Q.1 What is  VAT ?

VAT or Value Added  Tax is a multi-point taxation system under which taxes are levied only on the value addition done at each stage of the commodities, production and sale.  With a facility of set off for in-put tax i.e. the tax paid by the purchasing registered dealer to a selling registered dealer

Q.3 What goods are covered under Vat?

Schedules  A,C & D of the HP VAT Act  include the goods which are liable  to tax and  Schedule-B   includes the tax-free goods. Only few goods  will be  outside the purview of  VAT. For example, Liquor and Motor spirit.

Q.4 How to claim Input Tax Credit ?

Input Tax Credit is available  on the basis of tax invoice which  is to be kept by  the   dealer.

Q.5 Are farmers  liable to pay VAT?

No. Agriculture  and Horticulture produce is  exempted from VAT.

Q.6 What  are the advantages of Vat?

The  advantages are:

·         It is  simple.

·         Shares the burden of all levels of supply chain.

·         Taxes only the value addition.

·         Fewer rates.

·         Uniform floor rate throughout the country.

·         Uniform classification of goods throughout the country.

·         Lesser procedure helps better compliance and audit trail.

·         Larger tax base

·         No tax on tax already paid.

Q.7 What will be the tax element on  Exports made out of the Country?

For all exports made out of the country, tax paid within the State will be refunded in full, and this refund will be made within three months. Units located  in SEZ and EOU will be granted either exemption from payment of input tax or  refund of the input tax paid within three months.

Q.8  How will the  Opening Stock  on 1-4-2005 be  treated ?

All tax-paid goods purchased on or after April1,2004 and still in stock as on April 1,2005 will be eligible to receive input tax credit, subject to submission of requisite documents. Resellers holding tax-paid goods on April,2005 will also be eligible. VAT will be levied on the goods when sold on and after April 1, 2005 and input tax  credit will be given for the sales tax already paid in the previous year. This tax credit will be available over a period 6 months after an interval of 3 months needed for verification.

Q.9 What is the difference between tax invoices and cash memos ?

The tax invoice is  the document issued   by the registered dealers  to another registered dealer on the basis of   which a purchasing dealer can claim input tax credit.  Tax invoice is not issued  by  the dealer who has opted for   lump-sum  tax or  composition scheme. However, only VAT dealers are authorized to issue tax invoices; all other dealers will issue cash memos. ITC will be given only on tax invoice.

Q.10 What is the difference between  exempted and  zero rated sales.

Exempted sales are listed in Schedule-B of HP VAT Act and  both zero rated and exempt sales do not charge VAT.  For  zero rated sales you are eligible to claim input tax credit on your purchases whereas for exempt sales you are not eligible to  claim ITC paid on your purchases.              

Q.11 How does VAT work ?

For instance, if a dealer purchases goods for Rs. 100/- from a dealer and tax of Rs. 10/- has been charged in the bill and sells the goods for Rs. 120/- on  which the dealer will charge tax of Rs. 12/- at 10%, the tax payable by the dealer will be only Rs. 2/- being the difference between the tax  collected  of Rs. 12/- and tax already  paid on purchases  of Rs. 10/-. Thus the dealer has paid tax at 10% on Rs. 20/- being the value addition in his hads.

Purchase Price                 Rs. 100 /-

Tax paid on purchase        Rs. 10 /-

                                  (inpurt tax)

Sale Price                       Rs. 120/-

Tax payable on sale price Rs.12/-                                                  

                                      (output tax)

Input tax credit         Rs. 10/-

VAT payable(Net Tax)           Rs.   2/-

Q.12 What are the rates of tax under VAT?

You will be happy to know that under the VAT there are only 4 slabs of rates as follows:

1.Gold and Silver:                                           1%

2.Declared goods, Medicines:                     4%

Capital goods, Ready-made

Garments, industrial & agriculture inputs.

3.On other goods:                                       12.5%

Q.13 What is in-put tax credit ?

In-put tax credit is the tax that a dealer has to pay on his purchases from suppliers based in Himachal Pradesh. No in-put tax credit can be given to the dealers who have purchased in-puts from outside the State or abroad. The details of allowing the in-put tax credit are indicated in Section 11 of  the Himachal Pradesh VAT Act.

Q.14 Do I need to register my business again?

No. The existing GST.CST dealer registration number will continue until the Department does not allocate TIN Number to VAT dealers and general Registration No. to other dealers opting for lump-sum, composition scheme or presumptive tax

Q.15 How will you treat tax paid un-sold stocks as on 1.04.2005 ?

