Vat versus cot

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 May 2015 Sir, I am vat dealer till 2014-2015. And in 2012-2013, firm got inspected by authority n collected vat for deference in stock; on 5 of may 2015 they issue notice to firm.my questions is. 1) what is my obligations as a cot dealer 2) has I got any rebate on penalty:

Querist : Anonymous

Querist : Anonymous (Querist)

16 May 2015 Pls send solution

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2025 In your case, here's a clear breakdown of **VAT vs. Composition Scheme (COT)** in the context of **notice issued for past stock discrepancy**:

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### 🔹 **Background Summary**

* You were a **VAT-registered dealer till FY 2014–15**.
* In **FY 2012–13**, the VAT department **conducted an inspection** and found a **stock discrepancy**.
* Based on that, they issued a **demand notice on 5 May 2015**.
* You're now (likely) under **Composition Scheme (COT)**.
* You’re asking:

1. What obligations you have as a **COT dealer**.
2. Whether you’re **eligible for any rebate on penalty** imposed for the earlier VAT period.

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### 🔸 1. **Obligations as a COT Dealer**

If you opted for the **Composition Scheme**, your obligations are **different from a VAT dealer**. Specifically:

* You **cannot claim input tax credit**.
* You are required to **pay tax at a fixed rate on gross turnover**, depending on your business nature.
* You must **issue simplified invoices** (no VAT shown separately).
* You must **file returns** as per the rules (usually quarterly or annually, depending on the state).
* You're **not allowed to collect VAT from customers**.

However, **this only applies from the date you opted into COT**. For any **previous periods under VAT**, you are **still liable for full VAT compliance** for those periods.

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### 🔸 2. **Rebate on Penalty for Prior VAT Period**

Since the **inspection and stock discrepancy pertain to FY 2012–13**, when you were a **regular VAT dealer**, you are:

* **Liable for VAT** on the unaccounted stock.
* Also **liable for interest and penalty** under the VAT Act (likely under sections related to suppression or evasion).

However, **rebate or reduction of penalty** may be possible in certain circumstances:

#### ✅ You MAY Get Penalty Rebate If:

* You **pay the tax and interest voluntarily** before assessment.
* You respond to the notice and **cooperate with the investigation**.
* You file an **appeal or revision** with proper justification (like clerical error or genuine omission).

Many VAT Acts allow **reduction of penalty to 25% or 50%** if tax is paid promptly after notice.

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### 🔎 What You Should Do:

1. **Review the VAT notice**: Check the exact section under which tax and penalty are being demanded.
2. **Determine tax + interest amounts**: These are generally not waivable.
3. **Check penalty clause**: If penalty is under suppression (e.g., Sec 66 of MVAT Act), check if any **early payment relief** is available.
4. **Respond within time limit**: Usually 30 days to respond or pay from date of notice.
5. **Consult a local VAT practitioner**: Especially if the penalty amount is high or evidence is unclear.

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### ✅ Example: Maharashtra VAT (for context)

Under MVAT Act:

* If dealer **pays tax + interest** promptly after notice, **penalty can be reduced to 25%**.
* But if delay continues or fraud is found, full **100% penalty** may be imposed.

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### 📌 Conclusion

* Your **COT status now does not shield you** from past VAT liabilities.
* You **must address** the notice for FY 2012–13 as a **VAT dealer**.
* You **may get relief on penalty** if you act quickly and pay the dues.
* File a reply or pay early to request **penalty concession**.

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If you can share the **exact wording or section of the notice**, I can give more tailored guidance or help you **draft a reply letter**. Let me know if you'd like help with that.

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