CA Rajeev Varaiya CA Shahid Shaikh Rule 53 – Reduction on Vat Set off & Rule 54 – Non admissibility of Set off CA Rajeev Varaiya CA Shahid Shaikh

Introduction of VAT VAT (Value Added Tax) system is implemented in the State of Maharashtra w.e.f. 1st April, 2005. It is a multistage tax levied at different stages of production till distribution, on value added. VAT is payable on sales of goods effected by any dealer within the state of Maharashtra and set off or input tax credit is granted for tax paid on purchases.  

Understanding the Concept of VAT Dealer Purchase Price Value Addition Sales Price Vat Payable @ 5%(A) Set off (B) Net Vat Payable (A-B) Raw Material Supplier 1,000 50 Manufacturer 1,500 2,500 125 75 Distributor 2,000 4,500 225 100 Whole seller 5,500 275 Retailer to Customer 7,000 350 Total

General Rule Set off is available on all Purchases if the following conditions are satisfied Purchase is made from RD RD issues Tax invoice Tax is shown separately However the set off is available subject to the mentioned rule: Rule 53 – Reduction of VAT Set off Rule 54 – Non Admissibility of VAT Set off

Rule 53 – Reduction of Set off If Taxable goods are used as a fuel – Reduction @ 3% of Purchase Price For Example: Bhavesh Purchased fuel Rs.1,00,000 @ 12.5% Bhavesh made sales Rs.2,00,000 @ 12.5% Calculation of Vat set off and Vat payable: a. VAT on Sales Rs.25,000 b. VAT on Purchase Rs 12,500 c. Less: Reduction @ 3% of purchase price Rs 3,000 (1,00,000*3% ) d. VAT set off available (b-c) Rs 9,500 e. VAT payable (a-d) Rs 15,500

(2)(a) Manufacture of tax free goods – Reduction @ 2% of (2)(a) Manufacture of tax free goods – Reduction @ 2% of Purchase Price of corresponding taxable goods For Example: Viraj manufacturer of Imitation Bangles : Purchased Material Rs.1,00,000 @ 5% Sold Bangles (Tax free) Rs.2,00,000 Calculation of Vat set off and Vat payable: Note: Retention not to apply when goods, being Schedule A tax free goods, are exported. a. VAT on Sales (As tax free) b. VAT on Purchase Rs 5,000 c. Less: Reduction @ 2% of purchase price Rs 2,000 (1,00,000*2% ) d. VAT set off available (b-c) Rs 3,000

(2) (b) Claimant Dealer resells tax free goods and these goods are packed in any material – Reduction @ 2% of Purchase Price of corresponding taxable goods For Example: Jinesh ,a dealer of Imitation Bangles : Purchased Packing Material Rs.1,00,000 @ 5% Sold Bangles (Tax free) Rs.2,00,000 Calculation of Vat set off and Vat payable: Note: Retention not to apply when goods, being Schedule A tax free goods, are exported. a. VAT on Sales (As tax free) b. VAT on Purchase(Input VAT) Rs 5,000 c. Less: Reduction @ 2% of purchase price Rs 2,000 (1,00,000*2% ) d. VAT set off available (b-c) Rs 3,000

(3) Claimant dealer dispatches any taxable goods outside the State, to any place within India, not by reason of sale, to his own place of business or of his agent or where the claimant dealer is a commission agent, to the place of business of his principal, then a reduction of maximum@ 4% shall be deducted - On Purchase Price of Corresponding taxable goods Goods used as Capital assets or used as fuel shall not be liable for Reduction. No Reduction is to be made applicable if the goods dispatched comes back in the state within a period of Six months, whether after processing or otherwise.

Calculation of Vat Set off: Example 1: Branch S Transfers goods for Rs.1,00,000 Branch N (Maharashtra) (Gujarat) Branch S corresponding Purchase was for Rs.80,000 @ 12.5% Calculation of Vat Set off: a. VAT on Branch Transfer Nil (F Form) b. VAT on Purchase (Input VAT) Rs 10,000 c. Less: Reduction @ 4% of purchase price Rs 3,200 (80,000*4% ) d. VAT set off available (b-c) Rs 6,800

Calculation of Vat Set off: Example 2: Branch S Transfers goods for Rs.1,00,000 Branch N (Maharashtra) (Gujarat) Branch S corresponding Purchase was for Rs.80,000 @ 2% Calculation of Vat Set off: a. VAT on Branch Transfer Nil (F Form) b. VAT on Purchase (Input VAT) Rs 1,600 c. Less: Reduction @ 2% of purchase price (80,000*2% ) d. VAT set off available (b-c) Rs Nil

(4)Claimant dealer has made a sale by way of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract. The claimant dealer has opted for composition of tax under sub-section (3) of section 42, Set off on the corresponding amount pertaining to purchases other than capital assets and goods in which property is not transferred shall be calculated as under, by multiplying the said amount of set-off by the fraction 16/25 i.e. 64% where the dealer has opted to pay tax @ 8% on the total contract value. where dealer has opted to pay tax @ 5% on total contract value in case of construction contract, the set off shall be calculated by reducing from the amount of set off a sum equal to 4% of the purchase price.

