Presented By CA Swatantra Singh,

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Presented By Presented By

CA Swatantra Singh,CA Swatantra Singh, B.Com , FCA, MBAB.Com , FCA, MBA

Email ID: Email ID: [email protected]

New Delhi , 9811322785New Delhi , 9811322785,, www.caindelhiindia.com, www.caindelhiindia.com,

www.carajput.com www.carajput.com

mailto:[email protected]

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Input Tax CreditInput Tax Credit1. WHAT IS INPUT TAX CREDIT (ITC)

The concept of ITC is to replace declaration forms and to collect tax at multi-point. ITC, in general, is the

a. Section 9(1) is subject to section 9(2).

b. amount of tax paid/payable by the purchaser in accordance with the provisions of the Act

c. on eligible local purchase (not specified in Schedule VII)

d. arises in the course of his activity as a dealer

e. from a local regd. dealer supported by a ‘valid tax invoice’

e. for the purpose of use by him directly/indirectly in making Local Taxable Sales or inter-State Sale or Export out of India.

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Input Tax CreditInput Tax Credit

b. ELIGIBLE TAX (for which credit is available): -

Tax paid under DVAT Act in relation to eligible purchases.

Therefore no credit can be claimed for: -

CST paid or payable on inter-state purchases;

Central excise duty or service tax;

Any tax (other than DVAT), whatsoever, paid or payable to the home State or other states or UT.

c. ELIGIBLE DEALERS: -

Registered under the DVAT

Required to be registered under the DVAT Act

Exception - Casual dealer and Composition Dealer

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d. ELIGIBLE Goods (for which credit is available): -

Trading Goods;

Raw Materials;

Packing Material;

Consumables other than fuel;

Hire charges subjected to DVAT (Except contractors);

Capital Goods (unless specified in Schedule VII) subject to restrictions specified under section 9(9);

Components used in fabricating the machine in-house provided machine is used for purposes specified u/s 9(9)

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e. ELIGIBLE PURCHASES IN GENERAL

Goods purchased for the purpose of business and not for personal consumption;

Goods purchased for the purpose of manufacturing taxable goods, e.g., ITC is not allowed on paper purchased for manufacturing books;

Goods not purchased from a casual dealer or a dealer who has opted for the composition scheme;

Goods purchased for the purpose of making –

Local taxable sales; Inter-State sales; Exports

• ITC u/s 9 is available on making the eligible

purchases – Holding of tax invoice without

making the purchase is not enough

• If, under some circumstances, the local

purchases are assessed as central purchases,

Input Tax Credit would be denied – To

illustrate – K.G. Khosla’s case and DCM case

• Therefore, first ensure that goods are actually

been purchased and, second, this is a local

purchase

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f. Non-Creditable Goods

Items are not specified in Schedule VII – It is an exhaustive list, amended further w.e.f. 30.11.2005 –

All Automobiles and spare parts for repairs and maintenance and tyres and tubes thereof;

Fuels in the form of petrol, diesel and kerosene, LPG, CNG, PNG, coal;

Conventional clothing and footwear, clothing fabrics;

Food and beverages for human consumption;

TV, DVD, Music systems, etc. – Equipments for entertainment;

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f. Non-Creditable Goods (contd…)

Air conditioners, air conditioning plants or units other than those used for manufacturing purposes; air coolers, fans and air circulators;

Office equipments, furniture, carpets, stationary items, advertisement and publicity materials, sanitation equipments, fixtures including electrical fixtures and fittings, generators and electrical installation;

Elevators (lifts);

Cranes, earthmovers, JCB, excavators, road rollers, concrete mixing machines and other similar machineries;

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f. Non-Creditable Goods (contd…)

Computers other than those used for the purpose in normal business;

Goods for personal consumption or for gifts;

Goods purchased and accounted for in business but utilised for the facility to the employees;

Goods used for construction of or incorporation in civil structures and immovable goods or properties not constituting part of the works contracts.

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Watz VAT?Watz VAT?

(1)(1) Value Added Tax (VAT), as the name itself suggests,is a tax Value Added Tax (VAT), as the name itself suggests,is a tax on on

value addition at each stage of production - distribution value addition at each stage of production - distribution chain.chain.

