Incidence, Levy And Rate Of Tax

1. Determination of taxable turnover.

   To determine the taxable turnover of sales, the following amounts shall, subject to the conditions specified, be deducted from the gross turnover of sales.

   1. the turnover of sale of goods exempt from tax under section 17;
   2. the turnover of sale of goods subject to production of evidence to the satisfaction of the Commissioner-
      1. in course of interstate trade and commerce; or
      2. outside the state; or
      3. in the course of import into or export out of territory of India;
   3. the turnover of sale of goods to a dealer under-
      1. a SEZ, or
      2. a STP, or
      3. an EHTP
      subject to production of evidence to the satisfaction of the Commissioner;
   4. the turnover of sale of goods to a EOU, subject to production of evidence to the satisfaction of the Commissioner;
   5. all amounts allowed as cash discount or trade discount, provided that such discount is allowed in accordance with the ordinary trade practice of the dealer;
   6. cost of outward freight incurred by a dealer for transportation of goods for or on behalf of the purchaser, when charged separately, subject to production of evidence to the satisfaction of the Commissioner;
   7. in case of works contract, the expenditure incurred towards labour and service, provided that evidence in support of such expenses are produced to the satisfaction of the Commissioner;
   Provided that, where a dealer executing works contract, fails to produce evidence in support of expenses towards labour and service as referred to above or such expenses are not ascertainable from the terms and conditions of the contract or the books of accounts maintained for the purpose, expenses on account of labour and service shall be determined at the rate specified in Appendix I.
2. Adjustment of sale price or tax in relation to a taxable sale, issue of credit note and debit note:-
   1. Where, there is requirement for adjustment of the sale price or tax in relation to a taxable sale, the dealer making such adjustment may issue a credit note or debit note, as the case may be.
   2. Credit note or debit note as referred to in sub-rule(1), shall be issued within the tax period following the tax period, during which the original sale had taken place,
   3. An adjustment of the sale price and tax in relation to a taxable sale can be made, where-
      1. the sale is cancelled; or
      2. the nature of the sale is fundamentally altered; or
      3. the previously agreed consideration for the sale is altered by agreement with the buyer, whether due to reasons of quality or any other reason, consistent with the normal trade practice; or
      4. the goods or part thereof are returned to the seller and, the seller accepts the return of the goods subject to the condition that such return of goods is made within thirty days from the date of sale. Provided that-
         1. a tax invoice in relation to the sale and the amount shown therein as tax charged on the sale are incorrect as a result of occurrence of any one or more of the events specified above; and
         2. a return has been filed for the tax period in which the sale took place and an incorrect amount of tax on that sale has been accounted for as a result of the occurrence of any one or more of the events specified above.
   4. Where sub-rule (3) of this rule applies, the dealer effecting the sale shall, make an adjustment as specified in sub-rule (5) or sub-rule (6) and such adjustment shall be subject to the particulars as contained in the credit note or debit note, as the case may be, issued for the purpose of this rule.
   5. Where the output tax correctly calculated as due in respect of the sale exceeds the output tax actually shown in the Tax invoice and accounted for by the dealer making the sale, the amount of excess shall be treated as tax charged by such dealer in relation to the sale made in the tax period in which the credit note was issued as a result of occurrence of any or more events referred to in sub-rule (3) of this rule.
   6. Subject to the provisions of sub-rule (9), where the output tax actually shown in the Tax invoice and accounted for exceeds the output tax correctly calculated as due in relation to the sale, the dealer making the sale, shall be eligible for input tax credit for such excess amount in the tax period in which the debit note was issued as a result of occurrence of any or more events referred to in sub-rule (3) of this rule.
   7. The input tax credit under sub-rule (6) of shall be allowed by way of reduction of output tax in the tax period referred to in that sub-rule.
   8. Where the input tax credit under sub-rule (6) can not be adjusted in accordance with sub-rule (7), it shall be carried over to the next or subsequent tax period or tax periods, as the case may be.
   9. No input tax credit shall be allowed under sub-rule (6), unless the amount of the excess tax has been refunded by the registered dealer to the buyer and sufficient evidence to the satisfaction of the assessing authority against such repayment has been produced.
3. Composition of tax for works contractor.
   1. A dealer executing works contract shall be eligible to pay tax by way of composition in the manner set out in the following sub-rules, in lieu of tax payable under clause (a) of section 9, if-
      1. he has been registered under the repealed Act or under the Act for the whole of the preceding year;
      2. he has furnished returns for all the tax periods within the due date for the preceding year; and
      3. his gross turnover during the preceding year does not exceed rupees ten lakh.
   2. A dealer eligible for payment of tax by way of composition under sub-rule (1) of this rule shall, make an application in Form VAT-601, exercising option for payment of tax by composition, together with the details of works executed, gross value of the works so executed, tax deducted at source and the tax assessed, if any, for the year preceding to the year, in which the application under this sub-rule is made.
   3. An application in form VAT-601 under sub-rule (2) shall be made along with the particulars as required to be furnished under that sub-rule, within a period of thirty days of the commencement of the year, for which such application is made.
   4. An option once exercised shall remain valid for a period of three consecutive years, unless one or more of the conditions specified in sub-rule (1), is not satisfied at any time during the three years referred to above.

