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By CA. Ravindra R. Manek
INPUT TAX CREDIT UNDER GUJARAT VAT
At Jamnagar Branch of WIRC of ICAI
On 23rd November, 2013
Introduction
� VAT = Value Added Tax = Tax on Value Addition
� It is basic principle of VAT Law that Tax is charged on amount of
Value Addition.
� For this purpose, under Gujarat VAT Act, provisions are made
wherein, selling dealers are required to collect tax on full amount of
sale and allowed tax credit of eligible purchases against this output
tax liability resulting into net payment tax only on Value Addition.
� Net Tax Liability = Output Tax – Input Tax = Tax on Value Addition by the dealer
2
ITC Governed
by
GVAT Act, 2003
GVAT Rules, 2006
Notifications
Determination Order U/s. 80 & Other Judicial Pronouncements
Introduction
3
Introduction
ITC – Section 11
& Section 12
Section 11 – Heart of VAT
Section 12 – One Time Transitional Provision
4
Section 11 – Brief Overview
Basic
Section
Conditions Reduction /
Reversal /
Adjustment
Ineligible
• 11(1) • 11(2) – Records & Books
• 11(3)(a) - Intention
• 11(4) – Tax Invoice
• 11(7A) - Paid
• 11(9) – Compute as Per
Rules
• 11(11) – Fair &
Reasonable method
• 11(3)(b) – B.T. /
Cons. / Fuel
• 11(6) – Notification
– 2% ITC
• 11(8)(a) & (b) –
Not Used as
Intended
• 11(10) – CN / DN
• 11(5) –
Ineligible
• 11(7) - Bills
• 11(12) – Non
transferrable
Total 13 (1 to 12 & 7A) Sub Sections & One Explanation
5
Admissibility of Tax Credit
R.D. – T.G. – R.D. in a Tax Period
(I) Tax Collected by SD / Tax Payable by
PD
(II) Purchase Tax – PAID - u/s. 9(1),
9(2), 9(5) & 9(6)
(III) Entry Tax – PAID
Section 11(1)(a) - Basic Section
6
Section 11(1)(b)
ITC Subject to Provisions of
Subsection (2) to (12)
7
RD intending to claim ITC – Shall Maintain
� Register &
� Books of Account
� in such manner as may be prescribed – Rule 45
Section 11(2) - Registers 8
Section 11(3)(a) - Key Conditions
T. G. Purchased within the state WHICH
ARE INTENDED FOR THE PURPOSE OF • Resale (Local) • Resale (Interstate) • Branch Transfer or Consignment of Goods to other States
• Sales in the course of Export • Sales to SEZ • Use as RAW MATERIAL in the Manufacture of T. G. intended for above purposes or in the Packing of the Goods so Manufactured
• Use as CAPITAL GOODS meant for use in manufacture of T. G. intended for aforesaid purposes
Tax Credit
for Which
Purchases
Proviso – Partially for such purposes – Proportionate ITC
9
� Raw Material – Defined U/s. 2(19) of the Act as
under;
� “raw materials” means
� goods used as ingredient in the manufacture of other
goods and includes
� processing materials,
� consumable stores
� and material used in the packing of the goods so
manufactured
� but does not include fuels for the purpose of generation of
electricity;
Section 11(3)(a) - Important Terms
10
� Manufacture – Defined U/s. 2(14) of the Act as
under;
� manufacture with its grammatical variations and
cognate expressions means includes
� producing, making, extracting, collecting, altering,
ornamenting, fishing, assembling or otherwise processing,
treating or adapting any goods;
� but does not include such manufactures or manufacturing
processes as may be prescribed;
Section 11(3)(a) - Important Terms
11
� Capital Goods – Defined U/s. 2(5) of the Act as
under;
� Capital Goods means
� plant and machinery (other than second hand plant and
machinery)
� meant for use in manufacture of taxable good
� and accounted as capital assets in the books of accounts;
Section 11(3)(a) - Important Terms
12
ITC shall be REDUCED by 4% of THE TAXABLE TURNOVER OF PURCHASES in following cases;
Section 11(3)(b) – Reduction of ITC
@ 4%
• of T.G. consigned or dispatched for B.T. or to his agent outside the state, OR
@ 4%
• of T.G. used as RM in the Mfg., or in the packing of goods which are dispatched outside the State in the course of B.T. or consignment or to his agent outside the State.
