VAT or CST

This query is : Resolved

Vijay D (Querist)
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22 October 2009

Can some one help me on this unique problem.....................

Mr A (Consignee) has placed an order to Mr B (Contractor) for supply of material. Mr B has placed order to Mr C (Sub-Contractor) for supply of some material required by Mr A. Again Mr. C has placed order to Mr D (Manufacturer)to supply same material to Mr A.

Now

Mr A is registered in MVAT

Mr B is registered in MVAT

Mr C is not registered in MVAT

Mr D is Registered in MVAT

Goods supplied by Mr D to Mr A is moving with in Maharashtara. LR is in the name of Mr A as consignee. But since there is no connection between manufacturer & consignee Mr D is raising his Invoice to Mr C charging CST because Mr C is not registered in MVAT.

Mr C is raising his Invoices to Mr B without any tax as rates are inclusive of all taxes as per Purchase Order of Mr B.

Now the question is whether Mr B has to charge VAT or CST in his Invoice to Mr A??

At present Mr B is raising his Invoice charging VAT based on LR. but he is not able take credit aginst this Out put VAT.

It is very confusing us. Can some one clarify how billing should be done????

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)
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22 October 2009 Please clarify first if the movements of goods are within Maharashtra ? If yes then

How D can charge CST judt because C is not registered under MVAT.

CST is to be charged only for selling outside of a particulat state.

Vijay D

Vijay D (Querist)
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23 October 2009
Dear Sir,

Thanks for the response. Here in this case I am in position of B. I am not in touch with D (manufacturer) & I am not worried about his billing.I just wanted to know that which tax I have to charge in my Invoice whether VAT or CST. At present I am charging VAT but since my order with consignee is Inclusive of all taxes I have to back calculate VAT amount from my Revenu Value & also I dont have any kind of Input credit against this Output because Mr C is not able to raise VAT Invoice as he is not registered in MVAT.So right now I am suffring dobule taxation on this transaction.

Kindly advise me Is there any way to avoid such double taxation impact.

Thanks in Advance

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SARATHY RP

SARATHY RP (Expert)
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23 October 2009 Dear Mr Vijay,

The movement of goods envisaged here is within MAH State from D to A. Hence, it is beyond doubt that it is an INTRA-STATE
Sale. No. CST is involved, as the movement of goods is within the State.

With regard to your second question, the answer is that if we have to avail set-off benefit of VAT suffered, we have to deal only with Registered Dealers.

Now that the contract has been entered into, one practical solution would be to ask D to supply the goods to B (you) under tax invoice at the price agreed between B and C. D can pass on the commission to C separately.

Thanks.
Sarathy

Vijay D

Vijay D (Querist)
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23 October 2009 Dear Sir,

Thanks for your valuable reply. Certain things are clear now for me.
1. In above case I can not avail Input credit in any circumstances because I am dealing with a party who is not registered in MVAT.
2.To avoid such double taxation impact I should ask my sub-contractor to arrange Invoice from the manufacturer so that I can avail VAT credit.

Sir If the situation will be as it is in future then Invoicing done by me charging VAT will be correct or any correction will be required in Invoicing.

Kindly confirm one more time.
Once again thanks for your kind guidence.

Regards

SARATHY RP

SARATHY RP (Expert)
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26 October 2009 Dear Mr vijay,

Purchases from ONLY a registered dealer is eligible for VAT input tax credit.

Unlike Excise Duty, you cannot take the input tax credit, based on the manufcturer's invoice (D) on a un-registered dealer (C).

Hope these two fundamendals are clear. That is why I have provided two options (a) either directly deal with a registered dealer under MVAT or (b) if there are no options as explained in your example, ask the manufacturer to directly invoice you under tax invoice. Let manufactuerer pay certain commission to middleman (i.e. C).

Finally, in any case, you have to charge your end-customer ONLY MVAT considering the characteristics of the transaction.

rgds

sarathy