Records and Accounting under VAT


By

Dr. Ratish Kakkad
Faculty Member
R.K. College of Business Management
Kasturbadham, Rajkot-360 020
 


RECORDS AND ACCOUNTING UNDER MVAT

MEANING

V
AT 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.

Under the VAT Act there is only one levy of sales tax. It means there is no provision to levy Purchase tax, Resale tax, Surcharge and Turnover tax. It repeals The Bombay Sales Tax Act , The Maharashtra  Sales Tax on Works Contract Act,  The Maharashtra Sales TAX  on Transfer to Right to use Goods Act and The Bombay Sales of Motors Spirit Taxation Act.

RECORDS AND ACCOUNTING UNDER MVAT

MANDATORY RECORDS

Maintenance of records
: Sec 63 of the ACT provides for maintenance of true accounts of the value of goods sold or purchased by a dealer liable to pay tax under the Act. No list of books is prescribed. So the trader
must keep sufficient records:

* to ensure that VAT liability can be readily assessed,
* in support of any tax credit that may be claimed.

The dealer is required to maintained following mandatory records/ MIS Reports through ERP at it's principal place of business under VAT law:

a)  Purchase record showing details of purchases on which Tax has been paid, purchase made without payment of tax, purchases from exempted unit and purchase made from outside the state. Original tax invoice for purchases on which tax has been paid and invoices for purchases made without payment of tax shall be preserved date wise and in numerical order;

b)  Sales record showing separately sales made at different tax rates, zero-rated taxable sales and tax-free sales. Copies of tax invoices related to taxable sales and invoices related to exempt sales shall be retained date wise and in numerical order;

c)  Record of inter-state sales and inter-state stock transfer or transfer to job worker / loan licensee/ contract manufacturer supported by statutory declaration and such other evidences as may be relevant;

d)  A monthly account specifying total output tax, total input tax and net tax payable or excess tax credit due for carry forward;

e)  Details of input tax calculation;

f)  Stock record showing stock receipt and deliveries and manufacturing records;

g)  Stock record showing separately the particulars of goods stored in cold     storage, warehouse, godown or any other place taken on rent;

h)  Annual accounts including trading profit & loss account and the balance sheet;

i)  Bank records including statement, cheque book counter foils and pay-in slips;

j)  Cash book, daybook and ledger;

k)  Copy of all challans, evidencing payment of tax, interest or any other amount due;

ACCOUNTING:

For VAT purposes, the dealer must record its turnover of purchases and sales in the accounts maintained by it. These accounts should:

* Be regularly and systematically prepared and maintained;
* Give a true and fair view of its dealings; and
* Be used by the dealer for determining its turnover of the business for commercial or income tax purposes.

The accounts will normally be prepared on the accrual basis i.e. the dealer must account for VAT in the period in which the consideration for the sale/ purchase is receivable/ payable (and not as money is received or paid). In accrual system sales are accounted for when the invoice is issued.

Accounting Entries :

A) For Input Tax Credit on Opening Stock :

The Accounting Entry to be passed for recording the Input Tax Credit is -:

Input Tax Credit A/c                 Dr.
Opening Stock A/c                   Cr.

B) For Purchases :

Nature of Transaction

Entry in Existing System

Entry under VAT System

Purchase of Capital Goods

Stock–MachineryA/c      Dr.
Excise Duty A/c            Dr.
Creditors A/c               Cr.

Excise Duty A/c             Dr.
Stock–Machinery A/c      Dr.
Input Tax Credit A/c      Dr.
Creditors A/c                 Cr.

Packing Material Purchase

Packing Material          Dr.
Excise Duty A/c            Dr.
Creditors A/c               Cr.

Excise Duty A/c              Dr.
Packing Material            Dr.
Input Tax Credit A/c       Dr.
Creditors A/c                 Cr.

Dies & Punches

Stock–Die & Punch        Dr.
Excise Duty A/c             Dr.
Creditors A/c                Cr.

Excise Duty A/c              Dr.
Stock – Die and Punch    Dr.
Input Tax Credit A/c       Dr.
Creditors A/c                 Cr.

Consumables Purchase

Stock-Consumable Stores  Dr.
Excise Duty A/c                 Dr.
Creditors A/c                    Cr.

Excise Duty A/c                  Dr.
Stock- Consumable Stores  Dr.
Input Tax Credit A/c           Dr.
Creditors A/c                     Cr.

Raw Material Purchase

Excise Duty A/c                Dr.
Raw Material                    Dr.
Creditors A/c                    Cr.

Creditors A/c                     Cr.
Excise Duty A/c                  Dr.
Raw Material                      Dr.
Input Tax Credit A/c           Dr.


C) i)   For Input transferred to other manufacturing unit outside the state :

Stock in Transit A/c                 Dr.
Raw Material A/c                     Cr.
Input Tax Credit A/c                Cr.
Excise Duty A/c                       Cr.

ii) For Finished Goods received from manufacturing unit outside State produced from taxable input transferred from State :

Input Tax Credit A/c                Dr.
Finished Goods A/c                  Dr.
Stock in transit A/c                 Cr.

D) For Transfer of Raw Material to Loan Licensee :

Nature of Transaction

Entry in Existing System

Entry under VAT System

Raw Material Stock Transfer

Cenvat in Transit A/c      Dr.
Stock in Transit A/c        Dr.
Excise Duty A/c              Cr.
Material Issue A/c           Cr.

Cenvat in Transit A/c      Dr.
Stock in Transit A/c        Dr.
Excise Duty A/c             Cr.
Material Issue A/c          Cr.
Input Tax Credit A/c       Cr.


E) For Bad Debts :

Nature of Transaction

Entry in Existing System

Entry under VAT System

Bad Debts written off

Bad Debts A/c                 Dr.
Sundry Debtors A/c          Cr.

Bad Debts A/c                      Dr.
Output Tax A/c                    Dr.
Sundry Debtors A/c              Cr.


F) For Tax Payment :

1) Entry for Input Tax Credit available for adjustment from Output Tax

Local Sales Tax Payable A/c                            Dr.
Central Sales Tax Payable A/c                         Dr.
Input Tax Credit A/c                                      Cr.

The Input Tax credit available will be first adjusted towards Local Sales Tax payable and the balance available, if any, will be adjusted towards Central Sales tax Payable.

2) Entry for Input Tax Credit not available

Purchase A/c                                                   Dr.
Input Tax Credit A/c                                         Cr.

CONCLUSIONS

At present majority of states in India has implemented VAT  where the remaining are in lines. As the VAT has the social and economical impact it has become pertinent to know all the pros and cons of the implementation of VAT system, especially the records to be maintained under the system and its accounting procedures so that not only the implementation of the system becomes smoother but it will also receive whole hearted approval of public, statutory authorities and will generate tremendous confidence among the business entities.

REFERENCES:

* MVAT Act and Rules.
* Journal and periodicals
*
Websites:
   www.icai.org
   www.expresspharmapulse.com
   www.personal.psu.edu
   www.crn-india.com
 


Dr. Ratish Kakkad
Faculty Member
R.K. College of Business Management
Kasturbadham, Rajkot-360 020
 

Source: E-mail September 4, 2006

     

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