A

RESEARCH REPORT
On

“A CAMPARATIVE ANALYSIS OF VAT IN DELHI

& HARYANA”
Submitted towards the partial fulfillment of Requirement
for the degree of
Master of Business Administration
(Affiliated to UPTU LUCKNOW)
(2008-09)

Under the kind guidance of:

Submitted by:

Miss. Pallavi Jain Kriti Sharma

Faculty of Vidya MBA – IIIrd Sem.
Roll No
-0822970025

Submitted to:

VIDYA COLLEGE OF ENGINEERING, MEERUT

 CERTIFICATE
This is to certify that Ms KRITI SHARMA student MBA III semester, Vidya School of

Business; Meerut has undergone a summer training project on “A CAMPARATIVE ANALYSIS

OF VAT IN DELHI & HARYANA” and submitted a report based on the same as a mandatory

for the degree of Master of Business Administrator, U.P Technical University, Lucknow.

(Dr Aditya Gautam)

Director, Vidya School of DATE:

Business; Meerut
 ACKNOWLEDGEMENT

I would like to express my gratitude to all those who made completion of my

dissertation possible. I would like to thank my college authorities for providing me the

opportunity to research in one of the most prestigious organizations.

I express my sincere gratitude to my Industry Mentor and other executives who

provided me full support and encouragement to complete this work.

I am deeply indebted to my Faculty Guide co-ordinator Miss. Pallavi Jain whose help,

stimulating suggestions and encouragement helped me in at all times in research and for

writing of this thesis and others who have been associated with this work directly or

indirectly...

Especially, I would like to give my special thanks to my parents, their love and blessings

enabled me to complete this work.

CONTENTS
 Page No.
Chapter-I
Abstract
Introduction
Company profile
Product profile
Literature review
Chapter-I
Objectives of the study
Chapter-III
Research methodology
Chapter-IV
Data Analysis & Interpretation
Chapter-V
Findings
Limitations of the study
Recommendation
Annexure
Chapter-VI
Bibliography
CHAPTER-I
ABSTRACT
 Abstract

“The king should collect his taxes without hurting his subjects, even as a bee collects honey

without harming the flowers”—Vidur Niti

Value Added Tax (VAT) is a system of indirect taxation which is currently employed by nearly

136 countries across the world. In India, VAT, being a current tax reform, captures the existing

states sales tax system. Sales tax is a conventional system where in different tax rates prevail in

different states. Value Added Tax is undoubtedly one of the most important fiscal innovations of

the 21st Century. The Empowered Committee of State Finance Ministers on Vat has done a

commendable job in its introduction. The Union Finance Minister also took a number of bold

and positive initiatives to ensure that the same is in place.

This study deals with the likely impacts of differential VAT rates for specific products with

recognized environmental benefits in both states: Haryana & Delhi. In both states: Delhi &

Haryana the main research question was how producers, retailers and consumers would change

their behavior in response to the introduction of VAT rates for ‘greener’ products and to the

‘non-green’ products.

This question has been addressed in various ways: through a literature survey, by reviewing

experiences with previous and existing (environmentally motivated) VAT design and other

subsidy schemes, and by directly contacting stakeholders.

In this study is conducted on the impact of VAT in both states: Haryana and Delhi the Finance

Commission has to look into restructuring their taxes on commodities and services such that

most of these can be converted into one comprehensive state VAT.

The study was significant in view of the fact that despite the revenue implications of

implementing VAT in both the states: Haryana & Delhi and indirect tax design are effect by the

implement of VAT. In Haryana the VAT design has been introduced in the State from IST April,

2003. It is the first state to initiate and implement VAT for own revenue generation but In Delhi

has implemented Value Added Tax (VAT) in Delhi on 01st April, 2005. Initially this system was

protested by the trade unions and dealers.

INTRODUCTION
 Introduction

The concept of Value Added Tax (VAT) is nothing but a revised and simplified form of single-

point sales Tax. In 1918, F. Von Seemens of Germany devised this concept in place of Turnover

Tax. ...At present, VAT is implemented in more than 120 countries around the world. It covers

70% of the world population and raises nearly 27% total tax revenue in those countries.

WHAT IS VALUE ADDED TAX?

Value Added Tax is a broad-based commodity tax that is levied at multiple stages of production.

The concept is akin to excise duty paid by the manufacturer who, in turn, claims a credit on input

taxes paid. Excise duty is on manufacture, while VAT is on sale and both work in the same

manner, according to the white paper on VAT released by finance minister Chidambaram. The

document was drawn up after all states, were prepared to implement VAT. It is usually intended

to be a tax on consumption, hence the provision of a mechanism enabling producers to offset the

tax they have paid on their inputs against that charged on their sales of goods and services. Under

VAT revenue is collected throughout the production process without distorting any production

decisions.
Value Added Tax is undoubtedly one of the most important fiscal innovations of the 21st

Century. The Empowered Committee of State Finance Ministers on Vat has done a

commendable job in its introduction. The Union Finance Minister also took a number of bold

and positive initiatives to ensure that the same is in place. FICCI would like to compliment both

the Union Finance Minister and the Empowered Committee for the same.

While the Empowered Committee is seized of the problem and making all efforts to have a

uniform system in place, we would in particular like to submit the following for the

consideration of the Empowered Committee:

• Uniformity in classification of products across States

• Uniformity on the valuation base (e.g. Drugs attracting VAT @ MRP in some States vs.

normal selling price in other States).

• Reducing CST rate to 2% in 2006-07 and nil in 2007-08.

• After VAT, continuation of any local levy by any State including octroi, mandi tax,

professional tax etc. are totally unwarranted and against the basic philosophy of VAT. All local

levies must go and it should also be ensured that no new levy is introduced in any State.

• Input Tax Credit must be available.

• The Mindset of authority needs to be changed for mutual trust to sustain.

WHY VAT IS PREFERRED OVER SALES TAX?

While theoretically the amount of revenue collected through VAT is equivalent to sales tax

collections at a similar rate, in practice VAT is likely to generate more revenue for government

than sales tax since it is administered on various stages on the production – distribution chain.

With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering

all the retailers, particular commodities may not yield any tax. However, with VAT some

revenue would have been collected through taxation of earlier transactions, even if final retailers

evade the tax net.

There is also in-built pressure for compliance and auditing under VAT since it will be in the

interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated.

VAT is also a fairer tax than sales tax as it minimizes or eliminates the problem of tax cascading,

which often occurs with sales tax. These are facilitated by the fact that VAT operates through a

credit system so that tax is only applied on value added at each stage in the production –

distribution chain. At each intermediate stage credit will be given for taxes paid on purchases to

set against taxes due on sales. Only at consumption stage where there are no further transactions

will there be no tax credits. Lack of input credit facility in sales tax often results in tax on inputs

becoming a cost to businesses which are often passed on to consumers. Sales tax is often applied

again to the sales tax element of the cost, thus there is a problem of tax on tax. This is not the

case with VAT, which makes it a neutral tax as it provides the least disturbance to patterns of

production and the generation and use of income.

In addition, the audit trail that exists under the VAT system makes it a more effective tax in

administration terms than sales tax as it helps with the verification of VAT amounts declared as

due. This is made possible by the fact that one person’s output is another’s input. As with sales

tax imports are treated the same way as local goods while exports are zero- rated to avoid anti-

export bias.

Notwithstanding the advantages mentioned above, it is worth noting that VAT is a considerably

complex tax to administer compared with sales tax. It may be difficult to apply to small

companies due to difficulties of record keeping and its coverage in agriculture and the services

sector may be limited. To cover the high administration costs, VAT rates of 10-20 per cent are

generally recommended. The equity impact of the relatively high rates have been a cause for
concern as it is possible that the poor spend relatively high proportions of their incomes on goods

subject to VAT. Thus the concept of zero VAT rate on some items has been introduce.

DIFFERENCE BETWEEN VAT AND CST

Under the CST Act, the tax is collected at one stage of purchase or sale of goods. Therefore, the

burden of the full tax bond is borne by only one dealer, either the first or the last dealer.

However, under the VAT system, the tax burden would be shared by all the dealers from first to

last. Then, such tax would be passed upon the final consumers. Under the CST Act, the tax is

levied at a single point. Under the VAT system, the retailers are not subject to tax except for the

retail tax.

Under the CST Act, general and specific exemptions are granted on certain goods while VAT

does not permit such exemptions. Under the CST law, concessional rates are provided on certain

taxes. The VAT regime will do away with such concessions as it would provide the full credit on

the tax that has been paid earlier.

Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent

dealer pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared

equally by the last dealer. To illustrate the whole procedure of VAT, an example is as follows:

At the first point of sale, the value of goods is Rs.100. The tax on this is 12.5%.Therefore the net

VAT would be 12.5%. At the second change of sale, the sale value is Rs.120 and the tax thereon
is 15%. The tax that is to be paid at every point is 15%. The input tax is 15%. The dealer will get

a credit for first change in sale of 2.5%-- i.e. 15% -12.5%. Therefore, 2.5% will be the net rate.

At the third change of sale, the sale value is Rs.150 and the tax on this is 18.75%. At the last

stage, the tax paid is 18.75%. The Input Tax is 18.75%. Dealers get a credit for second change in

sale? i.e. 18.75% -15% = 3.75%. Therefore, 3.75% would be the net VAT. This means that VAT

is paid in the last point tax under the sale tax regime.

