19 December 2016
Dear Sir, In case of pharmaceutical company, I came across a invoice in which sale price as well as MRP both are disclosed. Sale price is lower than the MRP as per invoice. But VAT is calculated on MRP value and not sale value after deducting discount. Is the process followed is correct ? According to me, it should be charged on the Net Sale Value and not MRP. Kindly guide me regarding the same.
19 December 2016
Normally in pharmaceutical company medicines are sold by distributor or manufacturer discharge Vat on MRP Not on the value of goods sold.
Dealer get vat on MRP value as Input even though they paid. So they have to discharge Vat for full value of MRP even they give cash discount discount to be deducted on MRP value not on Net price.
19 December 2016
Thanks for the response. So, even if he will pay less amount to the dealer or the seller, he will pay VAT on MRP only, in case of pharmaceutical company, correct ? Also, the calculation of VAT will be done on reverse basis, as MRP is inclusive of all taxes and It is maximum retail price. Am I correct ?
20 December 2016
So, if the company is selling the goods to customer than VAT will be charged on discounted price. And in the case of selling of goods to a dealer, than VAT will be charged on MRP and not discounted price. Am I going correct ?
20 December 2016
No, seller has to discharge Vat on MRP, since he get input on MRP not On discount price, same not apply to cosmetic, cosmetics items vat will be discharge on actual price.
09 August 2024
In the context of VAT (Value Added Tax) for a pharmaceutical company or any other business, VAT should generally be charged based on the **net sale value** of the goods, not the Maximum Retail Price (MRP). Here’s a detailed explanation:
### VAT Calculation Basis
1. **Net Sale Value vs. MRP:** - **Net Sale Value:** VAT should be calculated on the actual sale price after deducting any discounts offered. This is the amount the customer actually pays. - **MRP (Maximum Retail Price):** MRP is the highest price at which a product can be sold to consumers and is typically used for consumer protection. VAT should not be calculated on MRP unless it is the actual price charged to the customer.
2. **Standard Practice:** - **VAT on Sale Price:** Most VAT regulations require that VAT be computed on the sale price of the goods, which is the price at which the goods are sold after discounts. This reflects the actual transaction amount. - **VAT on MRP:** Charging VAT on MRP would be incorrect if the MRP is higher than the sale price because it does not reflect the actual amount received from the customer.
### Specific Considerations:
- **Invoice Details:** If your invoice shows both sale price and MRP, VAT should be calculated based on the sale price. The MRP is usually not relevant for VAT purposes unless it directly represents the actual price charged. - **Discounts and VAT:** Discounts should be subtracted from the sale price before calculating VAT. VAT should be calculated on the reduced sale price, which is the amount after discounts.
### Compliance Check:
- **Local VAT Laws:** Different jurisdictions may have specific rules or practices regarding VAT calculation, so it’s essential to consult local VAT regulations. Generally, the practice of charging VAT on the sale price after discount aligns with most VAT systems. - **Tax Advisory:** If there’s uncertainty or if local tax authorities have specific guidelines, consulting a tax advisor or accountant would be beneficial.
### Summary:
- **VAT should be calculated on the net sale value** of the goods, not the MRP. - **MRP** is usually not used for VAT calculations unless it reflects the actual transaction value. - Ensure compliance with local VAT regulations and seek professional advice if necessary.
This approach ensures that VAT is accurately reflective of the actual transaction amount and aligns with standard VAT practices.
CAclubindia
