Question1:- What is VAT ?

Answer1:- VAT means Value Added Tax. It is on sale of goods but with a little different system for collection of tax. Under VAT system, tax is charged at each point of sale of goods with input tax credit for the tax paid at earlier stage.

For example, under this system, when a taxable person sells goods, he collects the tax on sale price from the customer. At the end of the tax period, when he is required to make payment of tax, he reduces the tax paid by him at the time of purchase of goods and pays net amount to the Government. An example of how VAT works is explained blow:

Question 2 :- Input Tax-Calculation - Is a person reqired to calculate input tax and net tax in every invoice ?

Answer 2:- No, every person would simply charge the VAT at the rate applicable in each invoice. The calculation of net tax by deducting input tax from the output tax shall be done at the end of the Tax period/Return period.

Question 3:- Is VAT in addition of Sales Tax ?

Answer 3:- No, VAT is not in addition to sales tax is a replacement of sales tax.

Question 4:- Entry Tax - Whether entry tax which is currently imposed will continue after VAT is introduced ?

Answer 4:- The State Governments are considering withdrawal of entry tax at the time of introduction of VAT.

Question 5:- Surcharge:- Will surcharge that is being currently imposed on sales tax continue after VAT is introduced ?

Answer 5:- No. There will be no surcharge under VAT

Question 6:- Will there be any surcharge of additional tax on VAT ?

Answer 6:- No. There will be no surcharge or additional tax on VAT.

Question 7:- Inter-State sale - Whether inter-state sales made from States continue to attract central sales tax after introduction of VAT ?
Answer 7:- Yes. However CST may be phased out over a period of time.

Quetion 8:- Whether CST will be payable on purchases made from outside the State after introduction of VAT ?
Answer 8:- Yes.

Question 9:- Will input tax redit be available in respect of CST paid on purchase of raw materials or other goods ?
Answer 9:- No.

Question 10:- Will input tax credit be limited to 4% if a VAT dealer makes inter-state sales ?
Answer 10:- No, VAT dealer who is making inter-state sales will be entitled to claim full input tax credit of VAT paid in State on purchases.

Question 11:- Input tax credit - What will happen, if in a tax period, input tax credit is more than output tax payable ?
Answer 11:- The difference, in such case, may either be carried forward to the next period or claimed as refund at the option of the taxable person. In case it cannot be utilized, refund will be allowed as per the provisions of the VAT Act.

Question 12:- Will a separate application for refund be required to be made whenever input tax credit is more that output tax ?

Answer 12:- Yes, separate application will be required.

Question 13:- Registration - Will a person registered under the Sales Tax Act make fresh application for registration under VAT Act ?

Answer 13:- No, separate application for registration will not be required for registration under VAT Act if the dealer registered under ST Act has filed a simple 'Fact Sheet' with the Sales Tax/Excise and Taxation Department before 31.3.2005. New registration numbers will be issued on the basis of these Fact Sheets. No fees are required to be paid while filing the Fact Sheet or for obtaining registration number. However, w.e.f. 1.4.2005 the dealer will have to apply for new Registration Number for VAT in Form VAT-1.

Question 14:- What is the TIN ?

Answer 14:- Tin is an 11 digit registration number which is being issued to all the VAT dealers. Tin is the abbreviated from of 'Tax Payer's Identification Number'.

Question 15:- Purchase tax - Will purchase tax continue after introduction of VAT ?
Answer 15:- Purchase tax will apply only in respect of following goods after introduction of VAT:

Wheat
Paddy
Cotton
Sugarcane
Milk for manufacture of taxable goods.

Question 16:- Will input tax credit be available in respect of purchase tax so paid ?

Answer 16:- Yes.

Question 17:- Export - Will a person exporting goods out of india be eligible to claim input tax credit ?

Answer 17:- Such a person will not have output tax liability. An exporter of goods out of India will be eligible to claim refund of input tax in respect of VAT paid in State on purchase of goods.

Question 18:- Price rise - Will price of goods increase after introduction of VAT ?

Answer 18:- The tax base under VAT system is fairly broad and the rates of many goods under VAT system are being reduced to 4%. Therefore, it is expected that there would be no price increase.

Question 19:- VAT Invoice - Will a VAT dealer have to issue invoice in a specific format ?

Answer 19:- No, there is no requirement of specific format for issuance of invoice. However, the law requires that certain particulars be mentioned on the invoice.

Question 20:- What are the mondatory particulars that need to be clearly mentioned on a VAT invoice ?

Answer 20:- Following are the mandatory particulars that need to be clearly mentioned on a VAT invoice.

(a) Running serial number, printed by mechanical or electronic process;
(b) Name, address and registration number of the seller;
(c) Name, address and registration number of the purchaser;
(d) Date of issue;
(e) Quantity and full description of goods sold;
(f) Unit price of the goods excluding VAT;
(g) Rate and amount of VAT charged;
(h) Total value of the goods;
(i) Mode of transportation of the goods and details thereof;
(j) Sr. No. of Form VAT-36 if the goods are sent outside State;
(k) Signature of proprietor/partner/director/authorized agent; and
(l) Above all, the words 'VAT Invoice' shall be prominently printed on the invoice.

