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Management Accounting

Indirect Tax

MAHARASTRA VALUE ADDED TAX


SUBMITTED BY
NAME: Ms. JEENAL N. RATHOD
CLASS: M.COM PART II ACCOUNTS (SEM IV)
SUBMITTED TO
UNIVERSITY OF MUMBAI
PROJECTED GUIDE: MISS REKHA BHATIA
RAJATHANI SAMMELANS
GHANSHYAMDAS SARAF GIRLS COLLEGE,
AFFILLIATED TO UNIVERSITY OF MUMBAI
REACCREDITED BY NAAC WITH A GRADE
&
DURGADEVI SARAF JUNIOR COLLEGE
( ARTS & COMMERCE)
S.V.ROAD MALAD (W)
MUMBAI 400064
YEAR: 2013-14

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Indirect Tax

RAJASTHANI SAMMELANS
Ghanshyamdas Saraf College
Affiliated to University of Mumbai
REACCREDITED BY NAAC WITH A GRADE
R. S. Campus, S. V. Road,
Malad (W), Mumbai: 400 064
Year: 2013-2014
CERTIFICATE
I Prof. REKHA BHATIA here by certify that Ms. Jeenal Navratana
Rathod a student of Ghanshyamdas Saraf College of MCOM PART II
ACCOUNT

(Semester

IV)

has

completed

Project

on

MAHARASTRA VALUE ADDED TAX in the Academic


year 2013-2014.
Thus information submitted is true and Original to the best of my
Knowledge.

External Examiner:

Principal:

Date:
Project Co-ordinator:

College Seal:

Date:

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ACKNOWLEDGEMENT
I take this opportunity to thank the UNIVERSITY OF MUMBAI for
giving me a chance to do this Project.
I express my sincere gratitude to the Principal Mrs. Sujata
Karmarkar, course co-ordinator Mrs. Dr. Lipi Bhattacharya,
Guide Prof. Rekha Bhatia, our librarian and other teachers for their
constant support and helping me for completing the project.
I am also grateful to my friends for giving support in my project.
Lastly, I would like to thank each and every person who helped me in
completing the project especially MY PARENTS.

Date:

MVAT

Signature of the Student :

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Management Accounting
Indirect Tax

DECLARATION
I Miss JEENAL NAVARATNA RATHOD a student of Ghanshyamdas
Saraf College of Arts and Commerce, Malad (W) MCOM PART II
ACCOUNT (Semester IV) hereby declare that I have completed
project on MAHARASTRA VALUE ADDED TAX in the
academic Year 2013-2014. This information submitted is true and
original to best of my Knowledge.

Date :

MVAT

Signature of the Student:

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TABLE CONTENTS
Sr.

Particulars

No
1.
2.

Page
no.

INTRODUCTION OF MVAT

EXPERIENCE OF VAT IN

6-7
8-13

MAHARASTRA
3.
4.

REGISTRATION UNDER MVAT


APPEAL UNDER MVAT

14-18
19-24

5.

DECLARED GOODS

25-26

6.

TAX PAYERS,RETUTNS AND METHOD

27-43

OF COMPUTATION ,CASE STUDY OF


7.

MVAT
BUSINESS AUDIT, RECOVERY ,

44-49

OFFENCE AND PENALTY UNDER


8.
9.
10.

MVAT
APPENDIX
CONCLUSION
BIBLOGRAPHY

50-51
52
53

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1.INTRODUCTION:
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VAT
VAT is introduced in India. VAT Council of States, the body of State
Finance Ministers and Standing Council Of

Commissioners have agreed

that the VAT should be implemented all over India From 1-4-2001.
However, subsequently, after taking into consideration the fact that the
groundwork is still in progress, the date has been extended to 1-42002.One thing is certain that the word VAT [Value Added Tax] is a
symbol

of

Globalization

and

Liberalization,

which

is

universal

phenomenon for the current age, is bond to be implemented in India.

MVAT
The system of Value Added Tax (VAT) has been implemented, in the State
of Maharashtra, i.e. 1st April, 2005. As per the provisions of MVAT, a
dealer is liable to pay tax on the basis of turnover of sales within the
State. The term dealer has been defined u/s. 2(8) of the Act. It includes all
person or persons who buys or sells goods in the State whether for
commission, remuneration or otherwise in the course of their business or in
connection with or incidental to or consequential to engagement in such
business. The term includes a Broker, Commission Agent, Auctioneer,
Public Charitable Trusts, Clubs, Association of Persons, Departments of
Union Government and State Government, Customs, Port Trusts, Railways,
Insurance

&

Financial

Corporations,

Transport

Corporations,

Local

authorities, Shipping and Construction Companies, Airlines, Advertising


Agencies and also any corporation, company, body or authority, which is
owned, constituted or subject to administrative control of the Central
Government, any State Government or any local authority.
However an agriculturist, educational institution and transporters shall not
be deemed to be a dealer (subject to fulfillment of conditions).

SUCCESSFUL TAX SYSTEM:


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Among many other things, the successful tax system always tries to avoid
Cascading effect of the tax. The VAT, being Value Added Tax, it
presupposes That, if the tax is levied on sale value, all the taxes paid
while making purchases as Well as all the taxes paid during the process of
manufacture or import are to be Refunded. The CREDIT method or
INVOICE method of VAT system ensures that the taxes shown in the
purchase bills are given the credit to the dealers. The Uncontrolled
incidence of tax always shrinks the industry and trade and keeps Away
from the developing process of the national economy. The tax system has
to be neutral so far as its effect on the choice of inputs and outputs for
the Manufacturer and choice of the goods for a consumer is concerned.

STEPS TOWARDS VAT:


As pointed above VAT Council of States, and Standing Council of
Commissioners have agreed that the VAT should be implemented from 1-42002. It was also agreed that there should be floor rates common to all
the States. Though Maharashtra State had introduced the floor rates from 11 2000.But due to the pressure from people they were corrected on 13-12000 and 22-1-2000. However some fine-tuning of the classification has yet
to be done Giving another look at the grouping of the goods in to fourrate categories and Floor-rates.
Draft model of VAT legislation has been prepared by the National Institute
of Public Finance and Policy. The circulation of papers on VAT will
certainly be creating the atmosphere towards readiness to accept VAT.

2. EXPERIENCE OF VAT IN MAHARASTRA:


During the period from 1-10-1995 to 31-3-1999 Maharashtra had VAT in a
Limited sense. Initially the limit covering the dealers under VAT was Rest.

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One Core but was brought down on 1-7-1997 to Rest. 40 laces. Though
the additional Tax and Turnover Tax was abolished the rates were over all
increased to cover those taxes [most of the goods taxable at 10% were
taxed at 13%]. Some 12 Industries and 100% export units were allowed
the full set-off of the sale tax Paid on inputs.
It is said that the VAT was abolished from 1-4-1999 due to fall in the
Sales Tax Revenue. But the Economists do not agree to such reasoning.
Since there was a General recession in the industry during 1996 to 1999
the got could not have expected the increase in the tax revenue on
implementation of VAT. In fact the fall in the tax revenue augmented by
the set-off policy of giving refund to Manufacturers manufacturing tax-free
goods, 100% exporting Units, 12 Preferred industries and reduction in the
burden of taxes on inputs from 4% to 3% to all manufacturers.

Assessment under VAT:


In Maharashtra state Bombay Sales Tax has been replaced by VAT from 14-2005. Attempt is made in this article to visualize the process of
assessment under MVAT Act. The real picture will be clear only after 2
years when the actual process of assessment will start.

1. Long awaited VAT has seen the light of the day on

1-

4-2005. Much was advertised by The Govt about the VAT.


By now the time for submission of first return is over and the
dealers as well as practicetioners in taxation, after filing the first
return, are thinking of the stage of assessment to come.

2. SELF ASSESSMENT AND NOTICES:

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Right from Mr. Chidambaram & Mr. Asim Das to Mr. Jayant Patil had
said several times that the VAT brings the era of Self assessment. But
the Maharashtra Value Added Tax Act 2002 [MVAT Act] does not contain
a single provision about self assessment of Acceptance of returns except
only Margin-heading of section 20. But this section 20 is in fact Is a
provision for submission of returns. On the contrary under old Act, section
33[2] of BST Act 1959, in clear words provided that if the Commissioner
is satisfied that the returns are Correct and complete he may assess
according to the returns. Thus MVAT Act is more Regressive than the BST
Act.
The section 21 of the original MVAT Act was for self assessment. It
provided for the intimation to be given about the dues or refund. It had
also provided that if such intimation is Not received by the dealers, the
acknowledgement of the returns will serve as the intimation. This means
that the acknowledgement is the evidence of acceptance of the returns. But
now amended section 21 does not provide, neither for assessment as per
returns nor for the acceptance of the returns. Section 21 provides only for
a restriction that the notice for assessment can not be issued after 2 years
if the returns are filed in time; and after 3 years if the returns are not
filed by the prescribed date. [However this limit is extended Upto 4 years
In case of the period ending on 31-3-2008.] But what is the position of
returns and assessment if the said notices are not issued is not clearly
mentioned anywhere in MVAT Act.

