INPUT TAX CREDIT UNDER TAMIL NADU VALUE ADDED TAX ACT, 2006

[Mr. M. GOVINDARAJAN]

INPUT

Input means any goods including capital goods purchased by a dealer in the course of his business.

INPUT TAX

Input tax means the tax paid or payable under this Act by a registered dealer to another registered dealer on the purchase of goods including capital goods in the course of his business.

OUTPUT TAX

Output tax is tax collected on sale of goods from the buyer. This tax is calculated by applying the rate of tax on taxable turnover of these goods.

INPUT TAX CREDIT

The input tax credit that can be deducted from the output tax payable for any month or year shall be calculated by the formula (A+B)- (C+D) where-

• A = Input tax credit carried forward from the previous month or year;
• B= Input tax credit accrued during the month or year;
• C = Input tax credit reversed during the month or year;
• D = Input tax credit refunded during the month or year.

Input tax credit may be availed on goods and capital goods.

INPUT TAX CREDIT ON GOODS

To avail input tax credit the following are the conditions:

• The dealer shall establish that the tax due on such purchases has been paid by him in the manner prescribed;
• Both purchasing and selling dealers must be registered dealers;
• The purchaser of goods shall be in the course of business;
• The goods purchased shall be taxable goods;
• The purchases shall be supported with bills/invoices;
• If the original invoice/bill is lost, certified copy or copy of invoice shall be produced;
• The purchase of goods shall be for the purpose of-
  • Re-sale within Tamil Nadu;
  • Use as input in manufacturing or processing of goods in Tamil Nadu;
  • Use as containers, labels and other materials for packing of goods in Tamil Nadu; or
  • Use as capital goods in the manufacture of taxable goods;
  • Sale in the course of inter-state trade or commerce under the Central Sales Tax Act;
  • Agency transaction by the Principal within Tamil Nadu in the manner as may be prescribed.

NON ELIGIBLITY OF INPUT TAX CREDIT

The Input Tax Credit is not allowed in the following transactions-

• When goods are sold interstate and are not supported by ‘C’ declaration form;
• When goods are dispatched outside the State otherwise than by way of sale and are not supported by Form ‘F’ declarations;
• When the manufactured goods are exempt from tax or when the goods became exempt from tax;
• In respect of purchase of tax paid or payable in other States or Union Territories or interstate purchases;
• In respect of purchases if capital goods, which are used exclusively in the manufacture of exempted goods;
• Goods purchased and accounted in the business but utilized for providing facility to the proprietor or partner or director or employees and in any residential accommodation;
• Automobiles including commercial vehicles, two wheelers and three wheelers and spare parts for repair and maintenance purchased unless the registered dealer is carrying on business of dealing in such automobiles or spare parts;
• Air conditioning units purchased unless the registered dealer carries on business of dealing in such units;
• In respect of goods that are given away by way of free sample or gift or consumed for personal use;
• If goods are not sold because of theft, loss or destruction including natural calamity;
• If inputs are destroyed in the fire accident or lost even before use in the manufacture of final products;
• If inputs are damaged in transit or destroyed at some stage of manufacture;
• In case goods are purchased from dealers who pay tax at compounded rate;
• To dealers who are paying tax at compounded rate;
• To dealers who have opted for payment of tax at compounded rates on works contracts;
• To dealers on sale of unbranded foods, sale of ready to eat unbranded foods including sweets, savories’, un-branded non alcoholic drinks and beverages served in or catered indoors or outdoors by hotels, restaurants, sweet stalls, clubs, caterers and any other eating houses who have opted for payment of tax at compounded rate;
• To a manufacturer of sugar on tax paid on the last purchase of sugarcane;
• In respect of goods mentioned in the second schedule to the Act.
  