WHO GAINS?
State and Central governments gain in terms of revenue. VAT has in-built incentives for tax

compliance — only by collecting taxes and remitting them to the government can a seller claim

the offset that is due to him on his purchases. Everyone has an incentive to buy only from

registered dealers — purchases from others will not provide the benefit of credit for the taxes

paid at the time of purchase. This transparency and in-built incentive for compliance would

increase revenues. Industry and trade gain from transparency and reduced need to interact with

the tax personnel. For those who have been complying with taxes, VAT would be a boon that

reduces the cost of the product to the consumer and boosts competitiveness. VAT would be

major blow for tax evaders, both manufacturers who evade excise duty payments and traders

who evade sales-tax.

WHAT’LL BE THE TAX BURDEN?

The overall tax burden will be rationalized as it’ll be shared by all dealers, and prices, in general,

will fall. Moreover, VAT will replace the existing system of inspection by a system of built-in
self-assessment by traders and manufacturers. The tax structure will become simple and more

transparent and tax compliance will improve significantly. It will also be simpler and offer easy

computation and easy compliance. VAT will prevent cascading effect through input rebate and

help avoid distortions in trade and economy by ensuring uniform tax rates.

WHO PAYS?
All dealers registered under VAT and all dealers with an annual turnover of more than Rs 5 lakh

will have to register. Dealers with turnovers less than Rs 5 lakh may register voluntarily.

HOW TO PAY?
VAT will be paid along with monthly returns. Credit will be given within the same month for

entire VAT paid within the state on purchase of inputs and goods. Credit thus accumulated over

any month will be utilized to deduct from the tax collected by the dealer during that month. If the

tax credit exceeds the tax collected during a month on sale within the state, the excess credit will

be carried forward to the next month.

WHICH GOODS WILL BE TAXABLE UNDER VAT?

All goods except those specifically exempt. In fact, over 550 items will be covered under the

new tax regime, of which 46 natural and unprocessed local products would be exempt from

VAT. About 270 items, including drugs and medicines, all agricultural and industrial inputs,

capital goods and declared goods would attract 4% VAT. But, following opposition from some

states, it was decided that states would have option to either levy 4% or totally exempt food

grains from VAT but it would be reviewed after one year. Three items — sugar, textile, tobacco
— under additional excise duties will not be under VAT regime for one year but existing

arrangement would continue.

Building Blocks of a Unified VAT

OTHER CONSIDERATIONS
It is imperative that policy makers in considering adoption of VAT should be interested in the

economy wide impact of this tax. Special emphasis is often placed on its effect on equity, prices
and economic growth. This is particularly important because of the potential effects on

consumption of certain commodities that have a direct or indirect effect on labour productivity.

VAT EFFECT ON INFLATION

In considering the introduction of VAT, countries are often concerned that it would cause an

inflationary spiral. However there is no evidence to suggest that this is true. A survey of OECD

countries that introduced VAT indicated that VAT had little or no effect on prices. In cases

where there was an effect it was a onetime effect that simply shifted the trend line of the

consumer price index (CPI). To guard against any unforeseen price effects the authorities may

consider a tighter monetary policy stance at the introduction of VAT.

DISTRIBUTION EFFECTS OF VAT

Value added tax is widely criticized as being regressive with respect to income that is its burden

falls heavily on the poor than on the rich. This emanates from the fact that consumption as a

share of income falls as income rises. Hence a uniform VAT rate falls heavily on the poor than

the rich. This criticism is valid when VAT payments are expressed as a proportion of current

income. However if, following the premise that welfare is demonstrated by the level of

consumption rather than income, consumption is used as the denominator the impact of VAT

would be proportional. A proportional burden would also be demonstrated if lifetime income

rather than current income is used. A lifetime income concept considers the fact that many

income recipients are only temporarily at lower income brackets as their earnings increase. In

order to address the regressively of VAT the following measures can be taken:
♦ The VAT itself can be used to differentiate taxation of consumer items that are consumed

primarily by the poor such that they pay less or at zero rate or to tax luxury goods at a higher

than standard rate.

♦ VAT exemptions may also be granted on goods and services that are consumed mostly by the

poor.

♦ Equity concerns may also be addressed through other ways, outside the VAT system, such as

other tax and spending instruments of government. This could be in the form of lower basic

income tax rates on the poor or some pro-poor expenditures of government. The use of multiple

rates of VAT has however been widely discouraged for various reasons. These include:

♦ Fact is that sometimes it is almost impossible to differentiate between higher quality expensive

products – e.g. Food consumed by the rich and ordinary products consumed by the poor. Thus

any concessions extended may tend to benefit the rich much more than the poor.

♦ Increased costs of VAT administration as a differentiated rate structure brings with it problems

of delineating products and interpreting the rules on which rate to use.

♦ significantly increased costs of tax compliance for small firms, which are usually unable to

keep separate records/accounts for sales of differently taxed items. This results in the use of

presumptive methods of determining the tax liability, which leads to more difficulties in

monitoring the compliance. The higher compliance cost resultant from differentiation of VAT

rates may also be regressive with respect to income since smaller firms with lower income tend

to bear proportionately more of the burden than do larger firms.

Exemptions refer to situations where output is not taxed but taxes paid on inputs are not

recoverable. The rationale behind exemptions is to reduce negative distributional effects of tax

through the effect on incomes. The effects of exemption may be as follows:

♦ falling of revenues – exemptions break the VAT chain. If exemptions are granted at prior to the

final sale, it results in a loss of revenue since value added at the final stage escapes tax.

♦ Un-recovered taxation of some intermediate goods may lead to producers substituting away

from such inputs thus distorting the input choices of the said producers.

♦ Exemptions may create incentives to “self supply” i.e. tax avoidance by vertical integration.

♦ Exemptions tend to feed on each other giving rise to a phenomenon called “exemption creep”.

This arises from the fact that each exemption gives rise to pressures on further exemption. For

example creating an exemption to reduce the tax burden on a particular commodity or goods may

lead to increased pressure for exemption or zero rating of inputs used for the production of such

a commodity. Based on the above, it is important that care is taken when introducing exemptions

in order to avoid distortions in the production process as well as to minimize revenue loss

resulting from such distortions.

Given the fact that the primary purpose of VAT is to raise government revenue in an efficient

manner and with as little distortions of economic activity as possible, distribution effects are

perhaps better addressed by other forms of tax and government expenditure policies which can

often be better targeted at these aims.

VAT EFFECT ON ECONOMIC GROWTH
Economic growth can be facilitated through investment by both government and the private

sector. Savings by both parties are required in order to finance investment in anon-inflationary

manner. Compared to other broadly based taxes such as income tax VAT is neutral with respect

to choices on whether to consume now or save for future consumption. Although VAT reduces

the absolute return on saving it does not reduce the net rate of return on saving. Income tax

reduces the net rate of return as both the amount saved as well as the return on that saving are

subject to tax. In this regard VAT may be said to be a superior tax in promoting economic

growth than income tax. Since VAT does not influence investment decisions on firms, by

increasing their costs, its effects on investment can be said to be neutral.

Process of VAT
FEATURES OF VAT

1. Rate of Tax VAT proposes to impose two types of rate of tax mainly:

a. The 4% on declared goods or the goods commonly used.

b. The 10-12% on goods called Revenue Neutral Rates (RNR). There would be no fall in

such remaining goods

c. Two special rates will be imposed-- 1% on silver or gold and 20% on liquor. Taxes on

petrol, diesel or aviation turbine fuel are proposed to be kept out from the VAT system as

they would be continued to be taxed a presently applicable by the CST Act.

2. Uniform Rates in the VAT system, certain commodities are exempted from tax. The taxable

commodities are listed in the respective schedule with the rates. VAT proposes to keep these

rates uniform in all the states so the goods sold or purchased across the country would suffer the

same tax rate. Discretion has been given to the states when it comes to finalizing the RNR along

with the restrictions. This rate must not be less than 10%. This will ensure by doing this that

there will be level playing fields to avoid the trade diversion in connection with the different

states, particularly in neighboring states

3. No concession to new industries Tax Concessions to new industries is done away with in the

new VAT system. This was done as it creates discrepancy in investment decision. Under the new

VAT system, the tax would be fair and equitable to all.

4. Adjustment of the tax paid on the goods purchased from the tax payable on the goods of sale

All the tax, paid on the goods purchased within the state, would be adjusted against the tax,
payable on the sale, whether within the state or in the course of interstate. In case of export, the

tax, paid on purchase outside India, would be refunded. In case of the branch transfer or

consignment of sale outside the state, no refund would be provided.

5. Collection of tax by seller/dealer at each stage. The seller/dealer would collect the tax on the

full price of the goods sold and shows separately in the sell invoice issued by him

6. VAT is not cascading or additive though the tax on the goods sold is collected at each stage, it

is not cascading or additive because the net effect would be as follows: - the tax, previously paid

on the sale of goods, would be fully adjusted. It will be like levying tax on goods, sold in the last

state or at retail stage.

WHAT’S THE BIGGEST ADVANTAGE?

The biggest benefit of VAT is that it could unite India into a large common market. This will

translate to better business policy. Companies can start optimizing purely on logistics of their

operations, and not on based on tax-minimization. Lorries need not wait at check-points for days;

they can zoom down the highways to their destinations.

