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1 INTRODUCTION TO TAX The word TAX was derived from Latin word TAXARE which means to censure or charge. Tax is the amount paid by the persons stating within a territorial limit of a sovereign state and is levied on individuals, goods, property, services etc. It may be defined as compulsory exaction of money by public authorities for public purposes enforceable by law & does not mean payment for services rendered. Tax is levied but the State by virtue of its sovereign powers. Both the union Parliament and the State Legislations are empowered under the Constitution to make laws for the levy and collection of taxes. Taxation is not a new concept; rather it is as old as the history of economic science. The system of taxation in India is traced to the period of Vedas. As Tossing puts it as, the essence of a tax, as distinguished from the other charges by Government, the absence of a direct quid pro quo between the tax payer and the public authority. Tax collected by the Government constitutes its revenue. The amount so collected is used to meet the general expenses incurred by the Government for public good, without any corresponding benefit to the taxpayer. Therefore it is used for the collective benefit of the public.

FEATURES OF TAX COMPULSORY PAYMENT :- It a compulsory payment made by citizens. Every person who is liable to pay tax has to pay tax. No person can refuse to pay tax. Refusal to pay tax invites punishment. NO DIRECT RELATIONSHIP :- There is no direct relationship between the tax-payer and the public authority. In other words taxpayer cannot claim the reciprocal benefits against the taxes paid. CLASSIFICATION OF TAX :- Basically tax is divided into two categories i.e. DIRECT TAX & INDIRECT TAX. Direct tax is the tax in which the burden of tax falls on the same person who has paid the tax and this cannot be shifted to other while in indirect tax burden of tax is shifted to other person who has actually paid the tax. COLLECTION OF TAX :- Tax is collected regularly by the taxing authority on such rates as notified from time to time by the Government either through finance act or by way of notifications in the Official gazette. UTILISATION OF TAX :- Tax is the major source of income for the government. Such collected funds are utilized for the benefit of the public by way of developing infrastructure like roads, hospitals, educational institutions etc.

TYPES OF TAXES There are two types of taxes, which are as follows :DIRECT TAX :- Direct tax is the tax in which the burden of tax falls on the same person who pays the tax. In this case the burden of tax cannot be shifted to the other. For Example :- Income Tax, Wealth Tax etc. INDIRECT TAX :- Indirect tax is the tax in which the burden of tax does not falls on the same person who actually pays the tax. In this case the burden of tax is shifted to the other. For Example: - Excise Duty, Custom Duty, Sales Tax, and Service Tax etc. The Indirect Tax can be classified into four types, which are as follows: 1) CENTRAL EXCISE TAX (DUTY) : - It is a tax, which is paid on the goods manufactured in India. It is levied & collected through the machinery of Central Excise Act, 1944. 2) CUSTOMS (DUTY) :- It is a tax, which is paid on the import /export of goods from India. It is levied &collected through the machinery of Customs Tariff Act, 1975. 3) CENTRAL SALES TAX :- It is a tax, which is paid on the sale of goods within INDIA. It is levied & collected through the machinery of Central Sales Tax, 1956.

4) PUNJAB VALUE ADDED TAX :- It is a tax which is paid on the sale & purchases of goods & for the repeal of Punjab General Sales Tax Act, 1948. MODVAT :- It stands for Modified Value Added Tax. All inputs levies are not allowed to be set off against duty liabilities on final products in the Modvat Scheme. It provides for the credit of the aforesaid duties paid on inputs used in or in relation to the manufacture of final products by enabling the manufacture to obtain an instant and complete reimbursement of the duties paid on inputs. The main objectives of the scheme are to avoid the cascading effect of imposition of duties on duties. This scheme was extended to capital goods. Modvat scheme was introduce w.e.f. 01/03/1986. it covered almost all manufacturing sectors except some goods. Modvat scheme was extended to capital goods w.e.f. 01/03/1944. From 1st April, 2000 Modvat was renamed as Cenvat. There is no much difference between Modvat & Cenvat. CENVAT :- Since excise duty is now leviable practically on all goods whether raw material, intermediates, components, sub assembles, capital goods & final products. It is necessary to devise some scheme to neutralize the cumulative effect of multipoint levies and cascading effect on the price predicts. Till the introduction of vat, many schemes come into operation which are as follows :Cenvat credit scheme for inputs and capital goods. Exemption for captive use. Remission of duty for special industrial purposes.