(2)(2) This tax, in its purest form, is a destination based , This tax, in its purest form, is a destination based , consumption tax.consumption tax.

It encompasses all economic activities .It encompasses all economic activities .

(3) At each stage of trade, value addition is taxed and tax is (3) At each stage of trade, value addition is taxed and tax is paid on all paid on all

Purchases whether inputs, or capital investment .Purchases whether inputs, or capital investment .

(4(4) At each stage, there is collection of tax by government but , ) At each stage, there is collection of tax by government but , it is it is

rebated at the next stage.rebated at the next stage.

(5) VAT system of taxation is considered to be superior to (5) VAT system of taxation is considered to be superior to other other

systems of taxation as it avoids/ reduces cascading effect systems of taxation as it avoids/ reduces cascading effect of of

indirect taxes. indirect taxes.

(6) It is also simple to administer and has self – policing (6) It is also simple to administer and has self – policing mechanism.mechanism.

What is VAT What is VAT

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Lack of Uniformity.Lack of Uniformity. Multiplicity of RatesMultiplicity of Rates Heavy reliance on the First-point tax.Heavy reliance on the First-point tax. Cascading effect of the tax.Cascading effect of the tax. Pyramiding influence on prices.Pyramiding influence on prices. Biased against commodity having larger value-added at Biased against commodity having larger value-added at

the the

earliest stages.earliest stages.

CHARACTERSTICSCHARACTERSTICS OF SALES TAXOF SALES TAX

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VAT is a form of Sales Tax collected on consumer VAT is a form of Sales Tax collected on consumer expenditure.expenditure.

It removes any tax on Business investment.It removes any tax on Business investment.

Input is Purchase and Output is Sales.Input is Purchase and Output is Sales.

Input and Output are common to Manufacturers and Input and Output are common to Manufacturers and Traders.Traders.

Zero is a Rate of Tax in VAT.Zero is a Rate of Tax in VAT.

If transaction is Zero Rated, Seller is eligible for If transaction is Zero Rated, Seller is eligible for Input Tax Rebate.Input Tax Rebate.

Exempt means no Input Rebate is givenExempt means no Input Rebate is given

BASIC CONCEPTS OF VATBASIC CONCEPTS OF VAT

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Manufacturers and Traders to get input tax Manufacturers and Traders to get input tax rebate against sales are made by them.rebate against sales are made by them.

Export Sales are eligible for input tax rebate Export Sales are eligible for input tax rebate

Branch Transfers / Consignment Sales Branch Transfers / Consignment Sales eligible for credit subject to certain limits. eligible for credit subject to certain limits.

Input Rebate is confined only to tax paid on Input Rebate is confined only to tax paid on Purchases made WITHIN the state only.Purchases made WITHIN the state only.

INPUT TAX REBATEINPUT TAX REBATE

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Common Rates of TaxCommon Rates of Tax

Basic Four Rates of Tax (1%, 4% , 12.50% Basic Four Rates of Tax (1%, 4% , 12.50% and 20%)and 20%)

Minimum Rate. ( Bullion, Gold, Silver, Minimum Rate. ( Bullion, Gold, Silver, Precious Metals and stones)Precious Metals and stones)

Low Rate. ( Food Grains , Declared Good Low Rate. ( Food Grains , Declared Good and industrial inputs)and industrial inputs)

High Rate( Liquor, Petroleum Products)High Rate( Liquor, Petroleum Products)

General Rate ( All other Goods)General Rate ( All other Goods)

RATES OF TAXRATES OF TAX

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Operation of VATOperation of VAT

Raw Material producer –Sale value 100Raw Material producer –Sale value 100Gross VAT – 12.50 (12.50% of 100)Gross VAT – 12.50 (12.50% of 100)

Net VAT – 12.50Net VAT – 12.50

Manufacturer – Sale value 200Manufacturer – Sale value 200Gross VAT - 25(12.50% of 200)Gross VAT - 25(12.50% of 200)

Net VATNet VAT - 12.50 (25-12.50) - 12.50 (25-12.50)

Wholesaler – Sale value 300Wholesaler – Sale value 300Gross VAT - 37.50 (12.50% of 300)Gross VAT - 37.50 (12.50% of 300)