@ 4% • of FULES used for the manufacture of goods.
Proviso – If Tax Rate of item is < 4%, Reduction at such lower rate.
13
� No ITC to be claimed Except
� ORIGINAL TAX INVOICE Received
� Invoices - Section 60
� R.D. – T.G. – R.D.
� Rule 42
� Serially & Mechanically Numbered
� Zero Rated Sale – Triplicate
� Other details to be contained in TI.
Section 11(4) – ITC On TI Only 14
Section 11(5) – Ineligible ITC
11(5) – No ITC on Purchases of / from
� Unregistered Dealer
� Dealer Not liable to Tax
� Lump sum Dealer paying Tax U/s. 14, 14A, 14B, 14C or
14D
15
Section 11(5)
� made prior to the relevant date of liability to pay tax as
provided in sub-section (3) of section 3;
� made prior to the date of registration;
� However, provisions have been made wherein,
� A registered dealer shall be allowed to claim tax credit
� for the taxable goods held in stock on the date of registration
� which are purchased after 1st April, 2008
� and during the period of one year ending on the date of
registration. (Explanation I)
� Rule 15(5A) – Registration Within 30 days
� Form 111 – To be filed with the first return after registration
16
� Inter-State purchase;
� Goods which are disposed of otherwise than in sale, resale or
manufacture;
� Schedule I Goods / Wholly Exempt Goods by a notification u/s.
5(2);
� Goods which are used in manufacture / packing of Sch. I Goods /
Wholly Exempt Goods by a Notification u/s. 5(2);
� CG which are used in Mfg. of Sch. I Goods / Wholly Exempt
Goods by Noti. u/s. 5(2) or in generation of electrical energy
including captive power;
Section 11(5)
17
� Vehicles of any type and its equipment, accessories or spare
parts (expect for resale)
� Goods not connected with the business of the dealer;
• Goods which are used as fuel in generation of electrical
energy meant for captive use or otherwise;
• Petrol, high speed diesel, crude oil and lignite unless for
resale;
• Goods which are used as fuel in motor vehicles;
Section 11(5)
18
• Capital Goods involved in execution of Works contract;
• Goods for which right to use is transferred;
• Made from a dealer AFTER the name of such dealer has
been published u/s. 27(11) or section 97; (Clause -
mmmm)
• Unsold stock at the time of closure of business;
Section 11(5)
19
� Goods purchased by Lump sum Dealer;
� However, provisions have been made wherein,
� Lump sum Dealer is allowed to claim tax credit
� for the taxable goods held in stock
� which are purchased after 1st April, 2008 and
� during the period of one year ending on the date of
liability to pay tax under section 7. (Explanation III)
� Rule 15(5B) – Application within 30 days
� Form 112 – To be filed with the first return as a regular
dealer
� Benefit Not available in case of compulsory revocation
of Lump sum Permission on violation of any conditions.
Section 11(5)
20
� Where original invoice does not contain the details of tax
charged separately;
� where original tax invoice or duplicate as per rules not
available with purchasing dealer or there is evidence that
invoice is false / fabricated;
Section 11(5)
21
Section 11(6) - Power of S.G.
� The State Government may, by notification in the Official
Gazette, specify
� any goods or
� the class of dealers
� that shall not be entitled to whole or partial tax credit.
• Govt. of Gujarat has issued Notification for Reduction of 2%
ITC of Taxable Goods used in interstate trade or commerce.
• First Notification issued on 29th June, 2010
• Notification amended on 7th September, 2010 - (GHN-35)
VAT-2010-S11(6)
22
Section 11(6) - Notification
Description of goods Non-entitlement
of tax credit
whether whole
or partial
Restrictions and conditions
if any
All goods excluding the
goods specified in
Schedule-II of the Act,
in entries at serial
numbers,-
(i) 13,
(ii) 24,
(iii) 48(i) namely
Isabgul, Jira, variali,
Methi, Suva, Ajma,
Asalia, Kalingda
seeds, Khas khas,
Dhana, Dhana dal
and Pepper,
(iv) 54 and
(v) 76.
