Civil Procedure Code (CPC)

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VAT charged by states on Govt. supply

(Querist) 12 December 2010 This query is : Resolved 
My clients are Railway suppliers who procure orders from Railway, fabricates materilas and supplies the same to different destinations at Maharashtra, Rajasthan, Madhya Pradesh, Karnatka. His having place of business at Kolkata regd. under Wets Bengal Sales Tax. He supplies materials charging 2% CST. The Railway deducts VAT of that state from his bills and he claims the same as his expenditure which the A.O. is not allowing as expenditure in Income Tax Act. Can you please advice me the stand so that the same can be proved as expenditire.
Sathyan A.R. (Expert) 12 December 2010
The seller should have obtained C form from the Railway authorities.The obligation is on the seller to pay VAT and not on the purchaser. IN any case it appears from your statement that VAT is charged even by the Railway authorities and deducted form the payment.

The assessee is entitled to calim only 2% as VAT as tax paid on sales in P/L account and the AO is right. This cannot be proved as expenditure.

The calim of refund of excess tax deducted shuld be made with Railway authorities.
Alpesh Upadhyay (Expert) 12 December 2010
Your is a case of WC TDS of VAT by Railway from payment to your client. Now for gatting refund of this deducted VAT from respective States, it is necessity to be a registered dealer of each State for claiming refund of WC TDS of VAT. In such a situation, If your client is not a registered dealer in State from where such WC TDS made by the Railway. in such a situation the AO cannot disallowed your expenditure, because ultimately it is an additional cost for execution of WC.
s.subramanian (Expert) 12 December 2010
I agree.
H.M.Patnaik (Expert) 13 December 2010
The A.O. is right in disallowing the amount deducted under state VAT by the Purchasers i.e. Railways as a business expenditure since the inter-state sales transaction gets completed with the delivery of Goods sold/ supplied . Any deduction effected thereafter remains outside the ambit of Sale transaction indicated above. However, in order to avail credit/ adjustment of amount deducted towards state VAT , the supplier needs to be a Registered Dealer under State VAT of the particular state and reflect the same in the periodic Return filed by him under the State VAT . In such a case, the supplier will effect Stock-transfer of the finished goods to its' own establishment registered in the state where the goods are to be delivered .


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