SUMMER TRAINING REPORT ON

VAT: Road To GST

For

Parle Biscuits Pvt Ltd

By NIKHIL ARORA
In Partial Fulfillment for the award of the degree Post Graduate Diploma In Management 2009-11

New Delhi Institute of Management

50(B&C),60, Tughlakabad Institutional Area, New Delhi-110062 E-mail: info@ndimdelhi.org Website : www.ndimdelhi.org

SUMMER TRAINING REPORT ON

For

PARLE BISCUITS Pvt Ltd

Under the supervision

Of

Mr. Vivek Malhotra

Submitted By-

Submitted to-

Nikhil Arora
ACKNOWLEDGEMENT

Mr. Kaushal

I would like to extend my sincere thanks to Mr. Vivek Malhotra, my industry mentor at Parle Biscuits Pvt Ltd for his guidance and support throughout my training. His willingness to teach has been a great help in the successful completion of the project. The learning during the project has been immeasurable and working under him was a great experience. My sincere thanks also extends to Mr. Kaushal for the knowledge they shared with me as a trainee and providing me a friendly and co-operative environment during the training. I extend my gratitude to PARLE BISCUITS PVT. LTD, and all the colleagues, friends for their encouragement, support, guidance and assistance for Undergoing industrial training and for preparing the project report.

Finally, I would like to say that the learning from the experience of training has been immense and would be cherished throughout my life.

Nikhil Arora New Delhi Institute of Management

DECLARATION

I Nikhil Arora student of New Delhi Institute of Management 2009- 2011 batch declare that every part of the Project Report VAT: Road To GST that I have submitted is original.

Date of project submission:

Nikhil Arora

TABLE OF CONTENTS

GLOBAL BISCUITS MARKET

Global Biscuits Market to reach $43.1 Billion by 2015, According to New Report by Global Industry Analysts, Inc.

Bakery represents one of the traditional occupations globally and stands for conventional economic activity for various communities in several countries. Biscuits are highly popular across the world and people of all ages enjoy eating biscuits throughout the year. Biscuits along with bread accounts for majority of the total bakery products consumed worldwide. Today, most of the conventional baking methods have been replaced by the new generation technologies and the shift has enabled rolling out of innovative biscuits with different types of looks, sizes, tastes, flavors and packaging. Usually, market for biscuits enjoys significant participation of organized as well as unorganized segment, which vigorously compete to cater various product categories.

Biscuits: A Global Strategic Business Report Europe and the United States dominate the world biscuits market, as stated by the new market research report on biscuits. However, growth in these regions clearly lags behind the projected market growth in emerging countries. Asia-Pacific represents the fastest growing market for biscuits. Sweet biscuits represents the largest as well as fastest growing segment in the global biscuits market. Factors contributing to growth include urbanization and increasing awareness among people about the benefits offered by bakery products, among others.

The market for biscuits is highly fragmented. In each region, the market is characterized by the presence of several local players and very few large players. Key players profiled in world biscuit market are

Annas Pepparkakor AB Arnotts Biscuits Holdings Pty Limited Bahlsen GmbH & Co. KG Britannia Industries Ltd. Burton's Foods Ltd. Group Nutrexpa Lotus Bakeries NV Katies Cakes, Kellogg Company Kraft Foods Inc Kraft Foods (Australia) Limited Nestl UK Ltd., Northern Foods plc Paradise Food Industries Pty Ltd Parle Products Pvt. Ltd Paterson Arran Ltd Stiletto Foods (UK) Ltd The Jacob Fruitfield Food Group Thomas Tunnock Limited United Biscuits Walkers Shortbread Ltd.

OVERVIEW OF INDIAN BISCUIT MARKET

The total production of biscuits in India is estimated to be around 30 lakh MT, the organized sector accounts for 65% and the unorganized sector accounts for 35% of the total industry volume.

The organized sector is valued at above Rs 8000 crores. The biscuit industry is estimated to grow over 15-17% in the next few years. The per capita consumption of biscuits in India is 2.0 kg. India is ranked 3rd after US and China amongst the global biscuits producers.

The export of biscuits is approximately 17% of the annual production, the export of sweet biscuits for year 2007-08 was Rs 145.93 Cr and for year 2008-09(April-Dec) was Rs 280 Cr, the major exporting regions were Haiti, Angola, USA, Ghana, UAE.

The imports are not significant amount as compared to the total consumption.

The penetration of biscuits in urban and rural market is 85% and 55% respectively.

The Biscuit industry employs almost 3.5 lakh people directly and 30 lakh people indirectly.

The organized biscuit manufacturing industries annual production Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Annual Production(Lakh MT) 11.00

12.54

14.29

16.14

17.14

19.5

Main Categories of Biscuits : Glucose, Marie, Sweet, Salty, Cream & Milk. Glucose biscuits accounts for more than 50% of the total biscuit market value, Parle G dominate this market with more than 60% share followed by Britannia and ITC.

Brands :Major brands The Indian biscuit industry is dominated by major brands like Parle, Britannia, and Sunfeast. Also the category has strong regional brands such as Priya Gold-North, Cremica-North & West, Dukes-South and Anmol-East & North. Other popular brands Horlicks, Biskfarm-East, Rose-Andhra Pradesh & South, Sobisco-East and North East also launched in Andhra Pradesh and Madhya Pradesh., Nezone- North East, Bakewell.

Market Share Breakdown The Indian biscuit industry is dominated by brands like Parle, Britannia and Sunfeast.

