LATEST AMENDMENT IN VAT – MP (VAT AMENDMENT ACT 2016)

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The Madhya Pradesh Government amended the VAT Act as announced in the MP BUDGET. The notification is published in the Gazette. Some of the important amendments are explained below. The dealers are advised to go through the changes made carefully and should make necessary updates in their business process.

 The Madhya Pradesh VAT (Amendment) Act, 2016 has been passed and made applicable with effect from 05.04.2016 

 Amendment in Provisions related to ITR on goods sold in interstate trade or commerce

 Before this notification and till 04th April 2016, Input Tax Return on purchase within State was fully allowed, even when such goods were sold in interstate trade or commerce. Now ITR shall be allowed on purchase of goods for interstate sales shall be minimum of CST collected on such sales or VAT on Purchase of such goods. Now those persons shall be affected, who were purchasing goods from Madhya Pradesh and selling them in the course of interstate trade or commerce. This amendment is not applicable on the manufacturers and applicable on all the goods specified in Schedule II except Part-III and III-A.

 Traders supplying goods in the course of interstate trade or commerce shall be affected and will have to increase the prices of the commodities so as to recover the loss of ITR. This may reduce demand from other states. Or traders may procure supplies from outside Madhya Pradesh to reduce the price hike due to loss of ITR specially on the goods having higher VAT Rate. Also, Customer may get shifted to direct manufacturers on whom this provision is not applicable.

 Example: Suppose any dealer who is into the trading of goods on which VAT Rate is 5%, he purchase the goods after paying 5% of VAT which is available for ITR. The dealer sold the goods on the same price in the course of interstate trade or commerce where CST 2% is applicable. Earlier, ITR was available 5% as against the liability of 2% means 3% ITR was available for refund. Now the ITR shall be available only 2% (minimum of VAT and CST) only and no refund shall be available.

 TDS on purchase made by Limited Companies, some government bodies, recognized educational institutions

 Before the amendment only Central Government, State Government and notified PSU were required to deduct Tax on source (TDS) on all purchase above Rs.5000/-. TDS need to be done at the time of credit or payment, whichever is earlier. Tax so deducted has to be deposited on or before 10th of next month vide Challan Form 27/ 27-A. With the new amendment, now the scope of this provision has been widened and applicable on all Public Limited Companies, All PSUs, Authority constituted under law relating to local authority including gram panchayat, janpad panchayat and zila panchayat, Authority constituted under any law in force for the time-being,  All dental colleges recognized by dental council of India and hospitals associated to such dental colleges, All medical colleges recognized by MCI and hospitals associated to such medical colleges, All recognized universities. Now all the above organizations have to deduct tax on all the purchases made by them from 05.04.2016 and have to deposit tax on 10th of next month irrespective of payment condition of purchase. With this amendment, all the vendors or dealers supplying goods to above organizations shall be affected.

 Now, the mentioned organizations shall have to deduct tax irrespective of the fact whether tax has been mentioned separately on the invoice or not. Tax will have to be deducted on invoices of registered or unregistered dealers. However, ITR will not be available on these invoices and separate challan has to be paid for each vendor and a return of TDS and its payment in Form 35 will have to be filed by the organizations annually.

With this amendment, huge credits of ITR will remain unutilized due to TDS as these organizations have to deduct tax and deposit it with the government on their purchases and huge credits of ITR will remain unutilized. Tax liability of the vendor/supplier will remain as such until he obtains and furnishes TDS certificate and challan to the department. Hence, vendors/suppliers will be at mercy of the organizations to deposit TDS on time and generate certificate on time. Separate Challan is required to deposit for each supplier result in huge numbers of challans.

 Before applying this amendment, Department of commercial tax Madhya Pradesh did not even think of the impact of such amendment except the huge revenue for the State Government. Like dealers supplying goods to above organizations, who are enjoying basic exemption of Rs.10 lacs shall also be affected. In addition to above, TDS on URD purchase will indirectly cause double-taxation as the same shall not be available for ITR.

 A provision of Section 27 provides an option to suppliers for obtaining and furnishing a certificate of lower deduction/NIL TDS from the officer not below the rank of Deputy Commissioner. However, application in Form 33 required for applying for above certificate, which need to modify suitably so as to include above organizations.

 While opposed by the various business associations, the state government is agreed to take back the above amendment with the same date of applicability but the notifications is not yet arrived.

 Faster Disposal of Applications for reopening of ex-parte assessment case

 Deadline fixed for sixty-days from the date of application has been prescribed for disposal of the applications for reopening of cases for which ex-parte assessments have been done.

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