INPUT TAX CREDIT ON CAPITAL GOODS

Capital goods means-

• A plant, machinery, equipment, apparatus, tools, appliances, or electrical installation for providing, making, extracting or processing of any goods or for extracting or for bringing about any change in the substance for the manufacture of final product;
• Pollution control, quality control, laboratory and cold storage equipments;
• Components, spare parts and accessories of the goods specified above;
• Moulds, dies, jigs and fixtures;
• Refractors and refractory materials;
• Storage tanks; an
• Tubes, pipes and fitting thereof

Used in the State for the purpose of manufacture, processing, packing or storing of goods in the course of business excluding civil structures and such goods as may be notified by the Government.

INPUT TAX CREDIT TO A REGISTERED DEALER

Input tax credit is available to a registered dealer in the following circumstances and on the specified amounts given below:

• In respect of tax paid or payable in respect of taxable goods when goods are-
  • Sold locally within the State and such sale is taxable under the provisions of the Act;
  • Sold inter state under the CST Act, 1956 and such inter State sake us supported by ‘C’ declaration form;
  • The sales are zero rated sales under Section18 of the Act.
• In respect of tax paid or payable in respect of taxable goods purchased and used in manufacturing or processing of taxable goods and when such manufactured taxable goods are-
  • Sold locally within the State and such sale is taxable under the provisions of the Act;
  • Sold interstate under the CST Act, 1956 and such inter State sake us supported by ‘C’ declaration form;
  • The sales are zero rated sales under Section18 of the Act.
• In respect of taxable goods paid or payable in respect of taxable goods that are purchased and used as containers, labels and other materials for packing of taxable goods in the State and such packed goods are-
  • Sold locally within the State and such sale is taxable under the provisions of the Act;
  • Sold interstate under the CST Act, 1956 and such inter State sake us supported by ‘C’ declaration form;
  • The sales are zero rated sales under Section18 of the Act.
• In respect of tax paid or payable on taxable goods purchased and used as capital goods in the manufacturing or processing of taxable goods in the State and such manufactured goods are-
  • Sold locally within the State and such sale is taxable under the provisions of the Act;
  • Sold interstate under the CST Act, 1956 and such inter State sake us supported by ‘C’ declaration form;
  • The sales are zero rated sales under Section18 of the Act.

However credit on capital goods shall be availed up to 50% in the same financial year and the balance credit shall be availed before the expiry of third financial year, provided the capital goods are in the possession of dealer. After the end of the third financial year the credit shall lapse.

TRANSACTIONS BETWEEN PRINCIPAL AND AGENT

Agent is not entitled to input tax credit.   It is the principal who is entitled to take the input tax credit and it is the liability of the principal to discharge the burden of payment of tax on sales effected either directly or through the agent.

The credit in excess of 3% is available where goods are purchased locally and transferred to a place outside the State otherwise than by way of sale, provided such transfer is supported by Form F declaration.

The credit in excess of 3% is available where goods are purchased locally and used in the manufacture of other goods and such manufactured goods are transferred to a place outside the State otherwise than by way of sale, provided such transfer is supported by Form F declaration.

The credit is available in respect of goods that were held as opening stock as on 1.1.2007 and for which claim in Form V has been filed only when the sale of goods is taxable under the Act and the goods are-

• Sold locally within the State and such sale is taxable under the provisions of the Act;
• Sold interstate under the CST Act, 1956 and such interstate sale is supported by ‘C’ declaration form.

The claim in Form V is to be submitted along with the Xerox copy of related purchase invoice or bill within fifty nine days from the date of commencement of the Act. The assessing authority is to verify the same and pass an order not later than seven months from the date of commencement of the act.

PROCEDURE TO CLAIM CREDIT

Every registered dealer who claims input tax credit shall produce the original tax invoice in support of his claim of the input tax credit containing the following details-

• A consecutive serial number;
• The date on which the invoice is issued;
• The name, address and the TIN of the seller;
• The name, address and the TIN of the buyer;
• The description of the goods;
• The quantity or volume of the goods;
• The value of the goods;
• The rate and amount of tax charged; and
• Total value of the goods.

