INPUT TAX CREDIT P.R.SUDHAKAR SENIOR GENERAL MANAGER- INDIRECT TAXES BRAKES INDIA LIMITED
INPUT TAX CREDIT• Section 19 and Rule 10 of TN VAT Act,2006 deals with input tax credit.• Input tax credit (ITC) is available for the inputs on which the tax paid or payable by the registered dealer.• If purchased from unregistered dealer, input tax credit is not available• The registered dealer who claims input tax credit shall prove that the inputs/capital goods had suffered tax.
Restriction for claiming input tax credit.• Section 19(2) of the Act places restriction in availing input tax credit and shall be allowed on the tax paid or payable made from the registered dealer for the following purposes:• Re-sale within the state;• Use as input in manufacturing or processing of goods in the state.• Use as containers, labels and other materials for packing of goods in the state;• Use as capital goods in the manufacture of taxable goods• Sale in the course of inter-state trade or commerce falling under section 8(1) of CST Act,1956.• Agency transactions by the principal within the state.• If original tax invoice is lost, ITC shall be allowed based on the duplicate or carbon copy obtained from the selling dealer. The claim shall be made within 30 days from the date on which the tax invoice was lost.• The assessing authority is expected to pass an order either allowing the tax credit or rejecting the same.• In case of rejection, reason must be stated in the order after providing for the opportunity being heard.
CONDITION FOR CLAIMING ITC• ITC credit is available only against “Tax Invoice” issued by the registered dealer.• Tax invoice shall contain the following details:a) Consecutive serial number.b) Date of issue.c) Name and address of the tax payer with TIN number.d) Buyer’s name and address with TIN number.e) Description of the goods.f) Quantity or volume of the goods.g) Value of the goods.h) Rate and amount of tax paid.i) value of the goods.
CAPITAL GOODS AND ITC• Capital goods means- a) Plant and machinery. equipment, apparatus, tools, appliances or electrical installations; b) pollution control, quality control, laboratory and cold storage equipments; c) components, spare parts and accessories of the goods specified above; d) Moulds, dies, jigs and fixtures; e) refractors and refractory materials; f) storage tanks; g) tubes, pipes and fittingsUsed in the state for the purpose of manufacture, processing, packing or storing of goods in the course of business ;
CAPITAL GOODS AND ITC• Input tax credit is available for the capital goods for use in the manufacture of taxable goods.• Utilization of input tax credit shall be allowed only after the commencement of commercial production and over a period of 3 years.• Un-availed input tax credit on capital goods after the expiry of 3 years period shall lapse to the government.• Input tax credit shall not be allowed on the purchase of capital goods which are used exclusively used in the manufacture of exempted goods. (Ref. section 15 of the Act.)
CAPITAL GOODS AND ITC• The registered dealer shall be entitled to avail upto 50% of the input tax credit in the year of purchase and balance before the end of 3rd financial year.• For Parts and accessories, input tax credit is available in full in the month of purchase or thereafter.• The registered dealers are not entitled to claim input tax credit on capital goods purchased prior to commencement of the Act.
STOCK TRANSFER AND ITC• Input tax credit shall be allowed on the tax paid or payable in excess of 3% of the tax relating to such purchases- What is stock transfer:e) If the goods are transferred to a place outside the state otherwise than by way of sale; org) If the goods in the form of inputs are for use in the manufacture of other goods and such manufactured goods are stock transferred to a place outside the state, otherwise than by way of sale.c) Input tax credit is available on stock transferred goods only if Form F declaration is filed.
STOCK TRANSFER AND ITCFor the stock transfers effected outside the state, proportionate input tax credit is to be paid back to the extent of 3%. (Vat burn-out).To work out the vat burn-out, the following formula is relevant: * Value of Purchase of vat inputs made during the month--------------------------------------------------------X Value of stock transfer made during the month.Total turnoverincluding stock transfer value for the month* Purchase value to be reckoned for 5% and 14.5% separately.On the value so arrived at , pay 3%.
EXEMPTED GOODS AND ITC• Input tax credit is not available in respect of sale of goods exempted under section 15 of the Act. (Fourth schedule goods).• Similarly, input tax credit is not allowed on the goods brought into the state from outside the state, either in the form of direct purchase (CST purchases) or stock transfers.
INTER-STATE SALES AND ITC• Input tax credit is allowable only if the goods are sold as such or used in the manufacture of other goods and sold in the course of inter-state trade against declaration in Form C.• ITC credit is not available for sales made under Section 8(2) of CST Act,1956. (i.e) sales made to un-registered dealers outside the state.• A new section 19(20) is introduced whereby input tax credit is restricted in case where the goods have been sold below the purchase price.
Automobiles and ITC• A registered dealer is not entitled to input tax credit in respect of purchase of all automobiles and spare parts for repairs and maintenance thereof, unless the registered dealer is in the business of dealing in such automobiles or spare parts.