Reduced transit times and lower inventory levels will boost corporate earnings. Following are the

some more advantage of VAT: -

1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%,

10%, 12%, 20% and 25%. However, under the present VAT

System, there would only be 2 types of taxes 4% on declared goods and 10-12% on RNR.

This will eliminate any disputes that relate to rates of tax and classification of goods as
 this is the most usual cause of litigation. It also helps to determine the relevant stage of

the tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or

the last stage differ. Consequently, the question of which stage of tax it falls under

becomes another reason for litigation. Under the VAT system, tax would be levied at

each stage of the goods of sale or purchase.

2. Adjustment of tax paid on purchased goods: Under the present system, the tax paid

on the manufactured goods would be adjusted against the tax payable on the manufactured

goods. Such adjustment is conditional as such goods must either be manufactured or sold. VAT

is free from such conditions.

3. Further such adjustment of the purchased goods would depend on the amount of tax

that is payable. VAT would not have such restrictions. CST would not have the provisions on

refund or carry over upon such goods except in case of export goods or goods, manufactured out

of the country or sale to registered dealer. Similarly, on interstate sale on tax-paid goods, no

refund would be admissible.

4. Transparency The tax that is levied at the first stage on the goods or sale or purchase is not

transparent. This is because the amount of tax, which the goods have suffered, is not known at

the subsequent stage. In the VAT system, the amount of tax would be known at each and every

stage of goods of sale or purchase.

5. Fair and Equitable VAT introduces the uniform tax rates across the state so that unfair

advantages cannot be taken while levying the tax.

6. Procedure of simplification Procedures, relating to filing of returns, payment of tax,

furnishing declaration and assessment are simplified under the VAT system so as to minimize

any interface between the tax payer and the tax collector.

7. Minimize the Discretion the VAT system proposes to minimize the discretion with the

assessing officer so that every person is treated alike. For example, there would be no discretion

involved in the imposition of penalty, late filing of returns, non-filing of returns, and late

payment of tax or nonpayment of tax or in case of tax evasion. Such system would be free from

all these harassment

8. Computerization the VAT proposes computerization which would focus on the tax

evaders by generating Exception Report. In a large number of cases, no processing or scrutiny of

returns would be required as it would free the tax compliant dealers from all the harassment

which is so much a part of assessment. The management information system, which would form

a part of integral computerization, would make the tax department more efficient and responsive.
COMPANY
PROFILE
 About Escorts Construction Equipment Limited (ECEL):

ESCORTS CONSRUCTION EQUIPMENT LIMITED is a fully owned subsidiary of Escorts

Ltd, and belongs to one of the India's largest multiproduct engineering groups, with group sales

turnover exceeding US $ 900 Million. ECEL is the largest Pick 'n' Carry manufacturer in the

world. ECEL has a strong presence in sub continental countries, Middle East and Africa ECEL

was the first to introduce the concept of DEALERSHIPS in the Indian Construction Equipment

Industry.

Escorts Construction Equipment Limited, they have defined the evolution of India's

Construction Equipment Industry over the past 36 years. In 1971, Ecel introduced Pick n Carry

Hydraulic Cranes Mobile Cranes.

A leading material handling and construction equipment manufacturer, they manufacture and

market a diverse range of equipment like cranes, loaders, vibratory rollers and forklifts. Escorts

today are the world's largest Pick 'n' Carry Hydraulic Mobile Crane manufacturer. Leading

Manufacturer of Construction and material handling equipment in India with largest after sales

service network with products like Soil Vibratory roller, Asphalt compactor, Mobile crushing
plants, Concrete slip form pavers, batching plants. Material handling equipments like Pick n

carry cranes, forklifts, slew cranes etc

Escort construction equipment has been a major player in the railway equipment business in

India for nearly five decades. There product offering includes brakes, couplers, shock absorbers,

rail fastening systems, composite brake blocks and vulcanized rubber parts.

In today's Global Market Place, Escorts is fast on the path of an internal transformation, which

will help it to be a key driver of manufacturing excellence in the global arena. For this we are

going beyond just adhering to prevailing norms, we are setting our own standards and

relentlessly pursuing them to achieve our desired benchmarks of excellence.

ECEL is clearly your best escort to the world of Construction and material Handling. Besides

Pick and Carry, ECEL is a leading manufacturer of Vibratory soil compactors, forklifts,

hydraulic RT slew Cranes, Yards, Truck Loaders and Tower Cranes, crawler cranes, Forklift

trucks, Front end loaders, Articulated boom cranes.

ECEL‟s facilities are located at Faridabad (Haryana) and Ballabhgarh (Haryana) with

outsourced facilities at Ghaziabad & Bhiwadi. During 2007-08, ECEL‟s total income at Rs.

5,409.8 million reported a growth of 49.8% over the previous year. Also, the company’s profit

before depreciation, interest and tax at Rs. 345.2 million reported an increase of 22.8% in 2007-

08 over the previous year. ECEL‟s profit after tax (PAT) also increased from Rs. 184.1 million

in 2006-07 to Rs. 261.6 million in 2007-08

Vision:-

By 2011 ECEL will be the most admirable brand.

 Become leader in construction equipment industry.

 Targeted to increase Market Share & their future potential.

 Benchmarked by more businesses.

Mission:-
To become and be acknowledged as, the leader in the Indian Construction, Earthmoving and

Material Handling Equipment Industry, by providing innovative and value engineered Solutions.

The huge housing and infrastructure boom provides attractive platform for

multi-fold growth of ECEL.

This single-minded pursuit of precision and customer satisfaction has made us

the 3rd largest in terms of Construction Equipment Sales unit per annum.
Business Profile:-
 Wholly owned subsidiary of Escorts created in 1994

 Dominant player in the industry

 No. 1 in Mobile Cranes (57% market share)

 No.2 in Road Compactors (24% market share)

 No.3 in Fork Lifts

 Technical tie-ups for Compactors, Fork Lifts, Tower Cranes

 Capacity – 3,500 machines p.a. being enhanced 7,000 machines p.a.

 Distribution & Service Reach

 16 Marketing Offices

 50 Dealers

 200 trained mechanics pan India

The Construction Equipment Business has been recording a handsome y-o-y growth in its gross

revenues in the financial year ending 31st March 2007. The company topped it up further by

registering an impressive 50% top line growth in the current year that ended on 31st March 2008.

As one of the major milestones in its transformation journey, ECEL has just moved into its state-

of-threat and intelligent manufacturing & assembly facility in Ballabgarh, which spans a covered

area of over 250,000 sq. ft., spread over 15 acres land. This factory is equipped with
contemporary capabilities and processes to facilitate a three-time increase in its production

capacity for its existing as well as new, high quality products.

ECEL has set its sights to an ambitious growth plan over the next five years, thanks to a slew of

new product introductions as well market expansion strategies, which shall pan out from the

beginning of calendar year 2009.

Nationwide network of 16 Sales Offices, 50 dealership locations, over 300 company trained

dealers’ service engineers, gives it the best market reach in India for the Sales & Service of

material handling and construction equipment.

With over 30 years experience in Construction Equipment Industry, Escorts has a proven track

record in:

Hydraulic Mobile Cranes

Loaders

Forklifts

Vibratory Compactors
Today, it not only continues to be the largest mobile crane manufacturer in the country, but also

the largest Pick ‘n’ Carry Hydraulic Mobile Crane manufacturer in the world

While recording a rapid growth in Crane Industry we’ve also been able to steadily increase our

presence in the field of Vibratory, Soil & Tandem Compactors. Escorts were the first to bring the

concept of Vibratory Compactors in India in a big way, back in 80’s. Subsequently more models

in Tandem Vibratory Compactors and heavy duty Soil Compactor range were added in technical

collaboration with HAMM Germany. Recently, we’ve further strengthened the range with a 3T

Shoulder Compactor. Today our range of compaction equipments is one of the most preferred in

the market, and is being viewed as the most efficient and effective compaction solutions

available in the country.

Along with Cranes and Compactors, we also manufacture Frontend loaders with payload

capacity of 700kgs. Suitable for narrow lanes and confined spaces, these loaders are compact in

design and are ideal for garbage handling, handing of chemicals, sands, small chips, etc.

Escorts also offer other material handing solutions like Forklifts from Daewoo Doosan Infracore

Ltd., Korea and Articulated boom cranes from Fassi, Italy. In LPG Forklift category, the

company enjoys a market share in excess of 85%.

This single-minded pursuit of precision and customer satisfaction has made us the 3rd largest in

terms of Construction Equipment Sales unit per annum.

ICRA has assigned LBBB- (pronounced L triple B plus) rating to the Rs. 450 million cash credit

facilities of Escorts Construction Equipment Limited (ECEL). ICRA has also assigned A3

(pronounced a three) rating to the Rs. 475 million bank guarantee and letter of credit facilities of

ECEL. LBBB is the moderate-credit-quality rating assigned by ICRA to long-term debt

instruments. A3 is the moderate-credit-quality rating assigned by ICRA to short-term debt

instruments.

The rating favorably considers the long track record of ECEL in the material handling and

construction equipment business, expanding product mix, well diversified customer base, and its

large service network along with several distribution tie-ups. ECEL is a market leader in

hydraulic pick and carry cranes and is expanding its product offerings to include new segments

like backhoe loaders, excavators, wheeled loaders and crawler cranes, besides starting

manufacture of forklifts. However, success of the company in these new product categories

remains to be seen in view of the strong market position of the existing players. The rating also

derives comfort from ECEL‟s well diversified customer base including large manufacturing

companies such as Reliance Industries Limited, NTPC and construction majors like DLF, L&T

etc. ECEL‟s operating performance and financial performance have suffered in recent periods

caused by the prevailing slowdown in the economy. The rating is also constrained by the weak

financial profile of its parent Escorts Limited (EL).

