Value Added Tax (VAT) refers to an intra-state multi-point tax system that is administered by the State Government. All states in India have replaced their other sales tax regimes with VAT.
However, interstate tax continues to be liable to the Central Sales Tax (CST) levied by the Government of India and administered by state governments.
Basic Rate Slabs under VAT
| Nature of the Product |
Tax Rate |
| Natural & unprocessed products & other essential goods |
0% |
| Special goods like gold, bullion, silver, etc. |
1% to 2% |
| Agricultural & industrial input, IT products, capital goods & intangible goods, i.e., patents & others, & items of basic necessity. |
4% to 5% |
| All other goods that do not fall under the categories mentioned above. |
12.5% to 15% |
Basic Rate under CST
The standard rate of CST is 2% if both the seller & buyer are registered dealers & there is a prescribed declaration form by the buyer.
In case a prescribed declaration form is missing, the selling state’s VAT rates will apply. |
Note: VAT or CST is not applicable on sales involving the import of goods from outside of India or export of goods from India.
Input Tax Credit under VAT/CST
Input Tax Credit of VAT paid on purchase of goods can be set off against the output VAT liability or the output CST liability.
- It must be noted that no input credit is available with respect to the CST paid on purchase of goods, thus it will be a cost to the buyer.
Registration under VAT/CST
- Every dealer who is liable to pay VAT or CST would need to register under the respective law.
- The registration under VAT or CST may vary depending on the state.
Following documents would be needed to register under VAT or CST:
- Application Form.
- Certificate of Incorporation.
- PAN Card.
- Constitutional documents of the business such as Article of Association and Memorandum of Association.
- Authority Letter to submit the documents to the respective department.
- Business’s Address Proof (utility invoice or rent agreement).
- List of Directors, including their identity proof, address proof, PAN, photograph, and contact numbers.
- List of all Branch Offices.
- Security deposit (may vary from state-to-state).
- Description of goods.
What are the changes brought about by the Introduction of GST?
Goods and Services Tax (GST) law became operational from 1 July 2017 and replaced the existing laws. It is considered a significant development in the field of indirect taxes in the country. Multiple taxes levied and collected by the Centre and States have been replaced by a single tax called GST.
- GST is a multi-stage value added tax levied on the consumption of goods, services or both.
- GST aims to combine multiple taxes into one, with various transitional provisions to ensure that the transition to GST is smooth and hassle-free.
- No Input Tax Credit (ITC)/benefits earned in the existing regime were put in place along with GST.
Following Goods still come under the VAT/CST Regime
| Goods |
Governing taxation regime |
5 Petroleum products:
|
VAT/CST (and central excise duty) |
| Alcoholic liquor for human consumption |
VAT/CST (and state excise duty) |
Products mentioned above continue to be governed by the terms of the VAT/CST law for their sale and purchase and do not fall under the scope of GST. Although it has been suggested to include these products in the GST regime as well, in order to make GST a comprehensive and unified taxation system, no legislation has been formulated for it yet.
Treatment of ITC in VAT/CST Laws
To carry forward the ITC earned under the existing laws, detailed provisions were formulated. This credit should be allowed under the GST law. However, the person going for the composition scheme would not be eligible to carry forward the existing ITC.
ITC of various taxes under the existing laws (CENVAT credit, VAT, etc.) is carried forward under:
Closing Balance of the Credit in the Last Returns
- CENVAT credit/VAT’s closing balance in last returns filed under the existing law can be taken as credit in electronic credit ledger.
- This would only be available when returns for the previous last six months have been filed under the existing law.
- In order to claim this credit, within 90 days from the appointed day, the declaration in form GST TRAN 1 needs to be filled on the common portal.
Un-availed Credit on Capital Goods
Filing the requisite declaration in the FORM GST-TRAN 1 can help take the balance installment of un-availed credit on capital goods credit.
Credit on Duty Paid Stock
A registered taxable person, other than the service provider or manufacturer, may have duty paid goods in their stock on the appointed day. All supplies of goods or services made after the appointed day would come under GST. Government does not intend to collect tax twice on the same goods. Thus, in such cases, it was decided that the credit of the duty/tax paid earlier would be admissible as credit.
- Such credit shall be taken based on invoice showing payment of duty of excise or VAT.
- These invoices should not be more than one year old.
- Stock of duty paid goods must be declared within the time allotted on the common portal.
Proceedings under the VAT/CST laws
Extensive arrangements have been made after the introduction of GST to save both pending and future claims related to existing laws made before, on or after the appointed day i.e., 1 July 2017. These proceedings may pertain to refund of claims of CENVAT credit/VAT or export related rebate or service tax.
- All such cases would be resolved under the existing law. Any claim for refund of CENVAT credit that is fully or partially rejected will result in the amount so rejected to lapse. The refund of CENVAT credit shall be paid in cash. If already carried forward, there will be no CENVAT refund.
- If any amount becomes recoverable, it shall be recovered as arrear of tax under the GST Act.
Conclusion
The new GST regime has proved to be much more seamless and effective than the older taxes like VAT and CST, which were levied by the state and central governments. It aims to merge all taxes into one multi-stage value added tax on goods and services. While the majority of goods and services fall under the GST slab, there are some exceptions that are still taxed as per the old VAT and CST norms.
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