To the extent of
2% on
the taxable
turnover of
purchases
within the State
for WHICH TAX
CREDIT IS
ADMISSIBLE.
(1)This entry shall come into force with effect from 1st
October,
2010.
(2)The input tax credit shall be reduced when;
(i) the goods are sold/resold in the
course of inter state trade and
commerce, or
(ii) the goods are used as input including raw
material in the
manufacture of goods which are sold in the course of
inter state
trade and commerce.
23
Section 11(6) – Auditor Note
• ITC – 2% Reduction
• VAT Audit? – How to Verify?
24
Section 11(7) – Billing Dealers
• Where a R.D. without entering into a transaction of sale,
issues to another R.D.
• tax invoice, retail invoice, bill or cash memorandum
• with the intention to defraud the Govt. revenue or with the
intention that the Govt. may be defrauded of its revenue,
• the Commissioner may, after making such inquiry as he thinks fit
and giving a reasonable opportunity of being heard,
• deny the benefit of tax credit, in respect of such transaction,
to such R.D. ISSUING OR ACCEPTING such TI, RI, bill, cash
memo either PROSPECTIVELY OR RETROSPECTIVELY
• from such date as the Commissioner may, having regard to the
circumstances of the case, fix.
25
• New Section – Inserted w.e.f. 01.04.2013
• No ITC if tax not paid by vendor dealer;
• Notwithstanding anything contained in this section,
• In no case
• The amount of tax credit on any purchase of goods
• shall exceed
• The amount of tax in respect of the same goods, actually paid, if
any , under this Act or any earlier law, into the Government Treasury
• Facility to Check ITC Profile on VAT Website
• Circular No. 123 dated 21.05.2013
Section 11(7A) -
Tax Payment - Must 26
• To practically facilitate the provisions, facility has been
provided to Check ITC Profile on VAT Website
Section 11(7A) 27
Section 11(8)(a) - Reduction
� Goods Not used for intended purposes
� Either as per 11(3) or
� used in any prohibited activity as per provision of 11(5)
� Partly or Fully
� Proportionate Credit
28
� Capital Goods
� Not used for Continuous Period of Five Years
� Proportionate Reduction
� Temporary discontinuation due to Repairs & Maintenance?
Section 11(8)(b) - Reduction of
ITC on Capital Goods 29
Section 11(8)(b) – Audit Note 30
Section 11(9)
� The registered dealer may claim
� the amount of net tax credit,
� which shall be determined in the manner as may be prescribed.
� Rule 15 (Computational Provision– General)
31
Section 11(10) – C. N. / D. N.
• Credit / Debit Note as per Section 61
• Goods return, Discount or any other reason
• ITC Excess / Short Claim
• Adjust amount of ITC in Tax Period in which C.N. / D. N. issued
� Section 61 - Subject to the provisions of sections 8 and 60,
where a TI is issued and
� (a) Tax Charged > The actual tax charged in respect of the sale concerned, the seller shall provide the purchaser with a credit note;
� (b) Actual tax charged > The tax shown in the tax invoice as charged, the seller shall provide the purchaser with a debit note:
32
Section 11(11)
• R. D. to apply FAIR & REASONABLE Method to
determind eligible ITC
• What is Fair & Reasonable? – Subjective / Objective?
• Commissioner given power to reject method adopted
by R.D.
33
Section 11(12)
� ITC cannot be transferred to any other dealer except
as provided.
� Principal & Commission Agent – Rule 17
� Transfer of Business
34
� For the purpose of this section
� the amount of Tax Credit on any purchase of goods
� shall not exceed
� the amount of tax actually paid or payable
� under this Act in respect of the same goods.
� What does this mean?
Explanation to Section 11 35
POSERS
Poser - 1
Whether Purchase Tax U/s. 9 of the Act is required to be PAID IN
CASH only to be eligible to get its Input Tax Credit? Does the
same hold equally good for Entry Tax?