After capital infusion of Rs. 750 million by Darby Investments (private equity arm of Franklin

Templeton), the company has also expanded its manufacturing capacity and set-up a new plant at

Ballabhgarh (Haryana). The capacity utilization in this new plant however could be impacted by
the ongoing demand slowdown, in turn impacting the financial performance of the company.

Nevertheless, over the longer term, since the demand outlook for construction equipment

remains favorable on account of planned investments in roads, urban infrastructure, construction,

ports, mining, oil & gas etc, ECEL is expected to benefit.

During H1 2008-09, ECEL recorded an operating income of Rs. 2,481 million, operating profits

of Rs. 92 million and profit after tax (PAT) of Rs. 39 million.

Ecel are the largest pick-n-carry cranes manufacturer globally, and probably the only company in

India which has come up largely on the strength of locally development, India specific product.

They have remained market leaders on the strength of their R&D, which has allowed them to

keep pushing the technology datum of the industry by introducing new product every year. The

latest range of high end pick-n-carry cranes developed by them is TRX series which will

revolutionizes the industry, is an example of their R&D strength.

Today Ecel’s sales & service network spans 104 locations across the country with 350 training

engineer in the field. The company also maintains zonal and regional offices, so that it can work

closely with dealerships to cater to need of the customer. They also offer customized,

comprehensive maintenance, & service package to suit the customer requirement.

Escorts Construction equipment Limited (ECEL), the Construction and Material Handling

Equipment manufacturing arm of Escorts, has recently collaborated with Construction Industry
Development Council (CIDC), established by the Planning Commission, to roll out skill

upgrading programs for construction equipment operators and technicians.

Their aim of reinforcing its market position further, the company is adding production capacity

by building new plants at Ballabhgarh and Rudrapur with huge investments. These new facilities

along with the existing ones at Faridabad, Sahibabad and Bhiwadi, will take the annual capacity

of 5,000 units to 15,000 units of construction equipment. The new state-of-the-art plant at

Ballabhgarh would be 15 acres, with 3, 00,000 sq ft of covered area, facility. The production

from both facilities is slated to start shortly.

The company has also set up a training facility at Bangalore for imparting the skills for

equipment operation and maintenance. The training facility is built over 76 acre of land and has

accommodation and training facilities for over 200 persons at a time The facility, curriculum,

methods and processes and skill certification for the training program has been accredited by

CIDC (an organ of planning commission of India).

At ECEL, they have defined the evolution of India's construction Equipment Industry over the

past 36 years. They defined customer support by setting up the first pan India; a dealer network

in the industry today spread over 80 plus strategic Locations.

At ECEL, we always are improving the product offerings. "Product and application innovation”

is our main strategy to remain the market leaders. All our equipments are engineered to meet

standards on fuel efficiency, safety, quality, and eco-friendliness.

As far as operational attributes are concerned, we always take the lead in improving the offerings

by technological innovations as a continuous ongoing process. Going with their “global leader”

status on Pick and carry cranes, TRX series also has the world’s largest articulated Pick and

Carry crane as an offering in the range of 22-25 tonnes capacity. For Tandem rollers, we are the

only company to offer an asphalt version along with a dual application version.

Recently, they have partnered with the World leaders, such as IHI of Japan (for crawler cranes

up to 280 Tonnes) and ALTEC of USA (for power/telecom transmission utility equipment), to

market their products in India. Both these product lines are with the most technologically

advanced operational attributes in the world in line with the complex requirements of the

projects. They have also tied up with WEIHAI HUATA and ALFA for marketing their range of

Tower cranes and with these two tie-ups; our offerings on Tower cranes will be the most

comprehensive and innovative in the industry.

Hydraulic Mobile Pick and Carry Cranes, Hydraulic Mobile 360 deg Slew Cranes (Rough, Yard

and Truck types), Single drum Soil Vibratory Compactors, Tandem Vibratory Rollers for Dual

(soil/asphalt) application as well as purely for Asphalt application, TVR for shoulder

compaction, Articulated boom Cranes, Front end Loaders, Forklifts, Tower Cranes, Crawler

Cranes and Power/Telecom transmission utility equipment.

Over the years, we have been ramping up our capacities. As our sales volumes kept growing

(more than 8 times since 2000), they kept ramping our production capacities to meet the demand.
Delhi Metro Rail Corporation (DMRC) organized a day long workshop on

“Use the Pick and Carry Cranes at DMRC site” on 19th September 2008. This workshop was

attended by the safety cell of DMRC, Project Managers of all DMRC sites, associated

contractors and Senior Management of DMRC and addressed by manufacturers of Pick-N-Carry

Cranes.

ECEL’s presentation was acknowledged as the mainstay of the workshop as it addressed many of

the issues pertaining to the safe operations of Pick-n-Carry cranes.

In order to enhance and achieve a high level of customer satisfaction, for their esteemed

customer M/s Drillcon (Raj) Private Limited, Escorts Construction Equipment Ltd. (ECEL) at

Udaipur augmented its service support infrastructure by adding a completely in Bundi,

Rajasthan.

First of its kind in ECE Industry, ECEL has launched a Rescue Vehicle for the hilly terrain and

other difficult situations. With sole purpose of saving precious lives of accident victims, the Hill

Recovery Vehicle has features which would make it a sure life saver. It is a high speed, 4-wheel

drive vehicle which has four outriggers for stability during rescue operations. With adequate

lifting capacity and with reach up to 300 mtrs, this vehicle comes with complete rescue kit

including stretchers, life jackets, safety belts, walkie-talkie and hooters.

A next step towards achieving a total market leadership in the country, ECEL has now joined

hands with M/s Anhui Heli of China, the fastest growing forklifts manufacturers in the world to

manufacture 2-3T diesel forklifts in India through a technical collaboration agreement. Heli

forklifts are known for superior technology and product performance which has enabled them to

export to all over the world, especially to the matured market of US and Europe. ECEL will roll
out locally manufactured forklift trucks in October this year, from its state-of-the-art plant at

Ballabgarh. With the twin offerings of Escorts Doosan (imported machines on trading basis) and

Escorts Heli forklift trucks (indigenously manufactured)-aims at covering the total market with

distinct segmentation.

The company looking at increase the future plan to capture the market by innovate the new

design plan in this fiscal year. The team is making a strong mark for itself in literally anything

and everything that it doing, be it innovation, product development, collaboration, market

penetration. After making signification in load in the construction equipment segment as the

undisputed leader of the Pick n Carry cranes in the world, it has now set sight on new high value

segment like Tower Cranes, Crawlar Cranes.

Given the exponential growth the sector is experiencing the Escorts Construction Equipment

team is fully geared up meet the expectation of tomorrow.

The new manufacturing facility at is fast coming up as scheduled, to the 27 * 7 effect of the

product team. In a move that clearly reflects the belief that brand build organization; Escorts

Construction Equipment has gone in for on all new personality.

The company is a subsidiary of Escorts Limited. It has a turnover of US$ 61 million. It holds a

56 per cent market share in the domestic pick n carry market.

The key segments that constitute the Escorts
Construction Equipment
PRODUCT
PROFILE
 Product Profile

MATERIAL HANDLING EQUIPMENTS

Pick and Carry Cranes

Slew Cranes
Crawler Cranes
Truck Cranes
Articulated Boom Cranes
Tower Cranes
Forklift Trucks
Arial Work
Platforms

Telehandlers

Front End Loaders

ROAD CONSTRUCTIONS EQUIPMENTS

Tandem Vibratory Roller

Vibratory Soil Compactors

UTILITY EQUIPMENTS

Electric/Telecommunications
 MATERIAL HANDLING EQUIPMENTS
Pick and Carry Cranes
TRX SERIES
RANGE 10 T TO 23 T

K 10 F 15 TRX 2319 MAC 1214 HP 216

E SERIES
RANGE 5 T TO 16 T

5E Hydra 8 C 8000 Hydra 10 Hydra 10 SB

 Hydra 12 Hydra 12 SB HY 12 Hydra 14

Slew Cranes

RANGE 10T TO 40T

IF 10 IF 12 IF 15 HK 17
 RT 30 RT 40
RT 20

Crawler Cranes
 Articulated Boom Cranes

• ESCORTS
FASSI
ARTICULAT
ED BOOM
CRANES
RANGE 2Tm to 80Tm

ARTICULATED BOOM
CRANE
 Front End Loaders

770 TC 710

Tower Cranes

ESCORTS WEIHAI HUATA TOP SLEW

ESCORTS ALPHA MOBILE TOWER CRANES
CRANES
 Forklift Trucks

ESCORTS HELI FORKLIFT TRUCKS (INDIAN MANUFACTURED)

3000 D

ENGINE POWERED
FORKLIFT TRUCKS

ESCORTS DOOSAN FORKLIFT TRUCKS

RANGE 1.5 TO 16 T

COUNTER BALANCED DIESEL/LPG

ELECTRIC TYPE REACH TYPE
FORKLIFT TRUCKS
ROAD CONSTRUCTIONS EQUIPMENTS

Tandem Vibratory Roller

SOIL VIBRATORY
COMPACTORS

RANGE 10 Ton TO 12 Ton CLASS

2420 EC 5250

Vibratory Soil Compactors

TANDEM
VIBRATORY
ROLLER
HD 85
LITERATURE
REVIEW
 Value Add Tax

By “Shri N Srinivasan”, Vice President, FICCI and Vice Chairman and Managing
Director, the India Cements Limited

Value Added Tax: Fiscal Innovation of the 21st Century

 Though VAT has been successfully introduced in a majority of the States, it needs to be

streamlined in terms of:

- Uniformity in classification of products across States

- Uniformity on the valuation base (e.g. Drugs attracting VAT @ MRP in some States vs.

normal selling price in other States)

- Reduction in CST rate to 2% in 2006-07 and nil in 2007-08 as promised by you earlier.