Net VAT - 12.50 (37.50-25)Net VAT - 12.50 (37.50-25)

Retailer – Sale value 400Retailer – Sale value 400

Gross VAT - 50 ( 12.50% of 400)Gross VAT - 50 ( 12.50% of 400)

Net VAT - 12.50 (50-37.50)Net VAT - 12.50 (50-37.50)

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Operation of Sales Operation of Sales

Raw Material producer –Sale value 100Raw Material producer –Sale value 100Gross Sales tax – 12.50 (12.50% of 100)Gross Sales tax – 12.50 (12.50% of 100)

Net Sales Tax – 12.50Net Sales Tax – 12.50

Manufacturer – Sale value 200Manufacturer – Sale value 200 Gross Sales Tax – 25 (12.50% of 200)Gross Sales Tax – 25 (12.50% of 200)

Net Sales Tax - 25Net Sales Tax - 25

Wholesaler – Sale value 300Wholesaler – Sale value 300Sales tax - NILSales tax - NIL

Retailer – Sale value 400Retailer – Sale value 400

Sales Tax - NILSales Tax - NIL

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RegistrationRegistrationEvery Dealer is required to register under the Every Dealer is required to register under the act if he fulfills any of these conditions :act if he fulfills any of these conditions :

His taxable turnover in the preceding year His taxable turnover in the preceding year exceeded the minimum exemption limit.exceeded the minimum exemption limit.

His taxable turnover in the current year His taxable turnover in the current year exceeds the exemption limit.exceeds the exemption limit.

He is liable to pay tax under CST,1956.He is liable to pay tax under CST,1956.

A Dealer is exempted from registration if he A Dealer is exempted from registration if he deals exclusively in goods which are exempted deals exclusively in goods which are exempted under VAT.under VAT.

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TIN NO. & TIN DesignTIN NO. & TIN Design

(1) (1) Automatic registration of existing taxpayers under VAT by Automatic registration of existing taxpayers under VAT by allotment of TIN without making application or payment of allotment of TIN without making application or payment of any feeany fee

(2) Website query system developed for generating TIN from (2) Website query system developed for generating TIN from old R.C. No.old R.C. No.

(3) 11-digit TIN made user friendly.(3) 11-digit TIN made user friendly. 2-digit state code , 2-digit state code , 2 check digits, 2 check digits, 7-digit serial no. split into two parts: 7-digit serial no. split into two parts:

2-digit district code 2-digit district code 5-digit old R.C. No. retained.5-digit old R.C. No. retained.

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Composition SchemeComposition SchemeIf the turnover of dealer exceeds the taxable quantum If the turnover of dealer exceeds the taxable quantum but does not exceed the prescribed amount , then he can but does not exceed the prescribed amount , then he can opt for composition scheme.opt for composition scheme.

Rate of Tax under this scheme is 1% .Rate of Tax under this scheme is 1% .

Such dealers are not entitled to claim input tax credit.Such dealers are not entitled to claim input tax credit.

They are not entitled to collect tax from customers.They are not entitled to collect tax from customers.

They are not entitled to issue tax invoices.They are not entitled to issue tax invoices.

They are required to hold and retain tax invoices as well They are required to hold and retain tax invoices as well as retail invoices for all their purchases.as retail invoices for all their purchases.

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Composition SchemeComposition SchemeIIf the turnover of dealer exceeds the taxable quantum but does not f the turnover of dealer exceeds the taxable quantum but does not exceed the prescribed amount , then he can opt for composition exceed the prescribed amount , then he can opt for composition scheme.scheme.Rate of Tax under this scheme is 1% .Rate of Tax under this scheme is 1% .

Such dealers are not entitled to claim input tax credit.Such dealers are not entitled to claim input tax credit.

They are not entitled to collect tax from customers.They are not entitled to collect tax from customers.

They are not entitled to issue tax invoices.They are not entitled to issue tax invoices.

They are required to hold and retain tax invoices as well as retail They are required to hold and retain tax invoices as well as retail invoices for all their purchases.invoices for all their purchases.