If the dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is later.

The input tax credit availed by any dealer shall be only provisional and the assessing authority is empowered to revoke the same if it appears to the Assessing Authority to be incorrect, incomplete or otherwise not in order.

IF ORIGINAL INVOICE IS LOST?

The input tax credit shall be availed on original invoices.   If the original tax invoice is lost the input tax credit shall be allowed only on the basis of duplicate or carbon copy of such tax invoice obtained from the selling dealer.

•   In such cases the dealer the claim shall be presented before the Assessing Authority within 30 days from the date on which the original tax invoice is lost;
•   It shall be accompanied by a duplicate or carbon copy of the original voucher;’
•   The assessing authority shall verify such claim and pass orders allowing input tax credit on the basis of duplicate or carbon copy of the original invoice or the rejection;
•   When the claim is rejected, the assessing authority shall record his reasons for doing so and communicate to the dealer;
•   No order prejudicial to the dealer shall be passed unless the said dealer is given opportunity of being heard.

TRANSFER OF BUSINESS

Where the business of a dealer is transferred on account of change in ownership or on account of sale, merger, amalgamations, lease or transfer to the business to a joint venture with the specific provision of transfer of liabilities of such business, then the dealer shall be entitled to transfer the input tax credit   lying unutilized in his account to such sold, merged, amalgamated, leased or transferred concern. The transfer of input tax credit shall be allowed only if the stock of inputs, as such, or in process, or the capital goods is also transferred to the new ownership on which credit has been availed of are duly accounted for, subject to the satisfaction of the assessing authority. taxmanagementindia.com

The transferee claiming input tax credit shall furnish the following details:

• Unavailed credit available in the account of the transferor as certified by a Chartered Accountant or Cost Accountant;
• Inventory of stock transferred with date;
• Details of capital goods transferred; and
• Original tax invoices evidencing the payment of tax at the time of purchase.

The assessing authority shall verify the correctness of the details furnished allow or determine the amount of input tax credit transferred to the dealer or reject the claim.

No order rejecting the claim shall be passed unless the dealer is given an opportunity of being heard.

CARRY ON/SET OFF

• In cases where the input tax paid in the month exceeds the output tax payable, the excess input credit shall be carried over to the next month;
• The input tax credit determined by the assessing authority for a year exceeds tax liability for that year, the excess may be adjusted against any outstanding tax due from the dealer;
• If any excess, after such adjustment, shall be carried forward to the next year or refunded, in the manner, as prescribed;
• If there is no arrears or after the adjustment there is still an excess of input tax credit assessing authority shall serve a notice in Form P upon such dealer;

FRADULENT CLAIM

Where a dealer without entering into a transaction of sale issues an invoice, bill or case memo to another dealer, with the intention to defraud the Government revenue, the assessing authority shall, after making such enquiry as it thinks fit and giving a reasonable opportunity of being heard, deny the benefit of input tax credit to such dealer who has claimed input tax credit based on such invoice, bill or cash memo.

REVERSAL OF CREDIT

Where the purchasing dealer has returned the goods to the seller for any reason, the input tax credit claimed already on the purchase by the dealer shall be liable to reversal of tax credit on such goods returned.   The following are the conditions to be fulfilled-

• The purchase was included in the return; and
• The goods were returned within a period of six months from the date of purchase by him.

The following are the other grounds for reversal-

•   Input tax credit was availed but subsequently the related goods have been stolen or damaged or destroyed;
•   Input tax credit was claimed but subsequently it has been detected that related purchases are from bogus traders;
•   Input tax credit was availed but related goods have been as free samples or gift to others;
•   Input tax credit was availed but subsequently the related goods are used to provide facility to the proprietor/director of the concern.