We would request you to phase out the CST in this manner only and the period should

not be extended any further.

 For seamless movement of goods across states, VAT should be introduced in all states

and union territories. I am aware that you along with the convener of the Empowered
 Committee of State Finance Ministers' Dr Asim Dasgupta are in touch with other states

that have not

 Time is ripe now to do away with other levies in any form be octroi, entry tax, mandi

tax etc.

 After having now the revenue buoyant experience of the State level VAT, perhaps, it

may be desirable to have a road map for national VAT with overall incidence of 20 per

cent (CENVAT 12% and State VAT 8%) to provide us the competitive edge in the

global matrix.

By “Mr. Robert Merriam”, Chairman, Advisory Commission on Intergovernmental

Relations, WASHINGTON, D.C

"Our bottom line is that tax research done in an accounting context has a valid claim to be

recognized as a significant part of the wider field of accounting research. Overall, the volume of

European tax research published in English-language accounting journals remains too small. To

change this position, individuals must try to meet the challenges of tax research. The accounting

community must also encourage its growth by signaling the acceptability of tax research done

well as accounting research and by offering positive suggestions of how to tailor this particular

interdisciplinary subject to make valuable contributions to the wider field."

(Lamb and Lymer, 1999, p.767)

The value-added tax is favored, by some, because it is a broad-based levy which generates large

revenues at relatively low rates. Yields vary with the three forms of the tax.

European countries use the consumption type value-added tax, while some Latin American

countries use the income type. The base of the consumption-type value-added tax is personal

consumption expenditures, which run at a rate of $728.6 billion per year (1972, 3rd quarter,

seasonally adjusted at annual rates). A 1 percent value-added tax, with no exemptions from the

tax base, would yield close to $7 billion per year. Some consumption expenditures, however, are

considered inappropriate items for inclusion in the tax base. For example, professional charges

for services of doctors, lawyers and hospitals; the imputed value of owner-occupied housing; the

cost of food, clothing and insurance, all stand as potential claimants for preferential tax

treatment. Exempting these and other consumption expenditures would reduce the revenue yield.

Some economists suggest that only about 40 percent of personal consumption expenditures are

amenable to forms of sales taxation.3 the analysis of the tax base question in Chapter I1 of the

report suggests a base that would cover 53 percent of personal consumption expenditures and

would yield $2.8 billion to $3.5 billion per percentage point of rate.

For the other types of value-added tax, the revenue yield is somewhat higher. The income type

value-added tax, which includes net business investment in addition to personal consumption

expenditures, would yield approximately $7.1 billion per percentage point of rate (excluding,

among other things, governmental purchases of goods and services). The comprehensive gross

product value-added tax would yield about $8.1 billion per percentage point, but this type of tax

is subject to serious objections.

All value-added tax bases are broad-based and therefore capable of generating large amount of

additional revenues at relatively low rates of tax. This advantage, however, is not peculiar to the

value-added tax. The base of the consumption-type value-added tax is similar to a retail sales tax

confined to consumption goods and that of the income-type VAT is the near equivalent of a

proportional income tax. The gross-product form of the tax has no such counterpart. Because the

pressures for exemption would be similar under either the consumption value-added tax or the

retail sales tax, the base for the two taxes would, at least in theory, be equivalent. Similarly, the

initial impact of an income value-added tax is essentially equivalent to a proportional income tax

without deductions, credits, exemptions, or allowances of any kind. Hence the tax base for these

two levies is nearly identical, though the burden distributions need not be. As a method of raising

substantial amounts of additional Federal tax revenues, therefore, no inherent advantage accrues

to the value-added tax because of its potential tax base. The only argument might be that

pressures for exemption or preferential tax treatment would either be less severe or more

successfully resisted with the consumption or income form of VAT.

CHAPTER-II
OBJECTIVE OF
THE STUDY
 Objective of the Study

The Value Add Tex Design in two states: Delhi and Haryana is very wide topic to study the VAT

design in both state on the base of their classification of commodities & tax rate. The Objective

of the comparative study of VAT Design in Delhi and Haryana are:

 The main object of the study to compare the VAT design in both states and the effect of

VAT design.

 Creating awareness among the people about the VAT design.

 Analyzing the effect of VAT design on the revenue collection in both states.

 Collection the data base of different stages of VAT & effect of these stages on revenue of

both states.
 Analyzing the classification of commodities & tax rate in these two states. Impacts of

these classifications of commodities in production, selling of product & consumer to buy

this product.

 Analyzing how the VAT design work in these states & it may increase the revenue.

 Analyzing the satisfaction level of consumer, dealer & production company towards the

VAT design
 Scope of the Study

The study is conducted on VAT design in two states: Delhi and Haryana. It is conducted on the

maker of Construction Equipment Company. The study is confined in the area of Delhi &

Haryana. The research is conduct on 300 people to asked about VAT

The size of the sample was: 300

CHAPTER-III
 RESEARCH
METHODOLOGY

METHODOLOGY

FINANCIAL RESEARCH

Financial research is the functions which links the financial department and Research

development department in company.

To financial analyst through information used to identity and define financial Opportunities and

problems; generate define and evaluate, financial Actions, monitor marketing performance, and

improve understanding of process of financial activities.

Simply, financial research is the systematic design, collection, analysis and Reporting of the data

findings relevant to a specific financial situation facing the company. Careful planning through

all stages of the research is a necessity.

Objectivity in research is all- important. The heart of the scientific method is:

The objective to gathering and analysis the information is to collect them for research purpose.

The function of marketing research within a company is to provide the Information and

analytical inputs necessary for effective.

• Planning of future financial situation.

• Control of financial operations in the present.

• Evaluation of financial results.

A research may undertake any of three types of research investigation depending upon the

problem. These three types of research included.

• Basic research

• Applied research

• Designated fact gathering

BASIC RESEARCH
It is also known as the pure fundamental research which refers to those studies, sole purpose of

which is the discovery of new information. I conducted to extend the horizon in given area of

knowledge with no immediate application to existing problem.

APPLIED RESEARCH
It is an attempt to apply the various marketing techniques, which have been developed as

research, first and later on they become applied research techniques. It is an attempt to apply the

basic principles and existing knowledge for the purpose of solving the operational problems.

DESIGNATED FACT GATHERING

It refers to a research where the investigator attempts nearly to gather some predetermined data.

Steps in Financial Research Process

Marketing Research Process can be carried out through the following steps:

Define the problem and research objectives

 Develop the research plan

Collect the information

Analysis and interpretations

Present the findings

DEFINE THE PROBLEM AND RESEARCH OBJECTIVES

In a very sense, this is the heart of the research process. This is the first step, which

calls for the marketing manage and marketing research.

RESEARCH PLAN DEVELOPMENT

The second calls for developing the most efficient plan for gathering the needed information. Not

to forget the cost or values of research the financial manager must estimate process its approval,

Research plan calls

For decision on

a) Data source

i. Primary data to be collected for a specific purpose.

ii. Secondary data collected for another purpose and already existing somewhere.

1. Research Approaches: Primary data can be collected in four ways:

1. Observational research

2. Focus group research

3. Survey research

4. Experimental research
 2. Research Instruments: Marketing researchers can use questionnaires in collecting of

primary data, because of its flexibility; questionnaires are by far the most common

instrument used to collect primary data.

3. Sampling Plan: This plan calls for the three aspects:-

a) Define the sampling unit.

b) Decide the sample size.

c) Decide the sampling procedure whether to use probability or non-probability

sampling methods.

4. Contract method: once the sampling plan has been determined, this has to decide how the

subject should be contacted. The choices are mail, telephone or research interviews.

COLLECTION OF INFORMATION

Data collection phase is generally the most expensive and the most phase to error. Carry out the

field work, collect data using the instruments, adjust the Problem of not at homes, replaced,

refusal to co-operate, biased or dishonest answers.

ANALYSIS AND INTERPRETATIONS

The next to last step is to extract pertinent findings from the collected data. The researcher edits,

code, tabulate the collected data.

PRESENTATION OF FINDINGS

As the last step in marketing research the researchers present the findings. The researchers have

to arrange the researched result according to an approved reporting format, get the report typed

and bound, present the copies of the report to the concerned authorities.

RESEARCH METHODOLOGY/ DESIGN

The methodology adopted for eliciting the data required for the study was survey method. It is

the overall pattern or framework of the project that will dictate as to what information is to be

collected, from which sources and by what procedures.

RESEARCH METHOD

Research methodology must be classified on the basis of the major purpose of the investigation.

In this problem, description studies have been under- taken, as the objective of the project is to
conduct the market share study to determine the share of the market received by both the

company and its competitors.