38
� Section 11(1)(a) provides credit for Purchase Tax & Entry Tax Paid
� Rule 15(5) of GVAT Rules, 2006 reads as under;
� “The amount of tax paid under sub-section (1), (2), (5) or (6) of
section 9 of the Act and the amount of tax paid under the Gujarat
Tax on Entry of Specified Goods into Local Areas Act, 2001 shall
be claimed in the tax period in which such amount has been
paid.
� Explanation.- For the purpose of calculating the tax credit, the
amount of tax under sub-section (1), (5) or (6) of section 9 of the
Act or the amount of tax under the Gujarat Tax on Entry of Specified
Goods into Local Areas Act, 2001 is shown payable by the dealer in
his return for a tax period, then such amount of tax shall be
considered to have been paid In such tax period.”
Poser - 1
39
� Thus, it is not necessary that Purchase Tax is to be PAID IN
CASH ONLY.
� Entry Tax being governed by the Gujarat Tax on Entry of
Specified Goods into Local Areas Act, 2001, GVAT Rules can’t
override it and it has to be paid as per provision of that Act.
� However, dealer is entitled to ITC of Entry Tax of November
Month paid in the month of December in the November month
itself by virtue of this explanation.
Poser - 1
40
Poser - 2
ABC Metal Products is manufacturer of various brass products.
For the year 2012-13, it has purchased Machineries worth ` 20
Lac for manufacture of its goods. Whether 100% ITC of VAT
paid on these machineries is available in the first year itself?
While doing VAT Audit, any precaution to be kept by VAT
Auditor while certifying its admissibility? What if Machineries are
sold after 3 years?
� Yes
� Auditor’s Note
� Proportionate ITC to be reversed.
41
Poser - 3
Mr. A is running a petrol pump. He has purchased tanker for
transportation of petrol and diesel from Company Depot to its
Petrol Pump. Is he eligible to get input tax credit of Vat Paid on
Tanker?
� No
� Section 11(5)(j) specifically prohibits credit of any Vehicle.
42
Poser - 4
In a Petrol Pump run by Mr. A, there occurs natural loss of
quantity of petrol and diesel due to evaporation and moisture.
Whether any ITC is to be reduced?
� It is a kind of Natural Loss.
� Circular No. Gujka/VAT/28/2008-09/94 dated 09.04.2009
specifies the limit to which such loss is allowable.
� Hence No ITC Reduction for loss occurred within that limit.
43
Poser - 5
ABC Limited has just commenced its business of manufacturing
brass electrical parts in FY 2012-13. It has made purchases of
machineries worth ` 4 Lac prior to date of its registration under
VAT Act. It has duly made application for registration within 30
days of its liability under VAT Act. Can it claim ITC of such
machineries?
• As per Section 11(5), a R. D. shall be allowed to claim tax credit
for the taxable goods held in stock on the date of registration
which are purchased after 1st April, 2008 and during the period
of one year ending on the date of registration.
• As in the section words used are ‘Taxable Goods held in
Stock’, it appears that same benefit is not available to Capital
Goods and hence credit may not be admissible.
44
Poser - 6
ABC & Co. has claimed input tax credit of building and
construction material purchased for construction of foundation of
Plant & Machinery and accounted for them as Capital Goods in
its books of account. During the course of assessment, CTO is
denying ITC on such goods. Discuss its validity or otherwise.
� What is Capital Goods? What is P & M?
� Plant & Machinery can’t function without foundation for it. Hence building & construction material purchased for construction of foundation of P & M becomes part and parcel of Plant itself and hence eligible for ITC.
� Anil Products Ltd v. State of Gujarat 2011-GSTB-IV-1201
� (Followed Orissa HC judgment in Orissa Power Generation Corp. Ltd. V/s. Commissioner of Commercial Taxes)
45
Poser - 7
ABC & Co. has claimed input tax credit electrical goods / items
to be used in operation of its Plant & Machinery. It has accounted
these electrical goods as Capital Goods in its books of account.
ITC on these goods is denied by VAT Department. Discuss
admissibility of ITC on such goods.