Cenvat scheme was introduced by Finance Act, 2000. Main features of Cenvat Scheme :- These are as follows :1) Cenvat provides relief to manufacturers on the duty borne by them in respect of inputs used by them. Under the scheme a manufacturer can avail credit of duty paid on the inputs purchased. 2) No statutory record is prescribed under Cenvat. 3) The scheme allow for the availing Cenvat in respect of inputs as well as capital goods. 4) Registration of dealer is not stipulated under Cenvat, though the first & second stage dealers remain as valid as duty paying documents. 5) Special excise duty paid on inputs can be as Canvat credit. ADVANTAGES OF CENVAT SCHEME :1) Simplified rules for manufacturers to avail and utilized cenvat credit in respect of both inputs & capital goods. 2) The coverage of inputs has been wided expecting high-speed diesel oil & petrol, all inputs as per tariff schedule all covered. 3) No statutory record has been prescribed. The records maintained by the manufacturer in the normal course of business all acceptable to the department. 4) No declaration is necessary for availing of credit in respect of inputs immediately and in respect of capital goods in two installments. 5) Assesses are not required to submit duty, documents to the departments for defacing. 6) Assesses are not allowed to transfer credit under certain specified situation without obtaining permission prom the authorities concerned.

CHAPTER NO. 2 OBJECTIVES & SCOPE OF STUDY OBJECTIVES :- The main objectives to study the vat are as follows :1). To get the thorough knowledge about Punjab Vat Act, 2005. 2). To know about the procedure of registration under Vat Act, 2005. 3). To get the knowledge about the different class of dealer covered under Vat Act, 2005. 4). To know about the different documents to be required at the time of registration. SCOPE OF STUDY :The study under consideration includes the meaning, definition, various terms under Vat, incidence & levy of tax, procedure of registration, payment & recovery of tax, returns & assessment of tax, case study covers the registration procedure of GOLDEN CRAFTS.

CHAPTER NO. 3 MEANING OF VAT VALUE ADDED TAX (VAT) is a general consumption tax assessed on the value added to goods and services. It is a general tax that applies in principle to all commercial activities involving the production and distribution of goods and the provision of services. It is a consumption tax because it is borne ultimately by the final consumer. It is not a charge on companies. It is charged as percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain. It is collected fractionally, via a system of deductions whereby taxable persons can deduct from their VAT liability the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved. In other words, it is a multi stage tax, levied only on value added at each stage in the chain of production of goods and services with the provision of a set-off for the tax paid at earlier stages in the chain. The objective is to avoid cascading which can have a snowballing effect on prices. It is assumed that due to cross checking in a multi-staged tax, tax evasion will be checked, resulting in higher revenues to the government. Over 130 countries worldwide have introduced VAT over the past three decades and India is almost the last few to introduce it.

India already has a system of sales tax collection wherein the tax is collected at one point (first/last) from the transactions involving the sale of goods. VAT would, however, be collected in stages (installments) from one stage to another. The mechanism of VAT is such that for goods that are imported and consumed in a particular state, the first seller pays the first point tax, and the next seller pays tax only on the value addition done leading to a total tax burden exactly equal to the last point tax. Vat is a system of collection of sales tax under which tax is charged at each stage of sale on the value added to the goods. There are less rates of taxes in vat in comparison to the sales tax. Only few rates such as 4%, 12.5% etc. are there. Under value added tax no statutory forms, local forms are to be issued and collected by the authorities.

SOME IMPORTANT TERMS & DEFINITIONS : VALUE ADDED TAX :- As per section (2 (zr) ) value added tax (VAT) means a leviable on the taxable turnover of a person, other than a registered person, under this act. It is a multi point tax. This tax is levied with the factory to set off the tax paid on purchases against the tax payable on the sale of goods. VAT LIMIT :- It is the limit of gross turnover of a person below which he is not required to be registered as VAT. In Punjab, it is Rs. 30 Lacs. But person with turnover of more than Rs.5 Lacs can opt for voluntary registration a VAT (Taxable person). COMPOSITION SCHEME :- Dealers below the VAT threshold limit and who have not opted for VAT registration will be required to pay a presumptive compounded tax on the entire sales turnover @ 1%. The manufacturers with turnover of more than 1 lac and the persons registered under the Central Sales Tax Act, 1956 are not eligible for being registered under composition scheme. These dealers can neither claim input tax credit nor can they transfer the input tax credit. They will issue Retail Invoice and not the VAT Invoice.