DATA COLLECTION

The information needed to further proceed in the project had been collected through primary data

and secondary data.

PRIMARY DATA

Primary data consists of information collected for the specific purpose at hand for the purpose of

collecting primary data, survey research was used and all the retail outlets sellers using different

brands and their competitors were contacted. Survey research is the approach best suited

gathering description.

SECONDARY DATA

The secondary data consists of information that already exists somewhere, having been collected

for another purpose. Any researcher begins the research work by first going through the

secondary data. Secondary data includes the information available with the company. It may be

the findings of research previously done in the field. Secondary data can also be collected from

magazines, newspapers, other surveys conducted by known research agencies etc.

RESEARCH METHODOLOGY

The most of data collected from secondary source & the respondents are the industry people &

experts which know the VAT design. The survey was carried in two states: Delhi & Haryana.

The survey was carried out with the help of an organizational VAT structure or the government

site & government informational document about VAT design, which helps in accomplishing the

research objectives.

The major source of data is the pre existing fact & finding about VAT. There is no need to take

any personal interview with the structured ended questionnaire.

\

CHAPTER-IV
 DATA ANALYSIS
&
INTERPRETATION

My project based on the comparative analysis between to state: Delhi & Haryana. To go through

the comparative analysis take the briefs look on both VAT design.
 VAT IN HARYANA

In Haryana, Value Added Tax has been introduced in the State from IST April, 2003. It is the first

state to initiate and implement VAT for own revenue generation.

Under VAT, there are three rates of tax i.e. 4%, 10% and 12%. Apart from these three rates,

there is a list of exempted goods. Besides, bullion and jewellery attract tax @ 1% and liquor,

petrol and ATF @ 20%. Details of tax rates for various categories are on the website. Under

VAT, dealers having turnover up to Rs. 25.00 lakh have option to pay 1% on their value of

purchases subject to minimum of Rs. 900/- per month and they will maintain simple account of

their sales. This provision is likely to cover majority of the existing dealers. This, however, is

optional and does not apply to goods imported from outside the State. Registration procedure

would be very simple. No official of the department will check records or visit business premises

of these dealers without prior permission of the Excise & Taxation Commissioner.

The VAT is a consumption tax and given the spiraling behavioral trend in the consumption of

goods in Haryana what is the logically sustainable level to be expected in the budget? For

instance, the gap between the budget estimate (BE) and the actual in the sales tax collection

alone during 2003-04 is of the order of 1.5 per cent of the former.

Agreed these are early years for any Finance Minister to rely upon the VAT to get a relief from

the vexing deficit situation. The VAT nonetheless, is a contemporary flavor and spirit both with

the millions of consumers in the state as well as with the Union Finance Minister.
Since tax exemptions are not compatible with VAT, the existing units availing exemptions

cannot avail of tax exemptions. They have the option to switch over to tax deferment as per the

deferment scheme already in operation in the State. The assessment system has been totally

streamlined and all cases would be deemed to have been assessed unless taken up for scrutiny by

the Department. In case no notice is received within one year from the filing of the last return,

the case would stand finalized. Cases taken up for scrutiny would also be finalized within three

years and revision, if any, would have to be finalized within three years from the date of

assessment.

Appeals under VAT will be heard without the precondition of payment of the disputed demand.

Penalties under the Act have been rationalized. From the present provisions of penalty of 30% of

the value of the goods in transit, now the penalty is three times of the tax involved. The

discretion/arbitrariness about the quantum of penalty has been removed. Penalty for late payment

has been changed from 150% of the tax amount in arrears to interest @ 1.5% per month for delay

up to three months and 3% per month if the delay is beyond three months and no separate

penalty will be levied.

Inspection of business premises will now be possible only after obtaining prior sanction from the

Excise & Taxation Commissioner or an officer authorized by him. The officer carrying out such

inspection would have to carry such written permission with him, which he shall show to the

owner of the premises. Such cases will have to be finalized within a period of one year. Unlike

most of the States there is no provision for prosecution/criminal proceedings under VAT. Unlike

other States Haryana shall continue to have no barrier policy at State borders.
After introduction of VAT the Central Sales Tax is proposed to be phased out from June, 2003. It

is likely to be reduced from 4% to 2% and completely removed with effect from IST April, 2005.

With the introduction of VAT the litigation with regard to rate of tax and stage of tax will come

to an end.

With the introduction of VAT, the following changes in rate of tax may be noted-

(i) Chemical fertilizer is taxable @ 4%

(ii) Goods taxable @ 8% before 01/04/2003 are now taxable @ 10% except ice,

bamboo, firewood and sawdust which are now taxable @ 4%.

(iii) Aerated water/cold drinks, molasses, rectified spirit, narcotics and minerals are now

taxable @ 12% in place of 20%.

VAT IN DELHI

The Empowered Committee has taken steps to initiated for systematic preparation for the

introduction of State-level VAT. In order to avoid any unhealthy competition among the States

which may lead to distortions in manufacturing and trade, attempts have been made from the
very beginning to harmonize the VAT design in the States, keeping also in view the distinctive

features of each State and the need for federal flexibility. This has been done by the States

collectively agreeing, through repeated discussions in the Empowered Committee, to certain

common points of convergence regarding VAT, and allowing at the same time certain flexibility

for the local characteristics of the States.

Delhi Sales Tax Department (DST) of the Government of NCT of Delhi is responsible for

developing and implementing a comprehensive VAT regime for the National Capital Territory of

Delhi. Migration to VAT presents a unique opportunity to re-engineer and IT enables the DST

operations. The Dept. has finalized the DGT policy, legislation, rules and regulations, business

procedures and organization structure required to enable the changeover to the new system.

Finally the DST has implemented Value Added Tax (VAT) in Delhi on 01st April, 2005. Initially

this system was protested by the trade unions and dealers. However, the department had

explained the beauty and flexibility of VAT to the dealers, Trade Unions and bar council. The

Dept. has conducted numerous workshops, conferences and awareness campaigns to bring about

awareness among the stakeholders. The implementation of VAT seeks to achieve a new tax

system, which is efficient and taxpayer-friendly. It seeks to reduce the compliance cost for the

taxpayers and administrative costs for DST. The new system is also intended to ensure that the

patterns of consumption, production and resource use in Delhi do not get distorted by the tax

system.

The new tax system DVAT replaces the old Delhi Sales Tax Act, Delhi Sales Tax on Works

Contract Act, Delhi Sales Tax on Right to use goods Act and Delhi Sales Tax on entry of motor

vehicles.
DVAT is a tax on sale of goods in Delhi. The tax levied under this mechanism is simpler, fairer

and more transparent than the current sales tax.

It is a multi-stage tax chargeable at each stage of economic activity, e.g., manufacturing, and

wholesale and retail distribution.

The department has developed a citizen interface that encourages compliance to the process and

ensures digital loyalty. Citizen-centric channels that would provide faster and easier access will

be deployed. Considering the sensitivity and confidentiality of information the security policy

and appropriate equipment is being planned. The associated infrastructure, software and support

services are procured to facilitate the implementation of the application. A robust IT application

is being created to support and automate the defined processes. The base processes and

organizational structures have been redefined to facilitate the implementation of the new regime.

The net tax of a dealer is the difference between the total tax charged on its sales (referred to as

its output tax) during a given tax period and the tax paid on its purchases (referred to as its input

tax) during the period. If the output tax for the period exceeds the input tax, the difference is

payable to the government. If the input tax exceeds the output tax, the dealer is entitled to a

refund of the excess, or to carry forward the excess to be offset against tax payable in a future

period.

Mechanism of DVAT

Taxable Sales

time
 Tax Rate

equals

Tax Charged on Sales = Output Tax

minus

Tax Paid on Purchases = Input Tax

equals

Net Tax

Tax Payable Refundable Tax

(if positive) (if negative)

Under this mechanism, the tax rolls forward at each intermediate transaction to the point of final

sale to the consumer. When the article reaches the consumer, the total tax paid by all intermediate

dealers equals the tax on the final sale price of the article.

The standard rate of DVAT is 12.5%. Other rates of 1%, 4% and 20% apply to certain specified

goods, such as gold and silver articles, coarse grains, garments, and petroleum.

With the introduction of DVAT, the following changes in rate of tax may be noted-

i. Chemical fertilizer is taxable @ 4%

ii. Goods taxable ice, bamboo, firewood and sawdust which are now taxable @ 4%.
 iii. Aerated water/cold drinks, molasses, rectified spirit, narcotics and minerals are

now taxable 20%.

iv. Goods Taxed at 1% are Bullion, Articles of Gold, Silver and Precious Metals

including Jewellery made from gold, silver and precious metals & Precious

Stones and Semi-Precious Stones.

Annexure I
VAT Rate for Fruits & Vegetable Products
Schedule E
DELHI 4% Processed meat, poultry, fish and processed or preserved vegetables

and fruits etc including fruit jams, jelly, pickle, fruit squash, paste, fruit

drink and fruit juice whether in sealed container or otherwise

 HARYANA 4% Processed and preserved vegetables and fruits including fruit jams,

jelly, pickle, fruit squash, fruit paste, fruit drink and fruit juice, whether

in a sealed container or not, and wet dates

In my study I found that the VAT Rate for Fruits & Vegetable Products is same in both states but

the item cover in this Category is having some difference.