In-put  tax credit will be given for all un-sold stocks purchased  within the State after payment of  tax w.e.f. 1.4.2005. It is also clarified that no in-put tax credit will be given on stocks purchased from outside the State.

Q.16 What products are outside the VAT ?

Diesel, Petrol and Liquor will continue to be taxed at the first stage only and at the same rate as is prevalent presently. In addition Lime Stone and Timber and Arms and Ammunition will be taxed at higher rates.

Q.17 Small  Dealers and Composition Scheme ?

Small dealers whose gross  annual  turnover  does not exceed  Rs. 4 lacs  need not  to pay  tax under VAT.  However small dealers having  turnover  between 4  lacs to 20 lacs  will be covered under the   special lump-sum  composition scheme where they will pay only 1% of the turnover  as tax         . A person covered under  the composition scheme  can charge  1%  as tax from his customers. However,  the person  who has opted for  turnover tax can  not claim  input tax credit under VAT.

Q.18 Return and Deemed Assessment?

Under VAT, simplified form of returns will be notified. Returns are to be filed monthly/ quarterly as specified in the State Acts/Rules, and will be accompanied with payment challans. Every return furnished by dealers will be scrutinized expeditiously. Returns duly filed/acknowledged will be deemed to have been assessed.

Q.19 Whether Input Tax Credit is available for Inter-State  Transaction?

Input tax  credit will be given for both manufacturer and traders for  purchase of  inputs/supplies meant for sale  within Himachal Pradesh, However even for stock transfer/ sale  of  goods out of the State, input tax paid in excess of 4% will  be eligible for tax credit.

Q.20 How does  VAT work ?

Different Stages of VAT

Thus, it is clear from the above exhibit that VAT is collected at each stage of production and distribution process and, in principle, it’s burden falls on final consumers only. To summarise, it can be stated that VAT is a broad based tax covering the value added in a commodity by a firm at each stage of production and distribution.

Q. 21 Who is liable to pay  tax under VAT ?

 (a) Any dealer  who imports goods from outside Himachal   Pradesh  of any value.

(b) Any dealer who himself  manufactures/purchases  goods for sale of amount exceeding Rs. 2 lacs.

(c) Any dealer  running Hotel, Restaurant, Bakery etc. whose taxable  quantum exceeds   Rs. 2 lacs.

(d) In relation to any other dealer Rs. 6 lacs.

Q.22  What will happen to CST Act ?

It is proposed that in future the CST  rate will be reduced from the present rate of 4% to zero percent.  Already  in Himachal Pradesh for manufacturing  sector  and other products the rate is declared  as 1%. As long as CST continues  no VAT  on inter-state  sale shall be levied and the  Central Statutory Form i.e Form-C, Form-D, Form-F, Form-H will continue.

Q.23 What is TIN ?

Dealer registered under VAT will be given 11-Digit TIN (Tax Payers Identification Number). Upto such time that TIN is not issued to VAT dealers or new dealers, existing GST/ CST numbers can be quoted in returns/ statutory forms.

Q.24  Is voluntary registration permissible under VAT?

Yes,  Any person, who is not required  mandatory registration under the Act, may apply for registration  if he is a dealer; or he intends from a particular date to undertake  activities which would make him a dealer.

Q.25 What happens to dealer who opted for composition scheme?

The dealer who has opted for composition scheme or paying tax  at lump-sum rate  can not claim input tax credit and issue tax invoice. Although he can buy goods from VAT dealer or from another composition dealer.

Q.26 Is there any  assessment under VAT?

No.       There is no assessment under VAT and returns filed are deemed to be assessed.

Q.27 Will all Returns filed be picked up for audit or scrutiny?

No, a transparent criteria will be evolved under which  small number of cases will be picked up for scrutiny to check malpractices.

Q.28 How do I claim refund?

Section 28 of the HP VAT Act deals with  the issue of  refund. Firstly,  a refund can be  claimed by the dealer,  suomoto in his VAT return by the method of  input tax credit. However, if even after claiming   input tax credit under section-11, refund is still due and the same will be paid alongwith interest of 1 to 1 ½%. Therefore, refund is  an essential  part of  VAT and payment of  interest has been kept to safeguard the interest of the dealer. However,  it is the dealer’s choice either to  get refund or to opt for carrying it forward  for the next tax period.

Q.29 What kind of books of accounts are required to be maintained under VAT?