      Provided that where such condition is not satisfied in course of a year, the facility of payment of tax by way of composition shall be allowed till the end of that year.

   5. A dealer exercising option under sub-rule (2), shall pay tax at the rate of four percent on sixty percent of the gross value received or receivable towards execution of works for any year, during which such dealer has been granted permission to pay tax by way of composition, under sub-rule (6).
   6. Upon receipt of an application as referred to in sub-rule(2), the registering authority may, if he is satisfied that the application is correct and complete, the information furnished therewith satisfy the eligibility criteria as specified in sub-rule (1) and, after conducting such enquiry as he deems necessary, grant permission to the dealer for payment of tax by way of composition under sub-rule (5) from such date and in such manner, as may be mentioned in the order in Form VAT-602.
   7. The tax payable by a dealer, who has been granted permission for payment of tax by way of composition under sub-rule (6), shall be deducted at source in accordance with the provisions of rule 58.
   8. The dealer as referred to in sub-rule (7) shall, furnish to the assessing authority, the name and address of the deducting authority in respect of the works he is executing and such deducting authority shall be intimated by the assessing authority in Form VAT-603 to deduct tax at source at such rate and on such percentage of the gross value of the works, as specified in sub-rule (5).
   9. Notwithstanding anything contained in sub-rule (1) to sub-rule (8) and subject to the proviso to sub-rule (4), the assessing authority may, assess the tax payable by a dealer in accordance with the provisions of section 42, for any year for which the dealer has been permitted to pay tax by way of composition in lieu of tax assessable on his taxable turnover, if he is satisfied on the basis of audit that-
      1. the gross value received or receivable towards execution of works contract during the preceding year, exceeded rupees ten lakh; or
      2. the dealer has suppressed the gross value received or receivable towards execution of works contract during the preceding year.
4. Dealers liable to pay turnover tax.
   1. A dealer shall be liable to pay turnover tax on his taxable turnover of sales for each tax period under section 16, if he is a retailer and satisfies the following conditions-
      1. his gross turnover of sales does not exceed rupees ten lakh during the preceding year.

         Explanation: For the purpose of this clause, a dealer who is registered under the repealed Act and is deemed to have been registered under the Act and his gross turnover of sales did not exceed rupees ten lakh in a period of twelve consecutive months ending on the date immediately preceding the appointed day shall, subject to clause (b), (c), (d), (e) and (f), be liable to pay turnover tax.

      2. he does not purchase or sell goods in course of interstate trade and commerce;
      3. he does not despatch goods to or receive goods from, outside the state, otherwise than by way of sales or purchases, as the case may be;
      4. he does not import goods from or export goods to, outside the territory of India;
      5. he does not process or manufacture goods for sale;
      6. he is not a works contractor;
   2. A dealer liable to pay turnover tax under sub-rule (1) shall be entitled to collect separately the tax payable on the sale of taxable goods made, from the buyers.
   3. No input tax credit shall be allowed on the sales made by a dealer liable to pay turnover tax under sub-rule (1).
   4. Where a dealer liable to pay turnover tax under sub-rule (1) of this rule, makes purchase of taxable goods from an unregistered dealer or producer or under circumstances, where, no tax is leviable under the Act, he shall pay tax on the purchase price of such goods at the rate applicable to such goods under schedule ''B'' or schedule ''C'' of the Act, in addition to the turnover tax payable on its sales.
   5. If a dealer does not satisfy any or more of the conditions specified in sub-rule (1) of this rule at any time of a year, during which he has been paying turnover tax or he intends to pay tax as provided under section 14, he may intimate by exercising option in Form VAT-106, the registering authority, under whose jurisdiction, the place of business of the dealer is situated.
   6. A dealer, who makes an application under sub-rule (5) shall, subject to the provisions of rule 27, be liable to pay tax in accordance with section 14 and claim input tax credit as admissible under the Act and rules made thereunder with effect from the date, he is granted certificate of registration under sub-rule (3) of rule 27.
5. Calculation of tax payable.
   1. Subject to sub-rule (2), the tax payable on a taxable sale or a taxable purchase is calculated by applying the rate of tax specified in schedule 'B' and schedule 'C' of the Act, to the sale or purchase price of the transaction, as the case may be.
   2. Where tax charged is included in the sale price of the goods, the tax exclusive sale price is determined by applying the following formula:
      A - (A x B)

      Where
      ''A'' is the tax-inclusive sale price, and
      ''B'' is the tax fraction.

   3. The net tax payable by a dealer for a tax period is calculated from the following formula.
      (O + P) - I
      Where ''O'' is the total output tax;
      ''P'' is the purchase tax as provided under Section 12 of the Act;
      and
      ''I'' is the total input tax;
      during that tax period.
6. Calculation of Input Tax Credit.
   1. Where a dealer effects sales of goods both, subject to tax and exempt from tax, under the Act, the following calculation for claiming input tax credit shall apply:
      1. Where all the sales of a dealer in a tax period are subject to tax under the Act, the whole of the input tax may be claimed as credit.
      2. Where all the sales of the dealer for a tax period are exempt from tax under the Act, no input tax may be claimed as credit.
      3. Where a part of the sales of a dealer in a tax period are subject to tax and the remaining part of the sale are exempt from tax under the Act, the amount that can be claimed as input tax credit may be calculated from the following formula:
         P x Q
         R

         Where
         ''P'' is the total amount of input tax;
         ''Q'' is the taxable turnover of sales including zero- rated sales: and
         ''R'' is the total amount of all sales including exempt sales:
         during that tax period.

