Manufacturer will be entitled to credit of tax paid on inputs used by him in manufacture. A trader (dealer) will be entitled to get credit of tax on goods which he has purchased for re-sale.

No credit is available in case of inter-state purchases.

Credit will be available of tax paid on capital goods purchased within the State. Credit will be available only in respect of capital goods used in manufacture or processing. The credit will be spread over three financial years and not in first year itself. There will be a negative list of capital goods . Some States allow credit at one go while some allow over a period of 12 months and so on.

Credit will be available as soon as inputs are purchased. It is not necessary to wait till these are utilised or sold [para 2.3 of White Paper on State-Level VAT).

No credit of CST paid : Credit of Central Sales Tax (CST) paid on inputs and capital goods purchased from other States will not be available

Non-availability of input credit in certain cases :

Credit of tax paid on inputs will be denied in following situations – No credit if final product is exempt – Credit of tax paid on inputs is available only if tax is paid on final products. Thus, when final product is exempt from tax, credit will not be availed. If availed, it will have to be reversed on pro-rata basis.

If the final products are transferred to another State as stock transfer or branch transfer, input credit availed will have to be reversed on pro-rata basis, which is in excess of 4%. In other words, in case of goods sent on stock transfer/branch transfer out of State, 4% tax on inputs will become payable e.g. if tax paid on inputs is 12.5%, credit of 8.5% is available. If tax paid on inputs is 4%, no credit is available. Thus, the VAT as introduced is State VAT and not a national VAT.

In following cases, the dealer is not entitled to input credit –

(a) Inputs used in exempted final products

(b) Final product not sold but given as free sample

(c) Inputs lost/damaged/stolen before use. If credit was availed, it will have to be reversed.

Generally, in following cases, credit is not available –

(a) Purchase of automobiles (except in case of purchase of automobiles by automobile dealers for re-sale)

(b) fuel.

There are variations between provisions of various States.

Certain sales are ‘zero rated’ i.e. tax is not payable on final product in certain specified circumstances. In such cases, credit will be available on the inputs i.e. credit will not have to be reversed. Distinction between ‘zero rated sale’ and ‘exempt sale’ is that in case of ‘zero rated sale’, credit is available on tax paid on inputs, while in case of exempt goods, credit of tax paid on inputs is not available.

Export sales are zero rated, i.e. though sales tax is not payable on export sales, credit will be available of 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.

SOME MORE CLARIFICATION

Where Inputs Are Partly Used For Making Taxable Goods (Or Inter-State Sales) And Partly For Making Exempt Goods, The Tax Credit Shall Be Reduced Proportionately. To Illustrate, X Purchased Machinery For Rs. 10 Lakh And Paid A Tax Of Rs. 1,25,000 On It And Used It In The Manufacture Of Taxable As Well As Exempted Goods. At That Time, He Estimated That The Share Of Taxable Goods Made By The Machinery Would Be 80 Per Cent. In This Case, His Input Tax Credit Will Be Restricted Only To 80 Per Cent Of Rs. 125,000 Or Rs. 1,00,000.

There Is No Need For A `One To One Correlation Between Input Tax Credit And Output Tax. Quite A Number Of Small Businesses Are Under The Misconception That Input Tax Has To Be Adjusted Against Output Tax On A Bill To Bill Basis.

The Operation Of The Input Tax Mechanism Is Simple. The Dealer Will Be Eligible To Take Credit For The Eligible Input Tax In A Tax Period As Specified On The Entire Purchases. He Will Charge VAT At The Prescribed Rate As Is Done In The Present System For Levy Of Sales Tax. The VAT Or Output Tax Payable Is Compiled On A Monthly Basis As Is Done Now. The Dealer Can Adjust The Input Tax Eligible On The Entire Purchase In The Tax Period Against The Output Tax Payable Irrespective Of Whether The Entire Goods Purchased Are Sold Or Not. For Example, If The Input Tax Credit In A Particular Month Is Rs. 1,000 And The Output Tax Payable Is Rs. 500, The Excess Input Tax Of Rs. 500 Can Be Carried Forward To The Next Tax Period.

Assuming No Further Input Tax Credit In The Following Month And That The Output Tax Payable Is Rs. 700 The Dealer Will Pay Rs. 200 Along With The Monthly Return.

( SHUBHI GOEL – Shubhigoel1989@gmail.com)

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105 Comments

  1. Gur Parshad says:

    are these items deducted from purchases while calculating ITC in VAT for 2015-16 like :-Discount received, incentive received and commission received etc.

  2. sathya.rupchand says:

    Due to technical reasons i could not pay the GST in time against the money collected from my client during financial year 2017-18. Due to this , my client withheld the GST amount paid to me. In jan 2019, I remitted the GST amount collected from a client with penalty, but now client claims that since he cannot claim the ITC, will not be able to pay the withheld money. Need your advise.