DECLARED GOODS :- These are goods, which are specified in the Central Sales Tax Act as goods of importance in the course of interstate trade or commerce. The rate of state level sale tax on these goods cannot exceed 4%. ZERO RATE SALES :- An export sale will be zero rated sales in VAT. Thais is different from the exempt sale because in this sale the input tax paid on the goods exports or on the goods consumed in production of goods, which are exported will be refunded back to the seller i.e. the exporter. BRANCH TRANSFER/CONSIGNMENT DISPATCH :- This is exempt under VAT because there is no transfer of property from one person to another during branch transfer or consignment dispatch transaction. In this transaction the input tax credit is providing on input tax paid in excess of 4% INPUT TAX CREDIT ON CAPITAL GOODS :- ITC on capital goods is available on the tame of their purchase itself through the white paper on VAT had given power to the State Governments to distribute the input tax credit on capital goods in 36 equal installments. No input tax credit is available on the Capital Goods held by a taxable person on the appointed day i.e. on 1st April, 2005. OUTPUT TAX :- Output tax is that tax which is payable by a registered dealer on the sale of goods affected.


PRESUMPTIVE TAX :- Tax @ 1% is payable by the person who opt for composition scheme. This 1% tax is called the Presumptive Tax. No ITC shall be available on this Presumptive Tax. REGISTRATION :- registered under VAT can either be taken as a taxable person or as a registered person ? In common parlance the taxable person is called VAT person and the person is called TOT person. REVERSE TAX CREDIT :- The available input tax credit may sometimes be needed to be reverse when the conditions for availment of input tax credit are pot compiled with in future. Punjab Vat Act has specified the circumstances is reverse tax credit is to be made. For example:- when the taxable goods produced out, material are consumed and not sold and the taxable person has already taken input tax credit in the inputs consumed for manufacturing these items. The input tax credit is to be reversed back. Exempt goods :- These are the goods on which 0% Vat is leviable . For example :- Bread. TAX INVOICE :- The invoice prescribed for sale to be eligible for input tax credit is called Vat tax invoice. Input tax credit will be allowed only if tax invoice contains the particulars required to be specify under the VAT Act.


FREE GIFTS UNDER VAT :- Under Vat If some goods are given as gift then it means disposal of goods otherwise than by way of sale. The tax effect of these type of transaction is that input tax credit is not available in case the output is given free of cost as gift. It is thus advisable to charge though a nominal amount as sale consideration in case goods is given even as free gift. REFUNDS IN VAT :- Circumstances are there when refunds will arise in the VAT era. In case of export the case of input tax being more than output tax because of difference in rates of tax and output tax, in case of local purchase at higher rate of tax than the tax leviable on these goods when sold in inter-state trade some of the situations when refunds will arise. In Punjab VAT Act, provisions are there for giving refund within 30 days of receipt of complete application for refund. DEFERRAL OF TAX IN VAT :- Deferral of tax means payments of tax after a period it is collected. Under the vat regime, deferral benefits will not be given except in case of existing unit who are already enjoying these benefits. DEEMED SALES :- Deemed sales are those which are not really sales but have been deemed as sales. For instance an hire purchase transaction, works contract, transfer of right to sale goods are the sales when deemed sale is recognized.


PERIOD :- Period refers to the period for which the dealer is required to file returns. The period under the Vat Act is quarterly both for the taxable persons and the registered persons under VAT. PURCHASE TAX :- Purchase tax is levied in two cases in the Punjab VAT Act. First is the case when the goods specified in Schedule-H are purchased for the first time in the State. The provisions in this regard are made in section 20. the second is the case when goods purchased without payment of tax are sold or otherwise disposed off without collection of tax. Provisions for these transactions are made in section 20. SELF-ASSESSMENT :- It is the assessment by the taxable or the registered person himself of the tax payable by him. There will not be any obligation to have the assessment done on year to year to basis by going to the office of the department. The department will rely on the assessment done by the person himself and in select cases audit shall be done.


INCIDENCE & LEVY OF TAX : INCIDENCE OF VAT (VALUE ADDED TAX) (Section 6(1)) :Every person, except a casual trader and one dealing exclusively in goods declared tax free under section 16, whose gross turnover during the year immediately preceding the commencement of this act or during any year subsequent thereto, exceeded the taxable quantum, as provide in clause (a) of sub section (3) shall be liable to pay tax under this act by way of Vat on the taxable turnover. TOT (Turnover tax) INCIDENCE :- Every person except a casual trader and one dealing exclusively in goods declared tax free under section 16, whose gross turnover during the year immediately preceding the exceeded taxable turnover, as provided in clause (b) of sub section (3) shall be liable to pay under this act by way of TOT (Turnover Tax) on the taxable turnover. Taxable Quantum :- The expression Taxable Quantum means : a). For registration as a taxable person for VAT :1. In relation to any person, who imports taxable goods for sale or


