The introduction of Value Added Tax (VAT) was a major reform that ushered in a new tax regime which harmonized the tax laws of various states, reduced rate wars among states and prevented cascading of taxes on goods.
The biggest advantage of the VAT regime has been its broad coverage of the Indian Market which in turn provides a high level of security to the revenues of States. The major industrial sectors under VAT would include real estate, hospitality, hospitals, automobile, infrastructure and oil industry. The VAT regime not only ensures wider tax compliance because of its advantage of cross audit feature but is also superior to the erstwhile sales tax laws for its inherent feature of doing away with the cascading effect in taxation. As against sales tax which provided for a single point system of tax levy in the hands of the manufacturer or the importer of goods in the state, VAT envisages a multi-point levy on each of the entities in the supply chain with the facility of set-off or input tax credit.
On the flip side, the VAT regime poses bigger challenges to the Indian business community. It brings with it different legislations for each state, having their own peculiarities. The concept of deemed sales including works contract, hire purchase and transfer of right to use goods adds to the complexity.
Wading through the maze of the VAT regime which is plagued by the plethora of regulations, calls for opining with the sanctity of legal reasons, providing solution to day to day business issues, tax compliance reviews that act as a health check and open up possibilities of availing tax benefits and ensuring tax compliance.
Law is almost inseparable from litigation and differences in interpretation and practice in the arena of sales tax/VAT on issues ranging from classification of goods, valuation, input tax credit and works contracts continue to place the Department and the assessee in opposite camps.