Ideally Vat should not be charged on Transportation Charges as it is not a good

Correct Method is

SALES                  :  100000

TRANSPORATION : 10000

OUT PUT VAT @4% 4000

 ADD OUTPUT VAT @1% 1000

Total  115000

Entry Should be

Party Dr  115000

   To Sales 5% Local  100000

   To Output Vat 4% Local 4000

    To Output Vat 1% Local 1000

     To Transportation Charges Income 115000

However,if Vat is charged on Transportation Charges,Entry will be

Party Dr  115000

   To Sales 5% Local  110000

   To Output Vat 4% Local 4400

    To Output Vat 1% Local 1100

Or

Party Dr  115000

   To Sales 5% Local  100000

    To Transportation Charges 10000

   To Output Vat 4% Local 4400

    To Output Vat 1% Local 1100

(If we follow this Method Sales amount for the purpose of Vat return should be 110000)

Learn more

http://www.teachoo.com/741/229/How-to-pass-Sales-Entries-Practice-(Voucher-Method)/category/Passing-Entry-in-Tally/

or

http://www.teachoo.com/742/229/Sales-Entries-Practice-(Invoice-Method)/category/Passing-Entry-in-Tally/