3. ASSESSMENT OF DEALERS:
The assessment in particular is provided in section 23 of MVAT Act.
Surprisingly it starts with the provision for assessment in cases of
defaulters, as if the defaulters will be the order of the day in VAT regime.

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Under section 23[1], if the dealer files the return late, the Commissioner,
[that is, the STO/AC/DC], will pass expert assessment order without issuing
any notice and without any
Opportunity of hearing. Such order can not be passed after three years.
The power to pass the Best judgment assessment order against the
principles of natural justice may be the singular
Model among 126 countries where the VAT is said to have been
introduced. The power of passing the order against the dealer without
calling

him

and

without

giving

hearing

may

Be

the

meaning

of

transparency much published in White Paper and the Govt advertisements


about VAT. If such expert order is passed by the STO/AC/DC, then the
only way out for the
Dealer is to file the writ in the High Court because under section 85[1][1b] such order is non appealable. If the dealer has filed the return and has
paid the taxes then he can put the application in form 304 attaching the
proof of submission of return and payment of taxes. Thereafter the
STO/AC/DC will cancel the expert assessment order passed by him if the
payment of tax was made before issue of notice. If the payment of tax is
made after issue of the notice how it will affect the expert assessment and
total payment of taxes is not clear in the MVAT Act. This section 23[1] is
the best example of excessive delegation of the powers granted to
STO/AC/DC to pass the order without notice and take it back if on his
satisfaction. Looking In to the big volume and the task involved in
collection of returns from the Banks and their Dispatch to the respective
STO/AC/DC and the present experience in this respect, it is very evident
that

the

new

source

of

enormous

work

will

be

created

for

the

STO/AC/DC.The dealers who have filed the returns in time will be


assessed u/s 23[2]. By issue of notice in form 301 [similar to old form
27], the STO/AC/DC can call for the evidence on the basis of which the
returns are filed by the dealer and after considering that evidence he will

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pass the assessment order. The date fixed for hearing should not be less
than 15 days from the date of service [rule 21 of MVAT Rules 2005]. The
assessment order will be in form 303 [similar to old form 30]. The notice
can be served at any time but the assessment order can not be passed
after the expiry of 3 years from the end of the year containing the period
which is being assessed. The dealers who have filed the returns late will
be assessed u/s 23[3]. But notice in form 301 has to be served with in 3
years and the assessment order has to be passed within 4 years. The
dealers can be assessed for the unregistered period u/s 23[4] by issue of
notice in form 301 within 5 years but such assessment order has to be
passed within 8 years.

4. ASSSESMENT OF TRANSACTION:
Section 23[5] provides for the assessment of the transaction or of the
claim. The prescribed authority for this sub-section is not the Commissioner
but, the STO. AC, DC, or Sr. DC is prescribed authorities under Rule
21[2]. The notice in form 302 [rule 21] can be issued to the dealer if the
prescribed authority is satisfied that the tax is being evaded by not
recording or by incorrect recording the transactions or any claim in
incorrectly made. Even if the notice for regular assessment is issued by the
STO/AC/DC, the notice under this sub section can be issued. If, during the
search, the STO/AC/DC finds that the tax is being evaded, then the
visiting officer can make the assessment of such transaction, even though
the proceedings are not transferred to him u/s 59. The assessment order
can be passed separately for each transaction. If there are 100 bills which
could not be explained by the dealer to the satisfaction of the visiting
offer at the time of visit, there will be 100 assessment orders in a single
year. This is unique provision giving powers to the visiting officer who
takes the search of the premises of the dealer to assess the dealer though
he may not be within his jurisdiction. [Good example of excessive

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delegation to bureaucracy]. The STO/AC/DC having a regular jurisdiction
can also take up the regular assessment of the dealer. Thus there will be
two or more assessing authorities for one dealer, assessing the same period
with out any transfer of proceedings. MVAT Act has really provided the
polyandry in the days when even polygamy is condemned. However the
MVAT Act is very kind to provide that no tax will be levied again in the
regular assessment if it is already levied in transaction-wise assessment
[provision to sec 23[5][d]].

5. RE-ASSESSMENT BEFORE ASSESSMENT:


The MVAT has found out, for the first time in taxation history of
Maharashtra, the concept of reassessment of escaped turn over before the
assessment. Section 23[6] gives powers to the STO/AC/DC to assess the
dealer who in his opinion has,
- Not disclosed the turn over of sales or purchases in the returns,
- paid tax at a lower rate,
- set-off has been wrongly claimed,
- any deduction has been wrongly claimed.
Notice in form 315 [similar to old form 28] is to be issued for this
purpose and 15 days time from the date of service, has to be given for
hearing [rule 21]. Though the notice in from 301 & 302 for assessment
can not be issued after 2 years in case of dealer filing returns in time and
3 years in case of defaulters, the notice in form 315 for deemed
reassessment u/s 23[6], can be issued with in 5 years from the end of the
period which is to be assessed. The assessment order under this section has
to be passed within 6 years. Looking into the past experience about
allowance of claims and the dispute about rate of tax, each and every
dealer is likely to be covered by 4 defaults mentioned above. Therefore the
limit of 2 or 3 years kept for assessment will be meaning less and all the

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dealers will be covered by the time limit of 6 years, though they commit
bonafide mistakes.

6. FRESH ASSESSMENT AFTER REMAND:


Where the appeal is filed against the assessment order, the appellate
authority [except Tribunal] has no power to remand the case for fresh
assessment. In case the Tribunal remands the case for fresh assessment, the
assessing authority has to complete the same within 36 months as provided
in section 23[7]. The period of 36 months can be counted from the date
of supply of the copy of the appeal order by the dealer to the assessing
authority.

Rectification under MVAT


The provisions relating rectification under MVAT Act 2002, which is in
force in Maharashtra State, are discussed in the article. In the earlier article,
we have seen the assessment provisions under MVAT Act. When the
assessment is over, the next step is concerned with the corrections to be
made in the assessment order. From the view point of the dealer, two
important corrective measures are Rectification and the other Appeal.
Section 24 provides for Rectification and section 26 provides for Appeals.

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3.REGISTRATION [Sec. 16, R 8]:


Dealers liable to pay Tax: [Sec. 3]
The dealers, holding a valid registration certificate under the earlier laws, whose
turnover of either of sales or purchases exceeds the specified limits during the
financial year 2004-05, shall be deemed to be registered dealer under MVAT Act
and shall, therefore be liable to pay tax i.e. 1st April, 2005.
The dealers, holding a valid registration certificate under the earlier laws, whose
turnover of either of sales or purchases has not exceeded the specified limits
during the financial year 2004-05, but who have opted to continue their
registration certificate (by applying to assessing officer in specified format), shall
also be deemed to be registered dealer under MVAT Act and shall, therefore be
liable to pay tax i.e. 1st April, 2005.New dealers, whose turnover of sales exceeds
the prescribed limits during any year, commencing on or after 1st April, 2005, are
liable to pay tax from the date on which such limit exceeds. A successor in
business of any dealer shall become liable to pay tax on and from the date of
succession. A dealer, applying for voluntary registration, shall be liable to pay tax
from the date of registration.
Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall
apply electronically for registration to the prescribed authority, in Form 101,
within 30 days from the date of such liability.
Turnover limits for the purpose of Liability/Registration [Sec. 3(4)]
Category
dealer

of Total

turnover Turnover

of sales

goods

of

taxable
purchased

or sold
Importer

Rs. 1,00,000

Rs. 10,000

Others

Rs. 5,00,000

Rs. 10,000

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It may be noted that while the total turnover of Rs. 1,00,000/- and Rs. 5,00,000/is in respect of Turnover of Sales (which includes all sales whether tax free or
taxable), the turnover limit of Rs. 10,000/- is in respect of taxable goods whether
purchased or sold. Both the conditions have to be satisfied for the purposes of
liability/registration under this category. [Sec. 3(4)]
Documents required for the purposes of Registration
The Commissioner of Sales Tax, Maharashtra, has issued a circular dated 4th
May, 2005, whereby a dealer is required to submit following documents along
with the application for registration in Form 101:
Documents to be submitted along with the application for registration:
(Note: Copies of documents must be self-attested and are subject to verification
from the original)
IN CASE OF FRESH REGISTRATION:
Proof of constitution of business (as appropriate):
I.

In case of
proprietary firm:

No proof required.

ii. In case of
Copy of partnership deed.
partnership firm:
(Registered or
unregistered)
iii. In case of
company:

Copy of Memorandum of Association


and Articles of Association.

iv. In case of other


constitution:

Copy of relevant documents.

