CHAPTER -II

Value Added Tax - Some Frequent Asked Questions(?) with Answers.

1.What is VAT ?
Value Added TAX or VAT is a multi point taxation system wherein tax is levied at each stage.
It is a simple and transparent system of taxation that is fair to business and consumers. VAT
is levied on sales of all taxable goods. VAT is not levied if sale of goods is not made in the
course of or in furtherance of business.
2.How VAT is computed ?
VAT is a tax at each stage on value addition . While computing the final tax liability, the tax
paid on earlier stage that is on purchases etc is deducted from the tax payable known as
output tax ( on sales) & net balance if any is payable into the Government Treasury.
Example :

Tax Credit –Incase of Chain Of

Distribution
Producer Manufact Whole
Particulars of RM urer Seller Retailer
Sale Price
100 200 250 300
Rate of Tax 4% 12.50% 12.50% 12.50%
Tax Charged 4 25 31.25 37.5
Tax Paid (Input Tax) 0 4 25 31.25
Value Added Tax 4 21 6.25 6.25

3.Why VAT system of taxation is acceptable?

It is acceptable due to the following advantages.
• It eliminates cascading effect of taxes.
• Set off of input tax will be allowed on previous purchases.
• Overall tax burden will be rationalized & prices in general will fall.
• It promotes competitiveness of exports.
• It has simple & transparent structure.
• It improves compliance.
• High revenue growth.
• It improves dealer-friendly tax administration.
• System of invoice enables the authority to cross check declared transactions between
tax payers.
• Self Assessment by dealers.
• It removes multiple taxes like surcharge, additional surcharge. turnover tax etc. on
goods.
• It minimizes litigation because of less rate slabs.
• It ensures no war between the states.
• It promotes development of ancillary industries.
• It removes all barriers to inter-state trade and commerce and export out of the
territory of India.
• It ensures few tax exemptions.
 • It assures a reliable IT support to achieve automation filing of return etc.

4.Who should pay VAT ?

An Individual, Partnership, Corporation /Company HUF, any Mercantile Agent, registered
dealer under CST Act etc., who sales goods in the course of business and who is registered
under repealed act & will required to register for VAT should pay VAT.
5.When is VAT Chargeable ?
VAT is chargeable if the sales of goods-
- are made in the State
- are made by a VAT dealer-
- are made in the course of or in furtherance of a business; and
- are not specifically exempt or zero-rate.
6.Who can be Registered.
• Manufacturers.
• CST dealers.
• Importers / Trader who import goods into the State.
• Dealers with turnover exceeds certain limit.
• Existing dealer will be automatically registered.
• New dealer has to be registered within 30 days from the date of liability to
get registered.
7.Which Sales are covered under Vat?
• Transfer of property in goods for cash, deferred payment or valuable
consideration.
• Transfer of property in goods involved in execution of works contract.
• Delivery of any goods on hire purchase / installments.
• Transfer of right to use goods for any purpose/ period.
• Supply by way of or as a part of any service.
• Supply of goods by unincorporated association / body of person to its
members.

8.What is the Taxable Limit under VAT Act.

Imports for sale any goods into the State on his Nil
A own behalf or on behalf of his principal
b Manufactures or produces any goods for sale Rs.50,000
C Engaged in any other business other than clause (a) Rs.5,00,000
and (b)
d Involved in the execution of works contract and Rs.25,000
leasing
Limit differes from State to State.
9.
Can one will be registered if turnover is below the limit ?
No, if your turnover is not crossing the specified turnover limit then you need not get
yourself registered under VAT Act & pay.
10.What is Tax Identification Number?
 • It is a 11 digit code to identify a taxpayer.
• It is issued to all the dealers on the same line as PAN under Income Tax Act.
• 1st two character will be same as state code & rest will be differ from state to state.
• It will facilitate computerization.
• It helps to detect stop filers, delinquent accounts, cross-checking of information on
tax payer compliance -

11.Who is an Importer ?
Importer means a businessman who buys goods from a State outside and brings them into the
State. Importer also means a businessman to who goods are dispatched from place outside
the State.
12.Who is a Non-Resident Dealer ?
Non-Resident Dealer is a dealer who does trading of goods (purchase or sale)in the state but
has no fixed place of business or residence in that state.
13.Whether Non Resident Dealer is required to be registered under VAT Act ?
Yes, he is also required to get himself registered under VAT Act & pay VAT if he crosses the
prescribed limit.
14.If the turnover is not crossing the specified turnover limit, can one be registered as
dealer?
Yes, you can obtain registration under voluntary registration scheme but you will be liable to
pay tax from the date of registration on all the turnover of taxable goods even though it is
below the specified limit.
15.Who will be benefited by VAT, and how ?
In the present scenario of globalization & competition ultimate benefit will go to the
consumer. But there is no mechanism to see that entire benefit enjoyed by the consumer.

• Manufacturers will be benefited the most since they will be entitled to claim Input
tax credit including entry tax.
• Exporters will also be benefited as they would be truly having a zero rated exports
but entire input tax will be either set off or refunded
• The Distributors & Retailers will have to pay output tax after adjustment of input
tax including entry tax .
• Consumer will have to take the overall impact of the taxes and will have to bear
the ultimate tax burden & ultimate benefit goes to the consumers.
16.What will be the Rate structure under VAT Scenario.

17.What will happen to AED Goods?

W
hatisth
e
• Vat on AED items relating to sugar, textiles & tobacco will not be imposed due to
organizational difficulties for a period of one year.
• The same will be reviewed after above period.
• These goods are subject to levy of excise under Additional Duties of Excise (Goods of
Special Importance) Act 1957.

18.Which sales are exempted ?.

.
Exempt sales are listed in schedule or notified .(62 category of goods listed in Schedule “I” )
19.Which Sale is Zero rated?.

When goods are sold

In course of inter state trade & commerce.
In course of export out of the territory of India.
To a dealer having business under special economic zone, software technology park,

Ex
emp
tedIte
electronic hardware technology park.
To an export oriented unit
20.How is VAT calculated ?
VAT is payable by a dealer in any taxable period (monthly) calculated as follows.
Incase of registered dealer:
Tax payable = (O+P)-I
(Output Tax liability + Purchase Tax payable) - input tax paid
Incase of Unregistered dealer:

Bu
llio
n,g
old
VAT = (Output Tax liability + Purchase Tax payable).
21.What is output tax ?
It is the tax charged or chargeable under the Act by a registered dealer for the sale of
goods in the course of business.
22.What is input tax ?
It is the tax paid in respect of the purchase of goods from registered dealers of the State.
23.Who can claim Tax Credit?
A Registered dealer who is a :
• Manufacturer
• Wholesaler
• Works contractor
• Any Registered trader other than Retailer.
• Lessor.
24.What does sale price included ?
Sale price includes following:
• 1.Value of goods.
• 2.Any charge for anything done by the seller to the goods at or before delivery.
• 3.Excise duty, if any.
• 4.Customs Duty, if any,
• 5.Deposit whether refundable or not in connection with or incidental to the sale, etc.

25.What happens to Surcharge and Turnover Tax ?

The rate under the VAT Act will be a single rate. There is no other taxes like turnover tax,
surcharge, Resale Tax, Octroi, additional tax etc.
26.What will happen to Entry Tax?
Entry tax treated as Input Tax & eligible for Set Off. How ever in other states entry tax in
lieu of octroi duty will continue.
27.What will happen to the declaration forms ?
All the declaration under the local act will be abolished as VAT is to put all dealers at par
with each carrying the same rate of tax.
28.What will be happen to Central Sales Tax ?
• Input tax on purchases made through inter state trade from outside state will not be
allowed.
• CST will be phased out from 4% to 0% during coming 3 years.
• Empowered committee is working out the demands made by the states to phase out
over a period of 3 years 4% - 3% -2% -1%.(at present 2%)
• Statutory declaration form will continue up to phasing out of CST Act.

29.Will ‘F’ Forms or ‘C” Forms be continued ?

Yes. Since there will not be any change in the Central Sales TAX Act, the declaration
prescribed under the CST Act will continue. Branch transfer/consignment transfer outside
the state would continue to be without any levy of CST against declaration in Form ‘F”.
30.Whether Transit sales or High seas sales under CST ACT 1956 will be continued ?
Yes. Sales covered by section 6(2) of the Central Sales TAX Act.1956 will be continued ?
31.Is CST paid will be allowed for input tax credit ?
No. Since it is paid to other State Govt. the credit is not available to the
32.What is Composition Scheme?
Scheme of Composition of Tax shall be available to only such Dealer(s), other than the works
contractors, whose gross turnover does not exceeds Rs.50 lakhs in a year. The Rate of Tax
applicable under the Composition scheme referred in this Section shall not be exceeding 8%
on the Gross Annual Turnover.
33.What is available for set-off under that Vat Act ?
-Tax paid on purchases.
-trading goods
-Raw materials
-Racking material and Fuel
-Miscellaneous goods
-Purchases tax paid by the dealer.
34.What is the basis one need to claim input tax ?
Original tax Invoice showing clearly tax paid issued by the seller is the basis of claiming input
tax credit.
35.When you will claim input tax credit?
It will be along with VAT return each month.
If the claim for input tax credit exceeds the amount of output tax on the return, you are
entitled to a refund or to carry forward a credit. You will be able to claim a refund of excess
input tax incase of exports.
36.What is the important condition for claiming Input Tax Credit ?
Only a registered dealer of the of the sate with originally tax invoice will claim Tax Credit.
Following details are to be produced
• Date of purchase
• Name of selling dealer
• Description of goods
• Registration number of the dealer-if registered
• Bill no / Invoice number
• Purchase price
• Amount of sales tax recovered separately by the vendor
• Amount of Purchase tax paid or payable by the dealer.
37.What is the Tax Period?
It may be monthly or quarterly. All dealers to follow the same financial year.