A dealer is not eligible for Composition scheme if he meets any of A dealer is not eligible for Composition scheme if he meets any of the below mentioned criterion:the below mentioned criterion:

i.i. Is registered under the CST ActIs registered under the CST Actii.ii. He purchases goods from unregistered dealerHe purchases goods from unregistered dealeriii.iii. Procures goods from outside DelhiProcures goods from outside Delhiiv.iv. Sells or supplies goods to any place outside DelhiSells or supplies goods to any place outside Delhi

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Tax Credit on Opening StockTax Credit on Opening StockAny Opening Stock as on 1Any Opening Stock as on 1stst April’05 is eligible April’05 is eligible for tax credit subject to the following conditions:for tax credit subject to the following conditions:

It should be held in the respective state only.It should be held in the respective state only.

Statement in a prescribed form is furnished with the deptt. Statement in a prescribed form is furnished with the deptt. within a stipulated period .within a stipulated period .

In case of Raw/Packing material it is purchased after a given In case of Raw/Packing material it is purchased after a given date date

No tax credit shall be allowed on Finished Goods that were No tax credit shall be allowed on Finished Goods that were taxable at last point.taxable at last point.

Any dealer who has opted under Composition Scheme will be Any dealer who has opted under Composition Scheme will be required to pay tax on the trading stock, Raw materials, required to pay tax on the trading stock, Raw materials, Packaging materials and Finished Goods held in stock as on 1Packaging materials and Finished Goods held in stock as on 1stst April’2005.April’2005.

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Invoices Vs Tax invoiceInvoices Vs Tax invoice

Under VAT invoices hold a primary place as these are the Under VAT invoices hold a primary place as these are the basic documents on the basis of which the whole system has basic documents on the basis of which the whole system has been designed .There are two kind of Invoices :been designed .There are two kind of Invoices :

TAX INVOICETAX INVOICERETAIL INVOICERETAIL INVOICE

A tax invoice can be issued ONLY by a registered dealer.A tax invoice can be issued ONLY by a registered dealer.

Any dealer who elects to pay under Composition Scheme or makes Any dealer who elects to pay under Composition Scheme or makes Central sales or Exports is not required to issue a tax invoice.Central sales or Exports is not required to issue a tax invoice.

Tax Credit can be claimed by the purchaser only if he holds a valid Tax Credit can be claimed by the purchaser only if he holds a valid tax invoice.tax invoice.

A tax invoice shall be issued in Duplicate –The original one for the A tax invoice shall be issued in Duplicate –The original one for the Purchaser and the duplicate for the seller Purchaser and the duplicate for the seller

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Mandatory particulars of Tax InvoiceMandatory particulars of Tax Invoice

The word “Tax Invoice” in a prominent placeThe word “Tax Invoice” in a prominent place

The name, address and registration number of the selling registered dealerThe name, address and registration number of the selling registered dealer

The name, address and registration number of the purchasing registered dealerThe name, address and registration number of the purchasing registered dealer

Serial No. of the invoice and the date on which it is issuedSerial No. of the invoice and the date on which it is issued

Description, quantity, volume and value of goods sold and services provided and Description, quantity, volume and value of goods sold and services provided and the amount of tax charged thereon to be indicated separatelythe amount of tax charged thereon to be indicated separately

The signature of the selling Dealer or his servant, manager or agent, duly The signature of the selling Dealer or his servant, manager or agent, duly authorized by him. authorized by him.

The name and address of the printer and the 1st and last serial number of the tax The name and address of the printer and the 1st and last serial number of the tax invoices printed and supplied by him to the dealer.invoices printed and supplied by him to the dealer.

If an invoice has been issued under the provisions of the Central Excise Act ,it If an invoice has been issued under the provisions of the Central Excise Act ,it shall be deemed to be a valid tax invoice only if it contains all the particulars shall be deemed to be a valid tax invoice only if it contains all the particulars prescribed above.prescribed above.

In case of computerized invoices a series number should be maintained for all In case of computerized invoices a series number should be maintained for all invoices , the duplicate copy should be maintained securely , and in such a case the invoices , the duplicate copy should be maintained securely , and in such a case the dealer becomes the printer himself.dealer becomes the printer himself.