Question 21:- How many copies of VAT invoices will need to be prepared ?

Answer 21:- VAT invoices shall be at least in triplicate as detailed below:-

(a) The first copy shall be issued to the purchaser prominently stating; 'Original' and 'input Tax Credit is available to a taxable person against this copy only';

(b) The second copy shall be issued to the transporter of goods prominently stating: 'Transporter's copy' and 'This copy does not entitle the holder to claim tax credit'; and

(c) The last copy shall bear the words 'seller' and shall be retained by the seller.

Question 22:- Which mode can be employed for issue or preparation of an invoice ?

Answer 22:- An invoice can be:

(a) issued from duly bound pre-printed invoice or cash memo book; or

(b) prepared on computer or other electronic/mechanical device.

Question 23:- Retail invoice - What are the mandatory particulars that need to be clearly mentioned on a Retail invoice?

Answer 23:- Following are the mandatory details that need to be clearly mentioned on a Retail invoice:-

(a) Name, address and registration number of the selling person;
(c) Date of issue of the invoice;
(d) Quantity and full description of goods sold;
(e) Unit price of the goods;
(f) Total value of the goods; and
(g) Signature of proprietor/partner/director/authorized agent.

Question 24:- How many copies of retail invoices will need to be made ?

Answer 24:- Retail invoices shall be in duplicate. The first copy shall be issued to the purchaser and the second copy shall be retained by the seller.

Question 25:- VAT Record - Will a VAT dealer be required to maintain computerized records ?

Answer 25:- Not necessary. Records may even be maintained manually.

Question 26:- Records required under VAT system whether ae complex ?

Answer 26:- No. The normal records of transactions maintained by a business containing particulars of purchase/sale transactions, stock details, VAT amount etc. would be sufficient.

Question 27:- Input tax credit - Whether the VAT dealer has to keep one to one co-relation between purchases and sales to avail input tax credit ?

Answer 27:- No, the VAT dealer is not required to establish a one co-relation to avail input tax credit.

Question 28:- Lock up of funds - Will there be lock up of funds under VAT affecting cash flow in business transactions ?

Answer 28:- No, there will be no lock-up of funds in State. Credit for input tax is allowed immediately on purchase of goods, as well as Capital goods, which can be utilized for payment of output tax in the same or subsequent tax/return period. Thus, the cash flow of businesses would not be affected under VAT .

Question 29:- Returns - Whether monthly returns are required to be filed under VAT ?

Answer 29:- No, every person registered under the VAT Act is required to file quarterly returns. Only the person (dealer) with annual turnover above Rs. One Crore during the previous year is required to pay tax on monthly basis.

Question 30:- Assessments - Who will frame assessments under VAT ?
Answer 30:- One of the key features of VAT Act is that there is a self-assessment system, wherein a dealer will himself assess his own tax liability and file returns on self-assessment basis.There is no provision for mandatory annual assessments by the Sales Tax/Excise and Taxation Department under the Act.

Question 31:- Closing stock - What is the position of closing stock as on 31.3.2005 ? Does a dealer get credit of the same ?

Answer 31:- Yes. A dealer, who was registered under the repealed Act and whose registration has been continued under VAT Act, shall be entitled to input tax credit in respect of the tax paid under the repealed Act on the goods, other than capital goods, lying in stock with him on the appointed day (1.4.2005), provided he fulfills the following conditions:-

(i) The stock is out of the purchases made within twelve months prior to the appointed day.

(ii) A statement of tax-paid goods held in stock is furnished in the specified form to the designated officer within thirty days from the appointed day.

(iii) Deduction from gross turnover was not claimed by such person in respect of these goods under the repealed Act or rules.

Input tax credit available under this Section, shall be proportionately adjusted in equal instalments over a period of one year beginning after three months from the appointed day.

No input tax credit under this Section shall, however, be allowed in respect of the goods held in stock:-

(a) which are not included in the statement of tax-paid goods specified under the Act, or

(b) for which the person does not have in his possession sales vouchers, issued by a person, registered under the ST Act, against the purchases of the said goods, or

(c) which are not recorded in his books of accounts.

Question 32:- CST forms - Whether the Central Sales Tax Forms will continue under VAT system ?
Answer 32:- The Central Sales Tax Forms namely, C, El/Ell, F, H etc. will continue under VAT. The rate for CST witout 'C' forms will be 10% (for 4% goods) and 12.5% (for 12.5% goods) respectively.

( Note: Though most of the FAQs are common for all the States coming up with VAT; the netizens are advised to refer to VAT Acts and Rules of the concerned State before acting on the basis of abovesaid FAQs)