38.What is the period of filling Return under VAT Act?

It may be monthly or quarterly besides annual return to be filled after end of the year.
39.Input Tax Credit of Capital Goods.

• Allowed over a period of 36 months from the date of 1st sale of taxable goods.
• No Tax Credit is allowed
• On closure of business before commercial production.
• Capital Expenditure incurred prior to date of Registration.
• If capital goods-
• Purchased before 01.04.2005.
• Manufactures exempted goods / generation of power including captive power.
• Being expenditure on land, civil construction / structure.
• Being secondhand / subsequent purchases.
• Vehicles for conveyance / transportation.
40.What circumstances Input Tax Credit is disallowed?.

 Purchases from :
• unregistered dealers.
• dealer whose certificate of registration is suspended.
• registered dealer who pays composite tax / turnover tax.
• Inter state purchases ( CST Paid).
• Purchase of used in manufacturing of exempted goods.
• Purchase of goods taxable at single point.
• Goods imported from outside the territory of India.
 Purchase of goods:
• purchase invoice is not available.
• Purchase invoice -does not show the amount of tax separately.
• In respect of capital goods specified in schedule.
• Unsold stock at the time of closure of business.
• Execution of works contract – Tax paid by way of composition.
• Incase of sale of agricultural produces.
 Taxable goods given away by way of:
• free samples
• gift
 used personally
 Lost due to theft,
 damaged .
 destroyed.

41.What is the Contents of Invoice?

• The word “INVOICE” is to be specified.

• Serial number for each year.
• Registration number of selling & purchasing dealers.
• Name & address of the selling & purchasing dealers.
• Date of issue, description of goods, quantity, value of goods & tax charged .
• To be signed by selling dealer or his representative.
• Name & address of the printer, first & last serial number of the tax invoice.

42.Is there any provision for TDS under the VAT act ?
Yes. Under VAT act while contractee making payment exceeding Rs. One lakh during the year
to a contractor engaged in the works contract will deduct a portion of tax at source and
deposit the same in the GOVT. Treasury within time limit fixed .The Rate of deduction of tax
a source will be notified by state not exceeding 10%.
43.Is there any provision for Advance Recovery of Tax on sales & supplies to Govt. &
other persons?.
 Yes. Any person responsible for paying sale price of taxable goods exceeding Rs.1 lakh during
the year is required to recover the tax @ specified by the Govt. not exceeding rate of tax
applicable to goods or supplies. The tax recovered will be deposited in the Govt. Treasury.

44.What is vat Tax Audit under VAT act ?

The departmental officers shall undertake tax audit of the records; stock in trade and the
related documents of the dealer, who are selected by the Commissioner in the manner as may
be notified for the purpose.

45.Any other Audit is required under VAT Act?

Where in any particular year, the gross turnover of a dealer exceeds 40 lakh rupees or such
other amount as the prescribed authority may, by a Notification in the Official Gazette
specify, then such dealer shall get his Accounts audited for the purpose of this Act, in
respect to that year, by an “Accountant” or “Tax Practitioners”, within six months from the
end of that year and obtain a report of such Audit in the Prescribed Form, duly signed and
verified by such “Accountant” or “Tax Practitioners”, and setting forth such particulars, as
may be prescribed. & submit the same by the end of the month after expiry of the period of
six months during which the Audit would have been completed.
46.What Records are required to be maintained under VAT Act?
• A VAT monthly account - total Input Tax (including Entry Tax), and net Input Tax
payable.
• A VAT monthly account-total Output Tax and net Output Tax
• Purchase records.
• Sales records.
• Credit and debit notes.
• Record of all Export of goods with supporting documents.
• Record of inter-State sales and inter-State transfer supported by "C Forms", "F
Forms" and stock transfer invoices / vouchers etc.
• Cash records maintained by retailers.
• Records of Entry Tax payment.
• Records of tax collection at source and tax deduction at source.
• Records of details of availment tax deferment.
• Records of adjustment of VAT credit against liabilities under CST Act.
• Records of calculation of Purchase Tax liability.
• Computer/electronic records, where available.
• Details of input tax calculations where the VAT dealer is making both taxable and
exempt sales.
• Documents, records, and claim Forms for all transitional relief claims of tax credit for
sales tax and for claims for VAT credit on first registration for VAT.
• Stock records showing stock receipts and deliveries and any manufacturing records.
• Order records, delivery notes etc.
• Annual accounts including trading, profit and loss accounts, and the balance sheet
thereof.
• Bank records, including statements, cheque book counterfoils and pay-in-slips.
47.What About Cash Records ?
Retain all records of your cash transaction including cash books, all vouchers, including petty
cash vouchers: all account books., records of daily receipts including cash register rolls.
48.Is it required to retain stock and Manufacturing Records ?
Yes. These records must be maintained. They are essential for Vat accounting & Audit.
49.How Long do I have to retain my Records and Accounts ?
Records to be maintained for 5 years . Where dispute pending with different authorities the
same may be kept till final.
50.What Is Not Included In Sales ?
A sale does not include a transaction in which parties have no intention to transfer the
ownership of goods. For example: mortgage, pledge, hypothecation, etc.
51.What will be the rate of Tax Applicable on Declared Goods under VAT ?
Declared goods are those goods which are declared by Central Government to be of special
importance under the provisions of C.S.T. Act. The rate of VAT (Local Sales TAX) is subject
to the maximum rate set under the CST Act.
52.What is taxable turnover and how is it computed ?
The Taxable Turnover means turnover liable to tax . It is calculated as follows:
Taxable turnover = total turnover- specified Adjustments.
Specified Adjustments Include
• Goods Returned
• Discounts
• Exempt Items.
• Inter-State sales
• Import & Exports
• Others (Permissible adjustments).
53.If VAT charged incorrectly to purchaser whether one will loose tax credit ?
No. In such case the following document to be issued.
a) In case of excess charge – Credit note
b) Short charge – Debit Note.
While calculating tax credit necessary adjustments will be made in respect of the above
stated credit/debit notes.
54.What will happen incase of return of goods to supplier?
In this case the supplier will have to issue a credit note for the value of goods returned as
well as VAT charged. In calculating input tax credit it is required to reverse that much tax
credit as per the Credit Note . Return must be made within 6 months.

55.Will sales to Central / State Government Department will attract VAT ?

Yes, while selling goods to Central / Sate Govt. departments vat will be charged at normal
prescribed rate for that product. No special or concessional rates have been prescribed for
such transaction.
56.Whether Quantitative Discount given by supplier to his customer is deductible from
sales for arriving at taxable amount of sales ?
Yes Quantitative discount given at the end of the period is allowable as deduction provided it
was known to both the parties at the starting of the transaction period, i.e. it should not be
an afterthought.
57.How does VAT help trade?
Uniform rates of VAT will boost trade, 100% self assessment will reduce the tax payer’s
need to visit tax department officer.

58.How does VAT help industry?

The provision of set of tax paid on purchase / input tax credit will eliminate cascading and
double taxation. This will promote production efficiency of investment. Investment decisions
will not, therefore, be based on tax consideration, tax holidays.

59.How does VAT help exports?

The goods exported are zero rated under VAT. That means, the rate applicable to such
transaction will be zero and the exporter will get full input tax credit. This will make the
exports competition.

60.What is zero rating under VAT? How does it differ from exempt goods?
Zero rate is applicable to goods for certain transactions under VAT and input tax credit is
available on those transaction. Under VAT, the goods exported outside India, sold to an EOU
and to a dealer having business under a Special Economic Zone (SEZ), Software Technology
Park (STP), Electronic Hardware Technology Park (EHTP) are zero rated. In these
transactions the tax rate will be zero and input tax credit will be available. The propose is
that the goods exported or sold to outside the State will be free of any load of tax in it,
which will increase competitiveness and encourage exports.
Exempt goods are those goods whose tax rate is zero, but input tax credit will not be
available. Essential items such as agricultural implements manually operated or animal driven,
books, periodicals, journals, fresh milk, etc. are in the exempted category.

61.Why are sales to SEZ, STP, and EHTP & EOU zero rated?
SEZ, STP etc. are being set up to promote industry and create industrial base. Sales to a unit
under SEZ, STP, etc. are treated on a par with export. Hence, the goods sold to SEZ, STP
are zero rated to encourage export.

62.Under VAT, value of goods and tax are mentioned separately on the invoice. Will not
the buyer know the profit margin of a dealer?
No. The price of the goods the dealer sells and the tax charged are to be indicated in the bill
separately. For example, a dealer sells a TV at Rs.10, 000/- and charges VAT @ 12.5%, he will
indicate in the tax invoice the price of TV i.e. Rs.10,000/- and tax @12.5% i.e. Rs.1250.00. It
will not be known to the buyer at what price the dealer has purchased the goods.
63.There is provision of set off of tax paid on purchases. Will not the Govt. incur loss
on account of introduction of VAT?
Sales Tax is a single point taxation system. For administrative convenience, most of the goods
are being taxed at first point. Then, the goods are sold as tax paid, the Govt. does not get
the tax on value addition at subsequent points of sale. Under VAT the revenue collected on
the first point of sale is assured, then tax is collectible on subsequent points of sales of a
goods. Under VAT there will be no incentives/ exemptions to industries. The loss of revenue
on account of set off/ input tax credit will be made up by tax collectible on subsequent
stages of sale and withdrawal of incentives. The Revenue Neutral Rate (RNR) has also been so
fixed so as not to incur any loss on account of introduction of VAT.
The Govt. of India will also compensate if there will be any loss in the initial years.

