PROJECT REPORT

ON

MAHARASHTRA VALUE ADDED TAX (MVAT)

MASTER OF COMMERCE

ACCOUNTANCY

PART II (SEMESTER-IV)

(2016-2017)

INTERNAL ASSESSMENT

DIRECT AND INDIRECT TAX

SUBMITTED BY:-

KARTIK JEEVAN PATEL

ROLL NO: - 34

UNDER THE GUIDANCE OF PROF. RAVINDRA NAIK

K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE

VIDYAVIHAR (EAST)

AFFILIATED TO UNIVERSITY OF MUMBAI

1
 K. J. SOMAIYA COLLEGE OF ARTS & COMMERCE

VIDYAVIHAR (EAST)

CERTIFICATE

(2016-2017).

This is to certify that the project entitled MAHARASHTRA VALUE

ADDED TAX (MVAT) is a project work done by KARTIK JEEVAN PATEL,
ROLL NO: - 34 in fulfillment of the requirements for the MCOM in
ACCOUNTANCY (PART-II) (SEMESTER-IV) FOR THE SUBJECT
OF DIRECT AND INDIRECT TAX during the academic year 2016-2017 is
the original work done of the candidate and completed under guidance of
CA.DR. RAVINDRA N.NAIK

Date: -

Place: - MUMBAI

.. ..
Internal Examiner External Examiner

(Mrs. Sonali Deogirikar) (Dr. SUDHA VYAS)

MCOM Coordinator Principal
 DECLARATION BY STUDENT

I, KARTIK JEEVAN PATEL, ROLL NO: - 34, the student of

MCOM in ACCOUNTANCY (Part-II) (SEMESTER-IV) (2016-2017)
hereby declares that I have completed the project on
MAHARASHTRA VALUE ADDED TAX under the supervision of the
internal guidance of CA.DR.RAVINDRA N. NAIK and that the contents of the
project are not copied from any other source such as internet, earlier projects,
textbooks etc.

The information submitted is true and original to best of my knowledge.

Thank you,

Yours faithfully,

KARTIK JEEVAN PATEL

ROLL NO: - 34
 ACKNOWLEDGEMENT

I would like to thank all the people who helped me in undertaking

the study and completing the project, by imparting me with valuable
information and guidance that was required at every stage of my project work.

I would like to thank our principal, Dr. SUDHA VYAS and MCOM
Co-ordinate, for giving me an opportunity and encouragement to prepare the
project.

Last but not the least, I would like to thanks my project guide
CA.DR.RAVINDRA N. NAIK for guiding and helping me throughout the
preparation of my project, right from selection of the topic till its completion.

KARTIK JEEVAN PATEL

ROLL NO: - 34
 CONTENTS

SR NO. PARTICULAR
S
1 Introduction & Basic Concepts

2 Benefits of MVAT

4 Definition under the MVAT

5 Registration

6 Levy Of Tax, Rate Of VAT

7 Composition Schemes

8 Set-off & Refund, Payment & Penalties

9 Illustrations

10 Conclusion

11 References
WHAT IS VAT?

Value added Tax (VAT) is a modern and progressive form of sales tax. It is
charged and collected by dealers on the price paid by the customer. VAT
paid by dealers on their purchases is usually available for set off
against the VAT collected on sales.

IS VAT YET ANOTHER TAX?

No, it will replace the following four existing taxes:

The Bombay Sales Tax Act, 1959

The Maharashtra Sales Tax on the Transfer of Right to Use Any
Goods For Any Purpose Act, 1985
The Maharashtra Sales Tax on the Transfer of Property in Goods
Involved in the Execution of Works Contract ( re-enacted) Act,
1989
The Bombay Sales of Motor Spirit Taxation Act, 1958.

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.

WHAT ARE THE BENEFITS OF VAT?

VAT is simple to administer as compared to other indirect tax.

It is simple, transparent and progressive
Business friendly system of taxation
Full set-off available for VAT paid on most business purchases
Simplification of tax forms and procedures
VAT is transparent and has minimum burden to
consumers as it is collected in small fragments at various
stages of production and distribution.
 As compared to other taxes, there is a less chance of tax
evasion. VAT minimizes tax evasion due to its catch-up
effect.
SCOPE

The purpose of VAT is to generate tax revenues to the government

similar to the corporate income tax or the personal income tax.