Consumption Pattern across Various Regions Consumption of biscuits is even across the regions

New Competitors in the Indian Biscuit Industry

GlaxoSmithKline Consumer Healthcare: Junior Horlicks Biscuits-toddler biscuit category.

PepsiCo India Launched biscuit brand Aliva, it will be produced by food division Frito Lay India.

United Biscuits (UK), worlds third largest biscuit company, is set to enter India market.

Shakti Bhog plans to enter biscuits segment.

MAJOR PLAYERS

Britannia Industries Ltd. : Net sales for FY 2008-09 are Rs 3,112.2 Cr. For FY 07-08 biscuits recorded sales of Rs. 2,329.9 Cr. Key Products are Tiger, Good Day, Bourbon, 50-50, Treat, Milk Bikis, MarieGold, NutriChoice, Timepass, Little Hearts.

Parle Products Pvt. Ltd : Established In 1929, company has factories in Mumbai, Bangalore, Bahadurgarh in Haryana and Neemrana in Rajasthan, Additionally, Parle Products also has 7 manufacturing units and 51 manufacturing units on contract. Company has about approximate market share of 30-35% of the total biscuit market. Parle-G accounts for the major volume turnover it accounts for approximately 80% of the total biscuit tonnage for the company.

Key Products : Parle - G , Hide and Seek ,Krackjack ,Hide & Seek Milano ,Magix ,Digestive Marie ,Monaco ,Parle Marie ,Kreams ,Milk Shakti ,Parle 20-20 Cookies ,Golden arcs ,Nimkin ,Kreams Gold ,Chox ,Monaco Jeera.

Surya Food & Agro Ltd : Manufacturing & selling of biscuits under brand Priyagold. Company has three plants located in Greater Noida, Lucknow & Surat. They also outsource some of our requirements to another plant located in Hyderabad. Capacities have reached 1, 50,000 MT p.a. Key Products : Classic Cream , Butter Bite ,Kids Cream ,Bourbon ,Big Boss ,Marie Lite ,Magic Gold ,CNC ,Cheese Cracker ,Snacks Zig Zag ,Don ,Coconut Crunch ,Cheez Bit Classic Salt ,Chatpata

ITC Ltd : In July 2003, ITC forayed into the Biscuits market with the Sunfeast range of Glucose, Marie and Cream Biscuits. Sunfeast with a current market share of ~10% is now clearly established as a credible third brand. Key Products : Sunfeast Milky Magic ,Sunfeast Marie Light ,Sunfeast Golden Bakery ,Sunfeast Dark Fantasy ,Sunfeast Dream Cream ,Sunfeast Snacky ,Sunfeast sweet 'n salt ,Sunfeast Nice ,Sunfeast Benne Vita Flaxseed Biscuits ,Sunfeast Special

Anmol Biscuits Ltd : Anmol is a popular brand of eastern & northern region, having manufacturing facilities in W.B & U.P.

Key Products : Lemon Mazaa , Funfill Choco Vanilla , Yummy - Milk Cream , Tip Top Kajoo Kurkure Masala, Coconutty , Thin Arrowroot , Marie,2 in 1, Butter Bake , Cream Cracker , Dil Khush , Dream Lite , ETime , Funfill Orange , Funfill Rich Chocolate ,Golmol ,Jadoo ,Marie Time , Snackles ,Milk Made

Parle Biscuits Pvt. Ltd.

ORIGIN OF THE ORGANIZATION A cream colored yellow stripped wrapper with a cute baby photo containing 10 12 biscuits with the companys name printed in Red and you know these are Parle G biscuits. Times changed, variety of biscuits did come and go but nothing has changed with these biscuits. Yes, the size of their packing has definitely changed but for the consumers good as these are money savers pack. The Parle name conjures up fond memories across the length and breadth of the country. After all, since 1929 the people of India have been growing up on Parle biscuits & sweets. Initially a small factory was set up in the suburbs of Mumbai city, to manufacture sweets and toffees. The year was 1929 and the market was dominated by famous international brands that were imported freely. Despite the odds and unequal competition, this company called Parle Products, survived and succeeded, by adhering to high quality and improvising from time to time. A decade later, in 1939, Parle Products began manufacturing biscuits, in addition to sweets and toffees. Having already established a reputation for quality, the Parle brand name grew in strength with this diversification. Parle Glucose and Parle Monaco were the first brand of biscuits to be introduced, which later went to become leading names for great taste and quality. For around 75 years, Parle have been manufacturing quality biscuits and confectionery Products. Over the years Parle has grown to become a multi milliondollar company with many of the products as market leaders in their category. The recent introduction of Hide & Seek chocolate chip biscuits is a product of innovation and caters to a new taste, being Indias first ever chocolate-chip biscuits.

All Parle products are manufactured under most hygiene conditions. Great care is exercised in the selection and quality control of raw material and standards ensured at every stage of the manufacturing process.

PARLE G THE EVOLUTION Has been a strong household name across India. The great taste, high nutrition, and the international quality, makes Parle-g a winner. No wonder, its the undisputed leader in the biscuit category for decades.

It is consumed by people of all ages, from the rich to the poor, living in cities & in villages. While some have it for breakfast, for others it is a complete wholesome meal. For some its the best accompaniment for chai, while for some its a way of getting charged whenever they are low on energy. Because of this, Parle-G is the worlds largest selling brand of biscuits.

Launched in the year 1939, it was one of the first brands of Parle products. It was called Parle Glucose Biscuits mainly to cute that it was a glucose biscuit. It was manufactured at the Mumbai factory, Vile Parle and sold in units of half and quarter pound packs.

