VAT to cover Army canteens, welfare bodies

Local tax exemptions available to armed forces canteens, local government bodies as well as tax benefits on sales by social welfare organisations like Child Relief and You (CRY) will not be available under the value-added tax (VAT) regime from April 1.

Embassies, too, will come under the ambit of VAT but they will be able to claim refund from the sales tax department. So far, sales to embassies were exempt from local taxes.

"Since VAT is a multi-point tax, several exemption on local sales will disappear. Tax exemptions or concessions allowed under specified forms will also not be available under VAT as invoices have to be submitted at each stage to claim VAT credit. Similarly, tax-free sales to embassies will also attract VAT," Sanjeev Ahuja, deputy commissioner (sales tax), Daman said.

Ahuja said tax benefits allowed on sales undertaken by certain social organisations like CRY would also be withdrawn. Similarly, units supplying goods to government bodies like the erstwhile DESU will no longer get tax exemption or concessions.

The Work Contracts Tax (WCT), which is the tax paid for goods and materials used for the execution of work contract, will also become redundant under VAT as the WCT Act is set to be subsumed.

On the purchases side, the exemptions available through use of forms like ST 1 (for last point goods, the form allows the seller to pass on the tax to the end user) and Form ST 35 (for purchase of inputs at concessional rate for use in manufacturing activity within the state) will not be available under VAT.

Traders will be required to maintain purchase registers giving details of their purchases and specifying the purpose for which a purchase was made.

Purchase of select items, like tobacco, liquor or fuels, used for the purpose of manufacturing will not get VAT credit. Similarly, purchases made from an unregistered dealer will not be eligible for VAT credit.

Ahuja also pointed out that in case the final sale of a product was tax-free then the inputs used in the manufacture of that product would not be eligible to get input tax credit.

In case capital goods are purchased partly for the manufacture of a taxable product and partly for the manufacture of another product, which is tax free, the trader will get input tax credit only on that part of the capital good used to make the taxable final product.

According to Rajan D Gupta, head of indirect tax accounting firm Khaitan & Co, VAT invoices will have certain basic content such as the VAT amount, the full name, address of the consigner and consignee along with their Tax Identification Number, description of goods, vehicle number, transporter's number, break-up of the value of goods according to the rate of tax.

Traders will also have to maintain non-VAT invoice giving details of their inter-state sales, exports, exempted goods or for goods which are excluded from VAT.

Gupta said certain states had also included a provision for compulsory audit by chartered accountants when the turnover was in excess of Rs 40 lakh.