� Plant & Machinery cannot be operated without Electrical
Goods. Hence ITC allowed. (Doesn’t apply to all Electrical
Goods)
� Anil Products Limited v. The State of Gujarat (GVAT TRI.)
2011-GSTB-IV-1201
� Hitachi Home & Life Solutions (India) Ltd. v. The State of
Gujarat (GVAT Tri.) 2010-GSTB-II-648
46
Poser - 8
How to calculate ITC to be reduced of goods sold in the course of
interstate trade or commerce?
� Local Trader – Only sells in Gujarat – Not Applicable
� OGS Trader – No Local Sale – All sales are in the course of
interstate trade or commerce – Reduce 2% of Taxable
Turnover of Purchases within State of which Credit is
available.
� Local & OGS Sale – Purchase Relating to OGS Sale can be
identified separately – Reduce ITC on that only – Proper &
Separate Records must be kept to justify such reduction.
47
Poser - 8
� Local & OGS Sale – Identification of Goods Not Possible –
Proportionate – Based on % of Interstate Sales / Total Sales
– Apply this ratio to Taxable Turnover of Purchases within
Gujarat of which credit is admissible to compute such
eligible goods used in the course of interstate trade or
commerce and then reduce 2% ITC.
� Pro-Rata Method upheld in the decision of Jayant Extraction
Industries v. State of Gujarat 85 STC 3 (Guj.)
48
Purchase Amt. (`) Sales Amt. (`)
Local Purchase (TI – 4%) 10,00,000 Local Sales (TI – 4%) 22,50,000
Local Purchase (TI – 12.5%) 2,50,000 Interstate Sales – C Form 7,50,000
Local Purchase (RI) 5,00,000
Import 7,50,000
Interstate Purchase – C Form 2,50,000
Total Purchase 27,50,000 Total Sales 30,00,000
Poser - 9
A dealer has following purchases and sales during a quarter.
Quantify the amount of ITC to be reduced?
49
Poser - 9
• Interstate Sales % [7.50/30.00*100] = 25.00%
• Purchases on which ITC is to be reduced
50
Particulars Amount
Local Purchase (TI - 4%) 10,00,000
Local Purchase (TI - 12.5%) 2,50,000
Local Purchase (RI), Import & Interstate Purchase is not
be considered as no credit for the same is available.
0
Total Purchase 12,50,000
Purchase Turnover deemed to be attributable to
Interstate Sales @ 25%
3,12,500
ITC Reduction @ 2% 6,250
Poser - 10
ABC Enterprise is engaged in manufacturing and trading brass
parts. Its 90% sales are Inter-state sales. Such sales are either
being made against C – Form @ 2% or without any C – Form @
5%. Whether ITC is required to be reduced for goods sold in the
interstate transaction at full rate of 5% (i.e., not at concessional
rate of 2%)?
� Yes
� ITC Reduction is independent of rate of tax on Interstate Sale.
51
Poser - 11
Whether Notional ITC claimed on purchase of goods from
Unregistered Dealers is subject to 2% reduction for sales made in
the course of interstate trade or commerce?
� Whether URD goods on which purchase tax is paid can be
said to be Taxable Goods within the state of which Tax Credit
is available?
� Credit is available of what? Purchase Tax Paid or of goods?
� Divergent Views
52
Poser - 12
Whether purchases of Capital Goods are required to be
considered while calculating 2% reduction for interstate sale?
� Provision applies to the taxable goods which are used as
input including raw material in the manufacture of goods
which are sold in the course of interstate trade and
commerce
� No – Can’t be said Taxable Goods – Capital Goods are
New Plant & Machinery
53
Poser - 13
For the purpose of ITC reduction on account of goods sold in the
course of inter-state trade or commerce, whether, purchase price
of taxable turnover is to be considered inclusive of VAT or
exclusive of VAT?
� What is Turnover of Purchase?
