Purchase from unregistered dealer, VAT + CST

[guna ch]

Dear sir/s

Could you please advice me , if the goods are purchsed from unregistered dealer ,does the buyer has to pay the VAT if he is a registered dealer. if he should pay how this amount should be treated either inputVAT or OutputVAT, Can we adjust before paying the amount .

Kindly suggest me what are the provisons IF GOODS ARE PURCHASED FROM UNREGISTERED DEALER

Posts / Replies

[Pradeep Khatri]

If goods are purchased from unregistered dealer then no tax is payable if such goods are used in manufacture of goods or sold as such on payment of applicable VAT/CST as the case may be.

Tax is payable if such goods are disposed off as such other than sales.

[guna ch]

Thanking You Sir

But Our internal Auditor asking to pay the VAT on goods those we have purchased from unregistered dealer,

We are manufacturer of Seamless Steel Pipes, to manufactur seamless pipes  we should purchse cutting Oil.

we useually purchase cuting oil from small seller who have no sales tax registration.

and we purchase plastic caps to close the pipe ends from a small unregistered dealer

what shall we do sir , shall we pay VAT ?

[Pradeep Khatri]

Since goods used by you are of consumable nature and you must be paying outward VAT/CST while selling the goods, therefore, no need to pay the purchase tax, since paying tax on purchase and inturn availing the ITC is nothing but Revenue Nutral activity.

[sri devi]

Sir,

Kindly clear my doubts regarding unregistered purchase (URD) according to Tnvat under sec 12

1. unregistered purchase (URD​ made by client (Bag shop)

2. Whether the URD should be shown in return under sec 12 Purchase?

3. I need to pay tax for sec 12 for 5 percent

4. shall show in return Form I or not

5. IF i pay the purchase tax as per sec 12 shall i take ITC for next month 

Please give answer for above 5  questions ASAP

[SURESH ASTEKAR]

Dear Guna

The relevant provision of Andhra Pradesh VAT Act is Section 4(4) which is reproduced below:

        "(4)   Every VAT dealer, who in the course of his business purchases any taxable goods from a person or a dealer not registered as a VAT dealer or from a VAT dealer in circumstances in which no tax is payable by the selling VAT dealer, shall be liable to pay tax at the rate of four percent (4 percent ) on the purchase price of such goods, if after such purchase, the goods are:

               (i)  used as inputs for goods which are exempt from tax under the Act; or

               (ii) used as inputs for goods, which are disposed of  otherwise than by way of sale in the State or dispatched outside the State otherwise than by way of sale in the course of inter-State trade and commerce or export out of the territory of India; or

              (iii)  disposed of otherwise than by way of consumption or by way of sale either within the State or in the course of interstate trade or commerce or export out of the territory of India:

Provided that wherever a common input is used to produce goods, the turnover, taxable under this sub-section, shall be the value of the inputs, proportionate to the value of the goods, used or disposed of in the manner as prescribed under this section:

Provided further that in respect of purchase of goods specified in Schedules III and VI, the VAT dealer shall be liable to pay tax at the rates specified for such goods in the respective Schedules."             

[ganeshan kalyani]

Hi,

Is purchase tax prevail in the state of Maharashtra.

[yash arya]

Dear all,

We find contradicting and conflicting replies in these columns like this one. We wish a senior vat consultant do vetting of replies and publish the correct answer. This would avoid misleading/ misguiding view points for the readers.

-Shekar R

[Pradeep Khatri]

Dear All,

Please check our above reply read with reply submitted by Mr. SURESH ASTEKAR in this regard.

In continuing the above, purchase tax would be applicable where purchased goods used either in manufacturing of exempted goods on which no VAT/CST is payable while selling such goods or are disposed off other than by way of sale.

We reiterate our reply that it is settled legal position, if goods, on which no tax was paid at the time of their purchase and such goods are being used for manufacturing of finished products on which VAT/CST is payable/paid, then, need to pay the purchase tax on such goods.

Team YAGAY & SUN

(Management & Indirect Tax Consultants)

[ganeshan kalyani]

what will be the treatment to purchase tax, eg .if the plant in Andhra Pradesh purchases from local unregistered dealer and send the material to other his own Unit in another state. there after manufacturing, the product is sold locally and vat is paid. here selling state is not getting revenue.

If the purchase is from unregistered dealer & after processing the final product is sold locally then as per sec 4(4) of AP Vat Act purchase tax not applicable, since the state government is getting the revenue.

kindly share the impact on purchase tax on first para situation.

[SURESH ASTEKAR]

Dear Ganeshan Kalyani,

If the goods are purchased from unregistered dealers in Andhra Pradesh and the said goods are stock-transferred as such outside the State, in terms of Section 4(4)(iii) of the AP VAT Act, then purchase tax is payable.

I would like to add here that the purchase tax provisions differ from State to State and therefore it would be necessary to consider the provisions of the VAT Acts of the respective States.  For instance, I may point out that purchase tax is payable under Section 3(2) of the Karnataka VAT Act on all purchases made by a registered dealer from an unregistered dealer, irrespective of the purpose for which such goods are purchased.  Further, such tax paid by a registered dealer will be available as input tax credit, subject to certain specific conditions. Section 3 of the Karnataka VAT Act is as under:

“3.    Levy of tax.-

          (1)        The tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act.