The value added to a product by or with a business is the sale price

charged to its customer, minus the cost of materials and other taxable
inputs. A VAT is like a sales tax in that ultimately only the end consumer is
taxed. It differs from the sales tax in that, with the latter, the tax is
collected and remitted to the government only once, at the point of
purchase by the end consumer. With the VAT, collections, remittances to
the government, and credits for taxes already paid occur each time a
business in the supply chain purchases products.

The MVAT Act deals with the law relating to the levy of tax on the sales or
purchase of certain goods in the State of Maharashtra. The word State
wherever used in the MVAT Act means the State of Maharashtra.
DEFINITIONS UNDER THE MVAT

Section 2 gives definitions of various terms. The definitions are almost

at par with earlier law i.e. Bombay Sales Tax Act, 1959.

Section 2 (4) Business includes in its scope any service,

trade, commerce, manufacture or any adventure or concern in the
nature of such service, trade, commerce or manufacture, whether
carried on with or without profit motive and whether actual profit is
earned or not. Further, it also includes any transaction which is
incidental or ancillary to such trade, commerce, manufacture,
adventure, concern or service and also includes any transaction
which is incidental or ancillary to commencement or closure of such
trade, commerce, manufacture, service etc. The purchase of any
goods the price of which is debited to business is also be deemed
to be the purchase effected in the course of business. Similarly sale
of any goods, the proceeds of which are credited to the business is
also deemed to be the sale affected in the course of business.

Section 2(12) Goods mean every kind of movable property.

The definition specifically includes live stocks, growing crop, grass
and tree, plants including produce thereof under given
circumstances. However, it excludes newspapers, money, stocks,
shares, securities or lottery tickets and actionable claims.

Section 2(8) - Dealer includes any person who buys or sells

goods in the state for commission, remuneration or otherwise. It
also includes, among others, by an Explanation, public charitable
trust government departments, societies, State Government,
Central Government, shipping companies, airlines, advertising
agencies etc.
 Section 2 (13)- Importer means a dealer who brings any
goods into the State or to whom any goods are dispatched from
outside the state, which will include import out of India also.

Section 2(20) - purchase price as the amount of valuable

consideration paid or Payable by a person for any purchase made
including any sum charged for anything done by the seller in
respect of the goods at the time of or before delivery thereof, other
than the cost of insurance for transit or of installation, when such
cost is separately charged

Section 2(33) Turnover of sales means the aggregate of the

amounts of sale price received and receivable by a dealer in respect
of any sale of goods made during a given period after deducting the
amount of

(A)sale price, if any, refunded by the seller, to a purchaser, in respect

of any goods purchased and returned by the purchaser within the
prescribed period (currently 6 months from the date of transaction);
and

(B)Deposit, if any, refunded in the prescribed period, by the

seller to a purchaser in respect of any goods sold by the
dealer.
REGISTRATION

A dealer is liable to pay tax if his turnover exceeds the limits prescribed
in Section 3 of the Act. Therefore the starting time for commencement of
liability is crossing the basic limit of turnover. These limits are different
for different type of dealers. For these purpose, dealers are classified into
two broad categories viz and others. The limit of turnover for different
type dealers are as follows:

Basic Turnover Limit

Turnover of
Sales or
Total Sales
Purchases of
Category of Dealer Turnover
Taxable
Exceeding
goods Not
Rs.
Less Than
Rs.
Importer 1,00,000 10,000
Others
(including
10,00,000 10000
Manufacture,
Reseller, Works
Contractors
SCOPE OF TURNOVER:

Total turnover of Rs. 1, 00,000 or Rs. 10, 00,000 is computed with

respect to sales only. Turnover of purchase is not relevant. The
limit has to exceed the benchmark of Rs. 1,00,000 or Rs. 10,00,000.
Therefore the limit for attracting of liability is Rs. 1,00,001 and
above for an importer or Rs. 10,00,001 and above for others . Total
turnover limit is calculated in respect of all the goods - tax-
free, taxable or outside the state.

Taxable turnover in both the cases is with reference to Sales

OR Purchase and NOT sales AND purchase. In other words it is
sufficient EITHER sales OR purchase of taxable goods is Rs.
10,000 or more. Turnover limit cannot be calculated by
aggregating Sales and Purchase both. Further this limit is to be
computed in respect of taxable goods only. Tax-free goods
and outside Maharashtra turnover are not relevant.

It is enough that a dealer is an importer. The amount of goods

imported in not relevant as there is no specified limit of import
turnover .Even an import of Re. 1 is sufficient to treat the dealer as
an importer and will be subject to turnover limit of Rs. 1,00,000

Turnover includes all the sales made by the dealer whether by

his own account or on behalf of his principal whether
disclosed or not.

