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Value Added Tax (VAT) in Maharashtra

The Value Added Tax System of taxation of sales of goods in Maharashtra is effective from 1st April, 2005. The following explains some of the basic issues:




This explains the treatment of closing stock as on 31st March, 2005.

1. Set-off of the tax paid on purchases in closing stock is available if goods in stock are resold after 1st April, 2005 upto 31st December, 2005.


2. (a) The dealers who wish to claim set-off on closing stock have to furnish statement of closing stock upto 30th April, 2005, whereas

    (b) Manufactures, Importers, Retailers under composition, Drugs and medicine dealers           related to schedule entry C-29 of VAT Act, 2002, need not furnish statement of            closing stock.


3. (a) Set-off will be available on purchases covered by Bombay Sales Tax Rules, 1959 applicable as on 31st March 2005;

    (b) In respect of purchases covered by any of the earlier laws other than Bombay                   Sales Act, 1959, set-off will be available of sum collected separately from claimant dealer.


4. Goods held as on 31.03.2005 by trade originally manufactured by an exempted unit under Package Scheme of Incentives are to be taxed on the margin of gross profit at the scheduled rate of tax in VAT.





1. Turnover limit of Rs.  50 lakh for retailers opting for composition. Note: The Maharashtra Government has moved the Empowered Committee of State Finance Ministers to all retailers.


2. Composition scheme is available to the dealer satisfying following criteria

    (a) Atleast 90%of sales are made to persons who are dealers. (i.e. consumers)

    (b) He should not be a manufacturer or importer.

    (c) He should not effect inter-state purchase after 1st April, 2005.

    (d) He should not be selling liquor.


3. Rate of Tax:

    (a) 8% on the difference of the total of all sales and of all purchases (including tax, if any) during the return period.

         (i) The selling dealer should not collect tax separately on sales.

         (ii) The selling dealer should not claim set-off

    (b) For the return period 1st April, 2005 to 30th September, 2006 the retailer should consider only 5/6thn of the turnover of sales instead of the total of all sales.


4. Other Facts:

     (a) Need not issue “tax invoice” – he should issue bill/cash memorandum.

     (b)Bill/ Cash memorandum should cont6ain the following particulars:

          (i) should be serially numbered;

          (ii) signed and dated;

          (iii) give full name and style of business;

          (iv) address of place of business;

          (v) number of his certificate of registration;

          (vi) particulars of goods sold (quantity/number etc.) and sale price thereof


     (c) Bill/cash memo must also contain the following certificate_

“I/we hereby certify that my/our registration certificate under the Maharahtra      Value Added Tax Act, 2002 is in force on the date on which sale of goods specified in this bill/cash memorandum is made by we/us, and that the transaction of sale covered by this bill/cash memorandum has been effected by me and it shall be accounted for in the turnover of sales while filing my returns”.





1. The registered dealer under VAT may issue tax invoice. If he issues tax invoice then only the purchasing dealer can claim set-off on his purchases.


2. The registered dealers opting for composition scheme need not issue tax invoice. He may issue bill or cash memorandum.


3. An unregistered dealer can not issue tax invoice.


4. The Tax invoice shall contain the following particulars on the original as well as on all copies thereof:-

     (i) The word “tax invoice” in bold letters at the top or at any prominent place. Rubber stamp may be used for this purpose (For old stationery)

     (ii) Certificate as below to be printed on invoice (Rubber stamp may be used for old stationery)

“I / We hereby certify that my / our registration certificate under the Maharashtra Value Added Tax Act, 2002 is in force on the date on which the sale of goods specified in this “tax invoice” is made by me / us and that the transaction of sale covered by this “tax invoice” has been effected by me / us and it shall be accounted for in the turnover of sales while filing of return and the due tax, if any, payable on the sale has been paid or shall be paid”.

     (iii) The name, address and registration certificate number of the selling dealer.

     (iv) An individualised serialised number and date on which the tax invoice is issued.

     (v) Description of the goods, the quantity or as the case may be, number and price of goods sold.

     (vi) The rate of tax and amount of tax charged thereon must be indicated separately; and

     (vii) Signed by the selling dealer or by a duly authorised person.

     (viii) Other norms are similar to the requirements of the earlier Bombay Sales Tax, 1959 (now repealed)


N.B. There is no prescribed format in which the tax invoice is to be raised. The registered dealer may use a format suitable to his business needs.





1. Full set-off is available to the dealers on purchase effected on “tax invoice” –where VAT is separately on or after 1st April, 2005.


2. Set-off is also available on manufacturing of tax free goods and branch transfers outside the State but only in excess of 4%.


3. Set-off is available for dealers under Works Contract under normal VAT rules and norms as well as under the composition scheme.


4. Set-off available for FL-II Liquor retail shops on similar pattern as existed under BST Rules, 1959.


Dealers in second hand passenger cars subjected to a 4% VAT but entitled to set-off of the taxes paid to their vendor on purchases made for reconditioning the car.





I.       Who needs a new Registration ?

1. All existing dealers registered  under Bombay Sales Tax Act, 1959 (BST) whose turnover in F.Y.2004-2005 e4xceeds Rs. Five lakh need not apply for new certificate or new number. The old number under BST will continue.

2. Dealers who are not registered under BST but are registered under any other earlier (repealed) Acts, have to apply for new R.C. Number.

3. Voluntary registration is available without any deposit amount.

4. For Voluntary registration, Income Tax PAN and introduction by another registered dealer or Tax Consultant is required.