64.Some say, maintenance of accounts under VAT will be complicated. Will it not
increase cost of compliance for the dealer?
Under the Sales Tax Act, a registered dealer is required to maintain (a) a true account of
the value of goods bought and sold by him,(b) the books of accounts relating to his business
(c) An annual account of the stock of goods purchased and sold by him showing the opening
balance and the closing balance at the beginning and close of each accounting year. Besides,
he is required to maintain accounts of forms such as Form-XXXIV and IPR related forms.

Under VAT, there is no need of these forms; hence the dealer will not keep account of these
forms. Under VAT, the dealer is required to maintain books of account similar to that of
Sales Tax Act, so as to justify the claim of set off/ input tax credit etc. In comparison to
the requirement under the Sales Tax Act, it is rather simple under VAT.

65.There is apprehension that under VAT, there will be much harassment by the
Department Officers.
The apprehension is unfounded. Under VAT Act, steps have been taken to encourage
voluntary compliance. A dealer will assess his own tax liability and pay the tax. He will not be
assessed by the Department Officer as it is being done under Sales Tax Act. There is no
renewal of registration certificate. Once a dealer is registered, he will continue to be
registered. A dealer will not come to the Office for getting his registration certificate
renewed every year for assessment.

There will be Audit based assessment. Selection for audit will be done on the basis of
objective criteria. There will be no human bias in selecting a dealer for audit. Once selected,
audit will be undertaken at dealer’s premises with prior notice. Audit will be taken up by a
team, not by an individual. Audit visit report will be submitted to another Wing i.e.
Assessment Wing. If there is material in the Audit visit report against the dealer, then
assessment will be taken up. And notice of assessment will be issued along with supply of a
copy of the Audit visit report. These are provisions under the Act and Rule so as to avoid
harassment to the dealers by Department Officers.

Twenty percent of the dealers will be selected on random basis for audit in a year. That
means, if a dealer is paying tax regularly, there is no charge received from any quarter
against him, he will be audited once in five year.

66.Who has to be registered under VAT Act?

The following dealers have to be registered
(I) A dealer whose gross turnover exceeds the taxable limit during a period of 12 consecutive
months. Taxable limit in relation to a
(a) dealer who purchases goods from or sells to outside the State is Nil
(b) works contractor - Differ from State to State Rs.50,000/- in Orissa
(c) manufacturer - Differ from State to State Rs.2,00,000/- in Orissa
(d) general trader - Differ from State to State Rs.5,00,000/-
(II) who is liable to be registered under Central Sales Tax Act
(III) who is registered or liable to be registered under JST Act or CST Act
(IV) The dealer who is registered under Jharkhand Sales Tax Act and his registration
certificate is valid on the day before the appointed day is deemed to be registered under the
VAT Act.
A persons who intends to establish business for purpose of manufacturing or processing of
taxable goods exceeding Rs.2 lakh in a year may take voluntary registration, even though his
turnover does not exceed taxable limit

67.Who will come under composition scheme?

Composition scheme is for the small dealers/retailers. A dealer having gross annual turnover
within Rs.10 lakh will come under composition scheme, provided
- he is not a manufacturer
- he neither purchases or receives goods from outside the State nor sells goods to outside the
State and
- ordinarily effects sales to consumers
A dealer under composition will pay tax at a low flat rate on his taxable turnover and he will not
avail input tax credit. If a dealer under composition scheme wants, he can become a VAT dealer
on application, pay VAT and avail input tax credit.

Small contractors can opt to be under the composition scheme. They will pay VAT at a low rate to
be prescribed and will not avail input tax credit.

68.As a registered dealer under OST Act, I shall be deemed to be registered under VAT.
What about my registration number? Will it remain the same?
Every VAT dealer will be allotted a Tax Identification Number (TIN) and the dealers under the
composition scheme will be allotted Small Retailers Identification Number (SRIN). TIN is an 11
digit number, the first two given for State code; SRIN is a seven digit number, first two given
for identifying the Circle.
A dealer having business in more than one place in the State will be given separate registration or
may opt for consolidated registration. He will display the registration certificate in his places of
business.

69.Will there be renewal of certificate?

There is no provision of renewal under VAT Act. A dealer once registered will continue to be
registered.

70.What will be the amount of security to be deposited under VAT Act at the time of
registration?
Security is not mandatory under VAT Act; there will be no ritual of security. Only in cases, where
there will be apprehension of loss of revenue, security will be demanded.

71.Will the provision of suspension of registration certificate be misused by the officers?

The Registration Certificate of a dealer will be suspended if a dealer contravenes the provisions
of the Act or does not comply with the provisions of Act & Rules. Prior permission of the
Commissioner is to be obtained before an officer suspends the registration certificate of a
dealer. If the R.C. of a dealer is suspended, notice will be issued immediately and the dealer to
produce the relevant documents to rebut suspension within 30 days from the date of suspension.
If the dealer makes do the deficiency for which his R.C. was suspended, his R.C. will be restored.
72.How do I calculate my output tax when I am selling to consumers without separately
showing the VAT?
For taxable sale, VAT charged to be indicated separately on the invoice. If tax inclusive invoice
has been issued, the amount of VAT included in the value of the sales of the goods can be
calculated by applying the tax fraction to the gross value of sales at each tax rate.
Tax fraction is r in which ‘r’ represents the rate of tax applicable to the sale.
r + 100

73.What is a tax period?

A dealer is required to file return for a period, which is called tax period. A tax period is a month
or a quarter. A quarter means a period of three months ending on 31st March, 30 th June, 30th
September and 31st December. For big tax payers, the tax period is one month and for small
dealers a quarter. The Commissioner is to decide the tax period for a dealer.

74.When is the dealer required to file return?

Ans. A dealer is required to furnish return within 21 days from the expiry of a tax period.

75.What happens if a dealer discovers an omission after he has filed the return?
The dealer can file revised return before the date on which the return for next tax period
becomes due.

76.What happens when a dealer defaults in filing return?

In case of default, the dealer is required to pay interest @2% per month from the date the
return was due to the date of payment.

77.How will a dealer be assessed?

There is no regular assessment as in the Sales Tax Act. The dealer will assess himself for each
tax period. He will calculate his output tax, deduct from it the input tax he has paid and pay the
balance along with the return. The return will be accepted as assessed subject to adjustment of
any arithmetical error apparent on the face of the return.

If a dealer does not file return, provisional assessment will be taken up. If the dealer furnishes
return along with producing evidence of payment of tax, the provisional assessment shall stand
revoked. There will be audit based assessment.

78.What is audit procedure?

Selection of dealers for audit will be done on the basis of risk parameters or on random basis.
Twenty percent of dealers may be selected to be audited in a year. Audit will be undertaken at
dealer’s premises with prior notice. Audit is to be done by a team.
Audit Visit Report will be submitted with seven days from the date of completion of the audit. If
there is material in the Audit Visit Report against the dealer, assessment will be taken up by
officer of assessment wing. Notice for assessment will be issued along with a copy of the Audit
Visit Report, so that a dealer can know in advance the charges against him and prepare his
defence.

79.How can a dealer get his refund?

Refund flowing from an order shall be given to the dealer within 60 days from the date of receipt
of the order. The dealer need not apply for such refund.
In case of export, the dealer will make an application for refund. Refund will be granted to an
exporter within 90 days from the date of application after an audit. The audit has to be
completed within one month from the date of application.
In case of delay, interest @ 8% per annum will be paid after 60 or 90 days as the case may be.

80.Appeal against an order will be entertained after full payment of admitted tax and
twenty percent of the amount in dispute. Is it not unfair?
The amount of tax admitted by a dealer due to the Govt. should be paid in full.

As discussed earlier, there is no regular assessment as in the sales tax act . There will be audit
based assessment. There is little scope for arbitrary assessment in the procedure to be followed
for audit and audit based assessment. Abundant caution has been taken so that assessing
authority can not act arbitrarily. If there is no material against the dealer in the Audit Visit
Report, assessment will not be taken up. If there is some material in the Audit Visit Report,
assessment will be taken up with prior supply of a copy of the Audit Visit Report to the dealer.

Since there is little chance of arbitrariness in the assessment a dealer is required to pay 20% of
amount in dispute for his appeal to be entertained along with payment of admitted tax in full.

81.Jurisdiction of the Act.

The VAT Act is applicable to the transactions made inside the State. However, the VAT Act has
been prepared by the States taking into consideration the national consensus on the issues to
bring in uniformity in all State Vat laws. Gradually State VAT will lead to emergence of an Indian
common market.

82.Can VAT be successful in a federal country like India?

VAT has been successful in federal countries like Canada and Brazil. It is marvel to find States in
Indian Union agreeing to a general consensus on critical points relating to VAT. States have
agreed to a common tax rate. It is a land mark in cooperative federalism. States have shown keen
interest in implementing VAT soon.

83.Why America has not accepted VAT?

In America there is retail sales tax which means tax is paid on the last consumer sale point, which
includes all the value additions made in previous stages.
VAT at each stage ensures flow of right tax at right time. It helps planning of income and
expenditure.
84.What will be the fate of Sales Tax revenue under VAT in the State? Will there be any
loss?
Ideally there should not be any loss on account of introduction of VAT. This has been evidenced
from the experience of Haryana which had introduced VAT in the year 2003-04. Haryana had a
sales tax growth of 15% during the year 2003-04. It also sustained the growth rate more
vigorously during the year 2004-05. The growth during the year 2004-05 is 26%.