The incredible demand led Parle to introduce the brand in special branded packs and in larger festive tin packs. By the year 1949, Parle Glucose biscuits were available not just in Mumbai but also across the state. It was also sold in parts of North India. The early 50s produced over 150 tones of biscuits produced in the Mumbai factory. Looking at the success of Parle-G, a lot of other me-too brands were introduced in the market and these brands had names that were similar to

Parle Glucose Biscuits so that if not by anything else, the consumer would err in picking the brand. This forced Parle to change the name from Parle Glucose Biscuits to Parle-G. Originally packed in the wax paper pack, today it is available in a contemporary, premium BOPP pack with attractive side fins. The new airtight pack helps to keep the biscuits fresh and tastier for a longer period. Parle-G was the only biscuit brand that was always in short supply. It was heading towards becoming an all-time great brand of biscuit. Parle-G started being advertised in the 80s. It was advertised mainly through press ads. The communication spoke about the basic benefits of energy and nutrition. In 1989, Parle-G its released its Dadaji commercial, which went on to become one of the most popular commercial for Parle-G. The commercial was run for a period of 6 years. Parle-G grew bigger by the minute. Be it the packs sold, the areas covered or the number of consumers. It became a part of the daily lives of many Indians. It wasnt a biscuit any more. It had become an icon. The next level of communication associated the brand with the positive values of life Like honesty sharing and caring. In the year 1997, Parle-G sponsored the tele-serial of the Indian superhero, Shaktimaan that went on to become a huge success. The personality of the superhero matched the overall superb benefits of the brand. Parle extended this association with Shaktimaan and gave away a lot of merchandise of Shaktimaan, which was supported by POS and press communication. The children just could not get enough of Parle-G and Shaktimaan. In the year 2002, it was decided to bring the brand to the child who is a major consumer. A national level promo Parle-G Mera Sapna Sach Hoga was run for

a period of 6 months. The promo was all about fulfilling the dreams of children. There were over 5 lakhs responses and of that, over 300 dreams were fulfilled. Dreams that were fulfilled ranged from trips to Disneyland at Paris & Singapore; free ride on a chartered plane; 20 scholarships worth Rs 50,000; a special coaching etc. The year 2002 will go down as a special year in Parle-Gs advertising history. A year that saw the birth of G-Man a new ambassador for Parle-G. Not just a hero but also a superhero that saves the entire world, especially children from all the evil forces. A campaign that is not just new to the audiences but one that involves a completely new way of execution that is loved by children all over the worldAnimation. To make the brand much more interesting and exciting with children, it was decided to launch a premium version of Parle-G called Parle-G Magix in the year 2002. ParleG Magix is available in two tastes. The year 2002 also witnessed the launch of Parle-G Milk Shakti, which was the nourishing combination of milk and honey, especially launched for the southern market.

Growth and development of the organization Over the years, Parle has grown to become a multi-million US Dollar company. Today, Parle enjoys a 40% share of the total biscuit market and a 15% share of the total confectionary market, in India. The Parle Biscuit brands, such as, Parle-G, Monaco and Krackjack and confectionery brands, such as, Melody, Poppins, Mango bite and Kismi, enjoy a strong imagery and appeal amongst consumers. Then the Parle representatives includes the production officer and the operations head made students exposed to the production unit followed by the manufacturing unit and packaging.

The extensive distribution network, built over the years, is a major strength for Parle Products. Parle biscuits & sweets are available to consumers, even in the most remote places and in the smallest of villages with a population of just 500. The Parle marketing philosophy emphasizes catering to the masses. We constantly endeavor at designing products that provide nutrition & fun to the common man.

Most Parle offerings are in the low & mid-range price segments. This is based on our cultivated understanding of the Indian consumer psyche. The value-for-money positioning helps generate large sales volumes for the products. However, Parle Products also manufactures a variety of premium products for the up-market, urban consumers. And in this way, caters a range of products to a variety of consumers. In nutshell, the Parle name conjures up fond memories across the length and breadth of the country.

PRODUCT MIX OF THE COMPANY Parle biscuits are linked with factors of power and wisdom providing nutrition and strength. Parle biscuits are indeed much more than a tea- time snack, they are considered by many to be an important part of their daily food. Parle can treat you with a basket of biscuits which are not only satisfying but are also of good and reliable quality. Parle biscuits cater to all tastes from kids to senior citizens. They have found their way into the Indian hearts and homes.

Parle G

For over 65 years, Parle G has been a part of the lives of every Indian. From the snow capped mountains in the north to the sultry towns in the south, from frenetic cities to laid back villages, Parle G has nourished strengthened and delighted millions. Filled with the goodness of milk and wheat, Parle G is not just a treat for the taste buds, but a source of strength for both body and mind. Tear over a packet of Parle G to experience what has nourished Generations of Indians since last sixty five years, making it truly Hindustan Ki Taakat. Pack Sizes available: 16.5gm, 38.5gm, 60.5gm, 82.5gm, 99gm, 209gm, 313.5gm, 418gm, 825gm.