II Books of Accounts: Quite simple, only an additional column of VAT tax paid on purchases and for VAT levied on sales are to be added in the purchase and sale register respectively. Other books of accounts remain the same.


III Periodicity of Returns: Made much fewer. New norms are as follows:-

(i)   Tax liability in 2004-05 more than Rs. 1 Lakh                 - Monthly

(ii)  Tax liability in 2004-05 between Rs. 12000 to 1 Lakh    - Quarterly

(iii) Tax liability in 2004-05 below Rs. 12000                        - Six monthly

       Retailers under composition                                             - Six monthly

Inter-division transfers can't be sales: ICAI

7th April 2005: Companies should not report inter-divisional transfers as sales in their accounting books, says the Institute of Chartered Accountants of India (ICAI). It has made an announcement regarding the recognition of revenue that will change the way several companies report financial figures. Many companies show a gross figure as sales, which include inter-divisional transfers. But now, the ICAI says such transfers should not be accounted for as sales since this is inconsistent with the existing regulations, known as Accounting Standard 9, on revenue recognition. Companies that were reporting inter-divisional transfers as sales will now have to reduce their sales to that extent, but profits will not be affected by this move. Accounting Standard 9 deals with revenue recognition and is mandatory. So auditors will have to ensure that the standard is followed.

The announcement dated April 2, ’05 says, “In case of inter-divisional transfers, risks and rewards remain within the enterprise and also, there is no consideration from the point of view of the enterprise as a whole; the recognition criteria for revenue recognition are also not fulfilled in respect of inter-divisional transfers.” Reporting inter-divisional transfers separately is common in many companies, where the output of one division is the input for another. There are various ways of showing the net impact — this can either be done at cost or at the prevailing market price. It does not affect profits in any manner, as both sales and raw material costs are inflated on par.

But what it does is inflate sales. In reality, the division has not actually sold these goods and, hence, will not receive any monetary consideration from an outside party. For example, a company’s total sales may be Rs 200 crore, including Rs 50 crore as inter-divisional sales. At present, if inter-divisional transfers are to be included in sales, then it must be mentioned separately in the accounts. According to the new rule, the sales in the above said case will have to be shown as Rs 150 crore. Some of the well-known companies that have large inter-divisional transfers are Reliance Industries, IPCL, Indian Oil, Ispat Industries, Nirma, Neyveli Lignite, Sterlite, SAIL, Gail and HPCL, among others. These companies may not be accounting for it in the same manner, but the end-result is the same.

Bharat Forge plans $300mn GDRs/FCCBs

31st March 2005: The members of Bharat Forge, at the extra ordinary general meeting (EGM) of the company held on March 30, 2005, appointed committee of directors for the purpose of GDRs/ FCCBs issues. According to a release issued by Bharat Forge to the BSE, the committee of directors, at its meeting held on March 31, 2005, have proposed to raise $300 million through the issue of Global Depository Receipts (GDRs) and/or Foreign Currency Convertible Bonds (FCCBs), subject to market conditions.

Bank of Maharashtra, Dena Bank rush to bond mart for Tier II capital

30th March 2005: Public sector Bank of Maharashtra (BoM) and Dena Bank have rushed to the bond market to shore up their Tier II capital before the financial year ends on Thursday. Mumbai-based Dena Bank whose capital adequacy ratio (CAR) was just above 10% as on December 31, 2004 has entered the market on Tuesday with an Rs 225-crore issue, which includes a greenshoe option of Rs 100 crore. It had last tapped the bond market in March 2004 for Rs 150 crore. Pune-based BoM is already in the market since March 24 with an Rs 200-crore issue, merchant bankers pointed out.

The Dena Bank issue with 109 months maturity carries an annual coupon of 7.3%. The BoM issue with 63 months carries a coupon of 7.1%. Merchant bankers expect both the issues to sail through smoothly. According to MV Nair, executive director, Dena Bank: “This forms part of our plan to enhance the capital level during this fiscal. CAR should now be in the range of 11% to 12%.” In January, the bank had tapped the equity market to raise Tier I capital by Rs 216 crore.

Punjab National Bank, Allahabad Bank in 60:40 JV

28th March 2005: Punjab National Bank and Allahabad Bank plan a 60:40 joint venture in Kazakhstan at an initial investment of Rs 100 crore in the next two months. PNB and Allahabad Bank have already got the Reserve Bank's nod to float a subsidiary in Kazakhstan and will now need an approval from monetary authorities there, Allahabad Bank chairman O N Singh said. "It will take another two months to start a subsidiary in Kazakhstan," he said. PNB already has a representative office in the Central Asian nation, which is slated to witness high growth on the back of oil and steel sectors.

Allahabad Bank has also applied to the RBI to set up a branch in Hong Kong and representative offices in China, Singh said. At home, the bank is planning to revive its subsidiary Allbank Finance and convert it into a merchant-banking arm. It has surrendered non-banking finance company license of Allbank Finance to the RBI. Allbank Finance has a capital base of Rs 60 crore. Though the RBI had asked Allahabad Bank to liquidate the NBFC arm, the Kolkata-based bank wants to convert it to a merchant banker, he said. Allahabad Bank is also going for a major revamp process and has engaged global consultants Ernst & Young to assist it to transform into a tech-savvy bank within the next two years. "We have earmarked Rs 300 crore investment for IT upgradation," Singh said.

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