INTRODUCTION OF REFUNDS :

VAT is a multi-stage tax levy system which envisages collection of tax at each stage of the value addition chain, with a provision to allow input tax credit (ITC) on tax paid at an earlier stage (ie.for inputs), which can be appropriated against the VAT liability on subsequent sale. Under VAT system, the dealer has to pay Net tax on his taxable transactions.
Net Tax = Output tax – Input tax credit.

Simply, If anything is paid in excess of this amount, this has to be refunded to the dealer. Timely and proper refunding mechanism is a must in tax administration, since it promotes the following:

• Hassle free conduct between tax administrators and dealers.

• Expansion and Modernization of existing business and starting of new business since funds are not get blocked.

• Due to increase and efficiency in production, Cost of production is reduced.

• Since cost of production is reduced, the price will come down, demand will increase, production goes up, which ultimately increases the tax revenue to the Government exchequer.