In the event of any loss of sales tax revenue on account of introduction of VAT, the Central
Government will compensate the loss each month @ of 100% in the first year, 75% in the second
year and 50% in the third year.
85.What is the methodology for calculation of compensation?
The year 2005-06 will be taken as the base year. Going backwards for five years, the average of
3 best years will be taken as the growth rate of the State. Taking the growth rate the sales tax
which would have been collected during the year 2006-07 under the present regime will be
calculated. The actual collection under the VAT regime will be deducted from the sales tax
revenue which would have been collected under the OST regime to arrive at the loss.

86.What about IPR exemptions and concessions?

Exemptions and concessions have been withdrawn in the VAT Act. Un-availed period of
exemptions will be converted into deferrals.

87.What about sales to International Organizations?

There will be no tax exemption on sales to International Organizations but tax paid by them will
be refunded.

88.Will there be input tax credit for capital goods?

There will be input tax credits on capital goods purchased from inside the State after
introduction of VAT. Input tax credit on capital goods will be given within 36 months after
commercial production and first sale.

89.Whether declared goods will be subject to tax at single point or multipoint?

Declared goods will be subject to tax at multipoint. Section 15 of the CST Act has since been
amended
90.A registered dealer under VAT receives free medicine as quantity discount from a
Company and resells the same in the State of Orissa. Whether he is liable to pay tax on
the receipt value of such free medicines received?
Ans. No. But he is liable to pay tax on the sale turnover of such free medicines

91.Whether penultimate sale in course of export is Zero rated?

Treatment of penultimate sale in course of export is regulated under the provisions of the CST
Act and the CST Act remains unchanged after introduction of VAT. The goods sold in course of
export out of the territory of India are zero rated. [Sec.18 (b)].
92.When original tax invoice is lost & the dealer produces other evidences in support of such
purchases effected & tax paid on such purchases, then can he avail ITC?
ITC can be available on the basis of duplicate Invoice obtained from the selling dealer after
compliance with the Jharkhand Value Added Tax Act / Rules. But the above facility is not
available under some of the State Act.
93. Whether retail invoice will be tax inclusive?
Retail invoice and tax invoice have to be tax exclusive. In other words, tax charged on the goods
sold shall be shown separately in the Tax / Retail invoice issued.

94.Can the input tax credit for the tax paid on capital goods financed on lease be availed
against tax payable on finished goods?
If the capital goods have been purchased from inside the state on payment of tax, the tax paid
on purchases shall be allowed as input tax credit. However, if the capital goods have been
received on transfer of right to use on payment of lease rental, no input tax credit is admissible
as the purchase has been made by the person, who has transferred the right to use of such
goods.

95.Can tax paid on goods not related to manufacturing be taken as input tax credit?
In case of manufacturing, goods purchased by a dealer which directly goes into composition of
finished product or consumables directly used in such processing or manufacturing are eligible
for input tax credit. Goods purchased but not related to manufacturing, are not eligible for
ITC.

96.How to ascertain the registration of a dealer is cancelled / suspended?

The fact of suspension/ cancellation shall be published in Commercial Tax Gazette, Official
Website etc.

97. What is the rate of VAT for interstate sales without ‘C’ form?
There is zero VAT for sales in course of inter state trade and commerce, against declaration in
form ‘C’. Such sales are taxed under the CST Act.

98.Whether the goods purchased for own use is subjected to purchase tax?
The goods purchased for own use is not subject to purchase tax.

99.What is the status of ITC for the sale of goods which are deemed to be exempted from
VAT?
ITC is not available in case of exempt goods since no tax is payable on the purchase of tax free
goods. There is no concept of ‘deemed exempt’ under the VAT Act.

100.Whether copy of the bills to be furnished to audit for their verification?

Tax invoice is an important document for availing ITC. If audit is undertaken, the audit team may
require tax invoice for verification of the claim of input tax credit and correctness of the
accounts maintained, etc.

101.What is the procedure of procurement of goods by a consumer from outside the State?
No procedure is prescribed for a consumer to procure goods from outside the state.

102.What is the impact of such procurement on (a) local traders (b)local industry/
manufactures?
If a regd. Dealer purchases goods from outside the State, he avails of the concessional rate of
tax @ 4% against declaration in Form ‘C’, but the tax so paid is not eligible for input tax credit. If
a consumer purchases goods from outside the state, he is required to Pay CST @10% or VAT rate
of tax, whichever is higher, and no input tax shall be available to him

103.Whether the sale in transit (E-1) is available in VAT Regime?

Sale in transit is in accordance with the provisions of CST Act and there is no change in such
provision on introduction of VAT.

104.Sugar,Textile,Tobacco is not taxed at present but when VAT will be applicable to these
items?
VAT will not be applicable to Sugar, Textile, and Tobacco presently.

105.In the VAT system whether the provision of statutory forms like way bills, ‘C’ forms
and ‘F’ forms will be continued or not ?
Way bill will continue. All the forms provided under CST Act will continue.

106.In case, the dealer has various output goods and some are exempted of VAT, then the
input credits are to be availed on proportionate basis. Would you kindly address the way or
modalities of such proportionate calculation?
Modalities of calculation are given in VAT Rules. In case, where the dealer is dealing both in
taxable and tax exempt goods, ITC shall be calculated applying the formula:
PxQ ‘P’ is the total amount of input tax.
R
'Q’ is the taxable turnover of sales including zero rated sales and
‘R’ is the total amount of all sales including exempt sales.

107.Whether quantity discounts passed on to customers based on quantity purchased on a

half yearly or yearly basis are eligible for VAT adjustment?
No.
108.Stocks returned by our purchasers: a) is there any input tax credit.? (b) any time
limit?
In case of stocks returned by the purchasers, there will be adjustment of sale price or tax in
relating to a taxable sale by way of issue of credit note and debit note.

109.What is the safeguard available to an exporter against the department with holding
VAT refund arising after 2004 against Sales Tax / CST demand pertaining to earlier
years?
Refund under JST/ CST Act to an exporter is regulated under the provisions of the said Acts.
Refund under VAT Act to an exporter will be granted within 90 days from the date of receipt of
application for such refund. In case, refund is not granted within the period of 90 days, interest
will be paid to the Exporter.

110. Whether input tax credit will be available on works contract?

Yes.
111.Will input tax credit be adjusted against CST payable by the assessee?
ITC will be adjusted against arrears of tax, interest and penalty payable under the VAT Act.

112.For tax credit whether credit will be given if a dealer purchases or receives goods
after 1.4.2006 but invoice raised before 31.3.2006.
No. The time of sale to be construed as the date of issue but not for Invoice which is before the
date of implementation of VAT. The goods received after 1.4.2005 can also be treated as
opening stock on 1.4.2006 so as to be eligible for input tax credit.

113.Whether sales tax will be paid on Entry Tax under VAT or not?
Since Entry Tax is included in the sale price of the goods, VAT is to be levied on the value of
goods sold including Entry Tax. But under Jharkhand Vat Act Input Tax Credit is available on
Entry Tax Paid on purchases.

114. We are a company having three plants outside Jharkhand and one warehouse in Ranchi.
(a) What is the impact of VAT on dealer, Customer and the plant (b) if dealer purchases
material directly from the plant outside Jharkhand (c) if dealer purchases from depot at
Ranchi (i.e. material, stock transfer from outside the Jharkhand)
If a dealer in Jharkhand purchases goods from your plant outside State, he will not get full input
tax credit as the CST paid on such purchases is not eligible for input tax credit, but when he
purchases from the depot in Ranchi , he is entitled to full input tax credit and sales by you to
the dealer shall be subject to output tax at the applicable rate.
So far as the stock transfer from the plant outside the state to the depot at Ranchi is
concerned, the plant can claim input tax credit in excess of 4% in the state of its location.
However, if the goods are received at Ranchi on transfer of stock from the plant and sold to
customer, there is incidence of output tax, but no input tax credit is available.
115.Whether a producer outside Jharkhand will have advantage to sell their product in
Orissa in comparison to local producer?
That depends upon several factors. If the local producer purchases capital goods, inputs, etc.
inside the State he will get full input tax credit. He can sell goods at a lower rate. Dealers inside
the state will prefer to purchase from him to avail input tax credit. Purchases of goods from
outside the state will attract CST, which is not eligible for input tax credit.
116.Treatment of input tax on closing stock in cases of tax suffered cases? E.g. If goods
subject to Ist point tax paid are purchased from the 2nd line dealer.
Input tax credit on closing stock will be available both for the goods purchased on payment of
tax and goods, which suffered tax at the first point of sale.

117.Input tax credit in cases of tax suffered cases e.g. suppose tax paid on Ist point
goods is at present 8% and at VAT regime it will be 4% ?
Input tax credit on closing stock is available for the actual tax charged i.e. @ 8% in this case.

118.Whether input credit is available for purchase tax?

Yes.
119.Is there any mandatory provision in VAT so that CCT office will provide clarification on
classifications of a certain goods or clarification of a certain VAT Act or rule if asked for
by a dealer, Tax practitioner / association or chamber of commerce.
There is no mandatory provision in VAT Act for CCT Office to provide clarification on statutory
matters or classification of any goods.

120.When there is total turnover of an organization is 40 lakh audits by the Auditor as is

required, but if there is sale of Rs.38 lakh and service charges of Rs.4 lakh is audit by CA
required?
If the Gross Turnover of a dealer exceeds Rs.40 lakh in a year he is required to get his accounts
audited by an Accountant defined under the act. If services rendered are separately charged and
is not a part of the sale price, the charges on account of service rendered is not taxable under
the VAT Act and, therefore, is not a part of the gross turnover, Audit by chartered or cost
Accountant shall not be required if the gross turnover does not exceed Rs.40 lakh in any year.

