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DELHI VALUE ADDED TAX BILL, 2004 (As passed by the legislative assembly on December 21, 2004)

DELHI VALUE ADDED TAX BILL, 2004 (As passed by the legislative assembly on December 21, 2004). DEMISTIFIED. Sushil Aggarwal Chartered Accountant anil.sushil@vsnl.com. DO YOU KNOW ?. DESIGNED BY CHARTERED ACCOUNTANTS. ALLOWANCE FOR BAD DEBTS ARMS LENGTH CONCEPT INTRODUCED

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DELHI VALUE ADDED TAX BILL, 2004 (As passed by the legislative assembly on December 21, 2004)

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  1. DELHI VALUE ADDED TAX BILL, 2004(As passed by the legislative assembly on December 21, 2004) DEMISTIFIED Sushil AggarwalChartered Accountantanil.sushil@vsnl.com

  2. DO YOU KNOW ? • DESIGNED BY CHARTERED ACCOUNTANTS. • ALLOWANCE FOR BAD DEBTS • ARMS LENGTH CONCEPT INTRODUCED • CONCEPT OF CASH BASIS OF ACCOUNTING INTRODUCED • ADVANTAGE BUSINESSMAN

  3. NATURE OF TRANSACTIONS TO BE CONVERED UNDER VAT Transaction entered into by dealer /deemed dealer: • Normal sale transactions. • Deemed sale purchase. • Think of any transaction and it may be taxable as a sale.

  4. IMPORTANT DEFINITIONS DRAFTING ISSUES

  5. IMPORTANT DEFINITIONSDRAFTING ISSUES • BUSINESS Sec 2 (d) Services included. Occasional sales included. Term Debit- Credit used. Far reaching implications.

  6. IMPORTANT DEFINITIONSDRAFTING ISSUES • Dealer Sec 2(j) Vast definition. Banking & Insurance covered.

  7. IMPORTANT DEFINITIONSDRAFTING ISSUES • Fair Market Value Prices can vary in different conditions of time or weather – not considered.

  8. IMPORTANT DEFINITIONS • Related Person Hindu Gotras are simpler. Companies and firms will have relatives. • Arms length transactions Duel Effect of transactions between related parties • Seller : deemed sale at fair market value. • Buyer: Input credit denied or reduced.

  9. IMPORTANT DEFINITIONS • Goods all movable property excluding newspaper, actionable claims, stocks, shares, securities. Money is not specifically excluded. • Sale With its grammatical variations and cognate expressions means any transfer of property… This is language of agreements not Acts. Effort is not only to define Sale but also other terms which may mean alike.

  10. IMPORTANT DEFINITIONS • Tax Invoice • To be issued only on request of purchaser. • To be prepared in Duplicate. • Can not be issued by dealers who are: • a)Specifically exempt from tax (Schedule V) • b) Who has opted for the composition scheme. • c)Making an interstate sale, or export sale. • d) not been issued the registration certificate.

  11. IMPORTANT DEFINITIONS • Shall contain, in addition to routine requirements, • a)Purchaser’s Particulars & Registration No. • b)Printer’s name, address, first & last serial Nos. of tax invoice printed & supplied. • Retail Invoice Shall be issued in remaining conditions. • Debit / Credit Notes A debit or a credit note can also be issued by the selling dealer where the tax shown in tax invoice is wrongly under / over charged.

  12. IMPORTANT DEFINITIONS • ACCOUNTANT Sec. 2(a) • MISSING CLAUSE Clause 2 (u) is altogether missing from the Bill.

  13. COMPUTATION OF TAX& RATES OF TAX

  14. COMPUTATION OF TAX • TAXABLE TURNOVER. • INPUT TAX CREDIT. • FOR WORKS CONTRACTS : LABOUR AND SERVICES OR A PRESCRIBED PERCENTAGE SHALL ALSO BE REDUCED.

  15. COMPUTATION OF TAX • IN PUT TAX CREDIT ON CAPITAL GOODS. • INPUT CREDIT ON STOCK TRANSFER.

  16. COMPUTATION OF TAX

  17. COMPUTATION OF TAX

  18. RATES OF TAX Five slabs of tax : • 0% Primitive Agricultural & Essential • 1% Gold, bullion, jewellery • 4% Agricultural, Declared, Preferential • 20% Petrol,Liquor, lottery • 12.5% for goods not specified any where

  19. SCHEME OF THE ACT • Automatic registration of existing dealers. • Overall tax remains the same. • Local forms abolished.

  20. SCHEME OF THE ACT • Composition scheme up Rs. 25 lac • Deemed Assessment.Power to make additions ex-parte. • TDS provisions circumvented.

  21. OTHER SIGNIFICANT FEATURES

  22. OTHER SIGNIFICANT FEATURES • The liability to tax arises from transaction next to the one where taxable quantum is crossed irrespective of the last bill amount. • Section 4(2) gives Govt. power only to reduce tax by notification. Increase can only be by amendment to Act.

  23. OTHER SIGNIFICANT FEATURES • Presumptive taxability on transporters if goods move without proper documentation. • Tax credit not available unless the dealer holds tax invoice. What if goods move on challan. • Furnishing of Security/surety bonds is made mandatory at the time of applying for registration. • Net tax to be deposited in 28 days from close of tax period. Why not last day of next month.

  24. OTHER SIGNIFICANT FEATURES • Input credit also available on sale of second hand goods in contradiction to the concept of non creditable goods. • Voluntary registration is also allowed for dealers whose turnover is below the taxable quantum. • Common return and taxability under several Acts e.g. Sales Tax, WCT, Right to Use.

