CHENNAI: The value-added tax (VAT) scheme in Tamil Nadu has made some "bold departures" in favour of trade vis-a-vis the scheme finalised by the Empowered Committee of State Finance Ministers, according to a senior official of the Commercial Taxes Department.

Such departures include tax treatment of stocks at the time of transition, viz. as at the close of trading on December 31, 2006. The Tamil Nadu VAT rules provided that the stocks would be entitled to input tax credit (ITC) for the entire sales tax paid on their purchase.

The Empowered Committee's scheme, as also the VAT scheme in some States, allowed tax credit only up to the level of tax on the goods leviable under VAT.

Thus, even when the VAT rate was lower than the present sales tax rate, the credit would be available on the entire sales tax paid on purchases in the case of Tamil Nadu, said G. Shanmugham, Joint Commissioner (VAT).

Addressing a meeting organised by the Andhra Chamber of Commerce here on Monday, Mr. Shanmugham said that however, in the case of resellers (who have been subject so far to a tax of one per cent), only the tax paid by them (one per cent) could be availed of as input tax credit.

He advised manufacturers against accepting return of stocks from dealers prior to December 31, and said such return would be dealt with by the department as having been effected under the present Tamil Nadu General Sales Tax Act (TNGSTA) and would have its own consequences.

Tamil Nadu, which was "not just late, but the latest" to implement VAT, could take advantage of the experience in other States and come out with a more simplified and trader-friendly framework, he said.

This included the provision for retention of the present GST registration number by dealers, which they could use without a new registration or renewal.

Emphasising that the VAT system discouraged manufacturers and traders from seeking exemptions because such exemptions would deprive them of the benefit of ITC, the official said the Government could not treat 100 per cent export-oriented units (EOUs) on a par with units in Special Economic Zones (SEZs) since the former had a scope for selling their goods in the domestic market after availing themselves of setoff of input taxes.

Earlier, inaugurating the meeting, Special Commissioner and Commissioner for Commercial Taxes T. Jacob said a call centre would be set up to respond to queries on VAT from stakeholders.

N. Venkataraman, Senior Advocate, urged them to fight for repeal of some "serious" negative elements of the State's VAT system, like treating ITC as "provisional", failure to include processing as part of manufacture and failure to recognise genuine loss of material in the process of manufacture for purposes of reversal of ITC.

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