121.Interstate sales (CST sales) zero rated, which means full ITC will be available.
However, what is the likely scenario after three years when CST becomes zero?
When CST becomes zero, there will be no taxes in purchases made in course of inter state trade
or commerce and when such goods are sold inside the state; sales will be subject to output tax.

122.What steps should be taken by the purchasing dealer who has taken the credit and
utilized it by paying sales tax or VAT when the selling dealer has not paid the same tax
earlier?
The onus is on the selling dealer to pay the tax. The purchasing dealer may not be held
responsible for non-compliance of tax liability by the selling dealer.
123.In case of zero tax VAT dealers, say exporters, there will be cases of refunds on
inputs. As exporters more than 40 lakh turnover are tax audited by CA as per both VAT
and IT Act, why should refund again be subject to audit further delaying the refund?
Tax audit contemplated for sanction of refund in case of exporters is for determination of the
genuineness of the claim for refund and its quantification with reference to records, documents
and such other materials and is conducted before sanction of refund. The report of annual audit
by chartered/ cost accountant is due after seven months of the expiry of the year i.e. much after
the claim of refund is made and sanctioned. If annual audit report is awaited for sanction of
refund, the dealer will suffer. Moreover, audit is to be completed within one month after receipt
of the application. If there will be delay, interest to be paid after 90 days from the date of
receipt of application.

124.Is tax paid on bullion purchases inside the state 1% special rate, be adjusted in the
sale of jewelry at 1% VAT?
Yes.

125.Explain the situation in the new VAT system where a customer purchases the same
product outside Orissa and inside Orissa from the same company warehouse?
If the customer not being a registered dealer, purchases goods from outside the State, he will
pay local VAT as applicable to the goods and bear the cost of transportation. If he purchases
from inside the State, he will also pay local VAT applicable to the goods here, but may not have to
bear the cost of transportation. Besides, for an importer, the taxable limit is ‘nil’ and the
unregistered dealer will be liable to pay tax in the state on the sales again.

126.Whether input tax credit / set off shall be based on input tax paid on purchases? What
could be the procedure for producing documents in support of input tax credit availed?
In case of traders, set off/ input tax credit is available on the tax paid on purchases. Tax invoice
is the evidence for claiming input tax credit.

127.What will be the treatment of stock holding as on 31.3.05 both tax paid purchases and
taxable purchases (outside purchases).
Input Tax Credit on closing stocks held on 31.3.2006 is available, where the stock is purchased on
or after 1.4.2005 and if the goods in the stock have been purchased within the State of
Jharkhand on payment of tax or which have suffered tax at the first point of sale in a series of
sale. CST paid on goods purchased in course of interstate trade or commerce is not eligible for
input tax credit.

128. Which type of accounts is to be maintained by the composite dealer and works
contractor?
A registered dealer is required to maintain books of accounts so as to establish his claim of
output tax charged and input tax credit availed. A dealer under the composition scheme shall have
to maintain accounts of purchase and sales. A works contractor will however, have to maintain
accounts of purchase, sales, and stock in addition to other accounts required to establish figures
furnished in the periodic returns

129.If a dealer has purchased materials outside the state of Orissa and also inside the
state of Jharkhand and has been engaged in the execution of works contract. Whether it
will get set off against the gross bill and tax will be adjusted against the rate of tax in
respect of works contract?
 The contractor will avail ITC on goods purchased from inside the State of Jharkhand. He will not
get ITC on purchases from outside the State. The amount of tax admissible as input tax credit is
adjustable against the output tax payable during a tax period.

130.If a dealer purchased goods from non-VAT dealers whether it will be set off?
No.
131. Can purchase from exempted manufacturing unit and trading for the same product be
exempted from VAT?
Exemption from payment of tax to manufacturing industries is not available under VAT.
Exemptions availing by an industry will be converted into deferral. That means the manufacturer
dealer will collect tax on his sales, he will defer payment. Hence, the dealer who purchases the
goods from him pays tax and he will get set off of tax paid, on his sales.

132.Existing regd. dealer required to apply for TIN under VAT Act?
No. TIN will be allotted by the Department. The existing registered dealer shall be deemed to
be registered under the VAT Act.

133.Whether certificate of CA is required for submission of annual return?

No. A dealer having a Gross Turnover exceeding Rs.40 lakh in any year will get his accounts
audited by a CA or Cost Accountant within 6 months from the expiry of that year and submit a
copy of the report to the Commissioner by the end of the month following expiry of the period of
six months.

134.What is the status of ITC for the sale of goods, which are deemed to be exempted
from VAT?
There are no goods deemed to be exempt from VAT. ITC is not available for exempt goods.

135.For getting credit on purchases, what records to be maintained in case of

manufacturers? Whether copy of the bills to be furnished to audit for their verification?
In case of audit, the dealer is required to justify his claim of input tax credit. The books of
accounts required to justify such claims may have to be produced. The audit team may require the
copy of bills/tax invoice during audit..

136.What does deemed Sales Include ?

• Transfer of ownership in any goods otherwise than in pursuance of a contract.
• Transfer of ownership in goods used in works contract.
• Sale of goods on hire purchase or installment system.
• Transfer of right to use goods or lease.
• Supply of goods by a club, society or an association to its members on payment of fee
or subscription; and
• Supply of food or any other article or drink for consumption.
• Every disposal of goods by certain specified entities, otherwise than in the course of
business.
137.Tax is paid within due date but return is not filed in time, what will be the
consequences?
The dealer is to be noticed to file return as the proof of due discharge of tax liability is to
be verified with reference to the return furnished. If the dealer does not comply with the
notice other penal action under the Act shall be initiated.

138.If a manufacturer during set up of a plant / factories brings capital goods from
outside the state of Orissa, then how the manufacturer can get the input credit on
capital goods?
ITC is not admissible on tax paid on goods purchased from outside the State.

139.Is a manufacturer eligible to get input credit under CST sale?

Yes, The manufacturer will get input tax credit if he sells goods in course of inter state
trade and commerce.

140.Purchase from an unregistered dealer, given as gift/free sample, whether liable

for tax?
If the purchaser is a registered dealer and the goods purchased are taxable, then the
purchaser will pay tax on the purchase price.

141.If goods Purchased in July 2006 from a dealer, whose certificate of registration
suspended, Can input credit is available ?
ITC is not available if input purchased from a suspended dealer.

142.Can tax set off on purchases be allowed proportionate to production of quantity

inside the State?
ITC is adjustable against output tax collected on sales.

143.List of goods subject to PT has not been prescribed under VAT Act.
Under VAT Act, no particular commodity is subject to tax on purchase price. However, all
taxable goods are subject to tax on purchase price under the circumstances where no tax is
leviable on sale of those commodities.

144.Definition of turnover for audit etc. purpose. Whether it is - Gross turnover

including tax collected or Gross aggregated turnover (sales and purchases).
Gross turnover means the aggregate of turnover of sales and the turnover of purchases
subject to tax. The turnover of sales means the aggregate of the amounts of the sale price
received or receivable by a dealer. The sale price under VAT Act does not include the tax
paid or payable under VAT Act.

145.If CST is phased out, any Govt. Department or a consumer buying from outside the
State will pay no tax. How will a local dealer compete, who will have to collect output
tax under VAT? How State will get its revenue?
When CST is phased out, the rate of tax will be zero against declaration in Form ‘C’. Under
VAT regime, there will be uniform Tax rate for each commodity all over the country except
few cases. Hence, the tax rate will remain the same for the goods purchased either from
inside or from outside. On the other hand, those who will purchase from outside the state will
have to bear the transportation cost. No such cost will be borne by anybody who purchases
from inside the state.

146.As regards to damage and expired goods, how this has been adjusted in the VAT
system, please explain?
A trader gets input tax credit in respect of each tax period in which the goods are
purchased. If the trader has already availed of input tax credit and the goods have been
damaged/ expired, there will be reverse input tax credit.

147.Whether professional tax will continue after VAT or not?

Yes. The state which imposed tax on Tax on profession, Trade and Callings will continue after
VAT.

148.Whether waybill will exist? If yes, then what will be the fate of a dealer who
procures goods without way bill?
Way Bill will continue under VAT. If a registered dealer transports goods without way bill or
fails to furnish the same on being noticed, there is provision for imposition of penalty.

149.If tax has been paid at check gate, how it will be adjusted?
Payment of tax by a registered dealer at the Check gate will be adjusted against the output
tax.

150.Please clarify ITC on Branch Transfer?

In case of Branch Transfer, ITC is available in excess of 4%. For example, the value of
inputs is Rs.500/- and tax paid on input @ 12.5% is Rs.62.50. The dealer will get ITC @8.5 %(
12.5-4) on Rs.500 which is calculated at Rs.42.50 as input tax credit in case branch transfer.
151.How the tax paid by previous seller to be transparent to last seller?
The most important document under VAT is tax invoice. In the tax invoice, the dealer is to
indicate the value of goods and amount of tax charged on the goods separately. But the last
dealer can not know the amount of tax paid by the seller on the goods purchased by him.

152.What is provision regarding works contract assessment and what about tax
deduction at source?
The provision for assessment to works contractor is the same as in the case of other dealers,
works contractor will assess himself. The TDS provisions under the VAT Act are similarly
to that of Sales Tax Act.

