Provisions of Maharashtra VAT Act

Local Sales Tax in Maharashtra i.e. Maharashtra VAT

VAT is now implemented in 21 States including Maharashtra from 1.4.05

onwards. VAT is going to be implemented in certain major States like
Gujarat, Madhya Pradesh, Rajasthan, Jharkhand. Only major States outside
VAT are U.P. and Tamilnadu.

MS VAT 2002 Act and relevant Rules and Notifications there under govern
the provisions for VAT in Maharashtra.

VAT is only for local sales in VAT states and not for Inter State Sales. CST
continues to govern both Inter State Sales and Exports.

MVAT is applicable for local sales in Maharashtra (delivery of goods under

a sale given from a place in Maharashtra to another place in Maharashtra)

With introduction of MVAT there is now a Change from Single Point Tax to
Multi Point Tax at all the stages of sale with no concept of Resale or
Second Sale under local Sales Tax.

VAT is implemented for local sales through a system for set-off of the local
taxes paid earlier, by way of Input tax credit/rebate to both manufacturers
and traders. This credit is available instantaneously at the time of receipt of
Tax Invoice from the supplier, irrespective of when inputs are utilised / or
output is sold. Major features of this credit are as under.
Any registered dealer who has not opted to pay tax by way of
composition as a retailer etc. can claim set-off for taxes paid under:
Maharashtra Value Added Act 2002, i.e. VAT
Entry for Motor Vehicles into Local Areas Act, 1987, i.e. Entry
Tax
Entry of Goods into Local Areas Act, 2003, i.e. Entry Tax
Set off can be claimed on
raw materials, parts, components and spares, fuel.
packing materials
capital assets,
other goods the purchases of which are debited to profit and
loss account, trading goods
No set off can be claimed in Maharashtra for
CST paid on OMS Purchases.
VAT or other local tax paid in another states
Octroi
VAT paid in Maharashtra on certain items like motor vehicles
(other than goods vehicles) , motor spirits etc, any purchase
of goods of incorporeal or intangible nature other than Import
License, Exim Scrips, Special import Licence, Duty Free

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Advance Licence, Export Permit Quota etc., tax paid on works

contracts in building construction, purchases of building
material, which are not resold but used in the activity of
building construction, purchases of Office Equipments,
Furniture, Fixture and Electric Installations, treated by the
claimant dealer as capital assets.
For stock transfer/consignment sale of goods out of the State, VAT
in excess of 4% only will be eligible for tax credit. Value of Input VAT
for branch transfer will be calculated on ratio basis w.r.t. GTO of the
dealer .
VAT credit is given only against valid tax invoice in which the VAT
must be shown separately and which is recorded in a Purchase
Register maintained in proper form. .
Provisions for VAT credit are similar to MODVAT or CENVAT credit
under Excise.

Rates of VAT

Description of Item Rate of Tax No. of

Commod
ities
Necessities (fruits, 0% 46
vegetables etc)
Gold and silver 1%

Declared goods (crude oil, 4% 270

iron and steel etc),
medicines and drugs, all
agricultural and industrial
inputs, intangible goods,
capital goods.

Petrol, diesel, aviation 20%

turbine fuel and other
motor spirit

RNR rate for all other 12.5%

goods

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 Provisions of Maharashtra VAT Act

Now there is mostly no concessional sale under the VAT Act since the
provision for setoff makes the input zero-rated. However to protect
interests of Maharashtra Based suppliers, recently it is provided that sale
to Government Departments can now be effected at concessional rate of
4%.

All other taxes such as turnover tax, surcharge, additional surcharge and
Special Additional Tax (SAT), Resale Tax, Works Contract Tax, Lease Tax
have been replaced by MVAT.

Tax Invoice to be issued for every sale. Major requirements in this regard
are as follows.

A tax invoice is the document that must be given for all sales in
Maharashtra where VAT is charged.
A tax invoice can be in any form to suit business needs but it must
show:
the words `Tax Invoice’ in bold letters either at the top or at a
prominent place
a serial number
the date of the transaction/sale/issue
your name, address and Registration Certificate number
your customer’s name and address
description of the goods
the quantity or number of goods involved in the transaction
the price of the goods
the amount of VAT charged on the goods (this must be shown
separately)
a declaration certificate that “ I / We hereby certify that my/our
registration certificate under the Maharashtra Value Added Tax
Act, 2002 is in force on the date on which the sale of the goods
specified in this tax invoice is made by me / us and that the
transaction of sale covered by this tax invoice has been
effected by me / us and it shall be accounted for in the
turnover of sales while filing of return and the due tax, if any,
payable on the sale has been paid or shall be paid.”
Manager or agent as authorized by the dealer may sign the tax
invoice
Bill or Cash memorandum can be issued by a registered dealer
wherein the tax amount is not shown separately. All dealers paying
tax under composition (other than works contractors) should also
issue Bill or Cash Memorandum. VAT credit is not available on the
basis of Bill or Cash Memo.

