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Input tax credit is a concession granted by the State Government against the output tax liability on the sale or purchase of goods within the State jurisdiction. To avail such concession one has to fullfill the conditions imposed by the statue subject to which such concession is available.

Amendment w.e.f 01.04.2014: One of the most important conditions which has been recently introduced for availing input tax credit under Punjab VAT Act, 2005 is the first proviso to section 13(1) of the said Act. 

 The first proviso to section 13(1) runs as under:

"Provided that the input tax credit shall not be available as input tax credit unless such goods are sold within the State or in the cource of inter-state trade or commerce or in the cource of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the cource of inter-state trade or commerce or in the cource of export."

The above proviso already existed since the original enactment of Punjab VAT Act, 2005, however earlier the condition contained in the said proviso was that input tax credit was available if the goods are "for sale" or are "for use" in manufacturing or processing of goods meant for sale.Now w.e.f 01.04.2014 the condition is the input tax credit will be available when such goods are"sold" or are "used" in the manufacturing processing of goods meant for sale.

Implications of above amendment:

1. The above amendment has far reaching effects, its implications would be that even if you purchase taxable goods for sale or for manufacturing purposes, you will not get the input tax credit of tax paid unless such goods are sold or are used in manufacturing processing.

If such goods remain in stock you will not get the input tax credit of the tax paid on such stock of goods even though you are having VAT invoice. 

2. Another implication of such amendment would be every taxable person who wants to claim input tax credit would have to maintain stock register so as to know, which and how many goods he has sold for which he is eligible for input tax credit. For small scale dealers it would be undue harassment to maintain the account of their stock.

3.  Exporters will also be effected by this amendment. The exporters now would get input tax credit of tax paid on purchase of goods only when such goods are actually sold in the cource of export. The input tax credit proportionately may be retained on the basis of closing stock available at the end of the year.

4. For manufacturers input tax credit of raw material purchased will be available only when the such material is used in the manufacturing processing.It would create problem for not only manufacturers to keep account of stocks but would also for the assessing officer to come to a conclusion when the raw material purchased by manufacturer was used in the manufacturing process.

What Government would gain from such amendment?

The Government will not get any additional benefit from this amendment, what the Government would get is the collection of revenue at the earliest, i.e. may be month or three months earlier. Such amendment would create just the procedural impediments for the innocent dealers.

To sum up by this amendment Government is just creating procedural impediments for the dealers, such amendment is not going to create any extra revenue but would cause harrassment to the small scale dealers.


Amit Bajaj Advocate

Bajaj & Bajaj Advocates

128, Sangam Complex,

Milap Chowk, Jalandhar(Punjab)


Published by

Amit Bajaj
(Tax Attorney)
Category VAT   Report

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