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Interpretation of amendment in Rule-7 (DVAT Rules 2005)

CA Arindam Shukla 
on 11 December 2015

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Amendment of rule 7. - In the Delhi Value Added Tax Rules, 2005.

Amendment: - .

(i) In sub-rule (I), in clause (b)', the following proviso shall be inserted, namely:-

"Provided that in case of cigarettes (irrespective of form and length), the tax credit shall be reduced by 100 percents."

Interpretation: -

Rule-7(1[b]) of Dvat rules 2005

Relates to:-

  • Section 9(6), and
  • Section 10{3[c(ii)]}

Section 9(6) talks about a dealer who has purchased goods (other than capital goods) and on which input tax credit, (hereinafter referred to as ITC), arises.

If such goods or goods manufactured out of such goods are to be transferred out of Delhi by means of “Non-resident Consignment Sales” or “Non resident Stock Transfer”, then tax credit shall be reduced by prescribed percentage (To be prescribed under Rule 7).

Section 10(3) talks about the situation where a dealer purchases goods and claims ITC and does not reduces the ITC Claimed by prescribed percentage and if such goods are to be transferred out of Delhi by means of:-

“Consignment Sales” or “Stock Transfer”

then the dealer shall reduce the amount of tax credit claimed by prescribed percentage.

And thus in both the cases if the goods is Cigarette( of any form or length) the ITC shall be reduced by 100%

Amendment: - .

(i) In sub-rule (I), in clause (b)', the following proviso shall be inserted, namely:-

"Provided that in case of cigarettes (irrespective of form and length), the tax credit shall be reduced by 100 percents."

Interpretation: -

(ii) After sub-rule (4), the following sub-rule shall be inserted, namely:-

"(5) For the purposes of sub-section (10) of section 9 and sub-section (3) of section 10, in case of cigarettes (irrespective of form and length), the tax credit shall be reduced by {(R-2)100/R} percents, where R is the rate of tax applicable as per section 4

[1]Rule-7(5) of Dvat rules 2005

Relates to:-

  • Section 9(10), and
  • Section 10(3)

Section 9(10) talks about a dealer who has purchased goods (other than capital goods) and on which input tax credit, (hereinafter referred to as ITC), arises and if such goods or goods manufactured out of such goods are to be transferred out of Delhi by means of inter-state sales, then tax credit shall be reduced {(R-2)100/R} %

Section 10(3) talks about the situation where a dealer purchases goods and claims ITC and does not reduces the ITC Claimed by prescribed percentage and if such goods  are to be transferred out of Delhi by means of:-

  1. Inter State Sales, or
  2.  “Consignment Sales” or “Stock Transfer”

then the dealer shall reduce the amount of tax credit claimed by {(R-2)100/R} 

Writers Analysis: -

i. Rule 7(1[b]) is a specific rule and that 7(5) shall not apply on transfer of goods as such mentioned under 10{3[c(ii)]}

ii. If we apply any rate to the above mentioned formulae, i.e. {(R-2)100/R} it will yield the eligible input tax credit as 2% which is equal to the C-Form rate.

For example: -

If the rate of tax is 5% on cigarettes then working on the above formulae we will get eligible input equivalent to 2%. Whether it may be any rate mentioned under VAT act the final answer will be 2% which is equivalent to the rate of C-form under interstate sales.

Sl No.

Condition

Eligible Input Tax Credit

1.

In case of consignment sale or transfer of Cigarettes (of any form or length)

:

0%

2.

In case of Inter-state sale Cigarettes (of any form or length)

:

2%


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