In case of an agent of a non resident dealer the turnover will also

include the sales of non resident dealers effected in the state.
 The turnover limits have to be computed with reference to each
financial year separately.
ILLUSTRATION:

From the following information regarding the turnover of purchases and

sales transactions submitted by M/s King Enterprises, who was not liable
to be registered till 1st April, 2016, find out whether he is liable for
registration as per the provisions of MVAT Act, 2002.

Purchase Sale
s
Month Taxable Taxable s Tax Free
Goods Rs. Goods Goods
April 1000 Rs.
2000 Rs.
200000
May 2500 3000 250000
June 3500 4000 300000
July 4500 5000 110000

Solution:

Purchase Sale
Cum.
s
Taxabl s Total Cu Cum
Month Taxable Taxable Tax Free
e Sale m Taxabl
Purchas Goods Goods
Goods s Tota e
e Rs. Rs.
April Rs.
1000 1000 2000 200000 20200 l
202000 Sales
2000
May 2500 3500 3000 250000 0
25300 455000 5000
June 3500 7000 4000 600000 0
60400 105900 9000
July 4500 1150 5000 110000 0
11500 1174000 14000
0 0 0

Since, King Enterprises is not an importer he has to satisfy two conditions:

i. Taxable sales/purchases exceeds Rs. 10,000/-

ii. Sales Turnover exceeds Rs. 10,00,000/-

From the working tabulated above, we find that he has crossed the
turnover limit of Rs. 10,00,000 in June,2016 , but the second condition
was applicable in the month of July only. In July his turnover of purchase
as well as sales exceeded the limit of Rs.10,000.
He will be liable to registration in July, 2016, when he fulfills both
the conditions.
LEVY OF TAX
Under MVAT Act, 2002, sales tax is payable on all sale of goods effected
from the state, whether such goods are manufactured or resold or
imported from out of the State of Maharashtra or purchased from
registered or unregistered dealer. There is no concept of resale or
second sale under the MVAT Act, 2002.

Charging Provisions
Section 4, 5, 6 and 7 are charging Sections.

As per Section 5, no tax is to be levied on sale of goods covered

by Schedule A.
Section 6 provides for levy of tax on turnover of goods covered by
schedule B, C, D and E.
Section 7 specifies the rate of tax on packing material. Where
any goods are sold and such goods are packed in any material, then
the tax on such sale of packing material shall be at the same rate of
tax, if any, at which tax payable on the goods is so packed, whether
the packing material is charged separately or not.
Schedules and Rate of Tax
Rat
e Of
Schedules Items Covered Lev
Essential Commodities (Vegetable, y
Schedule A Nil
Eggs, Milk etc..)

Schedule B Gold, Silver, Precious Stones, Pearls 1%

etc.
Declared Goods and other specified
Schedule C 5.50%
goods (Raw Material, IT Products
etc...)
Foreign Liquor, Country Liquor,
Schedule D 20.00
Motor Spirits, etc. %
Schedule E All other goods (not covered by A to 12.50
D) %
COMPOSITION SCHEMES

In order to reduce the burden of maintaining detailed records by dealers

as well as restrict the number of dealers under VAT system of taxation,
the MVATA 2002 provides for a simplified system of accounting for VAT.
This is called the Composition Scheme.

APPLICABILITY:
The composition scheme is available to the following:

Retailers: -S42(1)/rule 85
Restaurants, eating house, refreshment room, boarding
establishment, factory canteen, clubs, hotels or caterers. Who serve
non-alcoholic-drinks and food This category upto four star hotels.
Bakeries
Dealers having principal business of Second-hand passenger motor
vehicles
Dealers engaged in work-contracts.
Decorators hiring Mandap or tarpaulin

DEALERS NOT ELIGIBLE:

The Scheme is not available to the following::

A Manufacturer or
An importer or
A reseller who purchases any goods from a registered dealer
exempted u/s 8(1) (High seas basis)
A dealer retail liquor including imported liquor or, Indian Made
Foreign Liquor or Country Liquor
Dealer engaged in inter state purchases and stock transfers
Dealers selling retail drugs as per entry C-29 ( valued at MRP)
 Dealers selling notified motor spirit
GENERAL CONDITIONS:
General features of the composition scheme are:

