Punjab VAT – Denial of Input Tax Credit if goods are not sold or used

The Punjab Value Added Tax Act 2005 has been amended vide Notification No. 49-Leg/2013, dated 15^th November, 2013. A number of amendments have been made by this notification. Some of the notifications have far reaching effect on the business community. Amendments to section 13 are against the basic concepts of VAT system of taxation. These amendments sought to deny Input Tax Credit if the goods are not sold or used in a specified manner, and it further sought to provide that input tax credit accrued to a taxable person in a particular tax period will have to be utilised in the same tax period.  Amendments made to section 13 of Punjab Vat Act, 2005 have been analysed in this article. The amendment to sub-section (1) of section 13, whereas omission of sub-section (1-A) of section 13 shall deemed to have come into force on and with effect from 4^th day of October, 2013.

In the principal Act, in section 13,

in sub-section (1), for the first proviso, the following proviso shall be substituted, namely:-

Provided that the input tax shall not be available as input tax Credit unless such goods are sold within the State or in the course of inter-State trade or commerce or in the course of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-State trade or commerce or in the course of export.”;

(ii) sub-section (1-A) shall be omitted;

(iii) For sub-section (9), the following sub-section shall be substituted, namely :-

:“(9) A person shall reverse input tax credit availed by him on

 goods which remained in stock at the time of closure of the business.”;

and

 (iv) for sub-section (12) the following sub-.section shall be substituted, namely:-

(12) Save as otherwise provided hereinafter, input tax credit shall be claimed only against the original VAT invoice and will be claimed during the period in which such invoice is received. The input tax shall he utilized In accordance with the conditions mentioned in this section, but in no case the amount of input tax credit on any purchase of goods shall exceed the amount of tax, in respect of the same goods or goods used in manufacture of same goods, actually paid, if any, under this Act, into the Government treasury.”.

Amendments to section 13 are very important since this section deals with Input Tax Credit. The amendments relating to section 13 have a far reaching effect on taxation system as well as on working of the business. By these amendments the government has sought to provide that input tax credit accrued to a taxable person in a particular tax period will have to be utilised in the same tax period. That is the goods purchased will have to be sold or used as the case may be in the same particular tax period, and this amendment will change the entire scenario of doing the business.

i)           The  substituted first proviso to sub-section (1) of section 13 says:

“Provided that the input tax shall not be available as input tax Credit unless such goods are sold within the State or in the course of inter-State trade or commerce or in the course of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-State trade or commerce or in the course of export.”;

Prior to this amendment the words used in this proviso were such goods are for sale”.

A far reaching effect of this amendment is going to take place with effect from 1^st April, 2014, being the date of effectiveness of this amendment. One of the basic concepts of VAT regime of taxation says, the input tax accrues to a taxable person as soon as he purchases some goods by paying VAT to taxable person on purchase of such goods. And under self assessment tax concept of VAT regime, the Input tax credit is available for Set off against Output Tax Liability of the taxable person.

But this amendment sought to link input tax credit with the happening of event of goods sold or used in manufacture, processing or packing of taxable goods. It means that if the goods are not sold/ used by the end of a tax period the taxable person will have to forego the credit of Input Tax paid.

How the closing stock already lying with taxable person will be treated?  What will happen to unutilised/ unclaimed input tax credit already been paid at the time of purchase of such stock? Whether ITC will be carried over or refunded to the taxable dealer in a scenario where refunds amounting to crores of rupees are still lying pending with the VAT department?  These matters have not been clarified by these amendments.

 (ii)  Sub-section (1-A) has been omitted. Prior to this amendment sub-section (1-A) stipulates that tax collected in advance under sub-section (7) of section 6 shall be treated as input tax credit. Keeping in view the amendments made in sub- section (7) of section 6, whereby the payment of advance tax is to be counted towards the final tax liability of the taxable person, it was necessary to delete sub-section (1-A) section 13. The practical effect of this amendment is that advance tax paid by taxable persons is no more available for input tax credit.

(iii)  The substituted sub- section (9), provides that “A person shall reverse input tax credit availed by him on goods which remained in stock at the time of closure of the business”. Prior to this amendment sub-section (9) of section reads as “A person shall reverse input tax credit availed by him on goods which could not be used for the purposes specified in sub-section (1) of this section or which remained in stock at the time of closure of the business”. Keeping in view the amendments made in sub-section (1) of section13, which says that unless such goods are sold within the State or in the course of inter-State trade or commerce or in the course of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-State trade or commerce or in the course of export, no input tax will be available.

(iv) The substituted sub-section (12) says: “Save as otherwise provided hereinafter, input tax credit shall be claimed only against the original VAT invoice and will be claimed during the period in which such invoice is received. The input tax shall be utilized In accordance with the conditions mentioned in this section, but in no case the amount of input tax credit on any purchase of goods shall exceed the amount of tax, in respect of the same goods or goods used in manufacture of same goods, actually paid, if any, under this Act, into the Government treasury.”.

Narinder Gupta & Co.

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Opposite Judge’s Residence Gate

Rajpura – 140401

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