use in manufacturing or processing any goods in the State, rupee one; 2. In relation to a person, who receives goods on consignment/branch basis from within or outside the State on which no tax has been paid under this act, rupee one; 3. In relation to a person, liable to pay purchase under section 19, rupee one; 4. In relation to a person, who is a manufacturer, rupee one lac; 5. In relation to voluntary registration, rupee 5 lac 6. In relation to any other person, rupees 50 lac; 7. In relation to a person, who is running a hotel / restaurant, rupees 5 lac; 8. In relation to a person, who is running a bakery, rupees 10 lac; b). For registration as a registered person for TOT :In relation to a person other than those specified in clause (a) whose turnover during the preceding year is more than Rs. 5 lac, but below Rs. 50 lacs. TAX LIABILITY- when ceases (Section 6(4)) :- Every person, who has become liable to pay tax under this act, either by way of VAT or TOT, shall continue to be so liable, until the expiry of three consecutive years during each of which his gross turnover doesnt exceed the taxable quantum and such further period after the date of such expiry, as may be specified by notification by the State Government and on the expiry of such specified period, his liability to pay tax, shall cease. SUBSEQUENT LIABILITY OF TAX (Section 6(5)) :- Every person whose liability to pay tax has ceased under sub-section (4), shall again be


liable to pay tax under this Act from the date on which his gross turnover again exceeds the taxable quantum. TAX LIABILITY OF CASUAL TRADER (Section 6(6)) :- Every casual trader shall be liable to pay tax under this act by way of VAT on the taxable turnover including sales through agent within the State.

NECESSITY OF VAT IN INDIA : India, particularly the trading community, has believed in accepting and adopting loopholes in any system administered by the State or the Center. If a well-administered system comes in, it will close revenues for traders and businessmen to evade paying taxes. They will also be compelled to keep proper records of their sales and purchases. Many sections hold the view that the trading community has been amongst the biggest offenders when it comes to evading taxes. Under the VAT system, no exemptions will be given and a tax will be levied at each stage of manufacture of a product. At each stage of valueaddition the tax levied on the inputs can be claimed back from the tax authorities.


At a macro level, there are two issues, which make the introduction of VAT critical for India. Industry watchers say that the VAT system, if enforced properly, forms part of the fiscal consolidation strategy for the country. It could, in fact, help address the fiscal deficit problem and the revenues estimated to be collected could actually mean lowering of the fiscal deficit burden for the government. The International Monetary Fund (IMF), in its semi-annual World economic Outlook released on April 9, expressed its concern over Indias large fiscal deficit @ 10% of the GDP. Further any globally accepted tax administrative system, will only help India integrate better in the World Trade Organization regime. LIABILITY OF REGISTERED PERSON (SECTION 12) : Liability of a registered person shall be calculated at the rate, specified under section 9. Sale of taxable goods held on stock by a registered person on the appointed day, which were purchased without payment of tax under the repealed Act, shall be liable to tax at the rate, specified for those goods under this Act. A registered person, whose registration has been continued under section 21, shall furnish in such form and to such authority, as may be notified, a


statement of taxable goods under this Act, held in stock on the appointed day, within a period of 30 days from the appointed day. A registered person shall not be entitled to input tax credit for any purchase. A registered person shall issue only a retail invoice for sale made by him and shall not be eligible to issue a VAT invoice. A registered person shall not be eligible to hold registration under the Central Sales Tax Act, 1956.

INPUT TAX CREDIT (SECTION 13) :A taxable person shall be entitled to the input tax credit. In such manner and subject to such conditions, as may be prescribed, in respect of input tax on taxable goods, including capital goods, purchases by him from a taxable within the state during the tax period. Provided that such goods are for sale in the State or in the course of inter- state trade or commerce or in the course of export or for use in the manufacture, processing or packing of taxable goods for the sale within State or in the course inter-state trade or commerce or in the course of export. However a taxable person shall be entitled to partial input tax credit in any other event, as may be provided in this section in such manner and subject to such conditions as may be prescribed.


In case the purchases are used partially for the purposes specified in this sub-section and the taxable person is unable to identify the goods used for such purposes , then the input tax credit shall be allowed proportionate to the extent, these are used for such purposes, in the prescribed manner. It is provided that input tax credit in respect of purchase tax paid or payable by a taxable person under section 19, shall be allowed to subject to the conditions laid therein. ADVANTAGES OF VAT :1. NO TAX EVASION :- It is said that VAT is a logical beauty. Under VAT, credit of duty paid is allowed against the liability on the final product manufactured or sold. Therefore, unless proper records are kept in respect of various inputs, it is not possible to claim credit. Hence, suppression of purchases or production will be difficult because it will lead to loss of revenue. A perfect system of VAT will be a perfect chain where tax evasion is difficult. 2. Neutrality :- The greatest advantage of the system is that it does not interfere in the choice of decision for purchases. This is because the system has anti-cascading effect. How much value is added and at what stage it is added in the system of production/distribution is of no consequence. The system is neutral with regard to choice of production technique, as well as business organisation. All other things remaining