1. The Scheme will be available on making application in prescribed

form. New dealers should apply for composition at the time of
registration.
2. Dealer opting for composition is not eligible for any set-off or
refund except dealer in second hand motor vehicle..
3. The dealers cannot issue 'tax Invoice'. The claimant dealers shall
not be eligible to recover composition amount from any customer
separately. It can issue bill or cash memo, wherein tax cannot be
separately collected.
4. If the option to join the composition scheme is exercised, in any
year then it can be changed only at the beginning of the next
financial year
5. Dealer to opt for payment under composition, if he so desires
6. Existing dealers opting for composition to send intimation in the
relevant prescribed form appended to the Notification
7. No separate R.C. Number requited for composition dealers.
8. Amount of composition payable cannot be recovered separately.
Accordingly, composition dealers cannot issue tax invoice.
9. Single dealer eligible to claim composition under more than one
scheme or for a particular activity of the business
10. Composition dealers are not eligible for set-off on certain
class of purchases which are specifically excluded.

AMOUNT OF TAX:
Forms and tax payable are prescribed by the rules. However, Decorators
are required to pay tax @ 1.5% as per Section 42. Similarly, works
contract attract 8% tax on total value of contract Tax as reduced by the
value of sub-contract given. The tax rate is 5% in respect of works
contract for construction. For retailers the tax rate is 5% for others the tax
rate is 8% and for Second Hand Motor Car dealer the rate is 15%.
Hotels, restaurants and four star hotels tax rate is reduced from 8% to
5%.
SET OFF
set off is a credit allowed in respect of VAT already paid on the inputs to
avoid double taxation and cascading effect of the taxes on taxes. In other
words to take the credit of MVAT paid on purchase of materials. Any MVAT
pay on purchase of raw material shall be allowed SET OFF.

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 a

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)
 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.

Exports :
Exports are treated as zero-rated. Thus no tax is payable on export of
goods out of India. However full set off available of input tax paid on
purchases, from within the state of Maharashtra, used in such exports. As
there will be 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

14) may purchase such goods against Form H of CST Act, provided
all other conditions of Sec.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 a retention of 4%)
Illustration:-

In a Return period, M/s ABC Limited purchased goods from local suppliers
for Rs.500000/= and paid INPUT VAT for Rs.25000/=. They sold the goods
for Rs.600000/= within the same state and charged Rs.30000/= as
OUTPU VAT. They also sold the goods out of state for Rs.100000/= and
charged Central Sales Tax (CST)
@ 2% i.e. Rs.2000/=. Calculate the Tax Liability of the firm.

Solution:-

We shall calculate the sales tax liability of M/s ABC Limited as under:-

PARTICULARS AMOUNT(IN
RUPEES)

Input Vat on Local Purchases 25000/=

Add: Opening Balance of Tax Credit / Input Vat NIL

Total Input VAT 25000/=

Less: Output Vat on Local Sales 30000/=

Net amount of VAT to deposit with sale tax authorities 5000/=

Net CST to be deposited 2000/=

PAYMENT OF TAXES (RETURN):

Every dealer who is registered under VAT ACT and Central Sales
Tax Act is required to File VAT return and CST return in the
prescribed form.

Sr. No
Periodici Due Date for
ty Payment
1) Monthly 21st of the Next Month

2) Quarterly 21st of the Next Month

from End of Quarter.

3) Half 30th of the Next Month

yearly
from End of half year.

WHAT ARE THE PENALTIES UNDER MVAT ACT?

In MVAT Act , there is a penalty levied in the form of late fees for MVAT
Return and Interest is charged for late payment and these are as follow :-

Sr. Particul Amoun

No ar t
1) Late filing Fees Rs 1000 if Return is filed within
(Return is not filed within one month after due date
due date) otherwise Rs 5000.
2) Interest u/s 30(2) Late Payment interest rates
(Payment is not made slab wise viz for delay of
within due date) first month
@1.25% P.M, for Next two
Months
@1.5% P.M and thereafter
CONCLUSION:

State Government needs funds for the development of agriculture,

education, transport etc. these funds are raised through various taxes
such as Sales tax, tax on employment and so in. While Income tax is a
direct tax. Sales tax is an indirect tax. Sales tax is charged on goods and
hence indirectly recoverd from a person.

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.
BIBILOGRAPHY

www.mahavat.gov.in
www.caclubindia.com
www.investopedia.com
www.wikipedia.com
Indirect Taxes (Textbook)- CA (Dr.) Varsha M.
Ainapur