Krack jack

The original sweet and salty biscuit is one of the most loved biscuits in the country. Its not just a biscuit, its the taste of relationships captured in a biscuit. A little sweet and a little salty crafted in such a delicate and delicious balance, you can never get enough of it. Have it anytime you like with anything you like. Pack Sizes available: 75gm, 170gm, &240gm Monaco

Share the company of great taste anytime, anywhere with Monaco. A light crispy biscuit sprinkled with salt, Monaco adds a namkeen twist to lifes ordinary moments. Pack Sizes available: 75 gm, 120 gm & 240 gm 12

Hide and Seek

The ingredients that go into making this prized cookie are a well-guarded secret. What is is the effect it has on those who eat it. A cookie with a reputation for romance. Indulge in the sinful taste of Milano and everything that follows it. Pack Sizes available: 25 gm, 62 gm, 100 gm, and 200 gm Hide and Seek Milano

The ingredients that go into making this prized cookie are a well-guarded secret. What is is the effect it has on those who eat it. A cookie with a reputation for romance. Indulge in the sinful taste of Milano and everything that follows it. Pack Sizes available: 65 gm, 135 gm 13

Orange: Tickle your senses with Parle Orange Kream The tangy orange cream between two scrumptious biscuits makes for a real treat. Age no bar! In Parle kream also some teats available like Elichi, pineapple, mango. these kream biscuits available in same packing size. Pack Sizes available: 80 gm, 90 gm, 160 gm, and 180 gm

Need, Scope & Objective of Study

Need In the current scenario when our economy is to implement its new indirect tax regime Goods & Services Tax which is extension to VAT model. The study aims to compare the VAT with sales tax regime & then to have insight about registering under VAT. Scope The scope of study covers VAT the current regime & the new GST regime.

Objective To Understand the concept of VAT To Compare VAT with Sales tax regime To know how to register under VAT To Procedure for Declaration & Payment of VAT To know Impact of VAT on Economy & Inflation To know features of Goods & Services TAX

VALUE ADDED TAX(VAT) HISTORY

Maurice Laur, Joint Director of the French Tax Authority, was first to introduce VAT on April 10, 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Initially directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for 52% of state revenues.

VAT in India Finally after 14 years vat was implemented. Let us have a glance on the history of vat up till April 2005 and reasons why it could not be implemented before. Economic reforms were on a priority by the government since 1991. But it is to be noted that, VAT was introduced in India in the year 1976, in respect of Central Excise. However, it was restricted only up to the Excise Duties, and was known as Modvat (modified value added tax). The coverage of Modvat gradually increased and covered various other chapters. The importance & need of VAT in the sales tax structure of India was recognized by the taxation authorities. But the reason why the proposal of VAT took a long time is because VAT in its simplest form cannot be adopted in India where there are various authorities who can levy the taxes (e.g.: State/ Central/ Municipality) There are various reasons why the implementation can take time. It is the policies, the framework, the commodities, the taxation rate, changing from a multiple point tax to a single point tax, etc and all such details had to be worked upon. Moreover, in the then existing sales tax regime, it is the states that collect the taxes, that too at different rates. What is Value Added Tax (VAT)?1 VAT is a simple transparent tax collected on sales of goods. The states and union territories of India have decided to implement VAT in place of sales tax and a number of other state taxes. VAT is a multi-stage tax levied at each stage of the value addition chain, with a provision to allow Input Tax Credit (ITC) on tax paid at an earlier stage, which can be appropriated against the VAT liability on subsequent sale. VAT is intended to tax every stage of sale where some

value is added to raw materials, but taxpayers will receive credit for tax already paid on procurement stages. Thus, VAT will be without the problem of double taxation as prevalent in the present tax laws. Presently VAT is followed in over 120 countries. One of the many reasons underlying the shift to VAT is to do away with the distortions in our existing tax structure that carve up the country into a large number of small markets rather than one big common market. In the present sales tax structure tax is not levied on all the stages of value addition or sales and distribution channel which means the margins of distributors/ dealers/ retailers et al are not subject to sales tax at present. Thus, the present pricing structure needs to factor only the single point levy component of sales tax and the margins of manufacturers and dealers/ retailers etc, are worked out accordingly. Under the VAT regime, due to multi-point levy on the price including value additions at each and every resale, the margins of either the reseller or the manufacturer would be reduced unless the ultimate price is increased. Cascading effects of taxation
Sales Tax

The basic principle of VAT The Value Added Tax system has its origin in the West European countries. Generally, taxes are levied on the selling price of the product. Today raw material passes through a number of stages and processes until it reaches the ultimate stage. For instance, steel ingots are made in a steel mill, which are then rolled into plates in a rerolling unit and after this a third manufacturer will make furniture from these plates. Thus, output of the first manufacturer becomes the input of the second manufacturer, who carries out further processing and supplies it to the third manufacturer. This process continues till the final product emerges. The product then goes to the wholesaler who in turn will sell it to the retailer and he will finally turn it to the consumer. Thus,

if tax is levied on the selling price of a product, the incidence of tax goes on increasing as the raw material and final product pass from one stage to another.

Why a New Tax System? There are seven significant reasons to reform the tax system. 1) The then existing system was too complex. That tax code has evolved over many years creating thousands of conflicting definitions and exemptions. It required numerous complex forms that take an enormous amount of time and money to complete. It also led to difficulty in enforcement and collection, and created hundreds of loopholes that are used to reduce or evade taxes. 2) It was too easily exploited for political reasons. Tax rates, incentives, and exemptions were altered continuously for political reasons. There was ongoing political pressure to alter tax laws to benefit or exclude special interest groups. 3) The then existing structure created a poor economic impact. The tax code was often altered to provide economic stimulus for various business segments, with dubious results. It neglected the overall health of the economy. It often discourages economic growth by creating a negative incentive to work and to earn more. An ideal system would tax spending to create a positive incentive to earn more, and save and invest more. 4) It was a bureaucratic control. The Income tax Revenue Survey requires a huge operating budget and over 114,000 employees to manage this huge bureaucracy. This was nonproductive labour that does not contribute directly to the economy. In fact, it is a measurable drain on the economy both in direct and indirect costs, estimated at over $600 billion annually. These educated and talented people could contribute greatly in productive jobs in the private sector. 5) It requires a large number of professionals in the private sector, like tax accountants, lawyers, and even entire corporate departments, to advise, interpret and prepare tax returns. This process wastes valuable resources on non-productive labour that could otherwise be used to build businesses and strengthen the economy.