� Section 2(32) - “turnover of purchases means the aggregate of
the amounts of purchase price paid or payable by a dealer in
respect of any purchase of goods made by him during a given
period after deducting the amount of purchase price, if any,
refunded to the dealer by the seller in respect of any goods
purchased from the seller and returned to him within the
prescribed period;”
54
• Based on this definition, Ld. Joint Commissioner of Commercial Tax (Legal)
has passed a determination order u/s. 80 of the Act, wherein, he has held
that reduction should be made on turnover of purchase price inclusive of
VAT Amount. (Aerolex Cables Pvt. Ltd. vide order Dt. 26/06/2013
reported in Sales Tax Journal, July 2013, P. No. 399)
• However, while passing this order what is the meaning of word purchase price
that has not been considered. It is defined u/s.s. (18) of the as Act as under;
• “purchase price means the amount of valuable consideration paid or payable
by a person for any purchase made including the amount of duties levied or
leviable under the CET Act, 1985 or the Customs Act, 1962 and any sum
charged for anything done by the seller in respect of the goods at the time of
or before delivery thereof, other than the cost of insurance for transit or of
installation, when such cost is separately charged and includes, -….”
• VAT is not specifically covered. Whether Tax Charged / Collected forms
part of sales price / purchase price?
Poser - 13
55
• Hon'ble Supreme Court in the case of Anand Swarup Mahesh Kumar vs.
The Commissioner of Sales Tax 46 S.T.C. 477 (S.C.) has made the law clear
by making following observations
• "From the observations made in the decisions referred to above, it follows
that where a dealer is authorized by law to pass on any tax payable by
him on the transaction of sale to the purchaser, such tax does not form
part of the consideration for purposes of levy of tax on sales or
purchases but where there is no statutory provision authorizing the dealer
to pass on the tax to the purchaser, such tax does form part of the
consideration when he includes it in the price and realizes the same from
the purchaser. The essential factor which distinguishes the former class of
cases from the latter class is the existence of a statutory provision
authorizing a dealer to recover the tax payable on the transaction of sale
from the purchaser."
Poser - 13
56
� This decision has been followed in the recent decision of
Gujarat VAT Tribunal in the case of Essar Steel Limited,
wherein, it has been held that in case of reduction of ITC for
B.T., purchase turnover is to be taken exclusive of VAT
amount.
Poser - 13
57
Poser - 14
AK Electronics is engaged in the business of sale of LED, LCD,
Television, and other electrical products. During festival season, it
offers to its customers various schemes such as on purchase of one
LED, small music system/pressing iron is given free. All items given
free by it are purchased against Tax Invoice and ITC is claimed
on these goods. Can it claim ITC on these goods?
• Goods given free are not used for allowed intended purposes –
Provisions of Section 11(5) apply
• If dealer can prove that free item price is already marked up
or included in sale price of main item – Can dealer escape
from ITC reversal? – Very Difficult to establish and litigation is
possible.
59
Poser - 15
A dealer has made certain taxable purchases against Retail
Invoice. RI contains all details required in Tax Invoice. Can he
claim Tax Credit? Are there any exceptional circumstances
wherein ITC is held to be allowable on RI Purchases?
� Section 11(4) mandates Original Tax Invoice
� Section 11(5)(o)(p) disallows ITC in the absence of TI
� Section 60 – Tax Invoice r.w.r. 42
60
• In the case of Gill & Co. Pvt. Ltd. (Tax Reporter, April – 2013, P. No. 55),
Hon. Tribunal has laid down that ITC can be allowed to the purchasing
dealer in absence of tax invoice only when following three conditions are
satisfied;
• RI, Debit Note or Cash Memo produced in lieu of TI contains all the requisite
particulars of TI;
• Selling Dealer is prohibited under the Act from issuance of tax invoice;
• Selling Dealer has paid the tax amount collected from the purchasing dealers to
the State Govt.
• When all these three condition are satisfied, then only ITC can be allowed
to the purchasing dealer even on the basis of RI, DN or Cash Memo.
• M/s. Rajkamal Auto Centre v. The State of Gujarat (Tax Reporter – Sept.
2013 – P. No. 73) – Condition No. 2 Relaxed in the manner that technical
problem in issuance of TI also considered valid to allow ITC on RI.
Poser - 15
61
Poser - 16
ABC Limited is an export-oriented unit. It incurs heavy
expenditure on preparation of leaflets / pamphlets of various
products manufactured by it. Can it claim ITC of VAT borne on
preparation of these advertising materials?