Simplicity of record keeping the major objective of VAT. Broadly  speaking, dealers are required to maintain a record of  all the purchases made and all the sales  made. It is further clarified that  there are no statutory forms under VAT.  Vat works on an invoice based system where Input Tax  Credit is allowed on the strength of tax invoice.  Tax invoice  indicates the tax charged  separately and is issued by all registered dealers for sales made by them to other registered dealers on the basis of which  input tax credit is claimed whereas  invoices issued to customers or non registered dealers are termed as retail invoices/ cash memos.

Q.30 What items of importance are exempted in  HP VAT ACT?

43 items  in schedule-B of HP  VAT Act are exempted from VAT and  produce of farmers are not subject to any tax. Beside this   HP VAT Act provides a composition scheme for  small dealers having  turnover of Rs. 20 lacs  on paying tax  equivalent to 1% of the gross turnover.

Q.31 How  industrial incentives are treated under VAT?

The HP VAT Act provides for two situations:

(a)     A unit already availing sales tax incentives would continue to do so for the balance unexpired period subject to the condition that no input tax credit shall be allowed to the subsequent dealers  purchasing goods manufactured and sold by such dealer (Industrial Unit).

Q.32.    How is input tax credit to be claimed? Is there any requirement of a “one to one” correlation between input tax and output tax?

There is no need for a “one to one” correlation between input tax credit and output tax. Quite a large number of small business are under the misconception that input tax has to be adjusted against output tax on a bill to bill basis.

The operation of the input tax mechanism is very simple. The dealer will be eligible to take credit of input tax in a tax period as specified on the entire purchases. The dealer would  charge VAT at the prescribed rate of tax as is being done in the present system of levy of sales tax. The VAT or Output Tax payable  is compiled on a monthly basis as is done now. The dealer can adjust  the input tax eligible on the entire purchase in the tax period against the output tax payable irrespective whether the entire goods purchased is sold or not. For example, if the input tax credit in a particular month is Rs. 1000/-, the output tax payable is Rs. 500/-, the excess input tax of Rs. 500/- can be carried forward to the next tax period. Assuming no further input tax credit in the following  month and that the output tax payable is Rs. 700/- the dealer will pay Rs. 200/- alongwith the monthly return.a monthly basis as is done now. The dealer can adjust  the input tax eligible on the entire purchase in the tax period against the output tax payable irrespective whether the entire goods purchased is sold or not. For example, if the input tax credit in a particular month is Rs. 1000/-, the output tax payable is Rs. 500/-, the excess input tax of Rs. 500/- can be carried forward to the next tax period. Assuming no further input tax credit in the following  month and that the output tax payable is Rs. 700/- the dealer will pay Rs. 200/- alongwith the monthly return.

Q.33. What is composition Scheme ?

 It is a scheme to pay lumpsum tax on the basis of turnover without the need for maintaining detailed sales accounts.

Q.34. Who is eligible?

·               The dealer whose turn over exceeds Rs 6 lacs but does not exceed Rs. 20 Lacs.

·               The dealer who does not import goods from outside the state.

·          The dealer who makes his entire purchase from registered dealers with in the state.

·               A dealer already registered under the HPGST Act is also eligible subject to fulfillment of condition               as specified above.

Q.35. what are the advantages of composition Scheme?

·         Low rate of tax. It will be @ 1% of the aggregate purchase of the taxable goods made from registered dealers in the state.

• No need to maintain detailed books of accounts. Mainly purchase account supported by purchase invoices is required.

No need to pay different rates of taxes is applicable on different goods.

Q.36.   Are there any restriction?

         Yes, the restrictions are :

·         No input tax  credit will be available to these dealers on purchases made .

• No input tax credit available on stocks as on 1.4.2005.

Q.37. What happens if dealers Turnover exceeds Rs. 20 lacs ?

   The retail sale dealer whose aggregate value of taxable goods purchased in a year exceeds Rs 20    lacs by a margin of up to 10 % shall continue to pay the lumpsum during that year and the facility to pay lumpsum shall cease to have effect only from next 1^st April. However such dealer shall pay lumpsum on the excess ten percent over 20 Lacs.

Q.38.  Is this Scheme compulsory for the all small dealers?

No, the composition scheme is optional and the dealer shall be required to submit his option in writing to assessing authority.

Q.39. Is the turnover of tax free goods, to be included in the Taxable Turnover.?

No. Tax free goods mentioned in Schedule ‘B’  are free from tax, for both VAT dealers and   composition dealers, and such goods  are not to be counted for calculating taxable turnover.

Q.40.   What will be the frequency of payment of tax?