Discussions to this article

[KAMARAJ RENGARAJ]

Respected Sir,

I have read many of your articles on many subjects in ELT, TMI, Taxmann etc.,.  Regarding input tax credit under TNVAT Act, 2006, there is one clarification i expected in the article.  It is on capital goods.  The dealer, after availing 50% ITC, in the first year, sells the same or transfers the same and in such situation, whether he has to reverse the ITC availed u/s 19(4) of TNVAT Act.  In what way capital goods is different from goods in ITC reversal?

 

Thanks

RENGARAJ R.K

 

 

 

[MARIAPPAN GOVINDARAJAN]

Dear Sir,

There is no provision for reversal of credit on capital goods.  The credit on capital goods shall be availed up to 50% in the same financial year.   In subsequent year (i.e., in the second and third year) he can avail the balance 50% of credit on capital goods provided the capital goods are in the possession of the dealer.  Therefore even after availing the balance credit on capital goods, if the dealer sells or transfers the capital goods there is no requirement of reversal of credit, in my opinion.  I thank you for giving me an opportunity to analyze the provisions in this aspect.

With regards,

 

M. GOVINDARAJAN

[KAMARAJ RENGARAJ]

Dear Sir,

Thanks for the reply.  Since we both are lawyers, for interpration purpose, i would like to know the meaning " in possession".  Please read in between the lines and clarify.  Possession means, whether the capital goods is to be in the dealer's possession upto 3 years?.

 

I have a slight variation in the opinion, Since both excise and service tax provisions do not allow the assessee to avail the cenvat if the same is disposed and cenvat has to be reversed proportionately. This ITC scheme is borrowed from the central act, and hence, if after availing itc on capital goods whether the government will allow the dealer to enjoy the benefit (50%)?

Regards,

Rengaraj M.Com., MBA (FM), LL.B

 

[MARIAPPAN GOVINDARAJAN]

Dear Sir,

Input tax credit can be availed within 3 years if the dealer is in possession of the capital goods.   CENVAT credit Rules, 2004 specifically provides for the reversal of CENVAT credit.  But the same has not been found place in TN VAT Act, 2006.  

Regards,

 

M. GOVINDARAJAN

 

[Ravikumar muthusamy]

Sir

As my client T.O is below 10 lakhs limit, the dept disallowed his ITC claim and asked to pay the amt. Pls clarify the same.

His Total &taxable T.O is 7.8 laksh as he paid VAT dues duly taking credit of his vat  inputs. He started business in march 2007 and taken TIN & CST regn. in june 2012. Can he include his April & may sales also in his T.O.?

 

Request your expert advise and thanks in advance.

 

[MARIAPPAN GOVINDARAJAN]

Dear Sir,

The dealer is not liable to levy and pay tax if his turnover on purchases and sales is less than Rs.10 lakhs and in any other cases it is Rs. 5 lakhs.  The Act requires for registration.  The application for registration shall be filed within 30 days-

- from the date of commencement of the Act;

- if the dealer reaches the prescribed total turnover, within 30 days in reaching the said turnover;

-from the date of commencement of business.

You have mentioned that you have registered during June 2012.   Please inform whether your turnover has reached the said limit including the April and May transactions?

Regards,

M. GOVINDARAJAN

[THANGADURAI PERUMAL]

Respected Friends,

I am a dealer in Chennai. I am efiling so far of my returns. I did not know if the turn over is less than 10 lacs, input tax credit is not eligible for me. I would like to know any case exemptions available for me.

I would like to know how to efile if I don't collect tax from customers as my turn over is below 10 lacs. Kindly let me know how to fill up Form I and preparing other annexures like Annexure 1 and Annexure 2., please.

[muthu kumaran.vp]

Sir

Company purchased a capital goods and used for manufacturer. But failed to claim input in the first year. Whether the company can claim 75% (50% for first year + 25% for second year) or 25% for the current year alone or not possible to claim as the company failed to claim the input in the first year.

As per TN VAT provisions, unclaimed input will be lapsed after three years to the government. However, in this case, we have another two years to claim but in the first year, we have not claimed the input. kindly clarify.