153.Why there is the limit of input tax credit for the goods purchased within one year
only. What will be the fate of other tax paid on stocks?
ITC on opening stock held on 1.4.2006 is available for the goods purchased within one year
prior to the appointed day as per the opinion of the states and ratified by the Empowered
Committee of the Finance Ministers of States and UTs. Other taxes paid will not be given
credit.

154.It is clear now that no input tax credit on CST will be allowed. Whether this will be
applicable to industries also or industries will be allowed credit on CST?
CST paid on purchases is not eligible for input tax credit to any dealer including industries

155.Explain from which date the period of refund i.e. 60 days will be calculated?
Refund flowing from any order shall be granted without application and within 60 days from
the date of receipt of the order giving rise to the refund.

156.Whether VAT is applicable to a restaurant?

Yes.

157.What will happen to sales tax and central tax?

Orissa VAT Act will replace Jharkhand Sales Tax Act, CST Act will continue.

158. What will be the status of industries enjoying tax holidays?

Exemption will be converted into deferrals; so that the VAT chain is not broken.

159.What shall be the fate of litigated cases under sales tax regime?
Though Jharkhand Sales Tax Act was repealed, the provisions of the said Act including
settlement of litigation have been saved.

160.Whether a dealer registered on start up business under sales tax act will continue
till commercial production or directly convert to VAT dealer?
Ans. A dealers whose registration certificates are valid on the day immediately preceding
the appointed day shall be deemed to be registered under VAT Act. They will be VAT
dealers.

161.As required a dealer is to be audited once in 5 years. Please clarify whether the
dealer will be audited for all the 5 years or for the year only in which audit take place.
The dealer is to be audited ordinarily for the tax period(s) /year for which audit is due. If
during audit, it is noticed that discrepancies or evasion of tax relate to further tax periods,
then such other tax periods shall also be included in the audit.

162.Disclosure in Accounting policies?:

It will be proper if a reporting enterprise will disclose the following in their accounting policy
to give a true & fair view of the financial statement .
• Inventories valued at net of value added tax / Input Tax.
• Sales are accounted excluding the value added tax payable.
• Eligible capital goods such as Plant & Machinery etc. (which are eligible as per as per
act ) do not include value added tax paid on purchases & kept under separate head as VAT
on Capital Goods Receivable A/c for adjustment to VAT (output) Payable A/C.

163.Disclosure in Financial Statement?

• Vat ( Out put ) Payable A/c will be shown under the head “Current Liabilities” of the
Liabilities Side.
• VAT Credit (Input) Receivable A/C, VAT on Capital goods Receivable A/C will be shown
under the head “Loans & Advances” in the Assets side.
 • Vat paid on the opening stock on the date of implementation of VAT Act will be
deducted from Opening Stock shown under Inventories a/c in the Asset side.
59.What about Taxation Information Exchange System?.

• While CST is phased out, there is also a critical need for putting in place a regulatory
frame work in terms of Taxation Information Exchange System to give a comprehensive
picture of inter state trade of all commodities.
• Setting up TIES has already started by empowered committee & expected to be
completed within one year.
• It will be put up by April 2006 to capture data on inter state transaction.
• 14 States joining in Pilot TINSYS by October 2005.
• Total expenditure estimated Rs.16 Crs.
• 50% of expenditure Shared by GOI & balance 50% by all the State Govts.
• State Webs will be connected to TINSYS to capture the data.
• Central Server will be at Trivandrum with additional server at Chenai.
• It will capture data base of Income Tax Dept. & Central Excise vice versa to have
required information.

A White Paper On State-Level Value Added Tax

By
The Empowered Committee of State Finance Ministers
(Constituted By the Ministry of Finance, Government of India
On the Basis of Resolution Adopted in the
Conference of the Chief Ministers on November 16, 1999)
New Delhi , January 17, 2005.
PREFACE.

This White Paper is a result of collective efforts of all the States in formulating the basic design of the
State-level Value Added Tax (VAT) through repeated and candid discussions in
the Empowered Committee of State Finance Ministers.The State-level VAT, as elaborated in this White
Paper, has certain distinct advantages over the existing sales tax structure.
The VAT will not only provide full set-off for input tax as well as tax on previous purchases, but it will
also abolish the burden of several of the existing taxes, such as turnover tax, surcharge on sales tax,
additional surcharge, special additional tax, etc. In addition, Central Sales Tax is also going to be
phased out. As a result, the overall tax burden will be rationalised, and prices, in general, will fall.
Moreover, VAT will replace the existing system of inspection by a system of built-in self-assessment by
traders and manufacturers. The tax structure will become simple and more transparent. This will
significantly improve tax compliance and will also help increase revenue growth. While this State-level
VAT has all these advantages, it is a State subject derived from Entry 54 of the State List, for which the
States are sovereign in taking decisions. In arriving at these decisions on VAT, the States, through
discussion in the Empowered Committee, have found it in their interests, to avoid unhealthy competition
and have certain features of VAT to be common for all the States. These features will constitute the
basic design of VAT. At the same time, the States will have freedom.for appropriate variations
consistent with this basic design. This White Paper is a collective attempt of the States to strike a
balance between this needed commonality and the desired federal flexibility in the VAT structure.The
White Paper also strikes a balance between what is possible in the VAT design to begin with and what
can be improved upon in subsequent years as we gather more experience . The White Paper further
mentions how after working out a consensus on this VAT design, nearly all the States either have
finalised their VAT Bills by now and are in the process of obtaining Presidential Assent, or will reach
that stage very soon. Even for one major State where there are some ground-level problems, a positive
interaction with the Empowered Committee has recently opened up the possibility of resolving most of
these problems. These efforts of the States towards formulation of VAT design and its implementation
have received full cooperation of the Finance Ministry, Government of India. At the same time, the
Finance Ministry has never imposed their views on us. We, therefore, remain thankful to the former
Union Finance Ministers––Dr. Manmohan Singh, Shri Yashwant Sinha and Shri Jaswant Singh. We are
specially grateful to Shri P. Chidambaram, the present Union Finance Minister, for his active support
over the last eight months, when he not only helped formulate the modality of Central financial support
to the States for possible loss of revenue in the transitional years of implementation of VAT, but also
took time off his busy schedule to participate with us in the campaign for VAT in the States.
(ii).It has always been fruitful to have interaction with Dr. Parthasarathi Shome, Adviser to the Union
Finance Minister, for his insightful observations on the analytical structure of VAT as well as his
reference to vast experience in the implementation of VAT. The Secretary, Revenue, Additional
Secretary, Revenue and all the concerned officials of the Revenue Department of the Finance Ministry
have helped us by participating in the discussions whenever we requested them. Interaction with Dr.
Govinda Rao, the Chairman of Technical Experts Committee on VAT and other members of the
Committee has also been useful. We take this opportunity to thank all of them. Discussions with the
representatives of trade organisations and chambers of commerce and industry at the national level as
well as in the States have been relevant in assessing the ground-level difficulties. Together with them,
we are determined to overcome these difficulties in implementing VAT in the States.

We remain thankful to them, and our mutual interaction will take place regularly. Finally, this White
Paper could be written only on the basis of lively support of the Finance Ministers of the States, and
with constant help from the Finance Secretaries and the Commissioners of Commercial Taxes of the
States. The Commissioners of Commercial Taxes have often burnt their mid-night oil, and their
contribution should be particularly recorded. Shri Ramesh Chandra, Member-Secretary of the
Empowered Committee had to carry on the difficult administrative task in the functioning of the
Empowered Committee. We appreciate the efforts of Shri Chandra and the staff of the Empowered
Committee.

(iii).Even after all these efforts, there may be some unavoidable shortcomings in this White Paper,
which we will try to overcome as we learn more from the actual experience of implementation of VAT.
With this background and the attitude, this White Paper is an expression of the genuine commitment of
the States to the implementation of VAT from April 1, 2005, which we are all looking forward to.

Asim Kumar Dasgupta

Convenor,
Empowered Committee of
State Finance Ministers,
and
New Delhi, Finance Minister,
January 17, 2005. Government of West Bengal.

(iv). A White Paper On State-Level Value Added Tax

This White Paper on State-level Value Added Tax (VAT) is presented in three parts. To begin with, the
justification of VAT and its background have been mentioned (Part 1). In Part 2, the
main design of VAT, as evolved on the basis of a consensus among the States through repeated
discussions in the Empowered Committee, has been elaborated. While doing so, it is recognized that
this VAT is a State subject and therefore the States will have freedom for appropriate variations
consistent with the basic design as agreed upon at the Empowered Committee. Finally, in Part 3, the
other related issues have been discussed for effective
implementation of VAT.

1. Justification of VAT and Background

1.1 In the existing sales tax structure, there are problems of double taxation of commodities and
multiplicity of taxes, resulting in a cascading tax burden. For instance, in the existing structure, before a
commodity is produced, inputs are first taxed, and then after the commodity is produced with input tax
load, output is taxed again. This causes an unfair double taxation with cascading effects. In the VAT, a
set-off is given for input tax as well as tax paid on previous purchases. In the prevailing sales tax
structure, there is in several States also a multiplicity of taxes, such as turnover tax, surcharge on sales
tax, additional surcharge, etc. With introduction of VAT, these other taxes will be abolished. In addition,
Central sales tax is also going to be phased out. As a result, overall tax burden will be rationalised, and
prices in general will also fall. Moreover, VAT will replace the existing system of inspection by a system
of built-in self-assessment by the dealers and auditing. The tax structure will become simple and more
transparent. That will improve tax compliance and also augment revenue growth. Thus to repeat, with
the introduction of VAT, benefits will be as follows:

• set-off will be given for input tax as well as tax paid on previous purchases
• other taxes, such as turnover tax, surcharge, additional surcharge, etc. will be abolished
• overall tax burden will be rationalised
• prices will in general fall
• there will be self-assessment by dealers
• transparency will increase
• there will be higher revenue growth

The VAT will therefore help common people, traders, industrialists and also the Government. It is
indeed a move towards more efficiency, equal competition and fairness in the taxation system.

