VAT on purchases/services

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kartik_somu (Querist)
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07 December 2007 Our company have a caterer who provides meals, snacks etc for a rate per item.
For snacks the rate is Rs. 6.00 per unit + VAt + service tax. The M.R.P.( as mentioned on the cover of the pack)of the said item is Rs.4.00.
If the M.R.P. includes sales tax, doesen't charging tax by the caterer result in cascading effect.

CA. O.P. Agarwalla

CA. O.P. Agarwalla (Expert)
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07 December 2007 Your question is not clear. M.R.P. shown on the pack is inclusive of VAT or not? Please make it cler that on which amount the caterer is charging VAT.

kartik_somu

kartik_somu (Querist)
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08 December 2007 M.R.P. printed on Good day biscuits is Rs. 4.00 (inclusive of all taxes).
An agreement has been entered into with the caterer and in the annexure list of various items including meals, snacks and rates against the same are given.

The price per biscuit is Rs. 6.00.
In addition he charges 4 % VAT.
My question is since the price of Rs. 4.00 includes Tax, doesen't the amount charged by the caterer amount to double taxation.

CA Prasanna Krishnan V

CA Prasanna Krishnan V (Expert)
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09 December 2007 Dear Sir

You are right. When MRP includes tax also, then the material price should be arrived at as follows-

M.R.P
------------ * 100
100+VAT Rate

If 4% is the applicable VAT rate, then,

Rs 4
------------ * 100 = Rs 3.85
(100+4)

Add: VAT @ 4% = Rs 0.15

Price of Biscuit = Rs 4.00

kartik_somu

kartik_somu (Querist)
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10 December 2007 Does it mean there is a cascading effect and ask for refund of tax charged?

CA. O.P. Agarwalla

CA. O.P. Agarwalla (Expert)
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10 December 2007 You have entered in to a contract with supplier (caterer) and considering his services or some thing else, you have agrred to pay a higher price against purchase of Biscuits. It appears that as per your contract, the sale value of Biscuits have been fixed at Rs. 6/- + VAT as applicable

Now if goods is sold at Rs. 6/-, VAT is chargeable on Rs. 6/- (being the sales price). Whether goods have been sold at MRP or at other rates, will not effect the VAT liability.

However, if in your state (Like in Assam), Biscuits are subject to single point VAT and your supplier is purchasing the same from within the State, he will not be authorised to collect any amount of VAT on such sales of Biscuits.

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