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Retail InvoiceRetail Invoice

A retail invoice is issued by registered dealers for all sales valued above Rs.25A retail invoice is issued by registered dealers for all sales valued above Rs.25

Retail invoices shall be issued in duplicate –the original for the purchaser and Retail invoices shall be issued in duplicate –the original for the purchaser and duplicate for the sellerduplicate for the seller

Retail invoices are also issued in case of interstate sales , interstate branch Retail invoices are also issued in case of interstate sales , interstate branch transfers and exportstransfers and exports

The words Retail Invoice/ Cash Memo/Bill in a prominent placeThe words Retail Invoice/ Cash Memo/Bill in a prominent place

The name ,address and registration number of the dealer ,if registered.The name ,address and registration number of the dealer ,if registered.

In case of sale in the course of inter state trade or commerce, the name, In case of sale in the course of inter state trade or commerce, the name, registration number and address of the purchasing dealer and the type of statutory registration number and address of the purchasing dealer and the type of statutory form, if any ,against which the sale has been made.form, if any ,against which the sale has been made.

A pre-printed serial number and the date on which the invoice has been issuedA pre-printed serial number and the date on which the invoice has been issued

Description, quantity, volume and value of goods sold and services provided Description, quantity, volume and value of goods sold and services provided inclusive of the amount of tax charged thereoninclusive of the amount of tax charged thereon

The signature of the selling Dealer or his servant, manager or agent, duly The signature of the selling Dealer or his servant, manager or agent, duly authorized by him. authorized by him.

INPUT TAX CREDIT ON CAPITAL GOODS

• Capital goods means plant, machinery and equipments used directly or indirectly in the process of trade, manufacturing or works contracts in Delhi.

• But, ITC is not available on goods specified in Sch.VII.

• Goods must be purchased within Delhi from a registered dealer, supported by a valid tax invoice.

• ITC is available in three equal instalments and first installment is in the tax period when it is purchased.

• If capital goods are transferred out of Delhi within three years, than 2% of the purchase price will be reversed. When the goods are received back in Delhi, ITC could not be reclaimed since rule 7(2) refers to non-capital goods and sec. 9(6) of the Act. A big issue for works contractors.

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INPUT TAX CREDIT ON CAPITAL GOODS

• Depreciation will not be claimed on the amount of ITC availed by the dealer, i.e., on the principal amount.

• Tax credit in respect of capital goods shall also not be allowed if such capital goods are used exclusively for the purpose of making sale of exempted goods specified in the first schedule.

• If capital goods are used partly for the purposes of manufacturing and/or trading taxable goods or making exports and partly for other purposes, the amount of the tax credit in relation to such capital goods shall be reduced proportionately.

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ADJUSTMENT IN INPUT TAX CREDIT

• If the invoice raised by the seller/contractor is passed by buyer/contractee for a lesser amount, and the amount is subsequently adjusted in output tax by contractor u/s 8, the seller must issue to the buyer a debit note, issuance of which is mandatory.

• The buyer/contractee shall adjust his ITC on the basis of such debit note

• Where goods are returned/rejected by the buyer, he will reduce his ITC in relation to those goods, in the T.P. when goods are returned/ rejected. Double taxation if goods are returned after 6 month

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PROPORTIONATE REDUCTION IN INPUT TAX CREDIT

• Where a dealer has purchased goods, which are to be used partly for the purpose of making sales referred to u/s 9(1) and partly for other purposes, then amount of tax credit shall be reduced proportionately.

• To illustrate, X purchased raw material for Rs. 1,00,000 plus tax of Rs. 12500/- for manufacture of taxable as well as exempted goods. At that time, he estimated that the raw material would produce 80% taxable goods. In such case, his input tax credit will be restricted only to 80% of Rs. 12500/, i.e., Rs. 10000/-.

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• If goods are subsequently used for different purposes, then the reduction shall be made in the tax period when so used.

• What is the difference between 9(4) and 10(2)

• Method of reduction should be fair and reasonable; otherwise the Commissioner is empowered to reject the method or prescribe another method.

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• Valuation:

– If commodity wise register maintained – At the purchase price

– Otherwise – On the basis of the purchase price of such goods immediately preceding their use for other purposes or their FMV, w.e.i. higher

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STOCK TRANSFER TO OTHER STATES

• The amount of the tax credit shall be reduced by 2% of the purchase price (1% in case of bullion) if the goods or goods manufactured out of such goods are to be exported from Delhi by way of transfer to a

(i) non-resident consignment agent; or

(ii) non-resident branch of the dealer;

• ITC will be reduced only in relation to those goods where it is claimed or is claimable, i.e., no reduction shall be made in respect of those goods which are purchased from local unregistered dealers or in the course of inter-State trade.