1.2 For these beneficial effects, a full-fledged VAT was initiated first in Brazil in mid 1960’s, then in
European countries in 1970’s and subsequently introduced in about 130 countries, including several
federal countries. In Asia, it has been introduced by a large number of countries from China to Sri
Lanka. Even in India, there has been a VAT system introduced.3
by the Government of India for about last ten years in respect of Central excise duties. At the State-
level, the VAT system as decided by the State Governments, would now be introduced in terms of Entry
54 of the State List of the Constitution.

1.3 The first preliminary discussion on State-level VAT took place in a meeting of Chief Ministers
convened by Dr. Manmohan Singh, the then Union Finance Minister in 1995. In this meeting, the basic
issues on VAT were discussed in general terms and this was followed up by periodic interactions of
State Finance Ministers. Thereafter, in a significant meeting of all Chief Ministers, convened on
November 16, 1999 by Shri Yashwant Sinha, the then Union Finance Minister, three important
decisions were taken. First, before the introduction of State-level VAT, the unhealthy sales tax rate
“war” among the States would have to end and sales tax rates would need to be harmonised by
implementing uniform floor rates of sales tax for different categories of commodities with effect from
January 1, 2000.

Second, in the interest again of harmonisation of incidence of sales tax, the sales-tax-related industrial
incentive schemes would also have to be discontinued with effect from January 1, 2000. Third, on the
basis of achievement of the first two objectives, steps would be taken by the States for introduction of
State-level VAT after adequate preparation. For implementing these decisions, an Empowered
Committee of State Finance Ministers
was set-up.

1.4 Thereafter, this Empowered Committee has met regularly, attended by the State Finance Ministers,
and also by the Finance Secretaries and the Commissioners of Commercial Taxes of the State
Governments as well as senior officials of the Revenue Department of the Ministry of Finance,
Government of India. Through repeated discussions and collective efforts in the Empowered
Committee, it was possible within a period of about a year and a half to achieve nearly 98 per cent
success in the first two objectives on harmonisation of sales tax structure through implementation of
uniform floor rates of sales tax and discontinuation of sales-tax- related incentive schemes. As a part of
regular monitoring, whenever any deviation is reported from the uniform floor rates of sales tax, or from
decision on incentives, the Empowered Committee takes up the matter with the concerned State and
also the Government of India for necessary rectification.
1.5 After reaching this stage, steps were initiated for systematic preparation for the introduction of
State-level VAT. In order again to avoid any unhealthy competition among the
States which may lead to distortions in manufacturing and trade, attempts have been made from the
very beginning to harmonise the VAT design in the States, keeping also in view the distinctive features
of each State and the need for federal flexibility. This has been done by the States collectively agreeing,
through repeated discussions in the Empowered Committee, to certain common points of convergence
regarding VAT, and allowing at the same time certain flexibility for the local characteristics of the States.

1.6 Along with these measures at ensuring convergence on the basic issues on VAT, steps have also
been taken for necessary training, computerisation and interaction with trade and industry, particularly
at the State levels. This interaction with trade and industry is being specially emphasised.

1.7 It may be noted that while such preparation was going on, the Chief Ministers of all the States in an
important m eeting on State-level VAT convened by the Prime Minister on October 18, 2002, when Shri
Jaswant Singh, the then Union Finance Minister was present, clearly stated their intention of introducing
VAT from April 1, 2003. About 29 States and Union Territories had expeditiously sent their Bills to the
Ministry of Finance, Government of India for prior vetting.

The Union Ministry of Finance had considered these Bills of States and Union Territories, and sent their
comments/ suggestions to the States and Union Territories in line with the decisions of the Empowered
Committee of the State Finance Ministers for incorporating the same in VAT Bills to be placed in the
State legislatures and subsequent transmission to
the Government of India for Presidential Assent. At this stage, there were certain developments which
delayed the introduction of VAT. Despite these developments, most of
the States remained positively interested in implementation of VAT. Madhya Pradesh VAT Bill had
already been accorded Presidential Assent in November 2002. One State, namely, Haryana, has
already introduced VAT on its own with good results on revenue growth. It is important to note that in
the meeting of Empowered Committee on June 18, 2004 when Shri P. Chidambaram, the Union
Finance Minister, was invited and was kindly present, all the States, excepting one, once again
categorically renewed their commitment to the introduction of VAT from April 1, 2005. Even for this
particular State with certain problems, a positive interaction has recently been organised with that State
to resolve certain genuine ground-level problems. Now nearly all the States have either finalised their
VAT Bills and are in the.6
process of obtaining Presidential Assent, or will reach that stage very soon.

2. Design of State-Level VAT

2.1 As already mentioned, the design of State-level VAT has been worked out by the Empowered
Committee through several rounds of discussion and striking a federal balance
between the common points of convergence regarding VAT and flexibility for the local characteristics of
the States. Since the State-level VAT is centred around the basic concept of “set-off” for the tax paid
earlier, the needed common points of convergence also relate to this concept of set-off/input tax credit,
its coverage and related issues as elaborated below.

Concept of VAT and Set-off / Input Tax Credit

2.2 The essence of VAT is in providing set-off for the tax paid earlier, and this is given effect through the
concept of input tax credit/rebate. This input tax credit in relation to any period means setting off the
amount of input tax by a registered dealer against the amount of his output tax. The Value Added Tax
(VAT) is based on the value addition to the goods, and the related VAT liability of the dealer is
calculated by deducting input tax credit from tax collected on sales during the payment period (say, a
month).

If, for example, input worth Rs. 1,00,000/- is purchased and sales are worth Rs. 2,00,000/- in a month,
and input tax rate and output tax rate are 4% and 10% respectively, then input tax.
credit/set-off and calculation of VAT will be as shown below:

(a) Input purchased within the month : Rs. 1,00,000/-

b) Output sold in the month : Rs. 2,00,000/-
c) Input tax paid : Rs. 4,000/-
d) Output tax payable : Rs. 20,000/-
e) VAT payable during the month : Rs. 16,000/-after set-off/input tax credit [(d) – (c)].

Coverage of Set-Off / Input Tax Credit

2.3 This input tax credit will be given for both manufacturers and traders for purchase of inputs/supplies
meant for both sale within the State as well as to other States, irrespective of when these will be utilized
/ sold. This also reduces immediate tax liability. Even for stock transfer/consignment sale of goods out
of the State, input tax paid in excess of 4% will be eligible for tax credit.
Carrying Over of Tax Credit
2.4 If the tax credit exceeds the tax payable on sales in a month, the excess credit will be carried over
to the end of next financial year. If there is any excess unadjusted input tax credit at the end of second
year, then the same will be eligible for refund. Input tax credit on capital goods will also be available for
traders and manufacturers. Tax credit on capital goods may be adjusted over a maximum of 36 equal
monthly instalments. The States may at their option reduce this number of instalments. There will be a
negative list for capital goods (on the basis of principles already decided by the Empowered Committee)
not eligible for input tax credit.

Treatment of Exports, etc.

2.5 For all exports made out of the country, tax paid within the State will be refunded in full, and this
refund will be made within three months. Units located in SEZ and EOU will be granted either
exemption from payment of input tax or refund of the input tax paid within three months.

Inputs Procured from Other States.

2.6 Tax paid on inputs procured from other States through inter-State sale and stock transfer will not be
eligible for credit. However, a decision has been taken for duly phasing out of inter-State sales tax or
Central sales tax. As a preparation for that, a comprehensive inter-State tax information exchange
system is also being set up.

Treatment of Opening Stock

2.7 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.
Resellers holding tax-paid goods on April 1, 2005 will also be eligible. VAT will be levied on the goods
when sold on and after. April 1, 2005 and input tax credit will be given for the sales tax already paid in
the previous year. This tax credit will be available over a period of 6 months after an interval of 3
months needed for verification.

Compulsory Issue of Tax Invoice, Cash Memo or Bill

2.8 This entire design of VAT with input tax credit is crucially based on documentation of tax invoice,
cash memo or bill. Every registered dealer, having turnover of sales above an amount specified, shall
issue to the purchaser serially numbered tax invoice with the prescribed particulars. This tax invoice will
be signed and dated by the dealer or his regular employee, showing the required particulars. The dealer
shall keep a counterfoil or duplicate of such tax invoice duly signed and dated. Failure to comply with
the above will attract penalty.

Registration, Small Dealers and Composition Scheme

2.9 Registration of dealers with gross annual turnover above Rs. 5 lakh will be compulsory. There will
be provision for voluntary registration. All existing dealers will be automatically registered under the VAT
Act. A new dealer will be allowed 30 days time from the date of liability to get registered. Small dealers
with gross annual turnover not exceeding Rs. 5 lakh will not be liable to pay VAT. States will have
flexibility to fix this threshold limit within Rs. 5 lakh. Small dealers with annual gross turnover not
exceeding Rs. 50 lakh who are otherwise liable to pay VAT, shall however have the option for a
composition scheme with payment of tax at a small percentage of gross turnover. The dealers opting for
this composition scheme will not be entitled to input tax credit.

Tax Payer’s Identification Number (TIN)

2.10 The Tax Payer’s Identification Number will consist of 11 digit numerals throughout the country.
First two characters will represent the State Code as used by the Union Ministry of Home Affairs. The
set-up of the next nine characters may, however, be different in different States.