Registration of dealers with gross annual turnover above Rs. 5 Lakhs is

compulsory. There is also a provision for voluntary registration. All

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existing dealers are automatically registered under the VAT Act. Existing
BST and CST numbers are replaced by Tax Payer’s Identification Numbers
recently allotted to dealers.

Composition Scheme at around 1% VAT mainly for retailers and works

contractors is available. VAT credit is not available for purchases effected
from retailers under composition.

Under VAT, simplified forms of returns are notified. Frequency of filing of

returns is
Monthly, if total net tax liability in the previous year was more than
Rs. 1 lakh,
Quarterly, if total net tax liability in the previous year exceeded Rs.
12,000 but was Rs. 1 lakh or less,
Half yearly, if total net tax liability in the previous year was Rs.12,000
or less
Retailers under composition scheme must file six monthly returns.
Other composition dealers must file returns as per above limits of
tax liability.
Returns are to be filed on or before 21st day of the following month.
If tax is due to be paid, return should be filed at a bank that accepts
tax payments & if no tax is due to be paid, at sales tax office.

Dealers are not required to keep any special records for VAT, but records
should give sufficient information to complete VAT return and to calculate
and account for VAT. Accordingly records should have details of all the
goods that are disposed off and the VAT charged therefore and all
business purchases and the VAT paid to suppliers thereon.

Every return furnished by dealers is scrutinized expeditiously within

prescribed time limit from the date of filing the return. If any technical
mistake is detected on scrutiny, the dealer is required to pay the deficit
appropriately.

Self Assessment by dealer himself rather than compulsory assessment at

the end of each year will be a major feature of VAT. If no specific notice is
issued proposing departmental audit of the books of accounts of the dealer
within the time limit specified in the Act, the dealer will be deemed to have
been self-assessed on the basis of returns submitted by him.

Correctness of self-assessment will be checked through a system of

Departmental Audit and audit by CA etc. A certain percentage of the
dealers will be taken up for audit every year on a scientific basis. If,
however, evasion is detected on audit, the concerned dealer may be taken
up for audit for previous periods. This Audit Wing will remain delinked from

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tax collection wing to remove any bias. The audit report will be
transparently sent to the dealer also.

Simultaneously, a cross-checking, computerised system is being worked

out on the basis of coordination between the tax authorities of the State
Governments and the authorities of Central Excise and Income Tax to
compare constantly the tax returns and set-off documents of VAT system
of the States and those of Central Excise and Income Tax.

For units under Exemption and Deferral, benefits continue under VAT,
except that in case of purchases, tax will have to be first paid to the
suppliers and then a refund will have to claimed through monthly returns.
Tax Invoice has to be given by both Exemption and Deferral units to their
customers. Exemption Units should not charge any VAT in their Tax
Invoices and should give different text of declaration in such invoices.
Customers of such Exemption Units should in turn charge VAT in their sale
bills only on the value addition made by such customers by excluding cost
of purchases from exemption units from their sale prices.

VAT on Works Contracts has following major features.

VAT can be paid either on the value of the goods transferred in the
course of execution of a works contract at the appropriate VAT rate,
or under a scheme of composition.
In both cases, set- off of the VAT paid on the purchase of the goods
can be claimed.
Option for composition can be exercised in respect of each
individual contract separately and no application is to be made for
selecting this option.
VAT under composition is at the rate of 8% of the total value of the
contract, but a set-off calculated at the rate of 16/25 of the VAT
charged on the purchase of all goods including capital goods
purchased for use in the execution of the works contract can be
claimed from this tax.

For carry forward of input Vat credit on Opening stocks of 1.4.05 different
systems are prescribed for traders and manufacturers.