6) It forces business managers to make decisions based on tax implications rather than good business. For example, a company decides not to build a new assembly plant because of negative capital investment tax policies, and thereby deprives a community from new jobs and the company from growth. 7) It is inefficient. It just costs too much to collect taxes this way. If we are ever going to reduce the national deficit without breaking the back of the tax payer, this is the first place to reduce waste. Who have to register as a Taxpayer? All legal and natural persons who provide goods, works or services and have an annual sales turnover exceeding the threshold limit should register as taxpayer. All importers are required to register irrespective of their annual turnover. If the dealer supplies only exempt goods and services he must still notify the local VAT office if his turnover exceeds the threshold limit. Totally exempt businesses will not however be registered as taxpayers but still be subjected to later visits by VAT officials to confirm their exempt status. It is the person, NOT the enterprise, who is registered for VAT. The person is only registered once for all enterprises/branches/divisions carried on unless permission is granted to register them separately.

The person to be registered Sole proprietor (individual) Incorporated/unincorporated body of persons Corporation / company Association not for gain Welfare organization / trust Local authority and certain public authorities

Registration for VAT:

(Procedure)

Download or buy forms; FORM 1, FORM 2, FORM 3, Fill the Application in duplicate and affix photograph. Attach the following documents to the application a. Copy of the constitution document e.g. Partnership deed for partnership firm, Memorandum and Articles of Association for a company. b. Board Resolution authorizing the signatory to sign the application in case of company. c. Proof of identification of the authorized signatory e.g. voter identity card, passport, driving license. d. Proof of principal place of business e.g. rent receipt, lease agreement, electricity bill. e. Submit the forms to the jurisdictional Central Excise Office

Submit the above in the nearest Commercial Tax Office. On submission, the Commercial Tax Officer would verify if the submission is complete and desirable. He would make a field inspection of your premises. The Office of Commercial Tax Officer would send you the VAT CERTIFICATE Once registered, you will have to account for output tax that is attributable to your taxable sales. You will also have to submit VAT returns monthly to the Commercial Taxes Department and keep proper books of accounts.

Type of registration: VAT (Obligatory): All those businesses having Annual turnover equal to or more than 5 lacks Carries out Inter State transactions (Irrespective to annual sales)

VAT (Voluntary)

Any one not fulfilling the above conditions may register himself under VAT voluntarily keeping future in consideration. TOT Turnover Tax also called Composition scheme or Lump Sum Payment Schemes. Small retailers may not be in a position to maintain detail record of tax paid on inputs and tax payable on final products. In such case, they will pay tax at flat rate based on their turnover. Naturally, they cannot issue a VAT invoice and cannot show sales tax separately in their invoice. The empowered committee has agreed that dealers with turnover up to Rs. 40 lakhs p.a. can be eligible to the composition scheme, by just paying 1 % which is now 0.25% of their turnover as composition tax. This option is available only for the businesses like Brick Kilens & Dhabas (that does not include restaurants). Declaration & Payment of Tax One must complete a VAT declaration form monthly as per directions of the VAT office for instance on the 16th day of each month. On the form you will show the amount of VAT you have paid to your suppliers and the amount you have charged your customers. The difference between the two figures is either the amount of tax due to be paid to the VAT office or the amount of credit to be carried forward to the next months declaration. Credit for purchases can only be claimed if you are in possession of an official tax invoice which shows the amount of VAT you have paid on the transaction. If you calculate that you owe tax to the VAT office it should be paid at the same time as you submit your declaration form. If you are owed tax it will be carried forward and you will deduct it from the tax you owe the following month. You will also need to show other information on your declaration.

In case of Annual turnover more than 1 crore Monthly declaration & payment of Output tax using FORM 16 o This is annexure less return On the end of every quarter through FORM 15 o Annexures FORM 18, 19, 23, 24

o FORM 23 & 24 includes the Total Purchases, input tax, Total Sales & input taxes In case of Annual turnover less than 1 crore Filing of Quarterly return using FORM 15 with FORM 18, 19, 23, 24 as annexure

Comparison of VAT and Sales tax Under Sales Tax Under VAT Tax levied at the stage of the first sale (only for Tax levied and collected at every point of sale. cotton, leather and natural gas at the final stage). Tax levied and collected at every point of sale Tax collected at every point of sale and the tax already paid by the dealer at the time of purchase Successive sales (resale) of goods on which tax is of goods will be deducted from the amount of tax already paid do not attract tax. paid at the next sale. Dealers reselling goods on which tax has already Dealers reselling tax-paid goods will have to been paid do not collect any tax on resale and file collect VAT and file returns and pay VAT at nil returns every stage of sale (value addition). On 19 goods used as raw materials there is no input tax credit on the tax paid on such goods and 2% tax is levied on other goods used as raw materials for manufacture. Computation of tax liability is complex. Huge number of forms required in procedure. Six taxation rates. Tax only on goods. Assessment done by the department. Advantages of application of VAT In its purest form, VAT is a tax that is levied on the value added along different stages of production and distribution of a commodity or service. Therefore, it is a tax on the sum total of value added, i.e., equal to the value of a commodity or service. In this sense, it should be equivalent to a retail sales tax that is collected only at the retail stage. But the retail sales tax is difficult to collect because there are too many retailers of various sizes. The VAT, instead, can be collected at earlier stages of production in fragments and can end at the retail stage. But the total collected from the VAT should be exactly the same as if collected only from the retailers of the commodity concerned. The manufacturer will pay VAT on the goods purchased as raw materials but the VAT paid on raw materials will be deducted on the sale of goods manufactured. Thus duplication of tax burden on raw materials will be avoided. It is transparent and easier. At the most a few forms required. Only two rates. Tax on goods and services both. Self-assessments by dealers.