Return
2.11 Under VAT, simplified form of returns will be notified. Returns are to be filed monthly / quarterly as
specified in the State Acts/Rules, and will be accompanied with payment
challans. Every return furnished by dealers will be scrutinized expeditiously within prescribed time limit
from the date of filing the return. If any technical mistake is detected on scrutiny, the dealer will be
required to pay the deficit appropriately.

Procedure of Self-Assessment of VAT Liability

2.12 The basic simplification in VAT is that VAT liability will be self-assessed by the dealers themselves
in terms of submission of returns upon setting off the tax credit. Return forms as well as other
procedures will be simple in all States. There will no longer be compulsory assessment at the end of
each year as is existing now. 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. Because of the importance of the concept of
self-assessment in VAT, provision for “self-assessment” will be stated in the VAT Bills of the States.

Audit
2.13 Correctness of self-assessment will be checked through a system of Departmental Audit. 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 tax collection wing to remove any bias. The
audit team will conduct its work in a time bound manner and audit will be completed within six months.
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. This comprehensive cross-checking system will
help reduce tax evasion and also lead to significant growth of tax revenue. At the same time, by
protecting transparently the interests of tax-complying dealers against the unfair practices of tax-
evaders, the system will also bring in more equal competition in the sphere of trade and industry.

Declaration Form
2.14 There will be no need for any provision for concessional sale under the VAT Act since the
provision for set-off makes the input zero-rated. Hence, there will be no need for declaration form, which
will be a further relief for dealers.

Incentives
2.15 Under the VAT system, the existing incentive schemes may be continued in the manner deemed
appropriate by the States after ensuring that VAT chain is not affected. Other Taxes
2.16 As mentioned earlier, all other existing taxes such as turnover tax, surcharge, additional surcharge
and Special Additional Tax (SAT) would be abolished. There will not be any reference to these taxes in
the VAT Bills. The States that have already introduced entry tax and intend to continue with this tax
should make it vatable. If not made vatable, entry tax will need to be abolished. However, this will not
apply to entry tax that may be levied in lieu of octroi.

Penal Provisions
2.17 Penal provisions in the VAT Bills should not be more stringent than in the existing Sales Tax Act.

Coverage of Goods under VAT

2.18 In general, all the goods, including declared goods will be covered under VAT and will get the
benefit of input tax credit. The only few goods which will be outside VAT will be liquor,
lottery tickets, petrol, diesel, aviation turbine fuel and other motor spirit since their prices are not fully
market determined. These will continue to be taxed under the Sales Tax Act or any other State Act or
even by making special provisions in the VAT Act itself, and with uniform floor rates decided by the
Empowered Committee.

VAT Rates and Classification of Commodities

2.19 Under the VAT system covering about 550 goods, there will be only two basic VAT rates of 4%
and 12.5%, plus a specific category of tax-exempted goods and a special VAT rate of 1% only for gold
and silver ornaments, etc. Thus the multiplicity of rates in the existing structure will be done away with
under the VAT system. Under exempted category, there will be about 46 commodities comprising of
natural and unprocessed products in unorganized sector, items which are legally barred from taxation
and items which have social implications. Included in this exempted category is a set of maximum of 10
commodities flexibly chosen by individual States from a list of goods (finalised by the Empowered
Committee) which are of local social importance for the individual States without having any inter-state
implication. The rest of the commodities in the list will be common for all the States. Under 4% VAT rate
category, there will be the largest number of goods (about 270), common for all the States, comprising
of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs,capital
goods and declared goods. The schedule of commodities will be attached to the VAT Bill of every State.
The remaining commodities, common for all the States, will fall under the general VAT rate of 12.5%. In
terms of decision of the Empowered Committee, VAT on Additional Excise Duty items (namely, sugar,
textile and tobacco), because of initial organisational difficulties, will not be imposed for one year after
the introduction of VAT, and till then the existing arrangement will continue. The position will be
reviewed after one year.

Effects of the VAT System

2.20 This design of the State-level VAT has been carefully worked out by the Empowered Committee
after repeated interactions with the States and others concerned and striking a balance between the
needed convergence and federal flexibility as well as ground-level reality. If now all the components of
the VAT design are taken together, then it will be seen that the total effect of this VAT system will be to
rationalise the tax burden and bring down, in general, the price level. This will also stop unhealthy tax-
rate “war” and trade diversion among the States, which had adversely affected interests of all the States
in the past. Moreover, this VAT design will also significantly bring in simplicity and transparency in the
tax structure, thereby improving tax-compliance and eventually also the revenue growth, as mentioned
in the beginning.

3. Steps Taken by the States

3.1 It is now of significance to note that most of the States, after collective interaction in the Empowered
Committee, have either already modified or agreed to modify their VAT Bills by incorporating these
common points of convergence including flexibility as mentioned in the VAT design above, and are also
taking other preparatory steps towards introduction of VAT from April 1, 2005.

3.2 As a part of the preparatory steps, the States have started the process of preparing the draft of VAT
Rules, including Books of Accounts to be maintained. The objective will be to keep these as simple as
possible so that it becomes easy for a small trader to comply with the requirements.

3.3 Moreover, the States have initiated, and in many cases also completed, steps for computerisation
up to the levels of assessing officers and also at the check posts. This process will continue since this is
extremely important for document-based verification and integration with Taxation Information
Exchange System as well as with information of the Central excise and income tax systems as
indicated earlier.

3.4 It may be mentioned here that appropriate Central funds for VAT-related computerisation in the
North-Eastern States are also being released by the Government of India.

4. Related Issues
4.1 While the States have thus taken several steps towards introduction of VAT, certain supporting
decisions were critically needed at the national level for more effective implementation of VAT from April
1, 2005.

4.2 It needs to be carefully noted that although introduction of VAT may, after a few years, lead to
revenue growth, there may be a loss of revenue in some States in the initial years of
transition. It is with this in view that the Government of India had agreed to compensate for 100 per cent
of the loss in the first year, 75 per cent of the loss in the second year and 50 per cent of the loss in the
third year of introduction of VAT, and the loss would be computed on the basis of an agreed formula.
This position has not only been reaffirmed by the Union Finance Minister in his Budget Speech of 2004-
05, but a concrete formula for this compensation has also now been worked out after interaction
between the Union Finance Minister and the Empowered Committee.
4.3 As mentioned earlier, there is also a need, after introduction of VAT, for phasing out of Central
Sales Tax (CST). However, the States are now collecting nearly Rs. 15 thousand crore every year from
CST. There is accordingly a need of compensation from the Government of India for this loss of
revenue as CST is phased out. Moreover, while CST is phased out, there is also a critical need for
putting in place a regulatory frame-work in terms of Taxation Information Exchange System to give a
comprehensive picture of inter-State trade of all commodities. As already mentioned, this process of
setting up of Taxation Information Exchange System has already been started by the Empowered
Committee, and is expected to be completed within one year. The position regarding CST will be
reviewed by the Empowered Committee during 2005-06, and suitable decision on the phasing out of
CST will be taken.

4.4 It is also essential to bring imports into the VAT chain. Because of the set-off, this will not result in
any tax cascading effect, but will only improve tax compliance. A proposal for VAT on imports, including
the collection mechanism with adequate safeguards for the protection of interest of land-locked States,
is being discussed with the Government of India.

4.5 Similarly, discussion between the Empowered Committee and the Government of India is going on
for an early decision on the question of collection and appropriation of service tax by the Centre and the
States. If decisions on VAT on imports and service tax are taken expeditiously at the national level, then
these two important spheres of taxation can be integrated, along with the AED items as mentioned
earlier, into the VAT system of the States from the second year of introduction of VAT.

4.6 It may be noted that this VAT design has been worked out carefully by the Empowered Committee
to strike a balance not only between the common points of convergence and federal flexibility, but also
a balance between what can be done to begin with and what should be incorporated subsequently for
further perfection of the VAT system.

4.7 For successful implementation of State-level VAT, close interaction with trade and industry is
specially important. The Empowered Committee has therefore also set up a Consultative Committee
with one representative from each of the national level trade organisations and national level chambers
of commerce and industry. This Committee has already started interacting with the Empowered
Committee. This process of interaction will continue regularly to discuss issues and sort out problems of
implementation of VAT. Such Consultative Committees will also be set up at the level of each State,
and interaction with the State Government will take place in a similarly regular manner.

4.8 In course of discussion with representatives of trade and industry, reference has often been made
to the earlier VAT Bills of some of the States. It should be clearly noted, as already mentioned before,
that all the States have agreed to amend their earlier VAT Bills so as to conform broadly to the common
design as elaborated in this White Paper. This process of amendment has also already started. The
point of reference on VAT should therefore be this design of VAT as explained in this White Paper. It
should also be mentioned that there are some important points on the ground-level implementation of
VAT which have been raised by the representatives of trade and industry. Many of the points will be
taken care of in the VAT rules of the States, with changes where necessary.

4.9 Finally, a comprehensive campaign on State-level will be launched to communicate in simple and
transparent manner the benefit of VAT for common people, traders, industrialists
and also the State Governments. This campaign will then be launched first at the national level on the
basis of necessary coordination between the States and the Centre. This will then be simultaneously
followed up at the level of every State and also in districts of the States. This campaign will be based on
written materials as well as publicity through all media. The purpose of this campaign will be a two-way
interaction between the Government and the trade and industry as well as the common people. There is
now only looking forward to the introduction of State-level VAT by all the States and Union Territories
from April 1, 2005. We seek cooperation of all sections of people in the country.

——————