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Proof of permanent residential address* (please provide at least 2 documents


out of the following documents):
1.
2.
3.
4.

Copy of passport.
Copy of driving license.
Copy of election photo identity card.
Copy of property card or latest receipt of property tax of Municipal

Corporation/Council/Gram Panchayat as the case may be.


5. Copy of latest paid electricity bill in the name of the applicant.
Proof of place of business
1. In case of owner: Proof of ownership of premises; viz., copy of property
card or ownership deed or agreement with the builder or any other relevant
documents.
2. In case of tenant/sub-tenant: Proof of tenancy/sub-tenancy like copy of
tenancy agreement or rent receipt or leave and license or consent letter,
etc.
3. Copy of Electricity Bill
4. Two latest passport size photographs of the applicant **
5. Copy of Income Tax PAN Card (in case of Proprietary business: PAN of
Proprietor; in case of partnership business: PAN of partnership firm and of
all partners; and in case of registered company: PAN of the company; in
case of HUF: PAN of HUF and Karta etc.).
6. Challan in original showing payment of registration fee. (As per new
procedure, the amount of fees is payable through a bank draft to be
deposited with the registering authority along with the application. The
bank draft shall be prepared, for applicant in Mumbai, in the name of
"Bank of Maharashtra A/c. MVAT", and in case of other places in the
name of "State Bank of India A/c. MVAT).
REGISTRATION IN CASE OF CHANGE IN CONSTITUTION OF
THE DEALER:

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1. Proof of change in constitution (e.g., if proprietary dealer
converted to partnership firm then copy of Partnership deed, etc.).
2. Copy of latest return-cum-challan.
3. Pay order for payment of fees.
4. PAN of new firm.
5. Proof of permanent residential address.
REGISTRATION IN CASE OF TRANSFER OF BUSINESS
1. All documents from 1 to 6 given in 'A'.
2. Copy of transfer deed.
3. Copy of latest return-cum-challan of the original dealer.
* In case of partnership firm, proof of residence has to be provided for all the
partners, in case of body corporate, proof of residence of applicant.
** In case of partnership firm, photographs of only applicant partner need to be
submitted. In case of corporate bodies, the details of place of residence and PAN,
etc. shall be required to be furnished only for the signatory to the application.
Further, in case of Voluntary Registration, it is necessary that the applicant dealer
is having a current bank account and such dealer has to be introduced either by a
registered dealer or by an advocate, chartered accountant or sales tax practitioner.
(The fees payable for voluntary registration is Rs. 5,000/- while for others it is Rs.
500/- only).
In addition to payment of fees, as mentioned above, a dealer seeking Voluntary
Registration, on or after 16th August 2007, has to be make an advance payment of
Rs. 25,000/-. This advance may be adjusted by the dealer against tax, interest or
penalty, if any, payable during the year of registration or in the immediate
succeeding year. Any amount remaining unadjusted after the end of the 2nd year
shall be refunded [For the time being, the amount of fees as well as the amount of

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advance payment has to be made by way of bank draft to be deposited with the
registering authority along with the application for registration]

RATE OF TAX: [SECS. 5 & 6] AS PER SCHEDULES


Schedule
A
Schedule
B

Essential Commodities (Tax free) Nil


Gold, Silver, Precious Stones,
Pearls etc.

Schedule Declared
C'

Goods

and

other

specified goods
Other goods i.e. 1/5/10

Schedule Foreign Liquor, Country Liquor,


D

Motor Spirits, etc.

Schedule All other goods (not covered by


E

MVAT

A to D)

1%

4%
5%
At
specified
rates
12.5%

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4.APPEALS under MVAT:


The provisions relating appeals under MVAT Act 2002, which is in force
in Maharashtra

State, are discussed in the article N.T.Nirale, Advocate In

a leading case of Hoosier Kamas Dada the Supreme Court has pointed out
that the right to appeal is not merely a matter of procedure; it is a matter
of substantive right. [4 STC 114]. Right to appeal is vested in a dealer
when the return is filed or on the date, the return was due. In case of
Vijay Parsed [72 STC 324 SC], Hon Justice Sabyacachi Kukri has said,
Right to appeal is neither an absolute right nor an ingredient of Natural
Justice. Right to appeal is a statuary right which is circumscribed by the
conditions of grant. VAT drafters are very kind that they have provided
for right of appeal under section 26 and 27 of VAT Act.
The provisions of section 26 govern the right of appeal under VAT Act,
which is similar to old section 55 of BST Act. If the order is passed by
the STO or AC the appeal can be filed to the Deputy Commissioner of
Sales Tax. If it is passed by the DC or Sr. DC then the appeal will lie to
Joint Commissioner. If the order is passed by the Jet. Commissioner, Addle
Commissioner or the Commissioner then it will lie to the Tribunal. [The
copy of the notification changing the designations of the Sales Tax
authorities is not yet available with the PRO of the Sales Tax dept. It is
said that all Class I STOs will be designated as ACs, all ACs will be
designated as DCs and all DCs will be designated as Jet. Commissioners.
After introduction of VAT, one has not yet experienced the increase in
transparency, but there is certainly increase in the nominal structure of the
authorities due to introduction of VAT.] The second appeal against the
order passed in appeal by the DC or JT. Commissioner will lie to the
Tribunal. Unlike to old provision giving option to file second appeal either

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to Commissioner or to the Tribunal, new provision of section 26[2]
provides the second appeal only to the Tribunal.

Non-appeable Orders:
All orders are not appeable but section 85[2] bars filing of appeal against
certain notices and order viz. -I] Any notice,
ii] Summons,
iii] Exparte assessment order where any Return is not filed by the
dealer by the prescribed date,
iv] Installment order,
v] notice or order for recovery as arrears of land revenue,
vi] seizure order,
vii] order transferring the proceedings,
viii] part payment and stay order passed by appellate authority.
[Though the appeal against the part payment order is barred, the
admission of appeal is not dependent of the payment of the part
payment amount.]
As under old law, under new VAT Act also, all appeal orders are final, but
they can be reviewed [revised] u/s 25 or rectified u/s 24 of VAT Act. The
time limit for filing the appeal is 60 days from the date of communication
of the order appealed against. The power of the appellate authority to
condone the delay in filing the appeal for sufficient cause is not taken
away under VAT Act. [See how kind is the King !] The provisions of
section 4 & 12 of Limitation Act are made applicable by section 80 of
VAT Act and the power to condone the delay is granted by section 81 of
VAT Act. However, the delay cannot be condoned on the ground that any
judgment or decision, on which reliance is placed, was delivered after the
limitation period was over.

Powers under appeal:


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The powers of appellate authorities u/s 26[5] have been classified under
four categories, viz.
a] Appeal against assessment orders - In this case the appellate
authority gets the power to confirm, reduce, enhance or cancel the
assessment. The power to remand the case is only with the
Tribunal. It can only direct to make fresh assessment of the
appellant.
b] Appeal against the penalty, the appellate authority gets the power to
confirm or cancel , or modify the penalty. The words in
accordance with the provisions of the Act are added under VAT
Act, these words were not in the BST Act. When the appellate
authorities are the officers appointed under the Act for the carrying
out the purposes of the Act, there is no significance to the newly
added words. Only the time will show the purpose of this addition.
c] Appeal against the interest - Here the appellate authority gets the
power to confirm, cancel or modify it in accordance with the
provisions of the act.
d] In case of appeal of any other kind, the appellate authority gets the
power to pass just and proper order. The BST Act section 55[7]
had provided that the appellate authority could pass the appeal order
against the point decided by the Tribunal, if the State had gone in
reference against that decision to High Court. But VAT Act does not
provide so in section giving powers to appellate authority. However
section

23[8]

provides

for

passing

the

appropriate

order

of

assessment even against the judgment of the Tribunal. Whether this


power can be used by the appellate authority is a question to be
decided.

Power to grant Stay:

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The appellate authority has u/s 26[6], a power to grant stay against the
operation of the order appealed against. He can ask for the part payment
and can put some conditions before granting such stay.

Priorities and Senior citizen:


In India, the law does not recognize a person of particular age to be
senior citizen. For railway concession, Sr. Citizen should be 60 old, but for
income tax, he should be 65 old. According VAT Act {proviso to section
26[7]}, the person does not become old unless he attends age of 75 years.
As per section 26[7] the appeals are to be decided on the prescribed
priorities, but the rules have not yet prescribed the list of priorities. If the
proprietor, partner or a director has attained the age of 75 years, as per
Rule 34, he can apply in form 313, for th disposal of his appeal on
priority.