(i)

Eliminates cascading effects :-

The VAT is preferred because the VAT minimizes distortions. The simple excises or the turnover taxes results in the unintended effect of (i) taxing an output (together with its input content) more than once; as well as (ii) applying a tax on the earlier paid input tax leading to cascading. It causes producers to move their capital or resources away from the production of one output to another one which does not suffer from cascading. The VAT, because it gives credit for input tax earlier paid, avoid the distortion as represented by misallocation or redirection of resources from one economic activity to another. Therefore, it does not alter producers decisions to produce particular commodities which, in general, should reflect the demands from consumers. However, for this benefit to occur, the VAT must give credit for raw materials and capital goods. (ii) Eases administration:-

Although there are feasible options limiting the impact of cascading, the utility of multipoint VAT goes much beyond that. Arresting cascading could be considered important to a regime of VAT. Nevertheless, the institution of VAT in fact should be conceived also as an instrument of tax administration an administration that checks evasion through a self monitoring feature, and an account based audit system that is regarded as superior to the system of physical verification. The latter already having fallen into disrepute for causing distress to tax filers needs to be eventually abandoned as its positive impact on revenue yield remains questionable. An accountbased audit should not only tighten the tax net but raise revenues through a wider acceptability of a tax administration in the public eye. (iii) Improves International competitiveness:-

Since VAT has the potential for eliminating cascading, it is possible to design the VAT in a manner that will ensure that exports are free from any tax burden (zero-rating). Further, such adjustments under the VAT structure are also WTO consistent. As a result the competitiveness of exports in international markets is enhanced. Even though exports are generally exempt from sales tax and the burden of input tax embedded in the exports is sought to be eliminated through the duty drawback mechanism, nevertheless, the process is cumbersome and the effect is not

fully realised. As export competitiveness can be adversely influenced by then tax factor, the capacity to zero rate easily and accurately is an important aspect of the VAT. (iv) Imparts Transparency:-

Another positive aspect of the VAT is its simplicity and transparency, which commodity taxes usually lack. The VAT tends to collect the quantum of tax payable at every stage of transaction. Both producers and consumers, who ultimately bear the tax burden, are fully aware of the tax liability, which is not as easily ascertainable in other forms of commodity taxation. (v) Buoyant Source of Revenue:-

When faced with chronic budget deficits and growing expenditures, governments have been turning to tax reform as a way to raise revenues. Governments seek sources that are income elastic and not sensitive to changes in prices of particular goods or income sources. Since the VAT permits a relatively larger coverage in as much as it is possible to extend it to value addition at all stages in the production-distribution chain, the potential for raising resources efficiently is generally higher. (vi) Goodbye to Tax on Tax:

VAT is the only tax that offers positive alternatives to the negative impact of indirect taxation. It is an accepted fact that commodity taxes create severe cascading effect as the taxes levied at earlier stages of production and distribution get taxed again and again at subsequent points. Consequently, instead of paying taxes on the value addition by a manufacturer, wholesaler or retailer, tax is paid on an inflated value, which includes taxes already paid at earlier stages. Such anomalies escalate prices and encourage vertical integration, where the manufacturer himself tries to wholesale and retail the goods. Vertical integration has been responsible for recession and unemployment particularly in developing countries. VAT has an inbuilt device for reducing the cascading effect by restricting the levy to actual value addition. It encourages growth by confining tax burden to the net economic contribution of the taxpayer. Moreover, since the Capital Investment also gets tax relief. VAT can accelerate economic growth by encouraging modernization and replacement.

VAT Effect on Inflation In considering the introduction of VAT, countries are often concerned that it would cause an inflationary spiral. However there is no evidence to suggest that this is true. A survey of OECD countries that introduced VAT indicated that VAT had little or no effect on prices. In cases where there was an effect it was a one time effect that simply shifted the trend line of the consumer price index (CPI). To guard against any unforeseen price effects the authorities may consider a tighter monetary policy stance at the introduction of VAT. Effects of VAT on Distribution Value added tax is widely criticized as being regressive with respect to income that is its burden falls heavily on the poor than on the rich. This emanates from the fact that consumption as a share of income falls as income rises. Hence a uniform VAT rate falls heavily on the poor than the rich. This criticism is valid when VAT payments are expressed as a proportion of current income. However if, following the premise that welfare is demonstrated by the level of consumption rather than income, consumption is used as the denominator the impact of VAT would be proportional. A proportional burden would also be demonstrated if lifetime income rather than current income is used. A lifetime income concept considers the fact that many income recipients are only temporarily at lower income brackets as their earnings increase. In order to address the regressivety of VAT the following measures can be taken:

The VAT itself can be used to differentiate taxation of consumer items that are consumed primarily by the poor such that they pay less or at zero rate or to tax luxury goods at a higher than standard rate.