the same, the issue of tax liability does not vary the decision about the source of purchase. VAT facilitates precise identification and rebate of the tax on purchases and thus ensures that there is no cascading effect of tax. In short, the allocation of resources is left to be decided by the free play of market forces and competition. 3. Certainty :- The VAT is a system based simply on transactions. Thus there is no need to go through complicated definitions like sales, sales price, turnover of purchases and turnover of sales. The tax is also broadbased and applicable to all sales in business leaving little room for different interpretations. Thus, this system brings certainty to a great extent. 4. Transparency :- Under a VAT system, the buyer knows, out of the total consideration paid for purchase of material, what is tax component. Thus, the system ensures transparency also. This transparency enables the State Governments to know as to what is the exact amount of tax coming at each stage. Thus, it is a great aid to the Government while taking decisions with regard to rate of tax etc. 5. Better revenue collection and stability :- The Government will receive its due tax on the final consumer/retail sale price. There will be a minimum possibility of revenue leakage, since the tax credit will be given only if the proof of tax paid at an earlier stage is produced. This means that if the tax is evaded at one stage, full tax will be recoverable from the person at the subsequent stage or from a person unable to produce proof of such tax payment. Thus, in particular, an invoice of

VAT will be self enforcing and will induce business to demand invoices from the suppliers. Another attribute of VAT is that it is an exceptionally stable and flexible source of government revenue. 6. Better accounting systems :- Since the tax paid on an earlier stage is to be received back, the system will promote better accounting systems. 7. Effect on retail price :- A persistent criticism of the VAT form has been that since the tax is payable on the final sale price, the VAT usually increases the prices of the goods. However, VAT does not have any inflationary impact as it merely replaces the existing equal sales tax. It may also be pointed out that with the introduction of VAT, the tax impact on raw material is to be totally eliminated. Therefore, there may not be any increase in the prices.

DISADVANTAGES OF VAT :1. ELIMINATE THE EFFECTS :- The merits accrue in full measure only under a situation where there is only one rate of VAT and VAT applies to all commodities without any question of exemptions whatsoever. Once concessions like differential rates of VAT, composition schemes, exemption schemes, exempted category of goods etc. are built into the system, distortions are bound to occur and the fundamental principle that VAT will totally eliminate cascading effects of taxes will also be subject to qualifications.


2. NEUTRALITY :- In the federal structure of India in the context of sales tax, so long as Central VAT is not integrated with the State VAT, it will be difficult to put the purchases from other States at par with the State purchases. Therefore, the advantage of neutrality will be confined only for purchases within the State. 3. EXPENSIVE :- For complying with the VAT provisions, the accounting cost will increase. The burden of this increase may not be commensurate with the benefit to traders and small firms. 4. INCREASE OF BURDEN :- Another possible weak point in the introduction of VAT, which will have an adverse impact on it is that, since the tax is to be imposed or paid at various stages and not on last stage, it would increase the working capital requirements and the interest burden on the same. In this way it is considered to be non-beneficial as compared to the single stage-last point taxation system. 5. REGRESSIVE :- VAT is a form of consumption tax. Since, the proportion of income spent on consumption is larger for the poor than for the rich, VAT tends to be regressive. However, this weakness is inherent in all the forms of consumption tax. While it may be possible to moderate the distribution impact of VAT by taxing necessities at a lower rate, it is always advisable to moderate the distribution considerations through other programmes rather than concessions or exemptions, which create complications for administration.


6. INCREASE IN ADMINISTRATION COST :- As a result of introduction of VAT, the administration cost to the State can increase as the number of dealers to be administered will go up significantly.

ITEMS COVERED IN INDIAN VAT 550 items covered 270 items of basic needs like medicine, drugs, agro & industrial inputs, capital & declared Tea-producing States options Either percentage goods 4 % VAT. Petrol, diesel, Liquor, lottery not Included. Sugar, textile & Tobacco excluded for one year. Rest 12.5 % VATS Gold & silver Jewellery-1%.

VAT Traders with turnover of less than Rs. 5,00000 Are exempt from the new tax.


