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2. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Tax should be levied on the value added at the various manufacturing and distribution stages that a product moves through rather than the gross sales price Shift from production to consumption Value added is difference between selling price and purchase price Provision for setoff subject to certain conditions VAT – What is it ?

3. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Change the way we do business, It will not only impact the pricing policy, but also procurement, manufacturing, distribution, costing and accounting The VAT Challenge

4. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Rationale for VAT – Broadbasing of tax Larger basket of Goods Spread the tax burden over a larger number of dealers Widen the coverage of commercial organisations Lower the rate of tax for better tax compliance Eliminate the cascading effect Uniform tax rates across States Simple to operate More revenue to Govt

5. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Widening the Tax Base

6. HOW VAT OPERATES--- Raw Material Producer Sales Value Rs. 100 Gross VAT 10% = Rs 10 Less:Input Tax credit = Rs 0 Net VAT = Rs 10 Wholesaler Sales Value Rs. 300 Gross VAT 10%= Rs 30 Less:Input Tax credit=Rs 20 Net VAT = Rs 10 Manufacturer Sales Value Rs. 200 Gross VAT 10%, Rs 20 Less:Input Tax Credit=Rs 10 Net VAT = Rs 10 Retailer Sales Value Rs. 400 Gross VAT 10% = Rs 40 Less:Input Tax credit=Rs30 Net VAT = Rs 10.00 Total VAT Collected at four points Rs 10+10+10+10 = 40 Final Cost = Rs. 400 Tax @ 10% = Rs. 40 Total Tax Collected = Rs. 10+10+10+10=Rs. 40

7. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Registration Provisions Threshold Limit for registration Rs 5 lakhs per annum Dealers upto 40 lakhs offered composition scheme 1% of turnover Lump sum dealers opting composition scheme VAT Dealer Tax to be paid by dealers under composition scheme is likely to be around 4% which is not VAT-able

8. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited National VAT Design 2-Slab structure 4% rate on items of mass consumption 12% Revenue Neutral Rate (RNR) (on all other items) Exceptional Rates Nil rate (exempted goods) 1% rate for Bullion & Jewellery 20% for specified items (liquor etc.) Zero Rating for Exports Petrol & Diesel to be kept outside VAT Current indications are it may be 8% but final decision awaited

9. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited National VAT Design Input Tax Credit To: Local taxable sales Exports Input Tax Credit Restricted/not available to: CST sales Branch Transfers Consignment sales Taxes Abolished Turnover Tax, Resale Tax, Surcharge etc Taxes To continue Octroi and Entry tax

10. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Central Sales Tax vis a vis VAT Not Available for setoff Phase-out 2% in the first year 1% in the second year 0% in third year

11. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Example VAT Rate taken as 10% Full input tax credit used Only partial input tax credit used as tax paid is less than incurred Input tax credit nil as purchase on CST is not VAT-able

12. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Business Impact - CST In a phased removal of CST, the locations of suppliers and consumers could have significant impact Total tax payable at LST & CST Input tax credit available only on local purchase The above example clearly shows how it is desirable to maximize local purchase and local sale to benefit from input tax credit to maximum Total tax payable calculated on the basis of 10% local sales and 90% interstate sales @ tax rates shown

13. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Business Impact Rebating Model Stock of inputs including business inputs and capital goods held at registration – rebatable Transitional Stock of goods for manufacture and resale – rebatable Inputs procured on Leasing- eligible for normal rebating

14. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Business Impact Incentives Present Exemption (Holiday) / Deferment Under VAT VAT chain - Dealers buying from units availing exemption cannot claim input tax credit Unavailed balances eligible under exemptions may be converted into deferments Input tax credit allowed on deferments

15. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Invoices Tax Invoice Issued by VAT Dealer only for local sales to other VAT dealers (TIN) Retail Sale Invoice Issued by VAT dealers, casual traders or lump sum dealers for sales to consumer or unregistered dealer Sale Invoice Issued when tax or retail invoice cannot be issued such as inter state sales

16. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Returns to be filed ReturnFormPeriod of Filing Quarterly return VAT-R1On or before the last date of the month following the quarter Annual ReturnVAT-R231 st October Annual Commodity Tax Return VAT-R331 st October

17. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Accounts Separate account of sales & purchases made In the State Interstate Imports Exports Separate account of sales & purchases in respect of the different classes of goods liable to tax at different rates All VAT dealer accounts to be audited

18. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Issues of Concern -Traders CST not VAT-able Maintenance of detailed records Opening stock of goods as on changeover date Input tax credit on full value of local purchases @ local tax as per experience of Haryana who have implemented VAT already

19. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Issues of Concern – State Govt Compensation of loss of revenue Inadequate preparedness of States and poor IT support

20. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited National Consensus Changes (being effected) in the CST Act, and to phase out CST gradually Uniform VAT structure for all States Constitution to be amended to enable Centre to levy and both State and Centre to collect tax on services Works Contracts, Leasing and Hire purchase transactions within the ambit of ‘Sale’ under Central Sales Tax Harmonised classification and coding across the country

21. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Thefts of pre-printed invoices to inflate input tax credit Please be careful with the invoices in your computer system VAT Frauds

22. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited VAT Control System Greater use of Computer Auditing Tax Identification Number Scrutiny of VAT declarations within 3 years 5% of dealers selected for audit with 4 month notice Survey to detect dealers liable to pay tax A Fundamental Revision is needed High level of co-operation from business Appropriate Penalties for fraud

23. © Larsen & Toubro Limited – No part of this presentation may be copied or reproduced without prior permission of Larsen & Toubro Limited Emerging Issues – Self Enforcing Deemed Assessment Correct & complete returns Acknowledgement of annual return is deemed to be copy of assessment order Assessment by way of scrutiny