VAT exemptions may also be granted on goods and services that are consumed mostly by the poor. Equity concerns may also be addressed through other ways, outside the VAT system, such as other tax and spending instruments of government. This could be in the form of lower basic income tax rates on the poor or some pro-poor expenditures of government. The use of multiple rates of VAT has however been widely discouraged for various reasons. These include: o The fact that sometimes it is almost impossible to differentiate between higher quality expensive products e.g. food, consumed by the rich and ordinary

products consumed by the poor. Thus any concessions extended may tend to benefit the rich much more than the poor. o Increased costs of VAT administration as a differentiated rate structure brings with it problems of delineating products and interpreting the rules on which rate to use. o Significantly increased costs of tax compliance for small firms, which are usually unable to keep separate records/accounts for sales of differently taxed items. This results in the use of presumptive methods of determining the tax liability, which leads to more difficulties in monitoring the compliance. The higher compliance cost resultant from differentiation of VAT rates may also be regressive with respect to income since smaller firms with lower income tend to bear proportionately more of the burden than do larger firms. Exemptions refer to situations where output is not taxed but taxes paid on inputs are not recoverable. The rationale behind exemptions is to reduce negative distributional effects of tax through the effect on incomes. The effects of exemption may be as follows: Falling of revenues exemptions break the VAT chain. If exemptions are granted at prior to the final sale, it results in a loss of revenue since value added at the final stage escapes tax. Un-recovered taxation of some intermediate goods may lead to producers substituting away from such inputs thus distorting the input choices of the said producers. Exemptions may create incentives to self supply i.e. tax avoidance by vertical integration. Exemptions tend to feed on each other giving rise to a phenomenon called exemption creep. This arises from the fact that each exemption gives rise to pressures on further exemption. For example creating an exemption to reduce the tax burden on a particular commodity or goods may lead to increased pressure for exemption or zero rating of inputs used for the production of such a commodity.

Based on the above, it is important that care is taken when introducing exemptions in order to avoid distortions in the production process as well as to minimize revenue loss resulting from such distortions. Given the fact that the primary purpose of VAT is to raise government revenue in an efficient manner and with as little distortions of economic activity as possible, distribution effects are perhaps better addressed by other forms of tax and government expenditure policies which can often be better targeted at these aims.

VAT Effect on Economic Growth Economic growth can be facilitated through investment by both government and the private sector. Savings by both parties are required in order to finance investment in a non-inflationary manner. Compared to other broadly based taxes such as income tax VAT is neutral with respect to choices on whether to consume now or save for future consumption. Although VAT reduces the absolute return on saving it does not reduce the net rate of return on saving. Income tax reduces the net rate of return as both the amount saved as well as the return on that saving are subject to tax. In this regard VAT may be said to be a superior tax in promoting economic growth than income tax. Since VAT does not influence investment decisions on firms, by increasing their costs, its effects on investment can be said to be neutral.

Goods & Services Tax Model for India

GST: The way ahead If the Value Added Tax (VAT) is considered to be a major improvement over the pre-existing Central excise duty at the national level and the sales tax system at the State level, then the Goods and Services Tax (GST) will be a further significant breakthrough the next logical step towards a comprehensive indirect tax reform in the country.2 By P. Chidambram
2

Chidambram, P., (2009), First Discussion Paper On Goods and Services Tax In India, The Empowered Committee Of State Finance Ministers, New Delhi, pp i.

Why GST? In the existing State-level VAT structure there are also certain shortcomings as follows. There are, for instance, even now, several taxes which are in the nature of indirect tax on goods and services, such as luxury tax, entertainment tax, etc., and yet not subsumed in the VAT. In the GST, both the cascading effects of CENVAT and service tax are removed with set-off, and a continuous chain of set-off from the original producers point and service providers point upto the retailers level is established which reduces the burden of all cascading effects. This is the essence of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. However, for this GST to be introduced at the State level, it is essential that the States should be given the power of levy of taxation of all services. This power of levy of service taxes has so long been only with the Centre. A Constitutional Amendment will be made for giving this power also to the States. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. The GST at the State-level is, therefore, justified for (a) Additional power of levy of taxation of services for the States, (b) System of comprehensive set-off relief, including set-off for cascading burden of CENVAT and service taxes, (c) Subsuming of several taxes in the GST and (d) Removal of burden of CST. Because of the removal of cascading effect, the burden of tax under GST on goods will, in general, fall.

Salient features of the GST model3 Keeping in view the report of the Joint Working Group on Goods and Services Tax, the views received from the States and Government of India, a dual GST structure with defined functions and responsibilities of the Centre and the States is recommended. An appropriate mechanism that will be binding on both the Centre and the States would be worked out whereby the harmonious rate structure along with the need for further modification could be upheld, if necessary with a
3

Dasgupta, A.(2009), First Discussion Paper On Goods and Services Tax In India, The Empowered Committee Of State Finance Ministers, New Delhi,pp 37-38

collectively agreed Constitutional Amendment. Salient features of the proposed model are as follows: The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable. The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. It would have to be ensured that account-heads for all services and goods would have indication whether it relates to Central GST or State GST (with identification of the State to whom the tax is to be credited). Since the Central GST and State GST are to be treated separately, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. A taxpayer or exporter would have to maintain separate details in books of account for utilization or refund of credit. Further, the rules for taking and utilization of credit for the Central GST and the State GST would be aligned. Cross utilization of ITC between the Central GST and the State GST would not be allowed except in the case of inter-State supply of goods and services under the IGST model which is explained later. The Central GST and State GST are to be paid to the accounts of the Centre and the States separately. Since the Central GST and State GST are to be treated separately, in general, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the

Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST. The administration of the Central GST would be with the Centre and for State GST with the States. The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities. Each taxpayer would be allotted a PAN linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department. Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.