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• What is the difference between 9(6) and 10(3)

• At what value goods to be transferred – At cost or at FMV? It should be the cost since reversal to be made on the basis of purchase price

• Valuation of stock transfer:

– If commodity wise register maintained – At the purchase price

– Otherwise – On the basis of the purchase price of such goods immediately preceding their use for stock transfer or their FMV, w.e.i. higher

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• In addition, Form F shall also be obtained

• Where the goods so transferred are received back in Delhi either in the original form or in some other form, tax credit already reduced can be reclaimed in the tax period when goods are so received.

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GOODS INCORPORATED IN OWN STRUCTURE

• If goods are used for construction of or incorporation in civil structures and immovable goods or properties not constituting part of the works contracts, ITC shall be denied on such goods, e.g., cement, bricks, tiles, etc.

• If goods which have been purchased by a dealer were intended to be used for the purposes specified u/s 9(1) but are subsequently incorporated into the structure of a building owned or occupied by that person, the tax credit claimed in respect of such purchases shall be reduced in the tax period during which such incorporation takes place.

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GOODS LOST OR DESTROYED

• Where any goods or goods manufactured out of such goods are lost or destroyed, the credit taken in any earlier tax period shall be reversed in the tax period in which goods are claimed to have been lost or destroyed.

• However, input tax credit should not be denied on normal loss arising during the course of manufacture.

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Can ITC be claimed on the strength of ‘Retail Invoice’ instead of ‘Tax Invoice’ – if all other conditions are satisfied –

• The answer depends whether the provisions of section 50(2) are directory or mandatory.

• If mandatory, ITC could be claimed only on the basis of tax invoice.

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Can ITC be claimed in the tax period subsequent to the tax period when goods were actually purchased, without filing an objection, on the ground –

– He do not have in procession the Original Tax Invoice when goods were purchased : Should state the amount of purchase and claim ITC in subsequent months

– He forgot to claim ITC in the original tax period : Since it is an error or mistake – Objection is required

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• Input Tax Credit can be claimed in respect of

– Purchases meant for local taxable sales, ISS and Exports out of India

– Capital goods used in the process of trade such as weighing machines, computers, delivery rickshaws, etc.

– Not available in respect of furniture/furnishing of office

• Schemes, distribution Gift articles, etc.?

• Reversal of input tax credit on account of credit notes?

• Evaporation Loss?

• Stock transfers to agents within Delhi ?3838

Input Tax Credit-TradersInput Tax Credit-Traders

3939

Free Offers to the Customers – ITC on Purchases

• Deter. u/s 84 dt. 31.10.2005 – L.G. Electronics – Gifts (T-shirts, TV, AC, Phone, etc.) to customers through scratch cards – debited to sales promotion – No ITC

• However, in our opinion, where gifts are given along with the main product - Necessary for completion of sale contracts – 2+1 shirt (or) Bucket with detergent (or) Mosquito machine with mats (or) Car + Accessories – Supply of free items is part of sale contract – ITC should be available

• To be debited to “purchases” instead “sale promotion”

• Post sale gifts – No ITC/benefit of Form ‘C’ available


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• Credit Note resulting in reduction of purchases –

Need reversal of ITC by the purchaser even if

output tax has not been reversed by the seller u/s

8 – Circular No. 2 dated 7.8.2008

However, Judgments to be referred for contrary answer:

Andhra Agencies vs. State of A.P. (2009) 19 VST 1 (SC)

Priya Agencies vs. CTO (2008) 14 VST 293 (Ker)


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Goods Lost – ITC on Purchases

• Evaporation of oil – No ITC on oil evaporation – Commissioner Ruling u/s 85 – Same opinion by P&H High Court recently Bharat Petroleum Ltd.