Appeal to High Court:


Section 27 of VAT Act provides for appeal to High Court against the
order of the Tribunal. Under sec 61 of BST Act it was called Reference,
and it was to be routed through the Tribunal. Now, against the Tribunal
decision, the appeal can be directly filed to Bombay High Court. However,
such appeals are restricted to the points of Law only. Thus, Tribunal is
still a final body on the points of Facts. However, unlike to the reference,
the High Court can now decide the issue, which has not been determined
by the Tribunal. The High Court has no power to grant stay when the
appeal is filed to High Court. The Tribunal has to give the effect to the
judgment of the High Court.

Power to assess the turn over under any other Law:


Section 28 of VAT Act gives unique power to assess the turn over under
any other Law. If the appellate authority sets aside, any assessment on the
grounds that it should have been assessed under any other law other than

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the law under which it was assessed, then such turn over can be by the
Sales Tax authorities. The time limit of 5 years is put for correction of
such assessments.

Procedure for appeal:


The appeal has to be filed in form 310. It is felt that under VAT the
appeal cannot be filed on plain paper giving all the details required by
VAT Rule 31. Under BST Rule 58 it was provided that the appeal should
be as far as possible in accordance with Form 37 but VAT Rule 31 is
differently worded and it says that, the appeal including second appeal
shall be made in form 310. The details and enclosures to be given in
appeal form are almost similar to old form No. 37 of BST Act. If the
dealer wants stay order against the recovery as per order appealed against,
the application in form 311 is to be made to appellate authority. The stay
order will be issued inform 312. This form 312 is like old admission cum - stay order. When the admission is not conditional on payment of
the dues, it is not understood why this order is called as admission memo
cum stay order? Before the stage of final hearing, the appeal can be
summarily rejected under Rule 35, if the appeal memo omits to give the
particulars required or if the authenticated copy of order is dispute is not
enclosed or any other sufficient ground. But before rejecting the appeal
summarily, the opportunity of hearing has to be given to the appellant to
correct the omissions. The application for restoration can be made within
30 days. If the appellate authority is satisfied that the notice of hearing
was not served on him or that, he was prevented by sufficient cause from
amending the appeal memo or from appearing, then the summery rejection
order can be set aside and the appeal can be restored. If the appellate
authority does not pass any order on the restoration application within 30
days, it will be presumed that the appeal is restored. {Look how kind is
the creator?}

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As per Rule 36, the intimation of fixing appeal for final hearing has to be
given 10 days in advance. If any date is to be given, it should be after 10
days, unless the appellant agrees for earlier date. If on the date fixed the
appellant remains absent the appeal can be decided expert. Such expert
appeal order can also be restored on application if it is found that the
notice was not served or that there was sufficient cause for his absence.
Rule 36[2] expects the appellate authority including the Tribunal, to
maintain the Register showing the date of filing of appeal and the disputed
quantum in that appeal.
Rule36[4] prescribes that the appellate authority including the Tribunal
should in any month fix 50% appeals which are against the DDQ orders
passed u/s 56 and old appeals and 50% out of appeals involving highest
quantum of relief sought.

Copy of the appeal order:


The certified copy of appeal order is to be supplied free of cost by the
appellate authority to the appellant as per Rule 37, and one copy has to
be sent to the officer against whose order was appealed.

Award of Costs by Tribunal:


Rule 38 of VAT Rules empowers the Tribunal to award the costs at its
discretion. However, before awarding the costs the dealer or the person
against whom the costs are being awarded has to be given the opportunity
of hearing.

Court Fees:
Rule 73 prescribes the court fees to be paid. The appeal memo requires
the CF of Rs. 100/- if the amount of relief is less then Rs. 1 lac. If it is
1 lac or more then the CF is equal to 10% of the relief or maximum Rs.
1000/-. Where there is no amount in dispute the CF will be Rs. 100/-.
There is no distinction as to first or second appeal or appeal to Tribunal.

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The CF for restoration application is Rs. 10/-. The CF for stay application
is Rs. 25/-.On application by Sr. Citizen for taking, the appeal on priority
there is no CF.There is no CF for application of condonation of delay. The
adjournment application and the miscellaneous also do not require CF.

5. DECLARED GOODS:
Some goods are declared as goods of special importance and restrictions
are placed on power of State Governments to levy tax on such goods.
Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads :
Taxes on the sale and purchase of goods other than newspapers, where
such sale or purchase takes place in the course of Inter-state trade or
commerce. Entry 54 of list II - State List - reads : Tax on sale or
purchase of goods other than newspapers except tax on Inter State sale or
purchase. Thus, sale within the State (Intra-State sale) is within the
authority of State Government, while sale outside State (Inter-State sale) is
within the authority of Central Government.
Sale where both buyer and seller are from same State is Intra-State sale
e.g. from * Mumbai to Pune or * Ahmedabad to Surat * Howrah to
Kolkata * Mysore to Bangalore etc. These are Intra-State sales. However,
when buyer and seller are in different States, it is Inter-state sales. e.g. :
Chennai (Tamil Nadu) to Trivandrum (Kerala) * Allahabad (UP) to
Hyderabad (Andhra Pradesh) * Bhubaneshwar (Orissa) to Daman (Union
Territory) etc.

NEWSPAPER SPECIFICALLY EXCLUDED - It can be seen that


newspapers are specifically excluded from purview of both Union as well
as State list. The obvious reason is that newspapers have a very vital role
to play in a democratic society. Freedom of speech and free flow of
information is the backbone of democracy and hence newspapers have been
excluded from tax.

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TAXABLE EVENT IN SALES TAX In re Sea Customs Act - AIR 1963 STC 437= (1964) 3 SCR 827 (SC 9
member bench), it was held that in case of sales tax, taxable event is the
act of sale. It is not a tax directly on goods.
Categories of Sales - Sales can be broadly classified in three categories.
(a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within
the State) sale. - Murli Manohar and Co. v. State of Haryana (1990) 4
CLA 304 (SC) = (1991) 80 STC 79 = 1990(2) SCALE 821 = (1991) 1
SCC 377 (SC 3 member bench). In this case, it was observed that they
cannot conceive fourth category of sale. If sale or purchase to Marketing
Agency is in same State, it will be an Intra-State sale even if goods are
despatched outside the state as per instructions of the marketing agency. ACC v. CST - AIR 1991 SC 1122.
Tax on Inter-State sale is levied by Union (i.e. Central) Government while
tax on Intra-State sale is levied by State Government of the State in which
sale takes place. No tax is levied on sales during import or export.
SALE WITHIN THE STATE IS RESIDUARY SALE As we will see
later, sale within State is residuary sale. Thus, first we have to decide if
sale is Inter State. If not, we have to find if it is Sale during export or
import. If not, then the sale is Intra State. Thus, if a sale is Inter State
of during export or import, it cannot be Sale within the State.
MODE OF A SALES TRANSACTION - Initially, buyer places an order
on seller for supply of goods, called Purchase Order. After the goods
ordered are ready, the buyer may come to the business place (godown,
factory or warehouse) of seller and obtain delivery of goods. This will be
Sale within the State. Alternatively, buyer may ask seller to send the
goods by transport. In such cases, the seller will book the consignment by
rail, road, ship or air as per requirement of buyer to the destination where
buyer requires the goods. In such a case, generally, (a) if buyer and seller

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are in the same State, it is Intra-State sale (b) if they are in different
States, it is Inter-State sale (c) if buyer is outside India, it is sale during
export (d) if seller is outside India, it is sale during import.

6.TAX PAYERS, RETURNS AND METHODS OF


COMPUTATIONS, CASE STUDY OF MVAT:
Tax payable by a dealer: [Sec. 4]
A dealer is liable to pay tax on the turnover of sales of goods, within the State, as
per the rates specified in the schedules. The tax so payable for any tax period shall
be reduced by the amount of input tax credit (set off) for which the dealer is
eligible during the same tax period.

Tax Period
Tax Period in relation to a dealer may be a calendar month, quarter (a period of
three months; i.e., Apr. to June, July to Sep., Oct. to Dec. and Jan. to Mar.) or six
months (prescribed period of six months; i.e., April to September and October to
March).
FILING OF RETURNS AND PAYMENT OF TAXES
Every registered dealer shall be required to file correct, complete and selfconsistent return, in prescribed form, by the due date. [Sec. 20, Rules 17 to 20]
Sr. Category
No
.
1.

A
)

Newly registered dealers (up to 30/4/10)

B
)

Retailers opted for composition Scheme

C
)

Tax liability, in the previous year, up to Rs. 1 lakh or Refund


entitlement up to Rs. 10 lakhs.

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Periodicity

Half yearly

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2.

3.

A
)

Dealers under Package Scheme of Incentive

B
)

Tax liability, in the previous year, exceeds Rs. 1 lakh but up to


Rs. 10 lakhs or refund entitlement exceeds Rs. 10 lakhs but up
to Rs. 1 crore.

C
)

Newly registered dealers (w.e.f. 1-5-10)

All other dealers whose tax liability, in the previous year, exceeds
Rs. 10 lakhs or refund entitlement exceeding Rs. 1 crore.

