* Franchisee will charge **VAT in their own state** when selling to end customers.
* **Franchisee cannot claim input VAT credit on CST paid**, because CST is different from VAT.
* This means no double input credit but VAT is charged only once in the final sale.

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### Scenario 3: Dealer A transfers goods to their own retail outlet outside WB

* This is a **branch transfer** to another state.

**Answer:**

* Such branch transfers usually attract CST (interstate transfer).
* Retail outlet will collect VAT from customers in their state on final sale.
* Branch (Dealer A) does **not pay VAT twice** but CST is paid on branch transfer.
* Retail outlet charges VAT on sale to end customer.
* Input credit for CST is not available to the branch outlet (since CST is different from VAT).

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### Your concern about double taxation:

* **VAT is charged only once on the final sale to end customer.**
* CST is a tax on interstate movement but does not allow input credit for VAT.
* So, while CST is paid on inter-state transfer, the final VAT is paid only by the end consumer.
* The input credit mismatch is due to CST vs VAT difference, not double taxation of VAT.

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### Summary:

| Case | Tax on Transfer | Tax on Final Sale | Input Credit on Purchase |
| ---------------------------- | --------------- | ------------------ | --------------------------- |
| Within WB | VAT on MRP | VAT on MRP | Input credit allowed |
| Inter-state sale (Franchise) | CST | VAT in other state | No input credit on CST paid |
| Branch transfer outside WB | CST | VAT in other state | No input credit on CST paid |

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If you want, I can help with exact references from West Bengal VAT Act or further clarify how to handle invoices and tax credits for these cases. Would you like that?

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