Taxes subsumed by GST4 The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind: Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services. Taxes or levies to be subsumed should be part of the transaction chain which commences with import/manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other. The subjugation should result in free flow of tax credit in intra and inter-State levels. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
4

Dasgupta, A.(2009), First Discussion Paper On Goods and Services Tax In India, The Empowered Committee Of State Finance Ministers, New Delhi,pp 19

Revenue fairness for both the Union and the States individually would need to be attempted.

On application of the above principles, the following Central Taxes would be, to begin with, subsumed under the Goods and Services Tax: Central Excise Duty Additional Excise Duties The Excise Duty levied under the Medicinal and Toiletries Preparation Act Service Tax Additional Customs Duty, commonly known as Countervailing Duty (CVD) Special Additional Duty of Customs - 4% (SAD) Surcharges, and Cesses.

Following State taxes and levies would be, to begin with, subsumed under GST: VAT / Sales tax Entertainment tax (unless it is levied by the local bodies). Luxury tax Taxes on lottery, betting and gambling. State Cesses and Surcharges in so far as they relate to supply of goods and services. Entry tax not in lieu of Octroi.

The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work. Let us suppose that GST rate is 10%, with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus,

the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after settingoff GST paid at the earlier stages. The overall burden of GST on the goods is thus much less. This is shown in the table below. The same illustration will hold in the case of final service provider as well.

GSTs benefit to the small entrepreneurs and small traders The present threshold prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. The existing threshold of goods under State VAT is Rs. 5 lakhs for a majority of bigger States and a lower threshold for North Eastern States and Special Category States. A uniform State GST threshold across States is desirable and, therefore, the Empowered Committee has recommended that a threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories may be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States considered that the threshold for Central GST for goods may be kept at Rs.1.5 crore and the threshold for services should also be appropriately high. This raising of threshold will protect the interest of small traders.

Conclusion
Bringing about an integration of all taxes levied on goods and services in a federal polity with sharp distribution of legislative powers is a Herculean task to say the least. The Constitution of India, 1950 demarcates taxing powers in a two-tier structure wherein levies on production and international imports are with the Union and post- production levies rest with the states. The Centre levies duties of excise on manufactures and import/countervailing duties on international imports apart from levying a tax on services under various taxing and the residuary entry in the Union List. The states levy VAT on goods sold or entering in the state under various entries of the state list. Even if all Union-level levies are integrated into a single levy and all state level levies culminate in a single State level levy; this may still have two levies and the resultant cascading and administrative burdens may nevertheless remain to an extent, though this may go a long way in harmonizing levies. A harmonized, integrated and fully fledged GST calls for the following: 1. Implementation of GST calls for effecting widespread amendments in the Constitution and the various constitutional entries relating to taxation. 2. Services have to be appropriately integrated in the tax network; and 3. Apart from all these, there has to be a robust and integrated MIS dedicated to the task of tracking flow of goods and services across the country and rendering accurate accounting of levies associated with such flow of goods and service.

From the above report on GST it is most clear that the advantages are may be evidently laid out that is the increasing proximity of our tax system to the global tax system. In a way, it may boost our economy and enable us to compete at the global front. As a result, even our system may match the international phenomenon. This is the biggest advantage of such a system. But every system has its own intricacies embedded at the initial stages. Lower incidence of tax, reduced prices, a move towards the global concept, reducing cost of tax compliance, better revenue collection, an efficient and harmonized consumption tax system in the country all this looks good on the card, but is it really so easy to implement? Keeping the various constitutional, technological, procedural and political barriers, the job seems easier said than done.

References

Dasgupta, A., 2005,A White Paper On State-Level Value Added Tax, The Empowered Committee Of State Finance Ministers, New Delhi,pp 6-8 Available at: www.finmin.nic.in/downloads/reports/whitepapervat.pdf Dasgupta, A.(2009), A White Paper On State-Level Value Added Tax, The Empowered Committee Of State Finance Ministers, New Delhi,pp 6-8 Available at: www.finmin.nic.in/downloads/reports/whitepapervat.pdf
5

Dasgupta, A.(2009), First Discussion Paper On Goods and Services Tax In India, The Empowered Committee Of State Finance Ministers, New Delhi,pp 19
6
7

Dasgupta, A.(2009), First Discussion Paper On Goods and Services Tax In India, The Empowered Committee Of State Finance Ministers, New Delhi,pp 37-38

Dasgupta, A.(2009), First Discussion Paper On Goods and Services Tax In India, The Empowered Committee Of State Finance Ministers, New Delhi,pp 19
8
3

DTTI,2009, The pre GST Survey, Deloitte Touche Tohmatsu India Private Limited, Available at http://www.amchamindia.com/Deloitte-Pre%20GST%20Survey%202009.pdf

Rao, K, 2008, Goods and Services Tax for India, National Institute of Public Finance and Policy New Delhi, http://www.nipfp.org.in
2 4

"Les recettes fiscales" (in french). Le budget et les comptes de ltat. Minister of the Economy, Industry

and Employment (France). 23 February 2009. http://www.performance-publique.gouv.fr/le-budget-et-lescomptes-de-letat/approfondir/les-recettes/les-recettes-fiscales.html. "la TVA reprsente 130,2 milliards deuros, soit 52,0 % des recettes fiscales nettes de ltat." Accessed from :

http://en.wikipedia.org/wiki/VAT#cite_note-0