The empowered committee of the finance ministers has decided that the set off credit in favour of the traders will be refunded to them by the respective state governments within a month.
The empowered committee has taken this decision in its last meeting, said Asim Dasgupta, the chairman of the committee and West Bengal finance minister, in Bhubaneswar on Tuesday.
The Crisis Over VAT: Complete Coverage
Addressing a seminar on VAT at Bhubaneswar on the invitation of the state commissionerate of commercial tax, Dasgupta said, although the committee is firm on implementation of VAT, it is open to amendments in the system if and when anomalies are noticed.
If input tax is more than the output tax, the trader gets set off credit, which is adjusted in later months.
If not adjusted by the end of two years, it is to be refunded to the trader.
But to avoid locking of capital of the trader for such a long time, the states have agreed to refund the set off credit within a month, Dasgupta said.
Similarly, in case of capital goods there was provision to return the set off amount in 36 equal installments. In the latest meeting of the empowered committee it has now been decided to refund it within a year.
He said traders could avail set off benefit on old stocks upto a year.
Traders are eligible to get set off benefit for commodities purchased from another state but cannot get any such benefit for raw material imported from other states.
Dasgupta admitted the uniform floor rate for commodities under VAT was violated in the case of some commodities out of the 500 listed by the empowered committee in some states but this will be corrected once the a tax information exchange system is commissioned in a year's time.
States could continue with tax incentive schemes to industry as long as it did not affect the VAT chain.
The seminar was inaugurated by Orissa Chief minister Naveen Patnaik.
Orissa finance minister Prafulla Chandra Ghadei said in his speech that Orissa would lose about Rs 300 crore (Rs 3 billion) if central sales tax was abolished after three years.
He demanded Orissa be authorised to collect service tax to compensate for the loss.
Orissa is considering a proposal to raise the exemption limit for registration of traders under VAT from the Rs 2 lakh turnover per annum at present to Rs 5 lakh turnover per annum.