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VAT regime — Input tax on goods sold via inter-State trade refundable

K.R. Srivats

New Delhi , Dec. 2

TAX on inputs used to produce goods sold through inter-State trade would be refundable in the proposed value added tax (VAT) regime to the extent that the input tax exceeds the output tax (4 per cent central sales tax).

"The refund would have to be given by the exporting State if inputs are sourced within the State," sources in the Empowered Committee of State Finance Ministers on VAT told Business Line here.

A similar dispensation is unlikely to be granted in the case of branch transfers between States as such transfers are not tantamount to a sale.

States are working towards a VAT regime that would replace sales tax from April 1, 2005.

Meanwhile, the State Governments are pinning their hopes on the proposed National Tax Information Exchange System (TINXSYS) for tracking inter-State transactions in the proposed VAT regime, especially when the 4 per cent CST is phased out.

As of now, the Centre and the States have agreed that the four per cent CST would continue in the first year of VAT implementation (2005-06), but would be eventually phased out in a timeframe to be decided by the Empowered Committee of State Finance Ministers on VAT.

"It is not a happy situation to have CST in VAT regime. But there are certain issues that are forcing us to have CST. The proposed tax information system is expected to help track inter-State transactions even in situation where the CST has been phased out," sources said.

A consortium led by ICICI Infotech is currently implementing TINXSYS on a build, own, operate and transfer (BOOT) basis.

The TINXSYS project would primarily facilitate information exchange between sales tax departments across the country and establish a database for all inter-State transactions.

It would also provide a platform for dealers to verify the validity of registration numbers of counter-party dealers.

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