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Question
A manufacturer buys raw material for ₹ 40000 and pays sales tax at the rate of 4%. He sells the ready stock for ₹ 78000 and charges sales tax at the rate of 7.5%. Find the VAT paid by the manufacturer.
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Solution
The cost price of raw material = ₹ 40000
Rate of sales tax = 4%
Total tax
= ₹`(40000 xx 4)/100 = ₹1600`
Selling price = ₹ 78000
Rate of sales tax = 7.5%
∴ Total tax
= ₹`(78000 xx 7.5)/100`
= ₹`(78000 xx 75)/(100 xx 10)`
= ₹5850
VAT paid by the manufacturer
= ₹ 5850 – ₹ 1600
= ₹ 4250.
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