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Unit 14: Value Added Tax

14.4.5 Methods of Collecting and Charging the VAT Notes

Generally, there are two methods that are followed while charging and collecting the VAT:
1. Invoice or tax credit method: The tax is collected and charged separately on the basis of the
tax that is paid on the purchase and the tax that is payable on the sale, shown separately in
the invoice. Therefore, the difference between the tax paid on purchase and the tax payable
on sale as per the invoice is the VAT.
2. Subtraction method: Under this method, the tax is collected and charged on the aggregate
value of the tax payable on sale and purchase by applying the rate of tax, applicable to the
goods. Therefore, the difference between the sale price and purchase price would be VAT.
It means VAT is the tax which consumers ultimately face. It is collected at each stage. The
tax earlier paid can be allowed as set off or credit. Therefore, it is called as Last Point Tax.

!

Caution VAT is not cascading or additive though the tax on the goods sold is collected at
each stage.

14.4.6 Levies of Tax under the VAT

It is discussed as follows:
1. Sale Tax or Output Tax including Deemed Sale within the state. It covers all kinds of
transfer of goods, under the Sale of Goods Act including deemed sale that is transfer of
goods by way of Works Contract delivery of goods on the basis of a hire purchase agreement
or installment, etc.
2. Purchase Tax, including Deemed Purchase within the state. The tax paid on purchase of
goods in certain circumstances.
3. Composition tax, that is in lieu of tax by way of lump sum tax. This means the amount paid
by the dealers like retailers whose turnover is below the specified limit of the taxable
turnover that is allowed to pay the amount at his option.

14.4.7 Who is the Dealer?

Dealer means the person, who is engaged in the activities in connection with or consequent to or
incidental to trade or commerce. It also means the person, who supplies, distributes, sells or
buys any goods against the valuable consideration or otherwise. He can be the merchandise
agent, factor, broker, auctioneer or executes Works Contracts, transfer the goods by way of
lease, delivers the goods on

Hire-Purchase Agreement or installment or supplies goods or distributes them by way of or as
part of the service. He can be a casual dealer or his agent or non-resident dealer or sub-agent. The
dealer also means the local branch of any firm company, any association, body of individual,
situated outside the state whether incorporated or not.

Agriculturist or educational institutions will not be deemed to be dealers.
Any dealer, registered under the earlier law or whose turnover exceeds the prescribed limits
subject to tax; or any merchandise agent like factor, broker, auctioneer, etc., or non-resident
dealer, are also liable to pay CST. Any dealer registered himself under voluntary registration
under Section 25 or any successors to the business to which the predecessors are also liable to tax
under section 60.

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