Quarterly

Monthly

Periodicity and due date:


For the periods commencing from 1-4-2008
The due date for filing return and for payment of taxes continues to be same i.e.
within 21 days from the end of month/quarter as the case may be. For half yearly
it is extended to 30 days from 1-5-2010. Further all returns can be uploaded
within further period of 10 days from the end of due date as per Trade Circular
Nos. 16T of 2008, dated 23-4-2008 and 31T of 2008, dated 8-9-2008.
Tax Liability for the purpose means aggregate of taxes payable by a registered
dealer, in respect of all places of business within the State of Maharashtra, under
the Central Sales Tax Act and MVAT Act after adjustment of amount of set off
claimed.
The sales tax department is determining, from time to time, periodicity of returns
of all dealers and is made available on website. The dealers are required to file
return as per the periodicity determined by the department. If there is any mistake
in it, the dealers are required to approach the concerned officer for correction in it.
It may be noted that failure to file return as per prescribed periodicity, within the
prescribed due date, attracts mandatory penalty of Rs. 5,000/- per return and order
of penalty is not subject to any appeal.

Return Forms and Payment of Tax:


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From 1st April 2009, all dealers, whether required to file monthly,
quarterly or six monthly returns, have to submit their returns in electronic
format

only.There

are

separate

return

forms

prescribed

for

various

categories of dealers, i.e., Form Nos. 231 to 235. A dealer has to use
appropriate form as may be applicable to him. All these forms have to be
submitted electronically within the prescribed due date.
A dealer shall first make payment of tax due in to the Government
treasury through challan Form No. 210, (Form MTR-6 for payment of CST
dues), and thereafter upload the return in appropriate form as may be
applicable. A grace period of 10 days has been permitted for uploading of
e-returns but the tax due, if any, has to be paid within the prescribed due
date.It may further be noted that from 1st June, 2010 it is now mandatory
for the dealers required to file monthly returns to make payment of taxes
electronically.In case of delayed payments, interest is payable @ 15% p.a.
Such interest is mandatory and shall be paid before filing of return.
Refunds of any period can be adjusted in the return/s for subsequent or
any other period/s within the same financial year. As per the provisions of
MVAT, refund cannot be adjusted against liability of the subsequent year;
i.e., refund cannot be carried forward to the next financial year. However,
for refunds relating to financial years 2005-06 as well as for 2006-07, the
Commissioner has issued Trade Circulars whereby the refund for these
financial years could be carried forward to the subsequent year.
The Commissioner of Sales Tax has also issued a Trade Circular (No. 15T
of 2010 dated 15-4-2010) whereby the dealers have been permitted to
adjust the refund due for financial year 2009-10 against tax payable for the
current year; i.e., financial year 2010-11, provided that the refund due as
per return for the period ended 31st March 2010 is less than rupees one
lakh and the dealer has not filed an application for refund (in Form 501)
for such refund.

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Revised Returns
Revised return, for any period, can be filed within 9 months from the end
of the year in which such tax period falls or before receipt of notice for
assessment, whichever is earlier. [Sec. 20(4))

Calculation of VAT Payable


(1) Subject to sub rule 2 of this rule the tax payable on a taxable turnover
is calculated by applying the rate of VAT specified in the Act on the "Sale
Price(s)" of the transaction.
(2) Where the "Sale Price(s)" is inclusive of tax and the VAT payable shall
be calculated by the
Formula R X Sale Price

100 + R

where R is the rate of tax.


(3) The tax payable by a VAT dealer for a tax period shall be calculated
by the Formula, X-Y where
X is a total of the VAT payable in respect of all taxable sales made by
the VAT dealer during the tax period, and Y is the total input tax credit
the VAT dealer is eligible to claim in the tax period under the Act.
INPUT TAX CREDIT (ITC) (SET OFF): [Sec. 48, Rules 51 to 56]
Eligibility: All registered dealers, whether manufacturer or traders, are
eligible to take full set off of the taxes paid on inputs; i.e., Value Added
Tax paid, within the State of Maharashtra, on purchases of Raw Material,
Finished Goods and Packing Material, or any goods debited to profit and
loss account.
Entry Tax: The amount of entry tax, paid by a registered dealer on the
goods the sale of which is liable for VAT under MVAT, will be eligible
for full set off.

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ITC on Capital Goods: Tax paid on certain items of capital goods
(defined) such as machinery, components, parts and spares etc. are also
eligible for full set off. (On certain other items of capital assets such as
furniture and fixtures, office equipments, etc. set off is admissible, subject
to retention @ 3%, w.e.f. 8-9-2006)
ITC on Miscellaneous Goods: The amount of Vat paid on purchase of
miscellaneous goods, debited to Profit & Loss A/c. (such as printing and
stationery, repairs, sales promotion etc.) also eligible for full set off.
ITC on Fuel: Tax paid on purchase of goods, which is used as fuel,
shall be eligible for set off, in excess of 3%.
Reduction in set off: The amount of set off, available to a registered
dealer, shall be reduced to the extent as provided, under the following
circumstances: i.

3% of the purchase price of respective goods, if taxable goods used


as fuel.

ii.

2% of the purchase price of respective goods, if taxable goods used


in manufacture of tax-free goods. [No such reduction, if tax free
goods so manufactured (covered by Schedule 'A) are exported out
of India].

iii.

2% of the purchase price of respective packing material used in the


packing of tax-free goods.(No such reduction, if such tax free goods
is covered by Schedule 'A and the same are exported out of India.)

iv.

2% of the purchase price of respective goods, if taxable goods sent


to any other State in India as Branch Transfer or on Consignment.
(No such reduction if such branch transferred goods is received back
in the State within a period of 6 months whether after processing or
otherwise).

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Management Accounting
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v.

Specified percentage of set off, if taxable goods used in Works


Contract for which the dealer has chosen to pay tax under the
Composition Scheme. (Reduction @ 4% of purchase price in respect
of goods used in notified construction contracts, and, @ 36% of
eligible amount of set off in case of other contracts).

vi.

In case of Liquor, sold by dealers holding Liquor Vendor Licence in


Form FL-II, CL-III, and CL/FL/TOD/III, as per formula, if the
actual sale price is less than MRP.

vii.

In case of dealers, whose total receipts on account of sale are less


than 50% of total gross receipts of business then set off restricted
to corresponding purchases, which are sold within 6 months from
the date of purchase. In case of Hotels and clubs covered by this
Rule, in addition to set off on goods sold as above, the set off will
be available on capital assets and consumables pertaining to kitchen
and service of foods and drinks. In case of Manufacturer of goods
(not a job worker) covered by this Rule, set off can be claimed on
plant and machinery & its PCA & packing materials only in respect
of period of first 3 years from effective date of certificate of
registration.

viii.

In case of closure of business, the set off on goods held in stock


(other than capital assets), on the date of closure, to be disallowed
and accordingly be reduced fully.

ix.

3% of the purchase price of office equipment, furniture & fixture


treated by the claimant dealer as capital assets. This is not
applicable to dealer who leases these goods.

x.

2% of purchase price of goods which are used in the distribution or


transmission of electricity (including the goods treated as capital
assets), if the claimant dealer is holding a licence for transmission
or distribution of electricity under the Electricity Act, 2003.

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Wherever such reduction in set off is required to be done, it shall be done
in the tax period in which such contingency arises.
If, for the purpose of reduction of set off, wherever required, it is not
possible to identify the corresponding purchases then proportionate reduction
on FIFO basis.
Condition for grant of set off:
1. Set off to be allowed only to a registered dealer.
2. A valid Tax Invoice is must to claim set off.
3. Proper

maintenance

of

account

of

all

the

purchases

in

chronological order stating therein the date on which the goods so


purchased, the name and registration number of the selling dealer,
tax invoice number & date, the amount of purchase price paid and
the amount of tax paid separately.
4. The set off on eligible goods, purchased on or after 1st April 2005,
has to be claimed in the tax period in which the goods has been
purchased (entered in the books of account).
5. In case of newly registered dealers, set off can be claimed on the
goods (including capital assets) purchased before the date of
registration, within the same financial year, provided that the goods
so purchased is not sold or disposed of before the date of
registration. (Effective from 8-9-2006)
6. Tax on earlier transaction is received in Government Treasury.

No set off:No set off, under any Rule shall be admissible in respect of;
a. Purchase of passenger motor vehicles and parts components and
accessories thereof unless the dealer is engaged in the business of
trading in motor vehicles or transferring the Right to Use (Leasing).

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Management Accounting
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b. Purchase of motor spirit by any dealer other than a dealer in motor
spirit.
c. Purchase of Crude Oil, used by an oil refinery for refining.
d. Any purchase of consumables or capital assets by a job worker
(pure labour job), whose only sales are waste or scrap of goods
obtained from such labour job.
e. Any purchase made by a dealer holding Entitlement Certificate
under a Package Scheme of Incentives. (Such units are entitled for
refund of tax paid on purchases).
f. Any purchase of goods of incorporeal or intangible nature other
than:
i.