 

(2)   The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the course of his business, by a person who is not registered under this Act.”

[ganeshan kalyani]

Say Andhra Pradesh before reorganization a dealer purchases taxable goods from unregistered dealer and manufactures it and sale within the state, Vat collected on invoice and paid to dept. Now with reorganization the state into two part, the unregistered dealer located in 'Part A' of state. A dealer is having two option : 1) An office situated at 'Part A of State-AP' purchases from the unregistered dealer and after that stock transfers it to plant located in 'Part B of State-AP' for manufacturing and sales the final product and pays vat. the question here is whether purchase tax is payable. 2) Plant in 'Part B of State-AP' directly purchases from unregistered dealer in 'Part A of State-AP'. whether purchase tax is payable in this case.

[SURESH ASTEKAR]

Once the State of Andhra Pradesh is bifurcated, there is no question of any Part-A or Part-B.  Both the States are independent States and they are different States for all legal and practical purposes.  Merely because before the bifurcation they were part of the one State, does not mean that after bifurcation they are treated as parts of one State.  Consequently, the provisions of the VAT Act as applicable earlier would now be applicable to each State with the status of a full-fledged State. 

[ganeshan kalyani]

A registered dealer in 'The State of Telangana' purchases taxable raw material from unregistered dealer & after he does stock transfers the same goods to his plant in 'The State of Andhra Pradesh' for manufacturing. The final product after manufacturing is taxable and accordingly vat collected and paid to department while selling. Now the question arises is that whether purchase tax is payable for purchase from unregistered dealer & by whom & which state.

[SURESH ASTEKAR]

When a dealer in Telangana purchases goods from unregistered dealer in Telangana and thereafter transfers the goods to Andhra Pradesh, he will be liable to pay tax under Section 4(4)(iii).  This is as per the AP VAT Act as it stands now.  So far there is no change to the AP VAT Act which would be applicable to Telangana also till Telangana adopts it as such or makes any changes, if it so desires.  

[ganeshan kalyani]

Second scenario : If a dealer in Andhra Pradesh purchases a taxable goods from an unregistered dealer in the state of Telangana. Then after manufacturing the goods sold locally and vat paid to govt. The purchases from Telangana would amount to Interstate purchase. But since the dealer is unregistered he would not be able to charge 2 percent or full CST on the bill. Hence now the question is whether the dealer in Andhra Pradesh would fall under obligation to pay purchase tax.

[SURESH ASTEKAR]

In terms of Section 17(5) (b) of the AP VAT Act, every dealer registered or liable to be registered under the Central Sales Tax Act 1956, or any dealer making purchases or sales in the course of inter-state trade or commerce or dispatches any goods to a place outside the State otherwise than by way of sale, is liable to be registered under the APVAT Act itself.  Further a dealer making interstate sale is liable to get himself registered under the CST Act also.  Therefore, the question of a dealer in AP purchasing goods from an unregistered dealer in Telangana, does not arise at all. 

[ganeshan kalyani]

The tax which is liable to pay u/s 4(4) of AP VAT Act, by a registered dealer in Telangana for purchases from an unregistered dealer in Telangana. The tax so paid, can that be claimed as set off.

[Madhukar N Hiregange]

You may need to examine the local VAT law. In Karnataka VAT the buyer of goods from URD has to pay the VAT as purchase tax. As and when he resell or as in your case consumes the same, he is eligible for ITC. If not paid then interest + mandatory penalty would be the consequence.  

[ganeshan kalyani]

In Maharashtra VAT Act the section 53 talks about Retention of Vat set off for goods dispatched outside the State otherwise than by way of sale in the course of inter-State trade. The said section i could not come across The Andhra Pradesh VAT Act, 2005. Should need to throw some light if it has any provision in the said act.

[ganeshan kalyani]

A dealer purchases from unregistered dealer at Telangana and paid purchase tax & for manufacturing he send it his own unit at Andhara Pradesh as stock transfer. After manufacturing he sold it in Andhra pradesh and paid vat. I would request to clarify whether dealer in Telanaga who purchased from unregistered dealer and paid purchase tax, can claim the set off of the tax paid toward purchase tax.

[ganeshan kalyani]

As per section 4(4)(iii) Purchase tax payable. The rate of tax is given in Act is 4 percent . Is this the current rate or it is change to 5 percent .

[Abhinav Arora]

Dear Experts

I was reading the above discussion and I am now wondering if similar provisions are there in Maharastra VAT Act. Please enlighten

[Narendra Kumar T]

Under Karnatka VAT Act, If goods purchased from Unregistered delaer and If goods not falled under Sechedule 1 Goods ( Exempted Goods), then the buyer need to pay VAT on URD Purchases. Further, VAT Input is available subject to payment of VAT and Input eligibility of such goods. However, its subject Local VAT Act.

[ravi thakkar]

if unregistered dealer sale goods to interest, to whom tax is applicable

and if applicable to purchaser so, it is liable to VAT or CST

[ravi thakkar]

if unregistered dealer sale goods in Interstate, to whom tax is applicable

and if applicable to purchaser, so it is liable for VAT or CST