• The same analogy might be applied to all trading losses. For example –

• loss of cement in transit

• Waste/scrap generated at the end, e.g. confectionery powder, vegetable/fruit waste at the end of the day

• Measurement/weighment difference in purchase vis-a-vis sale


STOCK TRANSFER WITHIN DELHI

In accordance with Notification No. F.4(3)/P-II/Noti/

VAT/2005/1158 dated 2nd December 2005 -

• The principal in Delhi will raise tax invoice on agent; &

• The agent will claim ITC on the basis of such tax invoice.

However, if that is so, even without substantial provisions:

• Tax will have to be paid by the principal even without

affecting sale and adjustments to be made at the time of

return of unsold stock by the agent;

• ITC will be claimed by agent without making purchases.

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Input Tax Credit can be claimed in respect of :-

– Purchases meant for manufacture of goods meant local taxable sales, ISS and Exports out of India including raw material and consumables

– Facilities, such as bulbs, exhaust fans, shoes, etc. used in the manufacturing plant

– Status of goods manufactured at Third Party Unit – (i) With material (some material supplied by Mfr. and (ii) without material (purely labor)

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Input Tax Credit-ManufacturersInput Tax Credit-Manufacturers

• Input Tax Credit can be claimed in respect of

– Capital goods used in the process of manufacture such as plant, machinery, tools, equipments, weighing machines, etc. [ Judgments applicable to purchase against form C squarely applies – except goods listed in Sch. VII ]

• Normal Manufacturing Loss • As per the Advance Ruling by the Commissioner,

where scrap generated out of goods manufactured is exempt, then tax credit on the raw material shall be reduced proportionately.

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STOCK TRANSFER TO OTHER STATES• Where the goods so transferred are received

back in Delhi either in the original form or in some other form, tax credit already reduced can be reclaimed in the tax period when goods are so received.

• Where a dealer, who is engaged in manufacturing of taxable as well as exempt goods, transfers certain goods to other States, then

– He will first reduce the ITC proportionately in relation to the exempted goods; then

– He will further reduce the amount of ITC as calculated in (i), in relation to stock transfer to other States.

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• A person, who is exclusively engaged in the business of labour/job work (other than a manufacturer), is not eligible for ITC on purchase of consumables or capital goods, merely because he is liable to pay tax on sale of any waste/ scrap goods generated during the process of labour job.

To illustrate, a job worker is exclusively engaged in the business of labour job of cutting iron sheets (supplied by the customer) into circles. He sells scrap, generated in this process, and pays VAT due to the Govt. Even than he is not eligible for tax credit on purchase of any consumable or capital goods used for carrying his labour job.

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Input Tax Credit-Job WorkersInput Tax Credit-Job Workers

• Works contractors can claim ITC on following purchases:- Raw Material Consumables which do not get destroyed Packing Material Capital Goods other than those specified in Sch. VII

• Contractors are deemed either as trader or as manufacturer

• VAT paid on hire charges and consumable which get destroyed can not be claimed as ITC since these are allowable deductions as labour and services and are exempted sales.

• ITC on temporary shed/yard/office?• Relations between contractor & sub-contractor – (a) If pro-

perty is tfd. directly on principle of accretion – (b) Otherwise

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Input Tax Credit-ContractorsInput Tax Credit-Contractors

SERVICE SECTOR ALSO ENGAGED IN SALE LIKE HOTELS

• Input tax is available on those purchases (including rent) which are relatable for making sale by the dealer.

• Where goods (including capital goods) are used partly for making sale and partly for providing service, ITC will be available proportionately, e.g., common generator used in the restaurant as well as rooms.

• Capital goods used exclusively for providing services is not available for ITC, e.g., equipments used in Jim, Swimming Pools etc.

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Input Tax Credit-Service SectorInput Tax Credit-Service Sector

LESSER (Transfer Of Right To Use Goods)

• As per Determination by Commissioner u/s 84 in Digitech - Benefit of Input tax credit is not available to leasing company on its purchases even if its sales are taxable in Delhi VAT

• Matter is pending before DVAT Tribunal

• If that is so purchase from other States against Form C, paying 2% CST

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Input Tax Credit-Right to UseInput Tax Credit-Right to Use

LESSER (Transfer Of Right To Use Goods)

• Right to use goods, i.e., leasing is covered under the DVAT/CST and is covered in the definition of sale;

• Whenever, goods are purchased by the hirer for the purpose of leasing, the local tax paid on purchases should be eligible for ITC against output tax payable on lease rent;

• Goods which are purchased and hired by the hirer shall be treated as stock in trade and not non-capital goods.

