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Vat applicability between firms of the same owners

Kunal Shah (Proprietor) (70 Points)

15 June 2014

A and B own 60% and 40% share of partnership firm 1&Co.

A and B own 80% and 20% share of partnership firm 2&Co.

Thus, two separate entities, but the owners are the same. Both are trading companies.

If 1&Co. sells goods to 2&Co, which 2&Co will further sell to end users, does this transaction attract VAT?

Can VAT be lowered through C, D, or other forms?

Would total VAT (CST) paid be lower if 1&Co and 2&Co are formed in different states?

Sincerely,

Kunal

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2 Replies

CA Saurabh Khatri (Business) (73 Points)
Replied 16 June 2014

Yes, of course this transaction would definitely attract VAT as there would be 2 TINs of 1&Co. & 2&Co.. We can't held a transaction as stock transfer unless there is transfer between assesses having same TIN.

If the two companies are formed in different states then CST would be applicable and because (ITC) Input Tax Credit is not available of CST sale it would be costly to sell, So avoid to forming companies in different states.

If the two companies are formed in the same states then you are allowed to take ITC, So there is more benifits to form companies in the same state.