Import Licences, Export Permits/licences or Quota, DEPB, SIM


Cards and DFRC.

ii.

Soft wares in the hands of a trader in Soft wares.

iii.

Copyrights, if resold within 12 months from the date of purchase.

Except above, all other intangible goods are debarred from set off.
g. Tax paid by way of works contracts in the erection of immovable
property (other than plant & machinery).
h. Purchases of building material used in the erection of immovable
property (other than plant & machinery). However, a contractor, who
undertakes construction of immovable property by way of works
contracts, is eligible to claim setoff on purchase of such goods.
i. Office Equipments, Furniture & Fixtures, Electric Installations, etc.,
(treated as capital assets), purchased during the period from 1-42005 to 7-9-2006. (Such assets, if purchased on or after 8-9-2006,
are eligible for set off subject to retention @ 4% or 3% as the
case may be).

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j. Small dealers/retailers, hoteliers, caterers, bakers, mandap decorators
etc., opting for Composition Scheme, u/ss. 42(1), 42(2) and 42(4) of
MVAT Act, are not entitled for any set off.
k. There is no set off of CST paid on inter-state purchases.
l. There is no set off for any other taxes paid such as excise duty,
import duty, service tax, octroi or such other levy or levies.
m. In case of hotelier, the set off on capital assets is prohibited where
such capital assets are not pertaining to sale or service of
food/drinks.
Credit C/f and Credit B/f: If during a tax period (month/quarter/six
months) the tax on total turnover of sales is less than the amount of input
tax credit, then such excess amount of credit may either be adjusted by
the dealer against his tax liability under the CST Act for the same period
or may be c/f to the next period. The unadjusted credit c/f of one period
shall become the credit b/f for the next period. The excess credit may be
carried forward in this manner till the end of the accounting year. The
balance, if any, thereafter shall be claimed as a refund in Form 501 from
the department, within a period of three years from the end of the year
for which it relates.
Goods Return, Debit/Credit Notes: Section 63(5) and (6) of the MVAT
Act provides that the amount of goods returned during any period shall be
reduced from the total turnover of sales/purchase of that period in which
the goods returned, provided that the goods has been returned within a
period of six months from the date of sale or purchase thereof as the case
my be. Similarly other debit and credit notes, which are in the nature of
increasing or reducing the sale price and/or the purchase price shall be
given effect in the month in which such debit/credit note has been entered
in the books of account of the dealer. Thus the amount of set off, for that

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Management Accounting
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period, shall get increased or reduced to the extent it related to purchase
return and debit/credit notes having impact on the purchase price of goods.
Exports: Exports are treated as zero-rated. Thus no tax is payable on
export of goods out of India. However full set off is available of input tax
paid on purchases, from within the state of Maharashtra, used in such
exports. As there are no concessional forms under MVAT, the exporters
may have to claim refund of the VAT paid on their purchases (inputs).
However, the trading exporters (who were earlier purchasing goods against
Form 14B), may purchase such goods against Form H of CST Act,
provided all other conditions of section 5(3) of CST Act are fulfilled.
Inter-State Sales: The transactions of inter-state sales and inter-state
movement of goods are governed by the CST Act. Thus the tax on such
sale is levied according to the provisions of CST Act. Such transactions
are not liable for VAT. However full input tax credit is available for the
value

added

tax

paid

in

Maharashtra.

(Except

in

case

of

branch

transfers/consignments, where there will be retention @ 4% or 3% or 2%


as the case may be).

TAX INVOICE:
Essential ingredients of a Tax Invoice: Under the scheme of VAT, the
most important document is tax invoice. A registered dealer is entitled to
claim set off only on the basis of a valid tax invoice. Set off is not
available on purchases affected through a bill or cash memorandum. A 'Tax
Invoice is must to claim input tax credit (set off). To be a valid tax
invoice,

section

86(2)

provides

that

it

shall

contain

the

following

particulars:
i.

The word Tax Invoice in bold letter at the top or at a prominent


place.

ii.

Name, Address and Registration Number of Selling Dealer.

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iii.

Name, Address and Registration Number of the Purchasing Dealer.

iv.

Serial Number and Date.

v.

Description, Quantity and Price of the Goods sold.

vi.

The amount of tax charged, to be shown separately.

vii.

Signed by the selling dealer or a person authorized by him.

viii.

A declaration u/r. 77(1).

METHODS OF COMPUTATION OF TAX:


There are two methods for computation of tax liability in respect of Works
Contract transaction.1. Determination of sale price of goods (u/r 58): a)
Actual Expenses b) Fixed Percentage (Table)2. Composition u/s 42(3) &
(3A): a) Construction or Non-construction contract b) Builder / Developer.
SALE PRICE OF GOODS USED IN W.C. u/r 58(1)ENTIRE VALUE
OF CONTRACT LESS:a) Labour & Service charges for the execution of works;
b) Amounts paid by way of price for sub-contract, if any to subcontractors;
c) Charges for planning, designing, & architect`s fees;
d) Charges for obtaining on hire or otherwise, machinery & tools for the
execution of the works contract;
e) Cost of consumables such as water, electricity, fuel used in the
execution of the contract, the property in which is not transferred in the
course of execution of the works contract;
f) Cost of establishment of the contractor to the extent to which it is
relatable to supply of the said labour & services;
g) other similar expenses relatable to the said supply of labour & services,
where the labour and services are subsequent to the said transfer of
property;

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h) Profit earned by the contractor to the extent it is relatable to the supply
of labour & services:
SALE PRICE OF GOODS: FIXED PERCENTAGE (Table U/R 58)
Where proper evaluation of such expenses [a to h of Rule 58(1)] is not
possible, fixed percentage of deduction is prescribed from 15% to 40%
various activities enlisted in the table, e.g. Installation of Plant & Machinery
15%, Painting 20%, Pipeline 20%, other works contracts-25%.
Either dealer or department may chose lump-sum deductions if books are
not intelligible. Construction contracts of flats: cost of land is also allowed
as deduction. Ready reckoner rates on 1st Jan of the year in which the
agreement to sell the flat is signed.

COMPOSITION METHOD U/S 42(3) & (3A)


8% for all contracts up-to 20.06.2006. 8% for All contracts except
Construction contract. ( w.e.f. 21.06.2006) 5% for notified construction
contracts w.e.f. 21.6.2006, (Notifi- dt.- 30.11.2006), 1% for construction of
flats / buildings, etc. w.e.f. 01.04.2010. (Notifi dt.- 09.07.2010)
Construction contracts are notified by Government vide notification no.
VAT-1505/CR- 134/Taxation-1 DT.30.11.2006, e.g. Buildings, Roads, Dams,
Swimming Pool, Canals, Drainage, Jetty, etc.
On Going Works Contract (S -96)
Provisions of old Works Contract Act are applicable if works started prior
to 1.4.2005 and continued thereafter. Works Contracts started prior to VAT
Act If tax was paid under composition scheme under old Act before
01.04.2005 , then tax is payable at the same rate under VAT, if contract
continues. No set off is allowable for such ongoing contract.
SET OFF (ONLY FOR - RD)

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Normal Method: U/R 58(1) = Full set off Subject to conditions U/R 55,
54, 53 & 52 Composition : Tax @ 8% = 64% of set off [Rule 53(4)]
Tax @ 5% = 4% Reduction [Rule 53(4)] Tax @ 1% = no set off (As
per notification) On Going Contracts : No set off is allowed for RD
purchases.

CASE STUDY
VAT CREDIT IN CASE OF INPUTS/SUPPLIES
Illustration 1
1. A dealer purchases the following goods in a State during the month of March
20x6:
Particulars

Total Amount
(Rs.)

Input Tax Paid


(Rs.)

Net Amount
(Rs.)

4% VAT Goods

10,40,000

40,000

10,00,000

12.5% VAT Goods

9,00,000

1,00,000

8,00,000

VAT Exempt Goods

2,00,000

2,00,000

Total

21,40,000

1,40,000

20,00,000

2. The input tax paid on purchase of goods is eligible for VAT credit.
3. Sales made by the dealer during the month are as below:
Particulars

Gross Amount
(Rs.)

Output Tax
Collected
(Rs.)

Net Sales
Consideration
(Rs.)

