Page 245 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes 14.4.3 Items Covered under VAT

All business transactions that are carried on within a State by individuals/partnerships/
companies etc. will be covered under VAT.
More than 550 items are covered under the new Indian VAT regime out of which 46 natural and
unprocessed local products will be exempt from VAT.
Nearly 270 items including drugs and medicines, all industrial and agricultural inputs, capital
goods as well as declared goods would attract 4 % VAT in India.
The remaining items would attract 12.5 % VAT. Precious metals such as gold and bullion will be
taxed at 1%.
Petrol and diesel are kept out of the VAT regime in India.

14.4.4 Salient Features of VAT

The salient features of VAT are as under:
1. Rate of Tax VAT proposes to impose two types of rate of tax mainly:
(a) 4% on declared goods or the goods commonly used.

(b) 10-12% on goods called Revenue Neutral Rates (RNR). There would be no fall in
such remaining goods.
(c) Two special rates will be imposed – 1% on silver or gold and 20% on liquor. Tax on
petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT
system as they would be continued to be taxed, as presently applicable by the CST
Act.
2. Uniform Rates in the VAT system, certain commodities are exempted from tax. The taxable
commodities are listed in the respective schedule with the rates. VAT proposes to keep
these rates uniform in all the states so the goods sold or purchased across the country
would suffer the same tax rate. Discretion has been given to the states when it comes to
finalizing the RNR along with the restrictions. This rate must not be less than 10%. This
will ensure by doing this that there will be level playing fields to avoid the trade diversion
in connection with the different states, particularly in neighbouring states.
3. No concession to new industries Tax Concessions to new industries is done away with in
the new VAT system. This was done as it creates discrepancy in investment decision.
Under the new VAT system, the tax would be fair and equitable to all.
4. Adjustment of the tax paid on the goods purchased from the tax payable on the goods of
sale All the tax, paid on the goods purchased within the state, would be adjusted against
the tax, payable on the sale, whether within the state or in the course of interstate. In case
of export, the tax, paid on purchase outside India, would be refunded. In case of the branch
transfer or consignment of sale outside the state, no refund would be provided.
5. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax on
the full price of the goods sold and shows separately in the sell invoice issued by him.
6. VAT is not cascading or additive though the tax on the goods sold is collected at each stage,
it is not cascading or additive because the net effect would be as follows – the tax, previously
paid on the sale of goods, would be fully adjusted. It will be like levying tax on goods, sold
in the last state or at retail stage.

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