Annexure II
VAT Rate on Processed Foods and Ayurvedic Products

HON GLU ANM POL ISA SPI YPA YJU YMK YTP YTS YPC

HONE GLUC ANMO POULT ISABG HOMM COCO TOMA TOMA

Name Of The State Y OSE L RY OL SPICES ADE JUICES NUT TO TO CAPSICO

COCO
FPD NUT FEED PASTE MILK PUREE SOUP SAUCE

Delhi 4.00 12.50 4.00 0.00 12.50 12.50 4.00 4.00 4.00 4.00 12.50 12.50
Haryana 12.50 4.00 4.00 0.00 12.50 4.00 12.50 12.50 12.50 12.50 12.50 12.50

In my study I found that VAT Rate on Processed Foods and Ayurvedic Products is having the

difference in their item in some are similar & some are different VAT rate. In this the similar

item are ANMOL with 4%, POULTRY with 0%, ISABGOL with 12.50%, TOMATO SOUP

with 12.50% and CAPSICO 12.50%.

These are the item which

having difference are HONEY with 4% in Delhi & 12.50% in Haryana, GLUCOSE with 12.50%

in Delhi & 4% in Haryana, SPICES with 12.50% in Delhi & 4% in Haryana, HOMMADE with

4% in Delhi & 12.50% in Haryana, JUICES with 4% in Delhi & 12.50% in Haryana,
COCONUT with 4% in Delhi & 12.50% in Haryana, TOMATO with 4% in Delhi & 12.50% in

Haryana.

VAT Rate on These Items

** For plant and machinery VAT rate is 4%. Other capital goods-Schedule rate
or 12.5%

In my study I found that VAT rate on Medical Equipment/devices is In Haryana 12.5% & In

Delhi it is 4%. VAT rate on Capital Goods is In Haryana 12.5% & In Delhi it is 4%. VAT rate on

Naphtha is In Haryana 12.5% & In Delhi it is 20%.

These are the difference are in the tax rate after it we have to study the tax schedule or tax rate

design.

Difference in Tax Rate Design in Delhi &

Haryana
In Delhi
The goods are grouped into five schedules as under:

Schedule Rate of Illustrative Items

tax

1 0% Vegetables, milk, eggs, bread

2 1% Precious metals and precious stones and their jewellery
3 4% Raw materials, notified industrial inputs, notified
information technology products and a few essential items

4 20% and Liquor, petrol, diesel etc

above
5 12.5% Other than items specified in schedules A, B, C & D.

(The list is illustrative and not exhaustive. Please refer to the schedules for details)

In Haryana
The goods are grouped into seven schedules as under:
Schedule Rate of Illustrative Items
tax

A 0% Vegetables, milk, eggs, bread

B 1% Precious metals and precious stones and their jewellery

C 4% Raw materials, notified industrial inputs, notified

information technology products and a few essential
items, Aviation Turbine Fuel, Petrol, Gasohol, High
Speed Diesel, Light Diesel Oil, Super Light Diesel Oil,
Kerosene, Liquid Petroleum Gas, Low Sulphur Heavy
Stock and Furnance Oil when sold by one oil company to
other oil company for the purpose of resale in the state,
outside the state (after their export out of state), or in the
course or inter-state trade or commerce.

D 20% and Liquor, petrol, diesel etc

above

E 12.5% Other than items specified in schedules A, B, C & D.

F 12% High Speed diesel, Super light diesel Oil, Light diesel oil
w.e.f. 1.4.2003 to 31.1.2004 , Ply board
Inserted vide No. S.O. 116, dated 29.12.2006 w.e.f.
1.7.2005
 G 8.8% High Speed diesel, Super light diesel Oil, Light diesel oil
Subs. Vide no. S.O. 9, dated 22.1.2004 w.e.f. 1.2.2004
to 05.06.2008

D 25% Liqour sold by bar licenses (L-4/L-5/L-12C/L-12G/L-10E

and 1st sale of Indian foreign Liqour (Bottled in Origin)
in the State.
Subs. vide no. S.O. 40/H.A.6/2003/S.59/2009, dated
31.03.2009 (w.e.f. 01.04.2009)

(The list is illustrative and not exhaustive. Please refer to the schedules for details)

In my study I found that there are not so much differences in Tax Rate in both states. In Haryana

the change can be occur in case of Aviation Turbine Fuel, Petrol, Gasohol, High Speed Diesel,

Light Diesel Oil, Super Light Diesel Oil, Kerosene, Liquid Petroleum Gas, Low Sulphur Heavy

Stock and Furnance Oil when sold by one oil company to other oil company for the purpose of

resale in the state, outside the state (after their export out of state), or in the course or inter-state

trade or commerce is 4% but In Delhi these item is occur in 20% tax rate category.

In Haryana the item High Speed diesel, super light diesel Oil, Light diesel oil

, Ply board is in 12% & In Delhi this category is not there. In Haryana Liqour sold by bar

licenses (L-4/L-5/L-12C/L-12G/L-10E and 1st sale of Indian foreign Liqour (Bottled in Origin)

in the State 25% and In Delhi this item came in 20%.

In Delhi the five schedules is define the goods category but In Haryana the seven schedules are

there for defining the goods category.

Variance in use of HSN classification codes

Delhi Haryana
Industrial inputs - HSN
code classification 4,6 & 8 8
(in digits)

HSN Numbers are allotted in the Schedules either in four digits or in six digits or in eight digits.

The four digit numbers indicate the heading in the HSN classification, six digit numbers indicate

the sub-heading and the eight digit numbers indicate the specific commodity number. While

interpreting the commodities in the Schedules, the following guidelines may be followed.

I. The commodities which are given four digits HSN Number shall include all those commodities

coming under that heading of the HSN.

II. The commodities which are given six digits HSN Number shall include all those commodities

coming under that sub-heading of the HSN.

III. The commodities which are given eight digits HSN Number shall mean that commodity

which bears that HSN Number.

IV. As an exception to the above rules, there are certain entries in the Schedules, which bear the

eight digit numbers but the four digit heading numbers of such commodities are given for some

other commodities mentioned elsewhere. In such cases, the four-digit heading shall include only

those commodities under that heading excluding that commodity for which the eight digit

numbers are given. Similar cases are available in the case of six digit numbers also. In such cases

the above principle shall apply mutatis mutandis.

V. Where the term ‘other’ is used in sub-entries or in sub-sub-entries, it should be construed by

using the doctrine of ejusdem generis. [When specific words are followed by general words, the

general words should be interpreted as having the meaning identical to the meaning attributed to

the specific words]

Harmonised system of nomenclature (HSN) basis of classification of goods for VAT purposes &

it is 8-digit HSN code system. In Delhi the HSN classification code is 4, 6 & 8 and In Haryana

the HSN classification code is 8.

Treatment of input tax credits on capital goods

state Input Tax Credits Availability Period
Haryana Can be availed in a single installment

Delhi 3 equal yearly instalments

In my study I found that the input credits availability period in Delhi is more flexible it can be

for 3 equal yearly instalments but In Haryana it can be availed in a single instalment.

Treatment of Works Contracts

In my study I found that the treatment of work contract is different in both states. It is shown in

the above table.

Status of Incentive Schemes

 States Status of Schemes
Delhi No such schemes

Haryana Exemptions converted to deferments

In my study I found that the status of incentive schemes is different in both states. This feature is

available in Haryana; In Delhi no such schemes are there.

Refunds of excess input tax credits

 States Criterion
Haryana Refund is available only to exporters. Other dealers only eligible to
adjust the excess against future tax liability.
Delhi Can be availed at the end of the tax period at the option of the
dealer.

In my study I found that In Haryana the Refund is available only to exporters. Other dealers only

eligible to adjust the excess against future tax liability & In Delhi Can are availed at the end of

the tax period at the option of the dealer.

Overall Satisfaction in Delhi

In my survey I found that most of the population which effect by VAT there view towards the

implementation of VAT in Delhi are Good (50%) & Excellent (25%). But Government must take

care towards unsatisfied customers (5%), if they satisfied the Delhi population.

Overall Satisfaction in Haryana

In my survey I found that most of the population which effect by VAT there view towards the

implementation of VAT in Haryana are Good (55%) & Excellent (20%). But Government must

take care towards unsatisfied customers (5%), if they satisfied the Haryana population. As we

know that Haryana is the first state where the VAT is implement in 2003 in initial phase of VAT.

Revenue Generate By VAT in Haryana

Haryana is the first state to initiate and implement VAT for own revenue generation. The state

registered 10.3% growth in Vat revenue, compared with 22% growth in Haryana. Haryana is

better off if tax collection is taken as an indicator of its economic health.

Haryana has also done well in collection of excise from liquor vends that it had started under the

system of allotment through draw of lots. Last year, it introduced the new system of allotment of

liquor vends through draw of lots to break the monopoly of cartels and bring about transparency.

All the states that introduced this system suffered financial loss in the first year, and Delhi was

no exception. But Haryana was able to collect Rs 1,223 crore against the target of Rs 1,200

crore, registering a 10.48% growth.

