Tax World

VAT AMENDMENT 2010- KARNATAKA
By CA. Sanjay M. Dhariwal

After the State budget proposal was made by the Finance Minister, it has been approved by the majority of the members of State legislature and after approval; the bill was passed which was incorporated in the Act. Many of the amendments in the Act have retrospective and prospective effect. We discuss in our article about the amendments in the VAT law effective from 1.4.2010 like increase in tax rates, Change in Turnover limit for registration, Audit and Composition dealer, introducing Advance Ruling Authority, etc. in Karnataka.

A. NOTEWOR THY AMENDMENTS IN KVAT

I) INCREASE IN TAX RATES: (Section 4)

VAT Rate 4%: The Third Schedule of the KVAT law consists of the taxable goods and declared goods liable to tax at 4%. The rate of tax on all taxable goods has been increased to 5%. The rate of tax at 4% remained alike for declared goods to maintain the tax world restrictions imposed by the Parliament under sections 14 and 15 of the CST Act. Even the Sixth Schedule which specifies the rate of tax for works contract has been increased from 4% to 5% respectively.

VAT Rate at 12.5%: As per section 4 of the KVAT Act, if the goods do not fall in any of the schedules then they are liable to tax at Revenue neutral rate (RNR) i.e. at 12.5%. Thereafter RNR is increased at 13.5%. Even the Sixth Schedule which specifies the rate of tax for works contract has been increased from 12.5% to 13.5% respectively.

VAT Rate at 15%: In the existing law the tobacco products were liable to tax at 12.5% and there is increase in the VAT Rate for such taxable goods like cigarettes, cigars, gutkha and other manufactured tobacco to 15%. The dealer dealing in such goods shall be liable to pay tax on MRP basis for the consideration exceeding Rs. 500/- otherwise it can be paid on actual selling price. However dealer dealing in unmanufactured tobacco are exempted from VAT vide Notification.

II) DECREASE IN TAX RATES

Vide Notifications there is decrease in the tax rates from 12.5% to 5% for the commodities like Masala Powder Mixtures, Macaroni, Sports Trophies, Shields and Medals, all kinds of scrap and waste materials, electric generators of less than 15 KVA, railway concrete sleepers, school bags costing up to Rs. 200/- only.

III) INCREASE IN TURNOVER LIMIT Registration (Section 22):

Registration (Section 22): Every dealer whose taxable turnover exceeds two lakh is required to be registered under the Karnataka Value Added Tax law. Thereafter vide amendment the registration limit has been increased from two lakh to five lakh. Even the limit for monthly turnover has been increased from fifteen thousand to forty thousand respectively.

Composition dealer (Section 15): The KVAT law recognizes four types of dealers to opt for composition scheme. The first kind of dealer is one whose total turnover in a year does not exceed fifteen lakh or any amount as may be notified.

Thereafter vide amendment there is an increase in the maximum annual turnover limit from fifteen lakh to twenty five lakh.

KVAT Audit Turnover (Section 31): As per the earlier law every registered dealer whose total turnover exceeded above forty lakh has to get their accounts audited by chartered accountant, cost accountant or tax practitioner as the case may be.

Thereafter vide amendment the total turnover limit of forty lakh has been increased to sixty lakh in compliance with Income tax audit as made in Union budget.

TDS Turnover (Section 18): Under the KVAT law, all the factories, Industrial concerns and other establishments in which canteens facility is run by other dealer should deduct the TDS on the amount payable for supply of food and drinks where the total sale price exceeds rupees two lakh per annum.

Thereafter vide amendment there is an increase in turnover limit from two lakh to five lakh to be in compliance with registration limit.

IV) ADVANCE RULING AUTHORITY (SECTION 60)

In the KVAT regime for the financial years 2005-06 and 2006-07, there was an Advance Ruling Authority formed for clarifying the issues with respect to rate of tax. Vide Amendment the Advance Ruling Mechanism has been reintroduced for dealers to seek clarifications in the areas of rate of tax on goods, exigibility to tax of any transactions or eligibility of deduction of input tax or liability of deduction of tax at source under the Act, or other area if specified by the Commissioner. The order of such authority shall be binding only on the applicant, Appellate Tribunal and departmental officers.

B. LATEST NOTIFICATION SPECIAL ECONOMIC ZONE UNITS AND DEVELOPERS

Vide Notification (No. KSA CR 165/09-10 dated 22-2-2010), the Special Economic Zone units and developers should deduct the tax at source (TDS) under section 18-A of the KVAT Act. The above notification is effective from 1-3-2010. The above notification state that a dealer registered under the KVAT Act and who is a developer of any Special Economic Zone or a unit located in any Special Economic Zone in the state shall deduct the tax at source as specified under the said section in respect of goods purchased by him from another dealer registered under the said Act and on which he is liable for refund or deduction of tax paid under sub-section (2) of section 20 of the said Act.

Section 20(2) states that tax paid under this Act on purchase of inputs by a registered dealer who is developer of any Special Economic Zone or an unit located in any special economic zone or an unit located in any Special Economic Zone established under authorization by the authorities specified by the Central Government in this behalf, shall be refunded or deducted from the output tax payable by such dealer subject to such conditions and in the manner as may be specified.

The TDS have to be deducted by the developer or unit of SE Z on all the purchases made with effect from 1-3-2010 at the rate applicable under the KVAT Act. Thereafter such SEZ or unit of SEZ can avail the input tax credit or refund of the TDS paid to the department. The Notification is issued for developer of any SEZ or a unit located in any SEZ and they should deduct the TDS at the applicable rate under the KVAT law on all the goods purchased by them. Such dealer should deduct the TDS and should pay to the department within twenty days from the end of the month in Form VAT 127 and the Department will issue the certificate in Form VAT 161 accordingly. After payment of TDS they can adjust the TDS amount as input tax credit against the output tax payable or they can claim the refund of the same if there is no output tax payable.