4% VAT Goods

11,44,000

44,000

11,00,000

12.5% VAT Goods

10,12,500

1,12,500

9,00,000

VAT Exempt Goods

2,50,000

2,50,000

Total

24,06,500

1,56,500

22,50,000

Suggested Accounting Treatment

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1. The dealer passes the following entry to record the goods purchased and input
tax paid thereon:
4% VAT Goods Purchase A/c

Dr. Rs. 10,00,000

12.5 % VAT Goods Purchase A/c

Dr. Rs. 8,00,000

VAT Exempt Goods Purchase A/c

Dr. Rs. 2,00,000

VAT Credit Receivable (Inputs) A/c

Dr. Rs. 1,40,000

To Bank A/c

Rs. 21,40,000

(Being goods purchased and input tax paid)


2. The dealer passes the following entry to record the goods sold and VAT
collected thereon:
Bank A/c

Dr. Rs. 24,06,500

To 4% VAT Goods Sales A/c

Rs. 11,00,000

To 12.5 % VAT Goods Sales A/c

Rs. 9,00,000

To VAT Exempt Goods Sales A/c

Rs. 2,50,000

To VAT Payable A/c

Rs. 1,56,500

(Being goods sold and VAT collected)


3. The dealer passes the following entry to record the liability for VAT payable
met by using the balance in the VAT Credit Receivable (Inputs) Account:
VAT Payable A/c

Dr. Rs. 1,40,000

To VAT Credit Receivable (Inputs) A/c

Rs. 1,40,000

(Being liability for VAT payable met by using the balance in the VAT Credit
Receivable (Inputs) Account)
4. Net credit balance of Rs. 16,500 (i.e., Rs. 1,56,500 Rs. 1,40,000) in VAT
Payable A/c is disclosed in the balance sheet as below:
Extracts from the Balance Sheet
Current Liabilities:
VAT Payable Account

Rs.
16,500

5. Accounting Standard (AS) 2, Valuation of Inventories, does not require


disclosure of components of the cost of inventories as a part of significant
accounting policies. However, the dealer may, if he so desires, include the

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following sentence in the accounting policy regarding valuation of inventories to
specify the treatment regarding VAT credit available on purchases:
The cost of inventories is net of VAT credit.
6. The dealer may include the following sentence in the accounting policy
regarding revenue recognition to specify the treatment of output tax:
Sales are exclusive of VAT.
7. Suppose the dealer makes payment of outstanding VAT liability at the
beginning of the next month. To record the payment, the dealer passes the
following entry:
VAT Payable A/c

Dr. Rs. 16,500

To Bank A/c

Rs. 16,500

(Being payment made for VAT liability)

VAT CREDIT IN CASE OF CAPITAL GOODS


Illustration 1
On June 1, 20x6, a dealer purchases one machine in a State for the total cost of
Rs. 93,60,000 which includes input tax of Rs. 3,60,000. As per the State VAT
laws, input tax paid on purchase of machinery is adjustable as VAT credit over 36
equal monthly instalments beginning July 1, 20x6. Till the end of the year, the
dealer has not utilised the VAT credit available on the machine.
Suggested Accounting Treatment
1. The dealer passes the following entry to record the machinery purchased and
input tax paid thereon:
Machinery A/c

Dr. Rs. 90,00,000

VAT Credit Deferred (Capital


Goods) A/c

Dr. Rs. 3,60,000

To Bank A/c

Rs. 93,60,000

(Being machinery purchased and input tax paid)


2. When the VAT credit becomes actually available, the dealer passes the
following entry to recognise the same every month:

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VAT Credit Receivable (Capital Goods)
Dr. Rs. 10,000
A/c
To VAT Credit Deferred (Capital Goods)
A/c

Rs. 10,000

(Being a portion of VAT credit on purchase of machinery becoming available)


3. The dealer charges depreciation on the cost of machinery excluding VAT credit
(i.e., Rs. 93,60,000 Rs. 3,60,000 = Rs. 90,00,000).
4. Balances in VAT Credit Deferred (Capital Goods) A/c and VAT Credit
Receivable (Capital Goods) A/c are disclosed in the balance sheet as on March 31,
20x7 as below:
Extracts from the Balance Sheet
Assets

Amount (Rs.)

Loans and Advances


VAT Credit Deferred (Capital Goods) A/c
VAT Credit Receivable (Capital Goods) A/c

2,70,000
90,000

VAT CREDIT IN CASE OF OPENING STOCK AT THE


INCEPTION OF VAT SCHEME
Illustration 1
On April 1, 20x5 (the date on which VAT scheme comes into effect), a dealer has
an opening stock of Rs. 9,36,000 and the dealer has paid sales tax of Rs. 36,000
on purchase. As per the State VAT laws, these goods are eligible for
availing VAT credit in respect of the tax paid. This VAT credit will be available
over a period of 6 months after an interval of 3 months needed for verification.
Suggested Accounting Treatment
1. On April 1, 20x5, the dealer passes the following entry to record the VAT credit
that will be available in respect of the opening stock:
VAT Credit Deferred (Opening Stock) A/c
To VAT Credit Available on Opening Stock
A/c

Dr. Rs. 36,000


Rs. 36,000

(Being VAT credit in respect of opening stock at the inception of the


VAT scheme)

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2. On July 1, 20x5, when first instalment of VAT credit becomes actually
available, the dealer passes the following entry to recognise the amount becoming
available:
VAT Credit Receivable (Inputs) A/c

Dr. Rs. 6,000

To VAT Credit Deferred (Opening Stock) A/c

Rs. 6,000

(Being a portion of VAT credit on opening stock becoming available)


3. The dealer will repeat the entry mentioned at 2 above for the next 5 months to
record the amount of VAT credit becoming available.
4. The dealer discloses opening stock and VAT credit availed in respect thereof in
the profit and loss account in the following manner:
Extracts from the Profit and Loss Account
Particulars

Amount (Rs.)

Opening Stock

Rs. 9,36,000

Less: VAT Credit Available on Opening


Stock

Rs. 36,000

Rs. 9,00,000

TREATMENT OF OUTPUT TAX ON A DEBTOR BECOMING


INSOLVENT
Illustration
On January 15, 20x6, A Ltd. sells on credit 1,000 units of product X to B for
Rs. 100 per unit plus 12.5% VAT. On June 30, 20x6, B becomes insolvent. As
per the relevant State VAT laws, in this situation, A Ltd. is not liable to pay VAT.
Suggested Accounting Treatment
1. On January 15, 20x6, A Ltd. passes the following entry:
B A/c

Dr. Rs. 1,12,500

To Sales

Rs. 1,00,000

To VAT Payable Account

Rs. 12,500

(Being sale of goods on credit to B)


2. On June 30, 20x6, A Ltd. passes the following entry:

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VAT Payable A/c

Dr. Rs. 12,500

Bad Debts A/c

Dr Rs. 1,00,000

To B

Rs. 1,12,500

(Being bad debts written off on B becoming insolvent)

7.BUSINESS AUDIT,RECOVERY,OFFENCE AND


PENALTY UNDER MVAT:
Business Audit is a new function of the Sales Tax Department. This will
be conducted by the Sales tax officials ordinarily at the dealer's place of
business. This audit is independent from the audit by a Chartered
Accountant. Business Audit is however, not an activity of enforcement for
search and seizure at dealers' business premises.
Objectives of Business Audit
The objective of a Business audit is to close any possible gap between the
tax declared by' a dealer and the tax legally due. It aims to ensure
optimum revenue collection and voluntary compliance. The aim of Business
audit is to encourage the highest possible level of voluntary compliance in
a system of self-assessment.
Selection for audit
The main purpose of an audit is to ensure tax compliance, cross check of
transactions and initiate corrective actions, if necessary. The returns filed by
the dealers will be examined for discrepancies. Based on such examination
and pre-determined criteria, some dealers will be selected for audit.
Generally, cases selected for audit will include those dealers

who file its returns late

in whose case they have reason to believe that the return may not
be correct or a detailed scrutiny is necessary

chosen randomly, on the basis of certain criteria.

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A dealer who consistently and regularly complies with the VAT law and
files correct, complete and self consistent returns will normally not be
selected for audit. The selection of audit cases will be by exception rather
than as a rule.
The Business Audit Process
If any of the dealers business is selected for an audit, then Sales Tax
Office will inform them and then fix a suitable date.
The audit officer will inspect the books of accounts and supporting
documents. At that time dealer should make available any information or
documents that he may require to enable him to carry out the audit
effectively and speedily. The audit officer may like to understand dealers
business process and examine their stocks of goods. He may also like to
interview the person or its employees for this.
The audit officer cannot remove any books of accounts or documents from
their premises. However, audit officer can request for copies.
Results of the audit
If the audit shows that the returns filed do not reflect the true picture of
the dealers business, then the auditor may discuss the matter with the
dealer and will give guidance to them to prevent recurrence and will also
explain them about what action should be followed. The audit may result
in additional tax demand or a refund.
Additional tax demand
If any additional tax is due, the auditor will issue a notice explaining the
additional demand. If the dealer accepts the additional demand shown, then
they should file a revised return along-with the payment of tax.
However, if the dealer disagrees with the findings of the auditor, then they
may proceed to assess their case and issue an assessment order unless they
are able to provide evidence and convince the audit officer not to assess
them for additional demand. The assessment order will also include interest
due from the date they should have paid the tax to the date of the

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assessment. In addition, they may also impose a penalty. They should pay
the dues as per the assessment order or they may prefer an appeal against
this order.
Time limit for audit
There is no time limit prescribed for conducting Business Audit. Normally,
they may carry out an audit within two years of filing the return. They
may follow the timelines as prescribed for completion of assessments under
the MVAT Act and MVAT Rules.
Investigation
Normally, the Sales Tax Department will make Business Audit visits by
appointment. However, if the department suspects any tax evasion, it may
conduct

investigation

of

the

business

including

search

and

seizure

operations at any time without giving notice. Such investigation will be


carried out by a duly authorized investigation officer (not audit officer).

