VAT-What Does it Hold for Exporters

EARLIER SYSTEM VS. VAT SYSTEM:

This section deals with the benefits available to Exporters in the earlier Sales Tax Regime as contrasted with the benefits under the proposed VAT regime:

1. Sales tax on purchases of inputs qualifying u/s 5(3) of the Central Sales Tax Act, 1956:
   
   Under the earlier Sales tax regime, final exporters could furnish Form H to the supplier of the specified goods and seek exemption from Central Sales Tax.
   
   Under the VAT regime also, the same situation will prevail. However, there is a possibility that considering the need to remove exemptions in VAT, there could be a move to delete Sec 5(3) of the CST Act, 1956. In such a case, exemption will not be available, but refund will be available under the 'Zero Rating" Concept. For the present Form H continues to be in use.
   
   

2. Sales tax on inputs and Capital goods used in the manufacture of exported goods:
   
   Under the earlier Sales tax regime, the tax was levied at a concessional rate based on certain declaration forms. In the case of EOUs/Units in SEZ, no tax was leviable at all.
   
   In the VAT regime, there will be no declaration forms. As such there will be no concession in the rate of tax, and tax will be levied at the rates mentioned in the corresponding schedule. However, there will be a refund of all taxes paid on inputs under the "Zero Rating" concept. The White Paper however talks about the possibility of exemption from input taxes for EOUs and SEZ units.

OTHER IMPLICATIONS TO EXPORTERS:

1. Tax payable by Exporters is zero-rated, with the result that while no tax is collected on exports, the prior stage tax paid by exporters is refunded.
   
   

2. The refund is provided for in most VAT Acts 3 months from the date of filing the periodical returns, based on Bank Guarantee, and will be finalised based on assessment.
   
   

3. There is a likelihood of refunds getting delayed, and cash flow of exporters may be affected.
   
   

4. Where an exporter also does 'local sales' and 'exempt sales' he has to maintain appropriate records to establish the consumption of inputs as between these 3 types of Sale. Exporters will have to go through the rigour of scrutiny by the Department if satisfactory records are not maintained. Department will be keen on ensuring that inputs used in exempt sales is not attributed to exports for the purpose of claiming refunds. Please refer Model II in Section VIII.
   
   

5. Where exporters purchase from outside the State, as for example raw/dressed hides or skins, for the manufacture of exported products, the Central Sales Tax payable on these items will not be refunded under the Zero Rating concept since CST is not vattable under VAT Act. Thus, there may not be any significant advantage for such exporters compared to the existing sales tax regime. However, for Export Oriented Units CST paid is reimbursed under the present scenario, and this will continue in the VAT regime also.
   
   

6. Considering the basic feature of VAT-that it eliminates cascading of taxes and lessens the burden of tax on the consumer-, VAT has the potential to make Exports more competitive.