“Big” change in “Small” retailers MVAT composition scheme from October

CA Umesh Sharma

Arjuna (Fictional Character): Krishna, what big changes has been made by Sales tax Department in Composition scheme for the small retail dealers?

Krishna (Fictional Character): Arjuna, MVAT Act, has given some options for retail dealers through Composition scheme from April 2005 for payment of VAT. Maharashtra Government has made changes in composition scheme through notification dated 21^st August which will be made applicable from 1^st October 2014. This scheme is beneficial for the dealers who finds difficult to maintain books of accounts for e. g. Grocery Shopkeepers, etc. However there are some conditions of the scheme also.

Arjuna: Krishna, what old Composition scheme consists of?

Krishna: Arjuna, under old Composition scheme dealer has to pay VAT on difference between sales and purchase value i.e. on Gross profit. If commodity having VAT rate of 12.5% is sold, then VAT @ 8% on difference between sales and purchases. Further if various commodity having VAT rate 0% to 5% is sold then VAT @ 5% on gross profit is required to be paid. Further there is a condition in this category commodities having VAT rate 12.5% if sold then their total value should be less than 50% of total sale value. E.g. if the dealer has purchased commodity having VAT rate 0 to 5% like pulses, wheat, rice etc. in grocery shop for 10 lakhs and sold for 12 lakhs then he has to pay VAT on 2 lakhs @ 5%.

Arjuna: Krishna, what this new composition scheme consists of?

Krishna: Arjuna, Sales department has simplified the new composition scheme, in this tax payer has to pay 1% on the total turnover of sales including tax free goods or 1.5% on the sales of taxable goods. That means one has to choose option from 1% or 1.5% of VAT rate. E.g. In first option, 1% rate is selected and if the total turnover is 30 lakhs which includes taxable goods of Rs. 25 lakhs and tax free goods of Rs. 5 lakhs, then he has to pay VAT @ 1% on total sales of 30 lakhs i.e. Rs. 30,000. If he chooses 2^nd option then he has to pay VAT @ rate 1.5% on taxable sales of 25 lakhs i.e. Rs. 37,500. It means it is beneficial to record Tax free and Taxable goods different or pay 1% VAT and get relaxation from maintaining books.

Arjuna: Krishna, what are the conditions of the new composition scheme?

Krishna: Arjuna, following are the conditions of the composition scheme:

1) The total turnover of sales of retail sellers should not exceed 50 lakhs in the previous year.

2) The claimant dealer should not be manufacturer or an importer. He should be retailers of goods.

3) The taxable goods sold are purchased from registered dealer. Purchases of taxable goods from unregistered dealer shall be allowed only if meant for packing of goods.

4) The selling dealer shall not collect VAT separately in respect of sales. And he is not eligible to issue “Tax Invoice” in respect of sales made.

5) The claimant dealer shall not be entitled to claim setoff of the purchases made.

Arjuna: Krishna, What dealer should do to avail new composition scheme?

Krishna: Arjuna, A dealer liable to file six monthly returns for the year 2014-15 or a dealer opted for the earlier composition scheme may enter into new scheme for the year 2014-15 by uploading Form 4A on or before 30th October 2014. The dealers who are liable to file monthly or quarterly returns for the year 2014-15 shall not be eligible to enter into the scheme in this year.

Arjuna: Krishna, what should new dealer do to get registered for the new scheme?

Krishna: Arjuna, newly registered dealer can opt for the scheme by filling Form 101. Those dealers who desire to opt out of the composition scheme shall intimate in Form 4B at the beginning of the year on or before the 30^th April. The dealer, who contravenes any of the conditions of this notification, shall ceases to be eligible for the benefits of the scheme.

Arjuna: Krishna, what small dealer should understand from this?

Krishna: Arjuna, in life during childhood there were less responsibility, likewise   for small dealers in this scheme there is lesser responsibility to maintain books. As men grow his responsibility increases, similarly in Businesses the responsibility of Law compliances increases for big dealers. However some small businessmen for evading taxes misuse these schemes that’s why government has to amend the schemes in order to garner higher tax collection.

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