            The tax is to be paid quarterly.

Q.41. Can turnover tax be charged from customers?      

          yes  It  can be  charged  from  customers or alternatively  can be included  in  sale price.

Q.42. Can credit be claimed for the VAT paid on the purchases?

 No. Only VAT registered dealers can claim such a credit.  A dealer can either register himself for VAT or for Composition Scheme, whichever he feels to his benefit.  You would then cancel the General Registration number for paying composition tax . He would then charge VAT to his customers and pay TAX.

Q.43. Under which Notification the H.P VAT Act, 2005 is    published from which date it is applicable.

The H.P. Value Added Tax Act, 2005 has been published vide Law department Notification No.LLR- D (6)-10/2005 leg Date 31.3.2005 in R.H.P (E.O) on 31.3.05. This Act is applicable w.e.f Ist day of April, 2005.

Q.44. What do I do to register under H.P Value Added Tax Act.

You are liable to register only if your taxable quantum exceeds as laid down under section 4(6) of H.P.Value Added Tax Act. (There is also a Provision for Voluntary Registration).To apply for registration, a simple application, and filing of ST-I form (as per existing form) is required. This system will continue up to such time that TIN (Tax Identification Number) is not issued by department.

Q. 45. What happens where new  forms/ declaration etc   are not known to the dealers.

Section 64 of the H.P.Value Added Tax Act. provides  that all existing notification, rules, forms, declaration (as issued under the repealed H.P.General Sales Tax Act, 1968) would continue to be in force so far as they are not inconsistent with the provisions of the H.P.Value Added Tax Act or till they are superceded. Section 64 of the H.P.VAT Act is an exemption and saving clause.

Q.46     Who will issue Tax Invoice?

            Tax Invoice shall be issued by a VAT dealer to a VAT dealer.        

Q.47 On which Invoice  the Input Tax  Credit will be available?

            The Input Tax Credit  is available only on the original  Tax Invoice  issued to a VAT dealer.

Q.48     What particulars should the  Tax Invoice contain?

            The Tax Invoice  must contain the following particulars/ information:

(i)                   Name, address and VAT Registration No. of the  Dealer.

(ii)                 Date of the issue of  the Invoice.

(iii)                Mechanically/ electronically printed serial No. of the  Invoice.

(iv)                Quantity and description  of the goods sold.

(v)                  Unit price and the amount  charged ( excluding VAT)

(vi)                Amount of VAT charged.

(vii)               Name, address and  VAT Registration No. of the purchaser.

(viii)             G.R. No. and name of the Transport Company where applicable.

(ix)               Signature of the authorized  person.

Q.49     How many copies of  Tax Invoice  are to be prepared?

            The Tax Invoice shall be prepared in-triplicate.

(i)                   Original copy to be issued to the  purchaser/ buyer (VAT dealer).

(ii)                 Second copy to be  accompanied with the  goods by the  Transporter.

(iii)                Third copy to be  retained by the selling dealer.

Q.50     Whether the Tax Invoice can be issued to a un-registered dealer?

            Yes.  The Tax Invoice  can be issued to  an un-registered  dealer  but no input tax credit is available to him.

Q.51     Whether Tax is to be shown separately in Tax Invoice?

            Yes. Tax amount is required to be shown separately in  the Tax-Invoice.

Q.52     Whether Industrial unit  enjoying  the facility of deferred payment of tax for  the  balance  un-expired period of tax incentive can issue Tax Invoice?

            Yes. Such  Industrial Units can issue  Tax-Invoice to the  dealer who is purchasing goods from him.

Q.53     Who will issue the Retail Invoice?

            The Retail  Invoice will be issued by the following:

(i)                   By dealers who have  opted for composition scheme and lump-sum  payment of tax.

(ii)                 By VAT dealer  for the sale of  tax-free goods.

(iii)                For inter-state  transactions.

(iv)        By Industrial Units  availing  exemption from payment of  the  tax.

Q.54     Whether it is mandatory to issue  Retail-Invoice exceeding Rs.200/-  by the purchaser?

            Yes. It is compulsory  to issue Retail Invoice  on the sale of goods  exceeding Rs.200/-.

Q.55     Do all  Tax-Invoices  have to be the same for all and every  registered dealer?

            The  specimen given here  is only a  tentative  draft and  the Tax-Invoice issued under  Section 30  of the  HP VAT Act , 2005  shall be  deemed  to be a Tax-Invoice  provided it contains all the particulars  specified in Section 30 of this Act