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VAT - Commentary
June, 21st 2006


by K K Gupta





The Delhi Value Added Tax (hereinafter referred to as 'VAT') comes into effect from 1st April 2005, which replaces sales tax structure prevalent in Delhi. The VAT intends to harmonise tax structure of various States and rationalise the overall tax burden. The essence of VAT is that it provides credit/ set-off for input tax, i.e. tax paid on purchases, against the output tax, i.e. tax payable on sales.




2.1 Value Added Tax (VAT) -: VAT is a multi-point tax on value addition which is collected at different stages of sale with a provision for set-off for tax paid at the previous stage/tax paid on inputs.

2.2 Sale -: Sale includes:-

a. The conventional sale i.e. Transfer of property in goods;
b. Supply of goods by a society, club, firm, and company to its members;
c. Transfer of property in goods involved in execution of works contract;
d. Delivery of any goods on hire purchase or any other system of payment by instalments;
e. Transfer of right to use any goods, whether or not for a specified period; and
f. Supply of good or other articles by the restaurants, hotels etc., by way of or as a part of service.

2.3 Dealer -:'Dealer' means any person who carries on business in Delhi and includes-


any person who, for the purposes of or in connection with or incidental to or in the course of his business buys, sells, goods directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration;


any department of the Central Government or a State Government, a local authority, Panchayat, Municipality, Development Authority, Cantonment Board and each autonomous or statutory body or an industrial, commercial, banking, insurance or trading undertaking whether or not of the Central Government or any of the State Governments or of a local authority, if it buys, sells, supplies or distributes goods, in the course of specified activities which may be prescribed from time to time;


a factor, commission agent, broker, del credere agent, or any other mercantile agent by whatever name called, who carries on the business of buying, selling , supplying or distributing goods on behalf of any principal, whether disclosed or not;


an agent of a non-resident (where such non-resident is a dealer under any other sub-clause of this definition);


a local branch of a firm or company or association of persons, outside Delhi where such firm, company, association of persons is a dealer under any other sub-clause of this definition;


a club, association, society, trust, or cooperative society, whether incorporated or unincorporated, which buys goods from or sells goods to its members for price, fee or subscription, whether or not in the course of business;


an auctioneer, who sells or auctions goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;


a casual trader; or


any person who, for the purposes of or in connection with or incidental to or in the course of his business disposes of any goods as unclaimed or confiscated, or unserviceable or scrap, surplus, old, obsolete or as discarded material or waste products by way of sale;








Input Tax Credit will be available to registered dealer. in respect of Tax paid goods lying in stock at the inception of VAT Act from 1st April 2005.


3.1       Opening Stock NOT ELIGIBLE for Input Tax Credit

      Capital Goods

      Finished Goods

      Closing Stock that was purchased without payment of Tax under the Delhi Sales Tax Act e.g. stock taxable at last point.

      Stock purchased from outside Delhi or imported.

      Stock not held in Delhi as on 1st April 2005.

      Stock for which no sales invoice is available in original.

      Stocks purchased from unregistered dealers.

      Stock of first point goods purchased against ST-35/ 35-1 forms.

      Work in Progress


3.2       Opening Stock ELIGIBLE for Input Tax Credit

      Trading Stock

      Raw Materials

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