  3. param says:

    Sir, we had used wrongly the input VAT and after that this was reversed in audit report.
    Now we received demand notice to pay such wrongly used input VAT. whether can we use other input VAT exist on that day to pay demand amount

  4. sanjay says:

    we are manufacturer of 0% rated finished products. but the raw material & packing material we are purchasing is taxable.
    we will get input tax credit or not?

  5. soujanya says:

    Sir,
    We are manufacturer of Workholdings, we are purchasing castrol oil for machine, so can i take VAT input credit on that bill, please clarify.

  6. Ram says:

    A manufacturing company purchased epoxy paint and used it for shop floor. Whether Input tax can be claimed for the same-under Industrial Inputs -Under Karnataka VAT

  7. Neeraj says:

    We are a company that has one SEZ unit that gives services outside India. We recently got registered in VAT but we have no intention to sell goods in India and we will be a service provider outside India

    My question is – for VAT returns, is it mandatory for us to report purchases, can we report nil purchases in VAT return even if we have purchases but since we cannot set off input tax, we do not want to mention VAT on purchases.

    Can we do it ?

  8. Amit Vadher says:

    Hi.
    I want to know about vat input cradit and refund.
    I am suppling raw materials to pencils manufacturer company and thay have tax free finished goods.
    Are they get tax input cradit and get back vat.

    Thanks.

  9. shivling says:

    Dear All

    I am a reseller of industrial tools and have below doubts ,please clarify

    1) I purchasing items for packing the goods i am selling
    2) I purchasing tools like spanner, screw driver, multi meter, hammers , cutters / drilling machines,pressure guages, tapes etc., to
    install the items sold to customers

    Can we claim the Sales tax input credit on the above items purchased within the state.

    Regards
    Shivling

  10. shivling says:

    Dear All

    Pls note, I resller of Industrial tools , can we claim the sales tax input credit on the itmes purchased below
    1) Packing itmes purchased within the state
    2) Tools purchased for service purpose not for sale.

    Advance Thanks for giving clarifications.
    Rgds

    Shivling

  11. shivling says:

    Dear All

    Pls note, I resller of Industrial tools , can we claim the sales tax input credit on the itmes purchased below
    1) Packing itmes purchased within the state
    2) Tools purchased for service purpose not for sale.

    Advance Thanks for giving clarifications.
    Rgds
    Shivling

  12. Shankar Kumar Ram says:

    Hello Sir,
    (i) please clarification input vat against capital goods.
    (ii) Sir, Input Vat (capital goods) total amount adjusted with Output vat quarter wise return shown in

  13. Ramesh says:

    We are not filed in VAT return from Oct 2015 itself.
    Now we are try to give Manual return to CTO Office as same e are ready to pay Payable Tax and Interest and C Fees also.

    But The AC not accepting the Input credit avail more than 4 month (it mean he can Allow to take ITC from march 16 only…

    Can you explain how i can solve the issues

  14. Usha Kt says:

    we have dealer for Garden care equipment, we have installed a sound proof room for demo, delivery & services i.e, capital goods shall i claim the input tax on that. if possible can u provide me the tax laws examples & section laws.

  15. arjun singh says:

    i have a question i m filling 15-16 retrun forth quater but our one clint cancell the bill so if i revised the return so we carry forward the amt. next f.y.16-17 . it is possible if any rule & anything please help mel

  16. Ciranjit Saha says:

    i ask a question that if input credit is excess in a financial year or a quarter then how this excess input credit adjusted

  17. Guest says:

    Sir,
    i need clarification about this matter discussed below

    a steel company purchase
    1. washing powder
    2. stationary expenses
    3. sweets for diwali gift to employee in very huge capacity all the above

    which of the following are eligible for input tax credit as per haryana vat act

  18. irshad shaikh says:

    Sir, can i take input of vat for purchase of non trading goods. i.e. Suppose i have purchased cement for office use which is not for resale. can i take input credit of vat

  19. suchita says:

    Sir, i need some clarification regarding Odisha VAT Act relating to adjustment of ITC against CST. in case of a manufacturer, while reversing ITC paid on corresponding purchase of raw material against CST payable, is it correct to take into account to the total CST sale of the period or we should only confined to corresponding CST sale of goods manufactured from the use of those raw materials. Again, if there are two different manufacturing units under one TIN, the reversal is to be calculated as a whole or separately, kindly suggest.

  20. t p patil says:

    sir we Are Partly produced For g Taxable Goods (Or Inter-State Sales) And Partly For Exempt Goods, and main raw material is also exempted and anther raw material is taxable we are eligible for input tax credit

  21. Aman Goel says:

    Hi..i want to know about the criteria of taking claim of input tax credit on capital
    goods,whether the input tax credit is available fully in the year of purchase of capital goods or NOT as per current/Latest Rules of Uttar pradesh value added Tax rules.??

  22. DHARMENDRA says:

    Dear sir
    our company is manufacturing unit situated in ghaziabad (U.P) ,now we adding the building of our company can we input tax credit of these expenses used in additional building. if yes or no than please give me ruling sections.

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