      4. Where the fraction Q/R, is less than 0.05, the dealer may not claim any input tax credit for that period.
      5. Where the fraction Q/R is more than 0.95, the dealer may claim the entire input tax as credit for that period.
   2. Calculation of input tax credit on capital goods:

      Input tax credit on capital goods under clause (e) of sub-section (5) of section 20 shall be allowed in the following manner:

      1. the total input tax eligible for credit on capital goods for each tax period shall be equally apportioned over a period of thirty six months and -
         1. in case of a start up or new business, input tax credit shall be allowed as apportioned for each tax period, beginning from the first sale after commencement of commercial production;
         2. in case of a continuing business, input tax credit shall be allowed as apportioned for each tax period following the tax period during which such input tax credit accrued.
      2. the input tax credit, that shall be admissible under clause (a), where there is sale of both taxable and tax exempt finished products, shall be determined on application of the principles as provided under sub rule (1) in respect of each tax period.

         Explanation:- For the purpose of this sub-rule, the expression ''total input tax'' referred to in sub-rule (1) shall be the input tax as apportioned in respect of a tax period.

         Provided that for the purpose calculating input tax credit under this sub rule, if the value of the capital goods is within rupees one lakh, the input tax credit claimed on this amount shall be allowed in one instalment.

   3. Partial input tax credit.
      1. Where there is manufacturing or processing of goods for sale or where the sale takes place by transfer of property in goods (whether as goods or some other form) in the execution of works contract, partial input tax credit shall be allowed, under sub section (4) of section 20.
      2. Partial input tax credit as referred to in sub rule (1) shall be at the proportion, the value of actual utilization of input bears to the value of output, in a tax period.
      3. Where the processing of manufacturing activity of a dealer results in the production of both taxable goods and goods exempt from tax, input tax credit admissible, shall be determined by applying the principles as provided under sub rule (1) of rule 11 in respect of each tax period.

         Explanation:- For the purpose of this sub rule, the expression ''total input tax'' referred to in sub rule (1) of rule 11 shall be the tax on that part of the input, which is actually utilized in processing or manufacturing.

      4. For the purpose of this rule, the expression ''out put'' shall mean sale of finished products consequent upon processing or manufacturing or sale of goods used in the execution of works contract.
   4. Input tax credit in phased manner.
      1. Where a dealer transfers the right to use any goods for any purpose, whether or not for a specified period, for cash, deferred payment or other valuable consideration, input tax credit shall be allowed in a phased manner under sub-section (4) of section 20.
      2. The input tax credit as referred to in sub-rule (1) of this rule shall be phased out equally over the life time of the goods, the right to use of which is transferred, or the period for which such right to use has been transferred, whichever is later.
      3. If the life time of the goods referred to in sub-rule (2) is not ascertainable or the transfer of right to use such goods is made for short durations over a prolonged period of time, such life time shall be taken as ten years for the purpose of this rule.
   5. Reverse tax credit.
      1. Where input tax credit is already availed by a registered dealer against purchase of goods, a part of which is, however, used in manufacturing goods exempt from tax, the input tax credit so availed for such part of the goods will be deducted from the input tax credit for the tax period in which such event takes place.
      2. Where there is a negative input tax credit for a tax period, as a result of deductions made under sub-rule (1) the excess input tax credit availed of shall, by order in Form VAT-604, be demanded as if it is a tax due under the Act from the dealer and it shall be recovered as an arrear of tax under the provisions sub section (7) of section 50.
      3. Where the goods purchased by a registered dealer from another registered dealer are returned to the selling dealer and necessary adjustment is made in their respective accounts, the purchasing dealer shall reverse the input tax credit, he has availed for purchase of such goods, subsequently returned.
      4. Where a registered dealer fails to keep separate account of purchase of goods for the purpose of determining reverse tax credit under sub-rule (1), the input tax credit already availed shall be reversed in the following manner,
         1. In case of a registered dealer manufacturing both taxable goods and goods exempted from tax for sale;
            X = U x V
            W

            Where 'X' is the input tax credit to be reversed,
            'U' is the input tax credit availed during the tax period,
            'V' is the total sale of manufactured goods, exempt from tax in that period,
            'W' is the total sale of goods manufactured in that tax period.

         2. In case of a registered dealer selling taxable goods, a part of which is damaged, or destroyed.
            X = U x V
            W

            Where 'X' is the input tax credit to be reversed,
            'U' is the input tax credit availed during the tax period,
            'V' is the total estimated sale value of goods, damaged or destroyed, in that period,
            'W' is the total sale of goods including the sale value of 'damaged or destroyed' goods during that tax period