� No
� It is not for intended purposes as prescribed u/s. 11(3)(a)
� Alembic Limited v. State of Gujarat 2010-GSTB-I-37
62
Poser - 17
Can ITC be reduced of goods destroyed in fire or flood or by
any other Act of God? Can it be said under such cases that
goods are disposed of in the manner other than allowed
intended purpose?
• Section 11(8) – Reduction of ITC if goods not used for
intended purposes.
• An act of God is a good excuse for not complying any
condition – Industrial Financial Corporation of India Ltd. v.
Cannor Sppinnig & Weaving Mills Ltd. [AIR 2002 SC 1841]
• Nonperformance of any condition for reasons beyond the
control of a party is a good excuse.
• S. A. Himnani Distributors Pvt. Ltd. (Trib) -2013-GSTB-I-268
• Rollcon Engg. Co. Ltd. (21 VST 117)
63
• Section 11(5)(f) provides that if the goods are disposed of
otherwise than in sale, resale or manufacture, ITC shall not be
allowed of such goods.
• Hon. SC has, in the case of Deputy Commissioner Of Sales
Tax (Law),Board Of Revenue (Tax) V. Thomas Stephen &
Co. Ltd. [69 STC 320] has held that disposal means transfer
of property in goods from one to another.
• In case of destruction of goods, there can not be transfer of
ownership of goods.
Poser - 17
64
Poser - 18
LSD Private Limited is a manufacture of drugs and medicines.
Under the Drugs & Cosmetic Act, 1940, it is required to keep a
laboratory and test its goods before marketing? Is ITC allowable
of goods used for such testing purpose?
� No
� Alembic Limited v. State of Gujarat 2010-GSTB-I-214
65
Poser - 19
ABC Limited is engaged in manufacture of various crude and
other products. After manufacture of such goods, same are
transferred to its branches located outside Gujarat. In
manufacture of these goods, furnace oil taxable @ 5% and
natural gas taxable @ 15% is used. ITC is to be reduced under
which clause and at what rate?
• Section - 11(3)(b)
• Which clause – (b) or (c) or both
• Reliance Industries Limited v. State of Gujarat (2013) 58 VST
376 (Guj HC) restricted disallowance to 4% only holding out
that only one sub-clause will apply. – Dept. has preferred
appeal against this order in the SC.
66
Poser - 20
In the above case, lignite is also used by the company in
manufacture of goods which are sent to its branches located
outside Gujarat. Lignite is taxable @ 20% + 2.5%. Assessing
Authority is of view that ITC is to be reduced @ 8% of purchase
price of Lignite. Kindly share your view on validity or otherwise
of this proposition.
• No ITC of Lignite u/s. 11(5)
• Can anything be reduced from ‘Zero’?
• Explanation to 11(3)(b) also clarifies that where ITC available is
less than 4%, disallowance is to be restricted to that much amount
only.
• No – Essar Steel Limited (Gujarat VAT Tri.)
67
Poser - 21
In case of Branch Transfer of Goods outside the State for
manufacturing there and receiving back in the State after
manufacturing, whether ITC is to be reduced? All goods are
received back in the State of Gujarat and Output Tax Liability is
also discharges as per Law.
� No revenue loss.
� However, Hon. Tribunal has held that provision of 11(3)(a) are
subject to provisions of 11(3)(b) and hence ITC is to be reduced.
� JCT Limited v . The State of Gujarat 2008-GSTB-II-307
68
Poser - 22
Iron Limited is engaged in the business of manufacture of sponge
iron. Coal is used as Raw Material in manufacture of sponge iron.
Can ITC be reduced u/s. 11(3)(b)(iii) of the Act considering it to
be used as fuel in the manufacturing of goods?
• Coal is not used for generating heat – Hence can’t be said to be
used as fuel.
• Welspun Steel Limited v. The State of Gujarat
69
Poser - 23
In case of reduction of ITC u/s. 11(3)(b) of the Act, whether ITC to
be reduced is on VAT Inclusive / Exclusive amount?