Note : Some state like Delhi have imposed Vat on diesel @ 20%, which is higher than the 12% sales tax charged earlier. Similarly, Delhi imposed vat on LPG at 12.5% which is also higher than the previous sales tax rate of 8%. All business transactions carried on within a state by individuals, partnerships, companies etc, will be covered by vat. More than 550 items would be covered under the new Indian vat regime of which 46 natural and unprocessed local products would be exempt from vat a PTI report quoted WEST BENGAL Finance Minister and vat panel chairman Asim Dasgupta as saving. About 270 items including drugs and medicines, all agriculture and industrial inputs, capital goods and declared goods would attract 4% vat in India. The remaining items would attract 12.5% vat. Precious metals like gold and bullion would be taxed at 1%. Considering the difficulties faced by the tea industry. It was decided that tea-producing states would be given an option to levy 12.5% or 4%subject to review in 2006.


THE IMPACT OF VAT IN INDIA :VAT is most certainly a more transparent and accurate system of taxation. The existing sales tax structure allows for double taxation thereby cascading the tax burden. For example, before a commodity is produced, inputs are first taxed, the produced commodity is then taxed and finally at the time of sale, the entire commodity is taxed once again. The transaction chain under vat assuming that a profit of Rs.10 is retained during each sale. SaleAof CHENNAI @ Rs.100/SALE @ RS.124/B of BANGLORE SALE D of BANGLORE SALE @ Rs.114/SALE @ RS.134/SALE C of BANGLORE CONSUMER IN BANGLORE


Tax implication under Value Added Tax Act Seller Buyer Selling Price A B C D ( B 100 C 114 D 124 Consumer 134 Tax Rate Invoice Value ( 4%CST 104 12.5%VAT 128.25 12.5%VAT 139.5 12.5%VAT 150.75 Tax Tax Net Tax Payable Credit Outflow 4 14.25 15.50 16.75 0 0* 14.25 15.50 VAT CST STATES WELCOMING VAT IN INDIA Except the following 8 states (among them 5 BJP ruled states ), all the 21 states have given a welcome hug to vat in India. Ramesh chandra, secretary of the federal panel overseeing Indian vat implementation said that other states will join within a month-and-a-half. Uttar Pradesh Tamil Nadu (to join from 21 July) Uttaaranchal 4.00 14.25 1.25 1.25 16.75 4.00

Total to Govt.

BJP Ruled States Madhya pradesh Rajasthan Jharkhand Gujarat



CHAPTER NO.4 REGISTRATION OF DEALERS UNDER VAT Registration means a person liable to tax under the act either have a VAT or TOT registration. A person registered under VAT is known as Taxable Person and person registered under TOT is known as Registered Person. Registered under the Punjab Value Added Tax Act, 2005 can either be Compulsory Registration or Voluntary Registration. We discuss the provision here as under: COMPULSORY REGISTRATION :As per section 21, no person, other than a casual trader who is liable to pay tax shall carry on his business unless he is registered under the Act. Liability to pay tax under this Act is determined by section 6. Every person except a casual trader and dealing exclusively in goods declared tax free under

section 16, whose gross turnover during the year immediately preceding the commencement of this act or during any year subsequent thereto, exceeded the taxable quantum, as per section 6(3)a shall be liable to pay tax on the taxable turnover by way of VAT and if his taxable turnover exceeds the taxable quantum during the year immediately preceding the commencement of this ACT or during any year subsequent thereto as per section 6(3)(b) then shall be liable to pay tax on the taxable turnover by way of TOT on his taxable turnover. Section6 (3)(a) prescribed the taxable income quantum for registration as a taxable person and section 6(3)(b) prescribe the taxable quantum for registration as a registered person. So, we can infer from the above that: - No person other than a casual trader, who is liable to pay the tax, shall carry on the business; The person shall be liable to pay tax is his gross turnover during the year immediately preceding the commencement of the Act that is immediately thereto i.e. in any subsequent year exceeds the taxable quantum; Taxable quantum is defined in section 6(3) vide its clauses (a) and (b); Section 6(3) (a) prescribe the taxable quantum for registration as a taxable person and section 6(3) (b) prescribe the taxable quantum for registration as a registered person. VOLUNTARY REGISTRATION :-


In addition to these cases of compulsory registration, a person can opt for voluntary registration as taxable person (VAT) under section 22 of the Act but he must not be dealing exclusively in the goods declared Tax Free under section 16. Every person, who has been registered upon application made under this section shall, for so long as his registration remains in force, be liable to pay tax under this Act whether his gross turnover exceeds the taxable quantum or not.

