The Hindu Business Line : `Transition to VAT will be smooth'

With the countdown to VAT (value-added tax) in Tamil Nadu entering its last week, we already have the draft rules out on the Department's site (www.tnsalestax.gov.in) . You may remember that the State Assembly passed the VAT Bill earlier this month. What are the issues that need ironing out, even as we ready to join the VAT club? To know the answers, Business Line contacted Mr S. Narayanan, a chartered accountant with more than two decades of practice to his credit, and currently Managing Partner of K.S. Aiyar & Co, Chennai.

We have been hearing that many dealers would be exempt from the registration requirement. A matter of comfort for the trade, isn't it?

Yes, and the condition for exemption from registration requirement is that either the sales must be lower than Rs 5 lakh, or sales together with purchases do not exceed Rs 10 lakh. However, the Act has not defined whether purchases refer to purchases under Section 12 of the Tamil Nadu VAT Act (i.e., purchases liable to tax), or whether the reference is to total purchases made by the dealer.

Does it matter that the Act gets going midway during the fiscal?

Important, because we need to measure the turnover to decide whether a dealer is entitled to pay tax under a compound rate (i.e., flat tax on turnover). Since VAT will be implemented midway during the fiscal, with effect from January 1, 2007, the question that arises is whether turnover from April to December 2006 should also be considered.

Is there harmony with the CST (Central Sales Tax) Act?

Section 19(2)(v) of the Tamil Nadu VAT Act states that input tax credit can be availed of in respect of sale made in course of interstate sale or commerce. Tax for such transaction is collected under the CST Act, 1956 and not under the VAT Act. Hence, if set-off is to be allowed, corresponding amendment needs to be made in the CST Act too.

Do you foresee any instance of added burden for dealers, in the new system?

One such instance is that of input tax credit on inventory as on January 1, 2007. Assessing Officer can pass an order after going through the records. And, the assessee can use up the input tax credit within 6 months from the date of order, on equal monthly instalments. This can cause hardship to dealers who need to maintain huge stock and cannot dispose of the same within 6 months.

Will the transition from the existing regime be smooth?

Generally, yes. Transition to VAT will be smooth. As a facilitating measure, though, the status of notifications issued under the Sales Tax Act needs to be clarified - as to whether those notifications still hold good under the VAT regime.

Any examples?

For instance, one earlier notification states that sales made to developer of a special economic zone (SEZ) are exempt. But, provisions of VAT are silent on such sales. If the same are exempt should they be considered as zero-rated sale or exempt? This point crops up since sales made to dealers situated in SEZ have been considered, and not sales made to developer of SEZ.

More Stories on : Interview | Taxation | Tamil Nadu

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page