Unregistered Dealers in VAT 

How will goods sold by unregistered dealers will be dealt. Will their sales be not taxable. What will be the impact on dealers purchasing from unregistered dealers.

As regards purchase from unregistered dealers and sale by unregistered dealers, the answer to the following FAQs in the VAT Demystified CD and the Book published by stvat.com will answer your query.

Under the current sales tax Act, purchase tax is levied on goods in certain circumstances. Currently the liability to purchase tax is not on the purchase but when used or disposed off in the manner specified in the section levying purchase tax. How is tax to be paid on such goods when liable to purchase tax under the VAT Act?

Purchase tax levied under the present sales tax Acts is continued under VAT also. The only difference in the different State VAT Act are the circumstances in which purchase tax is attracted. Please refer to the Section on "Purchase Tax" or "Levy of tax on purchases" in the respective State VAT Act.

The mode VAT Bill provides for levy of purchase tax in Section 10 which is self explanatory.

10. Levy of tax on purchases.

Every dealer who in the course of his business purchases any goods.

i)      from a registered dealer in the circumstances in which no tax under section 9 is payable by that registered dealer on the sale price of such goods, or

ii)     from any other person,

shall be liable to pay tax on the purchase price of such goods, if after such purchase, the goods are not sold within the State of ______ or in the course of inter-State trade and commerce or in the course of export out of the territory of India, but are

a)    sold or disposed of otherwise, or

b)    consumed or used in the manufacture of goods declared to be exempt from tax under this Act, or

c)    after their use or consumption in the manufacture of goods, such manufactured goods are disposed of otherwise than by way of sale in the State of ____ or in the course of inter-State trade and commerce or export out of the territory of India; or

d)    used or consumed otherwise,

and such tax shall be levied at the same rate at which tax under section 9 would have been levied on the sale of such goods within the state on the date of such purchase.

What is the net tax payable by a dealer who had not registered but is later on found to be liable to pay tax?

An unregistered dealer will not be eligible to take credit for input tax paid and will be liable to pay the entire output tax payable beside being liable for interest and penal action for failure to register.

So dealers who are liable to tax must take care to register to be able to take input tax credit.