COMPULSORY REGISTRATION :When any person, who is registered before the appointed say under the repeated Act, and continues to be registered on the day, immediately before such appointed day, the designated officer shall within thirty days of the receipt of application in the prescribe form, issue to such person, in the prescribed manner. A fresh registered under this Act for VAT or TOT, as the case may be. PROCEDURE FOR REGISTRATION : Application for registration :- An application for registration shall be made to designed officer. It must be signed by proprietor in case of business, by a partner of the firm, in case of firm. By a manner in case of Hindu Undivided Family. Fee & Supporting Document :- the application for registration shall be in form VAT-1 and shall be accompanied by deposit receipt in form VAT-2 of fee of 2 rupees five hundred in appropriate government treasury.

Time limit :- the application shall be made to designated officer within a period of the thirty days from the appointed day i.e. Ist April 2005. Security :- the additional security is required to be given for registration shall be in any of the following forms: a) Bank guarantee from a local scheduled commercial bank for the amount of security / additional security. b) Personal bond with two solvent securities acceptable to the designated officer for the amount of security/additional security in form VAT-3. Certificate of Registration :- when the designated officer after making enquiry is satisfied that all particulars in application are fee has been paid it shall be register the person and issue him a certificate of registration in Form VAT-4. Issue of Duplicate Copy of Certificate of Registration :- where the certificate granted to a person is lost, destroyed, defaced may on application made in this behalf to the designated officer and on payment of fee of Rs. 100/obtain a duplicate copy. Keeping certificate of registration at all places of business :- the certificate of registration granted under rule 5 shall be kept and displayed at the principal place of business and copy each of the certificate shall be kept at every additional place of business within the state. Amendment of registration :- an application for amendment for registration granted under the act shall be made in the Form VAT-5


within thirty days from the occurrence of event necessitating such amendment. Cancellation of registration :- an application for cancellation of registration shall be made within thirty days from the occurrence of event necessitating such cancellation.

CHAPTER NO.5 PAYMENTS AND RECOVERY OF TAX Due date of payment of VAT or TOT :- According to section 33 Vat or TOT due shall be paid. In the case of taxable person whose turnover exceeds Rs. 1 crore in the previous year, on the monthly basis. In the case of a taxable person whose turnover is less than Rs. 1 crore in the previous year, by the date the return for such a period is required to be filled. In the case of the turnover tax payable by a registered person under this act, the return for the period is required to be filled. In the case of a casual trader by such date as may be prescribed.


In the other case, the tax shall be payable by such date, as may be specified by the designated officer. Recovery as Debt: - According to Sec 34 tax or may other amount due or payable by a person under this Act, shall be debt, due to the State Government payable recovered as per the provisions of this Act. Charge on the Property: - According to the Section 35, any amount of tax, penalty, interest and any other sum payable by a taxable person or registered person under this Act, shall be the first charge on the property of such person from the date on which the amount becomes due and payable. Recovery as arrears of Land Revenue: - According to section 36 the amount of tax , penalty, interest or any other sum due and payable under this Act, which remains unpaid after the due date, shall be recoverable as arrears of land revenue. PAYMENT OF TAX :The tax is to be paid into the government treasury or any bank authorized to transact government business or at District excise and taxation office when paid through cheque/draft. The table below shows the time and procedure for payment of tax by any person: Description person of Type of When to Due Date for Form for Tax Pay Payment of Tax Payment


Taxable person With turnover Up to Rs. 1 crore Taxable person with turnover Above Rs. 1 crore Registered person




Monthly Quarterly

30 days from the end of each quarter If paid through TR Challan & 20 days If paid by cheque or draft. 10 days from the End of each month Form 30 days from the end of each quarter If paid through TR & 20 days If paid by cheque or draft Date specified in The notice of demand or 30 days, whichever I Within 15 days of the End of the VAT-25 month in which deduction is made

Every person

Ta due as per Assessm ent Every person Tax Entering into A Deducted works contract At source

On issue of Notice of Demand On payment Made to contractor

RETURNS AND ASSESSMENT MEANING AND FEATURES :Returns means: a) A true and correct statement of account of the business for a specified period. b) A statement of any additional information as may be required under the Act. c) A statement that enables the department to calculate the output tax liability, the amount of input Tax Credit claimed and the net tax payable by the assesses.


Provisions Regarding Returns: i. Returns to be filled quarterly or monthly by a taxable person: Every taxable person shall file quarterly self-assessed return in FORM VAT 15 days within 30 days from the expiry of each quarter along with the proof of payment into the appropriate Government treasury & TDS certificate, If any. A person, whose annual turnover exceeds Rs. 1 crore in the preceding year, shall determine his tax liability for every month.