Central Sales Tax demonstrates, Haryana govt. share in the net export happened to be a

staggering 10.5 % of the cumulative exports outside the respective states within the union,

though Haryana govt. account for just about 3% of the National GDP. In absolute terms, govt.

stood second only to Maharashtra on this count. It is, in these circumstances, but natural that the

pinch in financial terms of the progressive reduction in the rate of levy of Central Sales Tax,

popularly known as CST, is also felt most acutely by us alone. Yet, despite a 50% reduction in

the rates of CST, govt. per capita collection of VAT is amongst the highest in the country and we

collect very significantly more revenue on this account even in absolute terms compared to some

of the much bigger and traditionally more prosperous neighboring states in the region. Our tax

collection efficiency computed as cost to collection ratio is amongst the best even when some

prestigious central agencies are also included in the comparison along with other states. These

are no small feats and speak volumes about the commitment and professionalism of highest order

amongst our tax collectors and the department of Excise & Taxation deserves a generous

appreciation for it”.

Tax Revenue of Haryana Government
(Rs. crore)
Item 2006-07 2007-08 2008-09
(BE)
VAT Tax 6853.24 7720.98 9785.00
(56.07) (58.26) (60.94)

Other Taxes & Duties on 19.10 24.74 30.00

commodities and services (0.15) (0.19) (0.19)
Total 6872.34 7745.72 9815.00

This is the revenue collected in Haryana in Three years record this data show that VAT increases

the Revenue collection in Haryana. The VAT becomes major sources of sales tax. The figure

shows the graphical representation of vat revenue collection in three years data.

Trends in VAT/GSDP
(Per cent)
State 1980-90 1990-2000 2000-2009
(Average)

1 2 3 4
Haryana 3.2 3.5 4.9
In this figure the tax revenue of govt. shown In year 2006-2007 the revenue collected by vat is

6872.34 crore Rs., In year 2007-2008 the revenue collected by vat is 7745.72 crore Rs., In year

2006-2007 the revenue collected by vat is 9815.00 crore Rs.

 Revenue Generate By VAT in Delhi

The Delhi governments implement the VAT system in 2005. VAT is the major source of Own

Tax Revenue of Delhi Govt. VAT is the major source of Delhi’s Own Tax revenue contribution

from which was about 75% in 2008-09. The other major sources of Tax revenue of Delhi

Government are State Excise, Stamp & Registration Fees, and Taxes on Vehicles etc.

VAT is the major source of Own Tax Revenue of Delhi Govt. The collection of VAT was

Rs.8494.19 crore during 2007-08 which is about 71% of Own Tax Revenue of Delhi during the

year.
The revenue collection under VAT was approximately Rs. 9152.09 crore in

2008-09. this is the main source of own Tax Revenue of Delhi having contribution of more than

75% in 2008-09 and registered a growth of 10.13% against the growth of 12.83% in the previous

year. The tentative collection of state excise during 2008-09 was Rs. 1420.91 crore with annual

growth of 9.20% as compared to the growth of 14.83% in the previous year. Chart indicates the

tentative own Tax collection of Delhi Govt. during 2008-09.

In this figure the tax revenue of govt. shown In year 2006-2007 the revenue collected by VAT is

7365.80 crore Rs., In year 2007-2008 the revenue collected by VAT is 8310.49 crore Rs., In year

2006-2007 the revenue collected by VAT is 9152.09 crore Rs.

The Buoyancy of Delhi Govt’s own Tax Revenue was 1.21 during the period of 10th Plan (2002-

07) which decreased to 1.08 in 2007-08. Delhi’s Tax Buoyancy is likely to reduce further in

2008-09.
 TAX BUOYANCY: Haryana

S.no Item 2002-2007 2007-2009

Own Tax

1. VAT 1.25 1.25

The Buoyancy of Haryana Govt’s own Tax Revenue was 1.25 during the period of 10th Plan

(2002-07) which not decreased in 2007-08. But it is reducing further 2008-2009

Comparative Analysis of Revenue of Vat in Delhi &
Haryana

In my study I found that both have different tax revenue show in the above data.

The revenue collected in both state is different but increasing constantly. The above data show

that implement of VAT can increase their revenue collection

This figure show combines comparison in Delhi & Haryana revenue. The VAT collects this

much revenue in both State Delhi & Haryana. In above point Tax Buoyancy of both Govt’s their

Tax Revenue is also different the Buoyancy of Delhi Govt’s own Tax Revenue were decrease

but Buoyancy of Haryana Govt’s own Tax Revenue in remain same.

CHAPTER-V
FINDINGS
 FINDINGS

In this project comparative analysis of VAT in Two states: Delhi & Haryana having the

difference & some similarity are the major finding. Major finding are:

 Introduction of VAT is a major milestone in Indian fiscal reform. The VAT changes the

design of Indirect taxes system in India.

 In both states the VAT perform well & broadly speaking, switchover from sales tax to

VAT has been a smooth affair. However, significant variations in provisions across both

States still exist

 In both state there are not major difference in Tax Rate but in case some commodities the

Tax Rate may var. VAT provisions/ schedules being amended to bring them in line with

recommendations of Empowered Committee in both States: Delhi & Haryana. Issuance

of guidelines on compliance procedures

 Through my survey, I came to know the different tax rate & where the difference lies in

both states: Delhi & Haryana VAT tax rate.

 Through my survey, I came to know the people of both States are accepts the VAT

system in their states.

 I observed that after VAT design the revenue increase in both states and the VAT is

major source of revenue collection in both states.

 I observed that VAT design in Delhi having good response more that the Haryana state.
LIMITATIONS
 LIMITATION

The present study is subjected to following LIMITATIONS. The project is on VAT is

very vast issue so study that topic is very difficult to me. The LIMITATIONS are:

 Method of data collection majorly was through secondary data & therefore bias

becomes a major limitation.

 Due to the time constraints all the point of this topic were not covered.

 The scope of study is very wide to the two states: Delhi & Haryana. Due to this

wide scope the sample is difficult to take.

 Due to secondary data the possibility to having more error rate. Due to this data

level of adequate data should not possible.

SUGGETIONS
 SUGGESTION by the SURVEY POPULATION

The comparative analysis of VAT in Delhi & Haryana is having very wide scope. This project

highlights the major differences of Delhi & Haryana VAT structure & how it work. The

suggestions by the survey population & their reaction on implement VAT are:

i. In both state the population is say that the VAT design is complex to understand. They

suggest that create the way by which VAT design become simple & it become easy to

understand.

ii. On some product there are high rate the population suggest that reduce the VAT rate on

some products.

iii. Some people or dealers in Haryana suggest that Input Tax Credits Availability Period is

on installment base.

iv. Some dealers in Delhi suggest that Status of Incentive Schemes is also available.
 SUGGESTION

The comparative analysis of VAT in Delhi & Haryana is having very wide scope. This project

highlights the major differences of Delhi & Haryana VAT structure & how it work. The

suggestions are:

 To more emphasis on strengthen the VAT system in both state by which people become

more involment in the process of revenue design.

 To decrease the rate of VAT in both States by it would more acceptable by the

population.

 There should be no compromise in the service & information available to people.

 To more emphasis on strengthen the VAT system in both states by which it become

major sources’ for revenue generator.

ANNEXURES

QUESTIONNAIRE
Title: Satisfaction Level of People on VAT Design in Delhi & Haryana.

Name:

Company title:

Address:

Contract No.:

Location:

Occupation : Self Employed [ ]

Government Employee [ ]

Non Government Employee [ ]

Student [ ]

Others [ ]

Income per month : Less than Rs 5,000 [ ]

 Rs 5001 to 10,000
[ ]

Rs 10,001 to Rs 20,000
[ ]

Above Rs 20,000
[ ]

Are you affected by the VAT System?

Yes [] NO []

How you pay your VAT?

(a) By Cash (b) By Cheque

[ ]

(c) By Credit card (d) By Internet Banking

What states you are located?

(a) Delhi (b) Haryana

[ ]
Are you satisfied with VAT System?

(a) Excellent (b) Good

[ ]

(c) Satisfied (d) Unsatisfied

Are you satisfied with VAT Tax Rate for Commodities?

(a) Excellent (b) Good

[ ]

(c) Satisfied (d) Unsatisfied

Would you like to give your suggestions to improve the

satisfaction level of people on VAT?

(a) Yes [ ]

(b) No [ ]
If yes specify your suggestions
CHAPTER-VI
BIBLIOGRAPHY
 BIBLIOGRAPHY

 Government of India, Ministry of Finance, Economic Division. 2009. Economic

Survey, 2008-09.

 Government of Haryana, Ministry of Finance, Economic Division. 2009.

Economic Survey, 2008-09.

 Delhi Government, Ministry of Finance, Economic Division. 2009. Economic

Survey, 2008-09 & Financial Report.

 BUDGET ANALYSIS: 2009-2010, Ministry of Finance, Financial Division.

2009.

 Value Added Tax – By Sales Tax Department of Haryana.

 Value Added Tax – By Sales Tax Department of Delhi.

 FICCI(2007-2008),Survey on VAT Classification of Products in Different

States- www.ficci.com

 Vat in India (2008) by Vaitheeswaran K, Using reduced VAT rates to

combat climate change, pp. 34-46.

 VAT – Issues and Concerns of Corporate and Traders(2007) by S.

Madhavan, pp. 90-115

  OECD (2008) Consumption Tax Trends 2008: VAT/GST and Excise Rates,

Trends and Administration Issues. Paris: OECD.

 Delhi Value Added Tax Act, 2005, http://www.dvat.gov.in/dvatonline

 Haryana Value Added Tax Act, 2003, http://haryanatax.com

 RBI(2009),States survey report, http://www.rbi.org.in/scripts/Annualpolicy

 http://www.ecel.com/about.htm.

 http://www.escrts.com/about.htm.