Recovery, Offences and Penalties:


Recovery of unpaid tax
VAT is a self-assessed tax. In order to operate effectively, the selfassessment system relies on the expectation that every dealer will deal with
his tax matters promptly and honestly. But there will be occasions when a
dealer does not pay the tax that is due. And so, there is a system
designed to recover unpaid tax and to deter dealers from trying to avoid
paying tax.
The self-assessment return requires the dealer to pay the tax due at the
time of submission of the return. If this dealer does not pay the tax that
he has declared, or if only pays a part of the tax due, interest is payable
in addition to the tax due.
Attachment of Bank Account
Where any tax, interest or penalties remain unpaid, the department may
issue an attachment notice to the dealer's bank and to his debtors. If

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necessary, officials of the Sales Tax Department may call for the records
from the defaulting dealer to examine and obtain the necessary details.
Attachment proceedings
The department may also recover the amounts due by attaching the
defaulting dealer's moveable or immoveable property under the provisions
of Maharashtra Land Revenue Code.
If the department is still unable to recover the amounts of tax, interest and
penalties plus any costs incurred in the attachment proceedings, it will
initiate prosecution proceedings through police. The VAT law outlines a
number of offences and the financial and other consequences that follow.
In addition, interest will be charged on any tax paid late at the rate of
15% per year.
Offences
The principal offences, each of which has been referred to in the text of
this guide, are as follows: If a person

poses as a registered dealer when they not registered.

files a false return.

keeps false account of the value of

produces false accounts, registers or documents or provides

goods bought or sold.


false

information.

issues any document (including bills, cash memoranda, vouchers or


any other certificate or declaration) which the dealer knows or has
reason to believe is false.

He may be liable for criminal proceedings including imposition of fine


In addition, dealer is committing an offence and if he fails to

register when his turnover exceeds the, threshold.

provides information about changes to his business.

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declares the name of the manager.

provides to Sales Tax Department the PAN allotted to the business.

files a return.

get his accounts audited, when required.

keeps proper accounts, when required to do so by the Sales Tax


authorities because the existing records are inadequate.

produce his accounts for inspection, when required

issues a tax invoice, bill or cash memorandum.

In these circumstances, the dealer may be prosecuted and a fine may also
be imposed.
There are two other events that may also give rise to a penalty. If the
dealer:

transfers any assets of his business with the intention of not paying
tax, or

fails to respond to a notice requiring him to provide statistical


information.

Dealer will be liable to a fine and may also face prosecution.


Financial penalties or fines
There are various financial penalties, each depending on the nature of the
offence:
Tax related
Some offences attract a maximum penalty in proportion to the amount of
tax due.
If the dealer:

conceals or misclassifies any transaction or provides inaccurate


information or claims a set off in excess of the amount due or,

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issues or produces a documents, including tax invoice, bill or cash


memorandum, that results in a person or dealer not paying the
correct amount of tax

The penalty is an amount equal to the tax due. If the dealer avoids paying
the correct amount of tax as a result of issuing bogus, false tax invoices,
the maximum penalty is an amount equal to half of the tax under assessed
or Rs.100/-, whichever is higher.
Non Tax Related Penalties
If the dealer fails to file a return, within the time allowed, the penalty is
Rs.2,000/-. If dealer files the return late but before any penalty proceedings
have started, the penalty will be reduced to Rs1,000/-.
If the dealers return is not correct, complete and self-consistent, the
penalty is Rs1,000/-, but this is without prejudice to any other penalties
that may be imposed.
If, after the issue of summons, the dealer fails to attend any proceedings
or to produce books of account, registers or documents, the Tribunal or the
Sales Tax authorities may impose a fine, not exceeding Rs.5,000/-.
Most other offences attract a penalty of Rs.1,000/- although there is also a
provision for some offences to attract a penalty of Rs.2,000/- plus a
continuing daily penalty of Rs.100/Payment of Penalty or Fine
As a result of proceedings, such as audit, investigation, assessment etc.,
Sales Tax Authority may issue a demand notice containing details of tax,
interest and penalties, if any, that are imposed. The dealer should pay the
amount due within 30 days of the date of the order. Dealer should make
the payment using Form 210 through the bank where he normally files his
return.

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8.APPENDIX:
List of important forms referred to in the Guide

Sr.No.

Form

Subject

No.
1

101

Application for Registration under the MV AT Act, 2002.

103

Application for cancellation of Registration Certificate.

210

Chalan in respect of payment made otherwise than with


return by a dealer under the MVAT Act, 2002

221

Return-cum-chalan for all VAT dealers other than dealers


executing works contract, dealers engaged in leasing
business, composition dealers (including dealers
opting for composition only for part of the activity of
the business), PSI dealers and notified Oil Companies.

222

Return-cum-chalan for all composition dealers whose


entire turnover is under composition (excluding works
contractors opting for composition and dealers opting
for composition only for part of the activity of the
business).

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6

223

Return-cum-chalan for VAT dealers who are also in the


business of executing works contracts, leasing and
dealers opting for composition only for part of the
activity of the business.

224

Return-cum-chalan for PSI dealers holding Entitlement


Certificate. (Transactions by PSI dealers relating to the
business of execution of works contracts, leasing,
trading and composition only for part of the activity of
the business to be included in a separate return in Form
223).

225

Return-cum-chalan

for

Notified

Oil

Companies.

(Transactions by OIL Companies relating to the


business of execution of works contracts, leasing and
composition only for part of the activity of the
business, to be inc1uded in a separate return in Form
223).
9

304

Application for cancellation of assessment order under


section (1) of section 23 of the Maharashtra Value
Added Tax Act, 2002.

10

310

Appeal against an order of assessment, interest, penalty or


fine.

11

311

Application for grant of stay against order of assessment,


penalty, interest or fine

12

414

Application for tax clearance certificate.

13

501

Application for refund under sub-section (1) of section 51


of the Maharashtra Value Added Tax Act, 2002.

14

704

Audit report under section 61 of the Maharashtra Value


Added Tax Act, 2002.

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9.CONCLUSION:
The system of Value Added Tax (VAT) has been implemented, in the State
of Maharashtra, w.e.f. 1st April, 2005. As per the provisions of MVAT, a
dealer is liable to pay tax on the basis of turnover of sales within the
State.
MVAT, a dealer is liable to pay tax on the basis of turnover of sales
within the State. The term dealer has been defined u/s. 2(8) of the Act. It
includes all person or persons who buys or sells goods in the State
whether for commission, remuneration or otherwise in the course of their
business or in connection with or incidental to or consequential to
engagement in such business. The term includes a Broker, Commission
Agent, Auctioneer, Public Charitable Trusts, Clubs, Association of Persons.
Draft model of VAT legislation has been prepared by the National Institute
of Public Finance and Policy. The circulation of papers on VAT will
certainly be creating the atmosphere towards readiness to accept VAT.
Every dealer, who becomes liable to pay tax under the provisions of MVAT, shall
apply electronically for registration to the prescribed authority, in Form 101,
within 30 days from the date of such liability.
The provisions relating appeals under MVAT Act 2002, which is in force
in Maharashtra

State, are discussed in the article N.T.Nirale, Advocate In

a leading case of Hoosier Kamas Dada the Supreme Court has pointed out
that the right to appeal is not merely a matter of procedure; it is a matter

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of substantive right. [4 STC 114]. Right to appeal is vested in a dealer
when the return is filed or on the date, the return was due.

10.BIBLOGRAPHY:
Internet

www.mahavat.gov.in
www.caclubindia.com
www.wikipedia.com
www.indiataxes.com/Information/VAT/Introduction.htm
www.business-standard.com/.../penalty-waived-for-late-

mvat-audit-repor...
www.revenue.com
Text Book

All India Taxes (A Ready Referencer)

CA Alok Kr Agarwal &


CA Shailendra Mishra

All India VAT Manual (Covering All States VAT


Acts, Rules, Rates and Notifications) (in 4 Vols.)

Balram Sangal &


Jagdish Rai Goel

MVAT

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