TYPE OF RETURNS The table below shows the type of returns to be filled when and in which form by every person :Description of Person Taxable Person Type of Return Quarterly Return Form No. VAT-15 On VAT-16 Due Date for Payment 30 days from expiry of quarter 10 days from the expiry of the month

Taxable Person Monthly with Turnover Information AboveRs.1 tax liability


Crore Registered Person Taxable Person Registered person Every Person With turnover Above Rs.40 lacs Every person

Quarterly Return VAT-17 Annual Statement Annual Statement VAT certificate VAT-20 VAT-21 audit VAT-22

30 days from expiry of each quarter 20th Nov. each year 20th Nov. Each year Same as for annual statement Within 30 days of Such closure

On cancellation VAT-15 of registration VAT-17

CHAPTER NO.6 HISTORY OF SOLE PROPRIETORSHIP CONCERN M/S GOLDEN CRAFTS were registered under Punjab VAT Act, 2005 on 31 May 2005. Its registered office is at 3929/22, GALI MAHAVIR, NEAR PIPLI SAHIB GURDUARA, PUTLIGHAR, AMRITSAR. It is a sole proprietorship concern. The main object of the concern is to carry on the business of trading, manufacturing, buying, selling in all kinds of carpets. The objects ancillaries to the main objectives are:


To enter into any arrangement or agreement or contract with any person, association firm or corporation whether in Punjab or Outside Punjab, for techniques, or for such other purpose that may seem beneficial and conductive to the objects of the company. To acquire and undertake all or any part of business, property liabilities and rights of any person, firm or company carrying on any business that this concern is authorized to carry on or be possesses of property suitable for the purpose of the concern. To deal with the selling and buying of all kinds of carpets and their components as specified above. To institute, conduct, deafen, compound, compromise any legal proceedings against or by the company.

Mr. NARINDER SINGH is the sole proprietor of the M/s GOLDEN CRAFTS CASE STUDY Name of the sole proprietorship concern Address of the sole proprietorship concern : : M/S Golden Crafts 3929 / 22, Gali Mahavir, Near Pipli Sahib Gurduara, Putlighar, Amritsar. In State of Punjab 03522027261

Registered office (Head Office) Registration Number

: :


Registered Under Permanent Account No.( PAN )

: :

Punjab VAT Act, 2005 ABLPS1171L

M/s Golden Crafts is carrying the business of trading, manufacturing buying & selling of all kinds of carpets and some other type of woolen carpets. The earlier sole proprietorship concern was registered under Central Sales Tax; and then with the applicability of Punjab VAT-1 Act 2005. It got registration under this Act. For the purpose of registration under PunjabVATACT, 2005, the firm applied through form VAT i.e. application for registration form. Contents of the Application Includes: I. Name of the Applicant. II. Trade name in which business is carried on. III. Expected turnover in currency financial year. IV. Date from which liable to tax. V. Constitution of business. VI. Address of principal place of business in Punjab. Full information about the sureties was also submitted. There are two sureties of M/s Golden Crafts. Both of these sureties are registered person. It also includes complete address of their firm, their registration certificate number, Telephone number etc.


Along with application fee of Rs.500/- was deposited. Out of this Rs. 500/-. Rs. 150/- was for VAT Act and Rs.50/- was paid for Punjab municipal fund. Other documents which were required to be submitted along with applications form includes ownerships proof, residential proof, PAN card etc, Mr. Narinder Singh is the sole proprietor of the M/s Golden Crafts. The application form duly filled and signed by the authorized person was submitted to the authorities. After the security of the application and satisfied with all the information and declaration there in the authorities granted the Certificate of registration to M/s Golden Crafts.


VAT is new concept of taxation, which is fair to business and consumers. Tax paid on purchases (Input Tax) is rebated against Tax Payable on sale i.e. Output tax. Value Added Tax means that tax which is payable only on value added to commodities and on the services rendered. VAT is simple, transparent Tax collected on the sale of goods. From 1st April 2005, various states and union

territories have decided to introduce VAT in place of sales Tax and related taxes. Above a certain turnover all business transactions are carried on within a state by individuals in business, partnerships and companies will be covered by VAT. Thus VAT is multipoint taxation system i.e. sales tax which is payable at each stage. VAT is the system of taxation that prevents cascading effects of taxes and promotes export.

BIBLIOGRAPHY Some Books such as: Dhushankul, How to deal with VAT , Pearson publishers, Edition 2005. Brooks john, How to live with VAT , Amazon Publishers, Edition 2005.


Sareen V. K. Sharma Ajay, Indirect tax laws , kalyani publishers, Edition 2006. R. K. Sharma, Shashi K. Gupta, Indirect tax laws , Sharma Publications, Edition 2008. V. S. Datya, Indirect taxes, Taxmans Publications, Edition 2008.

Websites www.formation