DVAT is a tax on sale of goods in Delhi. The tax levied under this mechanism is simpler, fairer and more transparent than the current sales tax.
It replaces four existing tax statutes: Delhi Sales Tax Act, 1975, Delhi Sales Tax on Works Contract Act, 1999, Delhi Tax on Entry of Motor Vehicles into Local Areas Act, 1994 and Right to Use Goods Act, 2002. The new Act is called the Delhi Value Added Tax Act, 2004.
It is a multi-stage tax chargeable at each stage of economic activity, e.g., manufacturing, and wholesale and retail distribution.
Under DVAT, a dealer (whether it is a manufacturer, wholesaler or retailer) charges tax on its sales. However, the dealer is allowed to claim a credit for the tax already paid on its purchases of business inputs, and is required to pay only the net amount to the government. This credit-offset mechanism ensures that the tax does not accumulate as goods pass from the manufacturer to wholesaler to retailer.
The net tax of a dealer is the difference between the total tax charged on its sales (referred to as its output tax) during a given tax period and the tax paid on its purchases (referred to as its input tax) during the period. If the output tax for the period exceeds the input tax, the difference is payable to the government. If the input tax exceeds the output tax, the dealer is entitled to a refund of the excess, or to carry forward the excess to be offset against tax payable in a future period.
Mechanism of DVAT
Taxable Sales times
Tax Rate equals Tax Charged on Sales = Output Tax minus Tax Paid on Purchases = Input Tax equals Net Tax
Tax Payable Refundable
Under this mechanism, the tax rolls forward at each intermediate transaction to the point of final sale to the consumer. When the article reaches the consumer, the total tax paid by all intermediate dealers equals the tax on the final sale price of the article.
The standard rate of DVAT is 12.5%. Other rates of 1%, 4% and 20% apply to certain specified goods, such as gold and silver articles, coarse grains, garments, and petroleum.
What Happens to CST?
DVAT does not replace the CST. All interstate transactions will still be governed by CST. However, you can offset your CST liability against input tax credits available under DVAT.
Who is Covered Under the DVAT System?
Dealers with total annual turnover exceeding Rs 5 lakh are required to register. However, dealers with annual turnover less than Rs 5 lakh may voluntarily get themselves registered. Additional classes of dealers who are required to be registered are described in a later section in this guide. Once you are registered, a Tax Identification Number (TIN) will be issued by us, which you should quote in all dealings with us to help us process your tax affairs correctly and promptly.
What Do You Need to Do Once Registered?
As a Registered Dealer, you:
Charge DVAT on your sales made in Delhi;
Claim tax credits on purchase of goods in Delhi;
Issue tax invoices to your customers;
Submit a return within 28 days from the end of your tax period accompanied by proof of payment of tax; and
Keep proper records such as tax invoices to support claims for input tax credits on purchases so that we can verify your liability.
How Are You Assessed?
DVAT relies on a system of self-assessment of tax liability by taxpayers. You self-assess the tax by determining the tax due on your sales and the credits you are entitled to claim on your purchases, and by filing a return (which is complete and correct) within the due date. If your tax credits in respect of your purchases exceed your DVAT liability, the excess credits can be applied against your CST liability. You will be entitled to a refund of any excess credits still remaining. The refund may be given to you within one month after the date of furnishing the return or making a claim by you.
Where you do not self-assess your tax or file a proper return within the due dates, the Commissioner will assess you for the particular tax period.
In case you do not agree with our assessment or any other order or decision, you have the right to make an objection or file an appeal.
Do You Still Need to Collect and Issue Declaration Forms Under DVAT Act?
Under the DVAT Act, you will neither be required to collect declaration forms for sales to your customers, nor to issue the same for purchases from your suppliers. The only document you will be required to issue to your customers for DVAT purposes is the tax invoice (and the credit and debit notes where there is an adjustment to a sale or the consideration for a sale). Please note that statutory declaration forms under the CST legislation, e.g., C form, and D form, will continue to be used as before.
Other Things You Should Know
The tax system relies on voluntary compliance and taxpayers who do not fulfill their tax obligations would be subject to penalties.
Interest and penalties apply when you underpay your taxes or submit a late return.
Each year, a selected of number of dealers will be audited by us to verify that the sales and purchases declared by them on their tax returns were correct, and that the taxes paid or refunds claimed were appropriate and supported by proper documents. Where any errors or deficiencies are uncovered, you can be reassessed by the Commissioner. Reassessments can be made up to four years after the return is filed or the assessment made, whichever is earlier.
Your records may be inspected by us any time to ensure that the returns furnished are correct.