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LESSEE (Transfer Of Right To Use Goods)

• The lessee can also claim the benefit of input tax credit if the goods are delivered at Delhi and used by him for the purpose of use in trade, manufacture or execution of works contract in Delhi

• The lessee will claim in installments on the basis of periodical tax invoices raised by the lesser – Refer Section 105(2)(b).

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Input Tax Credit - RecordsInput Tax Credit - Records

The purchaser can claim ITC if he has in his possession a valid tax invoice. ITC is not available unless the words “Tax Invoice” are stated on the invoice.

Tax Invoice must contain:-

(a) The words “tax invoice” in a prominent place;

(b) Name, address and registration number of the selling registered dealer;

(c) Name and address of the purchaser and his registration no., if already registered;

(d) An individual pre-printed serialized number and the date on which tax invoice is issued;

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(e) Description, quantity, volume and value of goods sold and services provided and the amount of tax charged thereon indicated separately;

(f) Signature of the selling dealer or his servant, manager or agent, duly authorized by him; and

(g) Name and address of the printer and first and last serial number of tax invoices printed and supplied by him to the dealer.

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Explanation to section 50(1) of the DVAT Act –

A registered dealer shall be authorized to issue tax invoice only after certificate of registration is issued by the Commissioner.

Vide clarification no. VAT/Policy III/2005-06/898 dated 13th July 2005, it has been clarified that the dealer who has been informed his TIN can issues tax invoice from the date of communication of TIN.

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Duplicate Tax Invoice: Where a purchasing dealer claims to have lost the original tax invoice, the selling dealer may, upon a request made by the purchasing dealer accompanied by an undertaking cum indemnity in Form DVAT-36, provide a copy of such last tax invoice clearly marked as a “duplicate” and SHALL furnish a copy of such undertaking cum indemnity along with his return for the tax period in which such “duplicate” tax invoice has been issued.

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DEBIT AND CREDIT NOTE

Where a tax invoice has been issued in respect of a sale and –

(a) The amount shown as tax in that tax invoice exceeds the tax payable in respect of the sale, the dealer shall provide the purchaser with a credit note, containing such particulars as may be prescribed; or

(b) The tax payable in respect of the sale exceeds the amount shown as tax on the tax invoice, the dealer shall provide the purchaser with a debit note, containing such particulars as may be prescribed.

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Input Tax Credit - RecordsInput Tax Credit - RecordsDEBIT AND CREDIT NOTE

TO be signed by the person authorized to sign the return and contain the following details:-

(a) Name, address and registration certificate number of selling registered dealer;

(b) Name and address of the purchaser and his registration number where the purchaser is a registered dealer;

(c) Description of the reason for issuing the credit note or debit note, as the case may be;

(d) Serial number of the relevant tax invoice affected by the credit note or debit note, as the case may be; and

(e) Amount of the variation to the tax amount shown on the tax invoice.

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A monthly

account

specifying

- Total output tax,

- Total input tax, and

- Net tax payable or the excess

tax credit due for carry forward.

Input Tax

Calculations

Details of input tax calculations

where the taxable person is

making both taxable and tax free

sales.

TO CONCLUDE

• Input Tax Credit can be claimed by the dealers for their eligible purchases of creditable goods (other than those listed in Sch. VII) for the specified purposes made from local registered dealers on the basis of a valid tax invoice.

• No one to one correlation of purchase and sale is required.

• Unclaimed amount of ITC at the end of the tax period can be carried forward indefinitely or claimed as refund.

• To hold a valid Tax invoice at the time of filing of return for claiming ITC is a mandatory requirement.

• Input Tax Credit is the essence of VAT Regime and legitimate claim thereof is a true saving.

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Presented By Presented By

CA Swatantra Singh, B.Com , FCA, MBA CA Swatantra Singh, B.Com , FCA, MBA Email ID: [email protected] Email ID: [email protected]

New Delhi , 9811322785,New Delhi , 9811322785, www.caindelhiindia.com, www.caindelhiindia.com,

www.carajput.com www.carajput.com

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Documents

Presented By CA Swatantra Singh,