  25. RECORD REQUIREMENTS • If goods used for sale and other purposes the basis of reducing input credit. • Record for assessment of fair market value. • Record for dealer of second hand goods. • Record of relatives. • Guidance note must come from institute for VAT accounts because input credit as period cost may effect profitability standards.

  26. TRANSITIONAL PROVISIONS Actions due immediate to implementation of VAT

  27. TRANSITIONAL PROVISIONSActions due immediate to implementation of VAT Opening Stock Treatment: Input Tax credit can be availed in respect of stock as on 31/3/05, subject to following conditions: 1. A statement of trading stock held as on the date of commencement of the Act, is filed, with in four months from that date with the Commissioner along with the return.

  28. TRANSITIONAL PROVISIONSActions due immediate to implementation of VAT 2.  Goods purchased prior to 1-4-2004 are not eligible. 3. Goods must have suffered first point tax and the dealer should have in his possession the related invoices. 4. Tax credit not available for finished goods already manufactured out of tax paid raw material and for the existing capital goods.

  29. TRANSITIONAL PROVISIONSActions due immediate to implementation of VAT • Tax credit also not available for goods which were taxable at last point under DST on the date of commencent of Act. • For claiming tax credit in excess of Rs. 1 lac, a certificate from a CA is necessary. • Entire tax credit shall be claimed in single statement to be accompanied with a return under VAT.

  30. TRANSITIONAL PROVISIONSActions due immediate to implementation of VAT 8. Tax on opening stock of trading & finished goods, is to be deposited by 31-5-05 by a person who was registered under DST but has no obligation to be registered under VAT and has also not sought voluntary registration with in 1 month. Tax is payable only on stock which has not already suffered tax under DST. The tax is payable on the fair market value of such stock.

  31. TRANSITIONAL PROVISIONSActions due immediate to implementation of VAT The contractors enjoying composition scheme as on 31.03.2005 under the DST on WC Act, shall be governed by the composition scheme as enunciated in the VAT Act i.e. to pay @ 1% in case the turnover does not exceed Rs.25 Lac as on 31.03.2005.

  32. PENALTIES

  33. PENALTIES Penalties are made harsh. Some of the instances to impose penalty are as under: • Rs.1000/- per day for delay in applying for registration subject to a maximum of Rs.100,000/-. • Rs.100/- per day for delay in applying for amendment in RC, cancellation of RC, surrender of RC, non-filing of return/revised return or attachment thereof say challan etc. subject to a maximum of Rs.5,000/-. • Rs.100,000/- or equal to the tax wrongly collected which ever is greater for misrepresenting himself as registered dealer. • Rs.10,000/- in case the dealer obtaining voluntary registration but not starting the activities from the requisite date.

  34. PENALTIES • Rs.10,000/- or the amount of tax deficiency which ever is greater for furnishing a false/ misleading/ deceptive return. • Rs.10,000/- for omitting any information in the return filed, without which the return is false/ misleading/ deceptive. • Rs.10,000/- or the amount of tax credit wrongly claimed which ever is higher for claiming tax credit for which the dealer is not entitled or excess tax credit. • Rs.50,000/- or 20% of tax deficiency which ever is greater for not preparing the records and accounts in prescribed manner. • Rs.100,000/- or the amount of tax deficiency for preparing false/ deceptive/ misleading books of accounts.

  35. PENALTIES • Rs.5,000/- or 20% of tax deficiency which ever is greater for issuing an incomplete tax/retail invoice. • Rs.100,000/- or tax deficiency which ever is greater for issuing tax invoice without being authorised for doing so. • Amount of tax payable on goods being carried by transporter without proper documents. • Rs.50,000/- or tax deficiency which ever is greater for making a false/ deceptive/ misleading statement, omit any matter without which the statement is false/ deceptive/ misleading. • Penalty amount shall be reduced to 20% and enhanced to 100% under certain circumstances.

  36. OPPORTUNITIES FOR CAs • Stock Valuations as on March 31, 2005 shall have to be certified. • Section 49: Accounts to be audited and a report in prescribed form is to be issued where sales exceed 40 lacs.

  37. SOME ADVERSE IMPACTS • VAT may precipitate inflation. • Certain items have been put to higher rate list. • Interstate movement of goods shall not remain free unless CST goes. • Delhi bears re-distributive character and manufactures little. Refunds shall accrue in many cases resulting on lock-in of funds.

  38. THE GREENER SIDE • Tax to GDP may improve. • It is the best proposed utilisation of Information Technology. • Multiple taxes and transaction cost may reduce. • Transparent system.

  39. THE GREENER SIDE • TDS Gone. • Bad Debts. • Capital Goods Tax setoff. • Forms to go. • Level playing field. • Deterrent penalties. • Continuous return-adjustment procedure. • Automatic stay on filing of objections.

  40. E-COMMERCE TRANSACTIONS • Laws and the Governments have come of age but the newly proposed law does not take into account e-commerce transactions. • A person sitting on net may purchase a product from abroad and consume with in his state without going through the various distribution channels and pay no taxes. If an importer imports and delivers the same product the tax is applied.

  41. UNANSWERED QUESTIONS • There were several nature of transactions which were excluded specifically from the ambit of WCT (e.g. Printing, dyeing). The future of these transactions is uncertain. • WCT continues to be a contentious issue. The debate on divisibility of contracts goes on.

  42. Sushil AggarwalChartered Accountantanil.sushil@vsnl.com Thank You

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