� Exclusive
� Essar Steel Limited S.A. No. 155 of 2020 decided on
05/06/2013
70
Poser - 24
G & Co. has purchased goods from F & Co. during the year
2008-09. Registration Certificate of F & Co. has been cancelled
retrospectively w.e.f. 01.04.2006. Order cancelling RC of F &
Co. has been passed in the year 2010-11 and its name is
published in that year only. In the assessment, authorities are
denying ITC to G & Co. of all goods purchased from F & Co. in
the year 2008-09, when, it was holding valid Registration
Certificate. Is this valid?
• Section 11(5)(mmmm)
• Section 11(7)
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Decisions in favour of dealer
• Meet Traders v. State of Gujarat (SCA 14739 of 2012)
• Mahesh Traders v. State of Gujarat (Trib.) 2011-GSTB-IV-1792
• Shree Kiran Oil Mill V. State of Gujarat (Trib.) 2011-GSTB-I-349
• Harsh Jewellers v. CTO, Hyderabad[2013] 57 VST 538 (AP)
• Althaf Shoes (P) Ltd. v. Asst. Com. (CT), [2012] 50 VST 179 (Mad.)
• Gheru Lal Bal Chand v. State of Haryana and Another [2011] 45
VST 195 (P&H)
• Giriraj Sales Corporation v. State of Guj. & Oth 125 STC 369 (Guj.)
• State of Maharashtra v. Suresh Trading Company 109 STC 439 (SC)
• Vijaya Traders V. CTO [2011] 45 VST 113 (AP)
Poser - 24
72
Poser - 24
• Decisions against Dealer
• Madhav Steel Corporation v. The State of Gujarat (Trib.) (SA No. 451 of
2011 dated 01.08.2013) (Sales Tax Journal, August 2013, P. No. 495)
• Mahalaxmi Cotton Ginning Pressing and Oil Ind. V. State of Maharashtra
and Others [2012] 51 VST 1 (Bom)
• Timex Art Décor Pvt. Ltd. v. State of Maharashtra and others [2013] 61 VST
324 (Bom.)
73
Poser - 25
In case of genuine transactions, whether purchasing
dealer can be denied of ITC for non-payment of taxes
by vendor? Can he be penalized for such breach of law
not committed by him?
� For Period Prior to 01.04.2013 - No
� For Period after 01.04.2013 - Yes – Let’s be on a safer side -
11(7A) –Subject to Constitutional Validity and Litigation - Too
Early to Say
� Penalty – Where are we?
� Hindustan Steel Ltd. V. State of Orissa 1970 AIR 253 (SC)
74
Poser - 26
Newtech Mobile Private Limited is an authorized dealer of Nokia Company.
Modus operandi and billing system under this business is as under; Company
bills it a mobile instrument, say at ` 30000 on which VAT @ 15% is charged
and collected by company. Thereafter, company issues to it CN of ` 3000,
wherein, no separate mention of any VAT particular is made. It sells this mobile
instrument at ` 28000 and VAT is paid on this amount. On account of effective
reduction in cost of mobile and subsequent sale at a price below originally
billed price, dealer is always having surplus VAT Credit. It has claimed for
refund of this amount. Department is denying it on the ground that it has sold
goods at loss and hence refund cannot be allowed. Alternatively, they are
allowing credit of only ` 27000 (30000-3000) and not of ` 30000. Discuss its
validity. � Debatable Issue
� No ITC for goods sold below price? Under which Provision?
� If CN doesn't show tax separately, can it be considered inclusive of tax?
� Though such objections are being raised at assessment time, at present, in
some cases, refunds are ultimately granted by Department.
75
Disclaimer
Immense care has been taken while preparing the presentation; however,
mistakes may creep in. It is, therefore, recommended that the Original
Provisions of Act & Rules may be referred to or professional advice may
be sought before acting on the basis of views, analysis and
interpretations in this presentation. This presentation is for general
information and intended for private circulation only among clients,
friends and relatives.
Contact Info
CA. Ravindra R. Manek
Chartered Accountant
+91 0288-2677752
R. Manek & Associates
Chartered Accountants
224-225-226,
Indraprasth Complex,
Pancheshwar Tower Road,
Jamnagar (GUJARAT) – 361001