AIRCONDITIONING UNIT AND ITC• ITC is not available unless the dealer is in the business of Air conditioner.• If air-conditioning unit is fitted in the office, ITC cannot be availed.• If installed in the factory as “Capital goods”for manufacture of taxable goods, ITC can be availed.
Free samples and ITC• ITC credit is not available to the registered dealer if such goods are disposed off in any manner other than sale;Ex. Given as free samples, or gift or goods consumed for personal use.• ITC shall not be allowed if the purchased goods are not sold due to theft, loss or destruction.
TRANSFER OF BUSINESS AND ITC• ITC should accrue to subsequent transferee (should be a registered dealer) where business is transferred on account of:Change of ownershipSale, merger , amalgamationTransfer of business to a joint venture.Condition: Specific provision to transfer liabilities of such business.Procedure to be followed by the transferee:Certificate from chartered accountant certifying the un-availed credit available;Inventory of stock transferred with date;Details of capital goods transferred;Original tax invoices evidencing the payment of tax at the time of purchase.
ACCEPTANCE OF CLAIM BY THE ASSESSING AUTHORITY.• The ITC claimed by the registered dealer is only provisional and can be revoked by the assessing authorities if it appears to be incorrect, incomplete or otherwise not in order.• If the input tax credit determined by the assessing authority exceeds tax liability for that year, the excess amount shall be adjusted against any outstanding amount due.• After adjustment, any excess amount shall be refunded by serving notice in Form P. The amount shall be refunded within 90 days from the date of service of notice failing which the assessing authority is liable to pay interest at one and a quarter per month.
REVERSAL OF CREDITReversal of credit arises in the following circumstances:-• If the purchasing dealer returned the goods to the selling dealer within 6 months from the date of purchase.The selling dealer is entitled to avail credit of such sales return if:• The sale was included in the return and the tax was paid• The goods were returned within 6 months from the date of sale.• The price of the goods and the tax charged thereon is returned in full to the buyer.• The credit note issued by the seller contain the date and serial number of the invoice on which the tax was originally charged.• In case of un-fructified sales, goods must be returned within 30 days from the date of issue of invoice to re-claim proportionate input tax credit.
ZERO RATED SALES• Zero rated sale means a sale of any goods on which no tax is payable but credit of input tax related to that sale is available.• Following sales are treated as zero rated sales for the purpose of this Act:• Sale as specified in section 5(1) or 5(3) of the CST Act,1956. (i.e) Export sales.• Sale of goods to any unit situated within Special economic Zone.• Sale of goods to any international organization listed in Fifth schedule of the Act.• Zero rated sales shall be eligible for input tax credit or refund of the amount of tax paid on the purchase of goods specified in the first schedule including capital goods.• For claiming refund, the prescribed form is Form W and claim for refund shall be made within 180 days from making of zero rated sales. (Ref. G.O MS. No.42 dated 6.4.2010). Earlier provision was 180 days from the date of accrual of credit.• The assessing authority is to refund within 90 days from the date of receipt of claim in Form W.
DETAILS OF RECORDS TO BE MAINTAINED.• Every registered dealer claiming input tax credit shall maintain an input adjustment account as per Rule 6(9) of TN VAT Rules,2007 which shall contain the following particulars:• a) Month.• b) Input tax credit brought forward.• c) Input tax paid during the month (i) at 1% (ii) at 4% (iii) at 12.5% d) Reversal of input tax credit. e) Total input tax credit. f) Ineligible input tax credit g) Net input tax credit. h) Output tax i) Advance tax adjusted including entry tax. j) Tax payable.
Adjustment of Input tax credit.• The Input tax credit that can be deducted from the output tax payable for any month shall be calculated by using the formula: [Rule 10(1)] (A+B)-(C+D)Where A= Input tax credit carried forward from the previous month.B= Input tax credit accrued during the monthC= Input tax credit reversed during the monthD= Input tax credit refunded during the month
Restriction on Input tax credit for the capital goods used both in taxable and exempted goods• A register dealer who purchasesand uses capital goods for the manufacture of both taxable and exempted goods shall beentitled to the input tax credit proportionately by applying the following formula:Total amount of Input tax credit X Sales turnover of taxable goods and zero rated salesPaid on the purchase of capital goods-------------------------------------------------------------------------------------------------------------------------------Total sales turnover of taxable goods, zero rated sales and sales of exempted goods.
Input tax credit for Agency transactions.• The principal is entitled for the input tax credit on those purchases which are transferred to the agent and sold by the agent on behalf of him.• The principal is entitled for the input tax credit for those purchases effected by the agent on behalf of him.• The agent is not liable to pay tax on the sale of those goods which were received by him from the principal. [Rule 10 (6) (b) (ii) (c)]
Details of records to be maintained• In respect of capital goods, the input tax adjustment shall contain the following particulars: (Rule 6 (10). a) Month. b) Date of commencement of commercial production. c) Value of capital goods. d) Rate of tax. e) Tax paid. f) Tax credit availed- First year (not exceeding 50%). Second year Third year.