11 December 2012
Suppose you are a shopkeeper and you have bought the goods and paid vat of Rs. 50,000 on purchase. Now at the time of sale,suppose you have vat liability of Rs. 75,000. In such case You will make net payment of vat of Rs. 25,000 (75,000-50,000). Hence vat paid at the time of purchase is available as input credit and can be set off against your vat liability. Similar concept is applied in case of service tax and excise. Hope you understood.
CAclubindia