For manufacturers, very simple system of giving set off under present
system for purchases effected up to 31st March 2005 is to be followed
thereby avoiding any need for carry forward of VAT credit on closing
Stocks of 31st March 2005. Thus for materials to be used for manufacturing
which are in stock as on 31st March 2005 set off on purchases of these
items is to be given in the Assessments for the periods in which respective
materials are purchased under BST rules. For manufacturing purchases
affected before April 2005, set off under present system is available for

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claims to be made as per sales tax returns for the months in which such
goods are purchased. . For borderline purchases (Supplier Invoice date
before April 05 but GRR date after March 05, transitional provisions are
made for allowing set off on such goods so as to align such set off/credit
with existing system of passing of Purchase Bills generally followed by
Industry.
Impact of VAT at every stage of procurement, production, marketing &
finance vis-à-vis the current sales tax structure.

Item of Impact Description of likely impact

Input Costs Input Costs will reduce because full set off of local
input tax will be available as against current system
of partial set off. This will be applicable to both raw
materials and capital goods.
OMS Purchases will however be costlier than WMS
Purchases till the time CST gets reduced to zero
All tax-paid goods purchased on or after April 1,
2004 and still in stock as on April 1, 2005 will be
eligible to receive input tax credit, subject to
submission of requisite documents. Stock Counting
of 31st March,2005 should therefore be well planned
to identify such purchases.
Resellers holding tax-paid goods on April 1, 2005 will
also be eligible for input VAT credit and all the
distributors/dealers should be advised to organize
proper stock counting for availing the benefit.

Procurement Local Procurement may be beneficial till CST is

Policy reduced to zero.
Payment of Entry Tax on OMS Purchases may have
impact on Cash Flow
Manufacturing OMS locations of intermediate manufacturing
Policies facilities within the Group may prove costlier due to
denial of full set off for branch transfer of
intermediates made by such factories to Group
factories in Maharashtra.
VAT on services may have impact on Cash Flow, in
cases Job Work.
Pricing Margins of entire value chain will now be taxed &
Policies hence final price to consumer may

Increase
if post manufacturing recoveries included in final
price to end consumer of the product (MRP) are
more than the pre manufacturing recoveries (Factory

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Price)
Decrease
if post manufacturing recoveries included in final
price to end consumer of the product (MRP) are less
than the pre manufacturing recoveries (Factory
Price) existing incentive schemes may be continued
in the manner deemed appropriate by the States

Working Levels of Working Capital may

Capital Increase
management if VAT is levied on imports
till the time of realization of refund of excess Input
Tax Credit, if OMS Sales are more than Local Sales &
Local Purchases are more than OMS Purchases
since Tax credit on capital goods may be adjusted
over 3 years, rather than present system of set off in
full in the month of purchase.
in the initial period after introduction of VAT since
tax credit on opening stocks will be available over a
period of 6 months after an interval of 3 months
needed for verification.
Decrease
if OMS Sales are less than Local Sales & Local
Purchases are more than OMS Purchases
if OMS Sales are less than Local Sales & Local
Purchases are less than OMS Purchases
if OMS Sales are more than Local Sales & Local
Purchases are less than OMS Purchases

Sales & Opening of Depots in other States so as to reduce

Distribution landed prices for your customers.
Policies Collection of C/D Forms on quarterly basis, to be
made a part of After Sales Routine
Entire design of VAT with input tax credit is crucially
based on documentation of tax invoice, Tax Payer’s
Identification Number will also be allotted to every
dealer and will have to be printed on the invoice.
There will be no case of concessional sale under the
VAT, hence, there will be no need for declaration
form, which will be a relief for dealers.
All other existing taxes such as turnover tax,
surcharge, additional surcharge and Special
Additional Tax (SAT), Resale Tax , Works Contract
Tax, Lease Tax would get merged into VAT.
Stock transfers may be necessary if OMS customers

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 Provisions of Maharashtra VAT Act

find Non vatable CST unsuitable or if there is

resistance by OMS customers to payment of entry
tax that may be charged by destination State.
However for stock transfer there will be loss of 4% of
Input VAT, and hence may not be a profitable
proposition.

Accounting Accounting entries similar to CENVAT will now be

for VAT necessary for State VAT (Sales Tax) & proper VAT
codes will have to be devised for variety of purchase
transactions.
Item-wise Standard Rates adopted for Inventory
Valuation may be required to be changed in view of
change in Input Tax Credit
Self-Assessment & Departmental Audit will require
greater accuracy on the part of Accounts Section
especially for claiming of Input VAT credit.

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