Akash has opted for composition scheme, For Example: Rule 53 (4)(a) Akash has opted for composition scheme, Works Contract Sales Rs.2,00,000 @ 8% Purchase of Material for WC Rs.1,00,000 @ 12.5% Calculation of Vat Set off: a. VAT on Sale Rs 16,000 b. VAT on Purchase (Input VAT) Rs 12,500 c. Less: Reduction @ 36% of Input VAT (12,500*36%) Rs 4,500 d. VAT set off available (b-c) (64% of Input VAT) Rs 8,000

Devanshi has opted for composition scheme, For Example: Rule 53 (4)(b) Devanshi has opted for composition scheme, Works Contract (Construction) Rs.10,00,000 @ 5% Purchase of Material for WC Rs.8,00,000 @ 5% Calculation of Vat Set off: a. VAT on Sale Rs 50,000 b. VAT on Purchase (Input VAT) Rs 40,000 c. Less: Reduction @ 4% of Purchase Price (8,00,000*4%) Rs 32,000 d. VAT set off available (b-c) (1% of Input VAT) Rs 8,000

(5)If the business is discontinued and no other person is taking over the business and thus it is disposed off In this case reduction in set off will be 100% and thus set off will be disallowed. Applicable only for the goods traded as stock in trade and not applicable to goods treated as Capital Goods. For Example: Rahul’s business is discontinued and he is having a stock in trade of Rs 1,12,500 and corresponding purchases of taxable goods is Rs 1,00,000 taxable @ 12.5%. In this case , Rahul shall not be entitled to claim set off of Rs 12,500.

(6)If in case of any dealer sale for the year is less than 50% of the gross receipts for that year then set off will be allowed in these cases: Dealer is a Hotel or Club not covered under composition scheme on the purchases effected in that year corresponding to the food and drinks (whether alcoholic or not) which are served, supplied or, as the case may be, resold or sold, and On the Purchase of Capital Assets and consumables pertaining to the Kitchens and sale, service or supply of the said foods or drinks. Dealer other than covered above shall be entitled to claim set off only On purchases effected in that year and corresponding goods are sold within 6 months of the date of purchases and not by way of sale to another state to oneself or one's agent.

(7)If the claimant dealer has purchased office equipments or furniture and fixtures and treated them as capital asset, and is not engaged in the business of transferring the rights to use these goods 3% of Purchase price will be reduced from total set off to arrive at available set off. For Example: Nilay purchased computers for Rs 1,00,000 @ 5%. Calculation of Vat Set off: a. VAT on Purchase (Input VAT) Rs 5,000 b. Less: Reduction @ 3% of Purchase Price Rs 3,000 c. VAT Set off available (a-b) Rs 2,000

Rule 54 – Non admissibility of Set off No set off under any rule shall be admissible in respect of: Motor Vehicles (being passenger vehicles) including its parts, components and accessories. High speed diesel oil, fuel and gasoline related to aviation, and petrol except it is sold or resold to other state or exported out of India or sent to any place within India not by reason of sale. Purchase of crude oil as described in section 14 of the Central Sales Tax Act, 1956, when used by an oil refinery for refining. Any purchase of consumables treated as capital goods by dealer engaged in the business of job work or labour work. Or any waste or scrap goods are obtained or sold by him.

Rule 54 – Non admissibility of Set off Any goods of incorporeal or intangible nature except items covered in notification, sim cards, software in the hands of s/w dealer, copyright resold within 12 months of purchase. Purchases effected by the employer by way of works contract when the contract results in immovable property other than plant and machinery. Purchases of any goods by a dealer, the property in which is not transferred to any other person, which are used in the erection of immovable property other than plant and machinery. Purchases of liquor or wine which is not sold or resold in interstate trade or commerce or exported out of India or sent to any place within India not by the reason of sale. Purchase of Mandap, Pandal or Shamiana its decoration and light fittings, floorings, utensils etc for that purpose if dealer has opted for composition of tax u/s 42(4). Purchases made by hotelier of capital asset which is not related in any manner with the food, drinks or service provided by him.

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