17 January 2012

VAT Composition Scheme for Retailers under MVAT

Scheme for Retailers
Composition scheme under VAT regime can be said to be a simplified scheme for calculating, charging, collection and payment of sales/vat tax. The basic idea of introducing the scheme is to enable small business men in resale and retails business to carry business without maintaining detailed accounts, enabling easy calculation of tax payable by them. This saves them from rigors of regular scheme under MVAT law.
Section 42(1) of Maharashtra Value Added Tax Act, 2002 (MVAT, 2002)  empowers State Government to Notify Composition Scheme for dealers in State of Maharashtra who are engaged in business of resale and retail. State Government has notified Composition Scheme vide notification No. VAT-1505/CR-105/Taxation-1 dated 1st June 2005 and amended form time to time.     
Separate scheme have been notified in the above mentioned notification as applicable to:
  1. Restaurants, Eating House, Refreshment Room, Boarding Establishment, Factory Canteen, Clubs, Hotels and Caterers
  2. Retailers
  3. Dealers in Second-hand Motor Vehicles
Composition Scheme under section 42(1) shall not apply to a dealer
  1. who is a manufacturer or 
  2. who is an importer or
  3. who purchases any goods from a registered dealer whose sales of the said goods are not liable to tax by virtue of the provisions contained in sub-section (1) of section 8 or
  4. who sells at retail liquor including liquor imported from out of India, Indian Made Foreign Liquor or Country Liquor except as provided in sub-section (2)
Who is dealer engaged in Retailing ?
For the purpose of composition scheme for retailers, a dealer shall be considered to be engaged in the business of selling at retail if 9/10th of his turnover of sales consists of sales made to persons who are not dealers. In case of any question arises to determine whether any particular dealer is a retailer or not, then the question shall be referred to the Joint Commissioner, who shall after hearing the dealer, if necessary, decide the question. The order made by the Joint Commissioner shall be final.
What are class of sales and purchases which are eligible for enabling benefit under this scheme ?
The scheme shall be applicable to total turnover of sales made by a registered dealer, who is a retailer as provided in section 41 (and explained above), of any goods excluding the turnover of resales if any, effected by him, of the following goods:-
  1. Foreign liquor, as defined in rule 3(6)(1) of the Bombay Foreign Liquor Rules, 1953. 
  2. Country liquor, as defined in Maharashtra Country Liquor Rules, 1973. 
  3. Liquor imported from any place outside the territory of India as defined, from time to time, in rule 3(4) of the Maharashtra Foreign Liquor (Import and Export) Rules,1963. 
  4. Drugs covered by the entry 29 of the Schedule C appended to the Act. 
  5. Motor Spirits notified by the State Government under subsection (4) of section 41 of the Act.
Composition Amount (Tax payable)
The composition amount shall be, calculated on the,
  • Excess, if any, of the total turnover of sales, including turnover of sales of tax - free goods but excluding liquor, Drugs, and Motor Spirits referred above, in respect of any six monthly period 
  • over the turnover of purchases including turnover of purchases of tax free goods, but excluding liquor, Drugs, Motor Spirits referred to in column (3) of this entry , in respect of the said six month period.
  • The turnover of purchases shall be increased by the amount of tax collected by the vendor of the retailer separately from the retailer.
The Tax payable on amount so calculated above is
  • 1) at the rate of 5 per cent for the retailers whose aggregate of the turnover of sales of goods, covered by schedule A and goods taxable at the rate of 4 per cent., if any, is more than 50 per cent. of the total turnover of sales; excluding the turnovers of liquor, drugs and motor spirits referred to columns 3 of this entry 
  • 2) at the rate of 8 per cent. in any other case.
Conditions in which this scheme will be applicable to retailers
  1. The selling dealer does not collect tax separately in respect of the sales specified above. 
  2. The claimant dealer shall not be entitled to claim any set off under the Maharashtra Value Added Tax Rules, 2005, in respect of the purchases corresponding to any goods which are sold or resold or used in packing of such goods sold. 
  3. The turnover of sales of such goods does not exceeded rupees fifty lakh in the year previous to which the composition is availed of and if the dealer was not liable for registration, in the immediately preceding year, then he shall be entitled to claim the benefit of the scheme in respect of the first fifty lakh rupees of the total turnover of sales in the current year
  4. The turnover of purchases referred to above shall be reduced by the amount of every credit of any type received by the selling dealer from any of his vendors whether or not such credit is in respect of any goods purchased by the selling dealer from the said vendor.
  5. In respect of the six monthly period starting on the 1st April 2005, for calculating the excess, 5/6th of the turnover of sales of the six monthly period is to be considered instead of the entire turnover of sales for that period.
  6. The claimant dealer shall apply in the ‘Form-4’ appended to the notification for exercising the option to pay tax under the composition scheme. The application should be made to the assessing authority who was in charge of the case on the 31st March 2005 before the 15th June 2005 or as the case may be, to the registering authority at the time of application for Registration Certificate under the Act.
  7. Subject to condition (iii), if the option to join the composition scheme is exercised, in any year then it can be changed only at the beginning of the next year. 
  8. The claimant dealer shall not be eligible to recover composition amount from any customer separately. 
  9. The claimant dealer is not a manufacturer or importer. 
  10. The taxable goods resold are purchased from registered dealers. 
  11. Purchases of tax free goods may be from registered dealers as well as from unregistered dealers.
  12. Any other purchases from unregistered dealers are meant only for packing of goods resold.
See Terminology of terms used under MVAT Act, 2002 for meaning of resale, importer, manufacture, registered dealer, tax free goods,
Due dates for filing Vat Returns-Maharashtra.
Interest Payable by Dealer under MVAT Act and Rate of Interest
Composition Scheme for Work Contract In Maharashtra Value Added Tax 2002 (MVAT Act, 2002)