R.K Rengaraj, Advocate
Whether Input Tax Credit (ITC) reversal is to be made on export sales without filing form W under Section 18 (3) of the TNVAT Act, 2006?
Introduction: Under TNVAT Act, 2006 there are two options available for the dealer in case of export sales to claim the ITC for which the dealer has paid VAT on his purchases for the raw materials, packing materials and other inputs used as laid down under Section 18 (3) of the TNVAT Act. The first one being, the Dealer can adjust the ITC against his output tax due after identifying the ITC on purchases intended for export, the second one is to file Form W and claim the refund. A question arises whether ITC reversal is to be made on export sales without filing Form W under Section 18 (3) of the TNVAT Act, 2006. The answer is, when the Dealer has already uploaded the entire purchases and shown the ITC value in his Monthly return annexure and adjusted the same in his output tax due, he need not go in the refund route by filing form W and wait for the Department to refund after several months. The intention of the Government is to compensate the VAT paid on his inputs either by adjusting or to refund it, because sale in the course of export is always a special treatment to the exporter.
Section 18 (1) of the TNVAT Act reads as under:Zero rating:
The following shall be zero rate sale for the purpose of this Act and shall be eligible for input tax credit or refund of the amount of the tax paid on the purchase of goods specified in the First Schedule including capital goods, by a registered dealer in the state, subject to such restrictions and conditions as may be prescribed:-
(2) The dealer, who makes zero rate sale, shall be entitled to refund of input tax paid or payable by him on purchase of those goods, which are exported as such or consumed or used in the manufacture of other goods that are exported as specified in sub-section (1), subject to such restrictions and conditions as may be prescribed.
(3) Where the dealer has not adjusted the input tax credit or has not made a claim for refund within a period of one hundred and eighty days from the date of 1 [making zero rate sales] accrual of such input tax credit, such credit shall lapse to Government.
Hence it is clear that the assessee who is only doing exports or who cannot adjust the excess ITC will opt for Form W refund route and assessees with local sales and interstate sales and exports will go either for adjustment or for Form W refund. It is relevant here to cite the Madras High Court judgment in the case of Emerald Stone Export Vs Assistant Commissioner (CT), FAC, Pudukottai Assessment Circle, Pudukottai reported in  052 VST 0286 wherein it has been held in para no.20 that “ In such view of the matter, by virtue of Section 18(i) of the TNVAT Act, 2006 the petitioner is entitled to Input Tax Credit or refund of tax if it is a sale specified under sub-section (1) and (3) of Section 5 of CST Act, 1956, by treating it as Zero rated sale. The petitioner will therefore be entitled to the refund in this case. The petitioner is justified in seeking refund of the tax treating the sale as Zero rated sale”. This is a case where the petitioner claimed refund for the sales made to 100% EOU treating it as zero rated sales. The Hon’ble Madras High Court categorically observed that the dealer under TNVAT Act is entitled to Input Tax Credit or refund of tax if a sale is specified under sub-section (1) and (3) of the Section 5 of CST Act, 1956. Before going further let us see what is zero rating under the TNVAT Act.
Therefore, Zero rating means that a trader is fully compensated for any value added tax the dealer paid on his inputs and this is a genuine exemption under the Value Added Tax system. Under this system, the objects of the Government is to pass on the benefit of taxes paid on inputs to the exporter either by way of refund through Form W which is to be filed within the stipulated period of 180 days or he can avail the ITC which is eligible for him.
Section 19. Input tax credit :
Section 19 (5) (a) No input tax credit shall be allowed in respect of sale of goods exempted under section 15
(b) No input tax credit shall be allowed on tax paid or payable in other States or Union Territories on goods brought into this State from outside the State.
(c) No input tax credit shall be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under . sub-section (2) of section 8 of the Central Sales Tax Act, 1956.(Central Act 74 of 1956).
