Due Diligence

1. 'Due Diligence is a process whereby an individual or an organisation seeks sufficient information about a business entity to reach an informed judgement as to its value for a specific purpose'. Due Diligence Review (DDR) is an analysis and appraisal of an entity in preparation to establishing a relationship with that entity which involves business risk.

2. The situations that could call for a DDR are:

· When an entity is considering an acquisition;
· When a banker is considering making a loan;
· When an investment banker is considering underwriting the issue of a security;
· When a venture capitalist is considering an investment;
· When the business unit is to be valued for any purpose.

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Goods, which are exempt from payment of tax under the KST Act,
are listed in the fifth schedule. In terms of section 5 of the KST Act, 
every dealer is required to pay tax at the rate of 10% with effect from
 01.04.98 on goods at first point of sale, which are not covered under
 any of the schedules. However, tax at every point of sale is payable glass bottles.

Under Rule 26 (9)(a) and 26(9)(b) of the KST Rules every dealer who wishes to claim that he is not liable to tax in the State is required to file a declaration in Form No.32 obtained from the registered dealer who sold or purchased the goods to or from him.

In respect of goods manufactured by a dealer other than raw materials, component parts and packing materials for a brand owner the brand owner is the person who is deemed to be a first dealer in the State. It implies that the sales tax is payable by such owner. However, if such manufacturer has charged sales tax the brand owner is eligible for a setoff of such tax paid subject to production of proof.

 
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Table of Contents

1 Introduction 2
2 Historical background 2
3 What is VAT? 2
4 Definition - Value Added Tax (VAT) 2
5 Objectives of VAT 3
6 VAT's Operation 3
7 Why VAT? 4
7.1 Need for Major Reform 4
8 Coverage of VAT 5
9 Criteria for a Good VAT System 5
10 Indian position 5
10.1 Homogenity 6
10.2 VAT Design - National Consensus 7
11 Issues arising in VAT regime 7
11.1 Tax credit / set off 7
11.2 At what point is credit to be taken on purchases 8
11.3 Goods held in stock 8
11.4 Transitional issues 8
11.4.1 Policy issues 8
11.4.1.1 Rebating in respect of capital goods - inter-state purchases / imports 8
11.4.1.2 Rebating in respect of capital goods - local purchases 8
11.4.1.3 Rebating of closing stocks 9
11.4.1.4 Rebating for units enjoying incentives and concessions 9
11.4.1.5 Other policy issues 10
11.4.2 Operational issues 10
12 Gist of Karnataka State's Views, Plan & Expectations. 10
13 An ideal VAT - State's view 11
14 Suitable form of VAT for Karnataka 12
14.1 Treatment of Small dealers under VAT 12
14.2 Tax rebating/crediting 13
14.2.1 Design Issue: 13
14.2.2 Role of tax credit mechanism in market 14
14.2.3 Management of rebate system 14
14.2.4 Operation of Rebate 14
14.2.5 Counter-check of refund claims 14
14.2.6 Database under rebate system 14
15 Rates of tax 15
16 Initial changes & requirements 15
17 Threats under VAT 16
18 General 17
19 Amendments to Constitutional provisions 17
19.1 To enlarge the meaning and scope of "Sale" 17
19.2 To empower the States to levy tax on services 18
19.3 To provide for rebating tax paid on inputs 18
19.4 To provide for levy of import tax 18
20 Conclusion 19

1. INTRODUCTION

1.1. The overall package of liberalization process, which began in the early part of 1990s, consisted of attraction of foreign investment. Many Indians have settled abroad and have been doing extremely well in their respective fields. Attracting investments into India from these Indians settled abroad was one of the primary objectives of the Government policy of liberalization. In this endeavour, extending income tax benefits was one of them. In retrospect, these tax benefits have been instrumental in attracting more investment from the Non-Resident Indians (NRI).

1.2. The tax provisions relating to NRI under the Income Tax Act, 1961 (Act) have been constantly monitored and amended, at regular intervals, to make investment in India attractive. An effort has been made in this article to consolidate together the important aspects of the Act relating to NRI. In this paper the provisions specifically dealing with NRI - individual taxation have been dealt with. However, other provisions which are applicable to all other assessees are equally applicable to NRIs also. These provisions have not been dealt in this paper.

CHAPTER I - Proposed Amendments to the Central Sales Tax Act - Union Budget 2002-03 1
1. Preamble 1
2. Works contract 1
3. Lease 4
4. Stock transfers 5
5. Concessional Tax rates 6
6. Form-C 6
7. Declared goods 7
8. Issues arising out of amendments 7
CHAPTER - II Central Sales Tax Appellate Authority Under the CST Act 7
9. Preamble 7
10. Constitution of the Appellate Authority 8
11. Appeals 8
12. Procedures 9
13. Powers of the Appellate Authority 9
14. Advance Rulings 9
15. Pending Proceedings 9
16. Applicability of the Order 10
17. Conclusion 10