CA Bharat Vyas
¢ General conditions relating to grant of set-off as per Section 48.
¢ In-depth study of claim and grant of Set-off as per Rule 52.
¢ Reduction in set-off as per Rule 53.
¢ Non-admissibility of set-off under Rule 54.
¢ General Conditions for claim and grant of set-off:
- Purchase to be effected from Registered Dealer.
- Purchase should be after appointed day.
- On Tax Invoice (as per Sec 86)
- Tax invoice should contain the declaration as prescribed under Rule 77.
- Signed by selling dealer or his authorized representative.
- Tax to be paid into the Govt treasury by supplier of goods, unless such supplier is a deferral unit under PSI.
¢ Deals with Input Tax Credit (ITC) in respect of purchases made on or after the appointed day i.e. 01-04-2005.
¢ This Rule was amended from time-to-time. As per the present position, a claimant dealer is eligible to claim set-off on purchases of:
- Capital Assets
- Goods the purchases of which are debited to the Profit & Loss A/c or Trading A/c.
- Entry tax paid.
- Subject to provisions of Rule 53,54 and 55.
RULE 53: REDUCTION IN SET-OFF
¢ Sub Rule 1: Goods used as Fuel – 3% reduction of corresponding purchase price.
- In case of M/s Gupta Metallics & Power Ltd., The Bombay High Court has upheld the decision of Hon’ble Tribunal that coal is a raw material in case of manufacturing of sponge iron.
¢ Sub Rule 1A : Natural Gas – 3% reduction of corresponding purchase price in case of Branch transfer or Consignment Sale. Effective from 01.05.2012
¢ Sub-rule 2(a): In case of manufacturer of Tax-free goods, set-off available on cost of corresponding taxable goods used in manufacturing is to be reduced by the amount equal to CST rate (during the year 2008-09 rate of CST is reduced from 3% to 2% w.e.f. 01-06-2008).
- However, as per explanation to this rule will not be applicable if the tax free goods manufactured are exported out of the territory of India. (Explanation substituted w.e.f. 01-04-2007) and from 01-05-2012, as per the explanation, sarki pend and de-oiled cake will not be considered as manufactured tax free goods.
¢ Sub-rule 2(b): Set-off on cost of corresponding packing material used in sale of tax-free goods is to be reduced by the amount equal to CST rate [during the year 2008-09 rate of CST is reduced from 3% to 2% w.e.f. 01-06-2008. (However, as per explanation to this rule will not be applicable if the tax free goods are exported out of the territory of India w.e.f. 01-07-2009)]
¢ Sub Rule 3(a) : Stock transfer of taxable goods to other State within the country
- This clause is renumbered as 3(a) retrospectively w.e.f. 01.04.2005 vide notification dated 16th Feb. 2012.
- 4% (2% from 01.06.2008 to 31.03.2012, 3% up to 31.05.2008 & 4% up to 31.03.2007) of the corresponding purchase price of taxable goods (Not of goods treated as capital assets or used as fuel and natural gas).
- If the stock transferred goods are covered by Sch-B, 1% reduction instead of 2% (3% up to 31.05.2008).
- No reduction as per this sub-rule is to be made if the goods dispatched are received back within a period of six months.
¢ Explanation : Provided that, if the taxable goods are dispatched outside the State and the rate of tax specified in the Schedule against the corresponding taxable goods purchased, is less than 4%, then the reduction from set-off under this clause shall be calculated at such lower rate of tax specified in the Schedule against the corresponding goods.
¢ Sub Rule 3(b): is for reduction of set-off due to OMS BT in case of manufacturer of specified product covered by entry D entry 5 to 10 i.e. motor spirit.
¢ Sub-rule 4: If taxable goods are used in Works Contract for which the dealer has chosen to pay tax under Composition Scheme under sub sec. 3 of sec 42 then :
- In case of other contracts, where composition is payable @ 8% on total contract value, Set-off permitted 16/25 of the eligible amount of set-off. (Reduction @ 36% of eligible amount of set-off).
- In case of construction contracts, where composition is payable @ 5% (w.e.f. 21-06-2006): Reduction @ 4% of purchase price of goods (the property in which transferred in the execution of works contract).
- As per explanation the principal contractor includes sub contractor.
¢ Sub-rule 5: In case of discontinued business set-off allowed on stock of goods (other than Capital Asset) held on date of closure of business shall be disallowed.
¢ Sub-rule 7A: This sub-rule is inserted w.e.f. 08-09-2006, set-off on purchases of Office equipments, furniture and fixtures which are capitalized; set-off is to be reduced by 3% of the corresponding purchase cost (If the dealer is not in business of transferring the right to use these goods).
¢ Sub-rule 10: This sub-rule is inserted on 10-11-2008 w.e.f 01-11-2008. This sub-rule deals with reduction of set-off in case of Textile processing unit executing works contract w.e.f. 01-04-2005. The set-off shall be reduced by the amount equal to CST rate on the purchase price :
- Cost of goods in respect of which property is transferred during the said processing.
- Packing material used.
- However, for other purchases including capital asset shall be calculated as per the provisions of other goods.
RULE 54 : NEGATIVE LIST
¢ No set-off under any rule shall be admissible in respect of, –
(a) Passenger motor vehicles & its CPA unless the dealer is in the business of Running it on hire.
(b) Purchases of Motor Spirit for own use.
(c) Purchase of crude oil (petroleum Oil) as described in sec 14 of CST Act by Oil Refinery.
(d) Purchase of Consumables or Capital goods by a dealer principally engaged in doing Job Work.
(e) Purchases by EC holder (Except EC holder under New PSI for Tourism Projects-1999) (Set-off to EC Unit is dealt by Rule 79 & 80).
(f) Purchases of goods of incorporeal or intangible nature there are certain exceptions to this rule that are purchases of Import License, exim scrip, DEPB etc, the claimant dealer is trading in software, or copyright if resold within 12 months of purchase.
(g) Purchases by way of works contract when it results in immovable property other than Plant & Machinery.
(h) Purchases of goods used in creation of immovable property other than Works Contract & Plant & machinery.
(i) Purchases of Liquor covered by entry 1,2 & 3 of schedule D. (w.e.f. 01-05-2011) except sold OMS or dispatched for OMS BT or Export, or sold from customs bond to foreign going ships and aircrafts.
(j) Purchases by Mundap keeper if he has opted for composition.
(k) Purchases by hotelier other than goods resold, consumables & Capital Assets used in kitchen or supply of foods etc.
(l) Purchases of office equipment, furniture, fixture & electrical installation if the dealer has treated these goods as capital assets & he in not in business of giving these goods on hire. (This rule was effective from 01-04-2005 to 07-09-2006)
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