(6) No input tax credit shall be allowed on purchase of capital goods, which are used exclusively in the manufacture of goods exempted under section 15. 2 [Provided that on the purchase of capital goods which are used in the manufacture of exempted goods and taxable goods, in put tax credit shall be allowed to the extent of its usage in the manufacture of taxable goods in the manner prescribed.]
(7) No registered dealer shall be entitled to input tax credit in respect of- (a) goods purchased and accounted for in business but utilised for the purpose of providing facility to the proprietor or partner or director including employees and in any residential accommodation; or (b) purchase of all automobiles including commercial vehicles, two wheelers and three wheelers and spare parts for repair and maintenance thereof, unless the registered dealer is in the business of dealing in such automobiles or spare parts; or (c) purchase of air-conditioning units unless the registered dealer is in the business of dealing in such units.
(8) No input tax credit shall be allowed to any registered dealer in respect of any goods purchased by him for sale but given away by him by way of free sample or gift or goods consumed for personal use. (9) No input tax credit shall be available to a registered dealer for tax paid or payable at the time of purchase of goods, if such- 1. The word ‘three‘ was substituted for the word ‘four‘ from 1st April 2007 by Section 6 (2) of that Act, consequent on the reduction of the rate of tax on inter –State under Section 8 (1) of the CST Act from that date and the word ‘five‘ was substituted for the word ‘three‘ as per ACT No. 28 of 2013 – TNVAT (5th Amendment), Act, 2013 dated 08.11.2013 2. This proviso was added from 1st January 2007 by Section 6 (3) of the Amendment Act (21 of) 2007.(i) goods are not sold because of any theft, loss or destruction, for any reason, including natural calamity. If a dealer has already availed input tax credit against purchase of such goods, there shall be reversal of tax credit; or (ii) inputs destroyed in fire accident or lost while in storage even before use in the manufacture of final products; or (iii) inputs damaged in transit or destroyed at some intermediary stage of manufacture.
In other words, the ITC is not eligible or will have to be reversed only for the following transactions viz.,
(a) Sale of exempted goods i.e inputs used in exempted final products. Also, no input tax credit is allowed on purchase of capital goods which are used exclusively in the manufacture of goods exempted under Section 15. However ITC is allowed to the extent of its usage in the manufacture of taxable goods when used both for exempted and taxable goods.
(b) Purchase of goods from outside the State
(c) Goods purchased in the course of business, but used for personal facility of proprietor, partner or Director
(d) Goods damaged in transit
(e) Goods stolen, destroyed in fire or lost
(f) Goods sold in the course of inter-state sale with or without C form
(g) Goods transferred to outside the State for sale either by branch or agent without support of Form F
(h) Goods returned to the supplier of within the State. Or when the selling dealer has received back the goods as a sales return or unfructified sales
(i) When goods are purchased for sale but issued as free samples
(j) Purchase of automobiles and commercial vehicles unless the dealer is in the business of dealing in such automobiles.
(k) Purchase of Air-conditioning Units unless the dealer is in the business of dealing in such units
Refund procedures : Export sales are zero rated, i.e. though VAT is not payable on export sales, credit is available for the tax paid on inputs. In respect of sale to EOU/SEZ, there will be either exemption of input tax or tax paid will be refunded to them within three months for which the Dealer has to file an application in Form W to the assessing authorities, along with related documents. If the refund amount is not received by him within the period specified in sub-section (5) of Section 42 (90days), he shall make an application to the Assessing authority claiming the interest payable by the Government.
Conclusion: Given the fact that the choice of an adjustment of the input tax credit is given to the assessee, and hence he can either adjust the Input tax credit for his output tax or claim refund by following the Form W procedures. One thing to remember, the refund is possible to the exporters because the ITC is eligible. So, the Assessee/Dealer is not supposed to reverse ITC for the exports (zero rated) made by the Dealer under TNVAT Act when he adjusts the ITC for his output tax.
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