Issue of reversal of Input Tax Credit on Iron and Steel Goods

Issue of reversal of Input Tax Credit on Iron and Steel Goods lying in the stock under the provisions of Punjab Value Added Tax Act, 2005

Question is:

Whether in terms of Rule 21(8) reversal on the stock at the rate of 2.20% i.e. (4.95 minus 2.75 ) of the available Input tax credit on such closing stock should be made?

Brief Facts are:

Date of Notification of Reduced rate of VAT

Notification Number: SO 9/PA8/2005/S8/2014

Dated:  25-01-2014

Date of Publish: 29-01-2014

Applicable W.E.F.: 29-01-2014

Date of Notification of Rule 21(8)

Notification Number: GSR 5/PA 8/2005/S70/AMD (53)/2014

Dated:  25-01-2014

Date of Publish:  29-01-2014   

Applicable W.E.F.:  01-02-2014

Text of Rule 21(8) : “Where some goods as input or output are lying in the stock of a taxable person and where rate of tax on such goods is reduced from a particular date, then from that date, input tax credit shall be admissible to the taxable person on the sale of goods lying in stock or on using the goods as input for manufacturing taxable goods, at the reduced rate.”

Dissection of Rule 21 (8):

1.  Where some goods as input or output are lying in the stock of a taxable person

2.  and

3.  where rate of tax on such goods is reduced

4.  from a particular date,

5.  then from that date,

6. input tax credit shall be admissible to the taxable person on the sale of goods lying in stock or on using the goods as input for manufacturing taxable goods,

7. at the reduced rate.

Analysis:

If Vat is reduced on a particular date then ITC shall be available at a reduced date from that particular date.

1. On a Particular Date

2. Rate of Tax is reduced on goods lying in the stock

3. From that Particular Date

4. Input Tax shall be admissible at the reduced date

The Particular Date as per 1 and as per 3 above should be after Rule 21(8)comes in to existence.

The Particular Date should be after 01-02-2014

In case of Iron and Steel Goods, rate of vat has been reduced with effect from 29-01-2014 i.e. before the Rule 21(8) comes into existence.

Opinion:

By no stretch of imagination, one can presume that available ITC should be reduced on all the items lying is stock as on 01-02-2014 whereon VAT was ever reduced in the past starting from 01-04-2005 when Punjab VAT Act,2005 came into existence.  Had it been so, reduction of available ITC would have been on each and every item lying in the stock, whereof VAT has ever been reduced.

As the date of reduction of tax is earlier than the date of introduction of rule 21(8) that requires reduction in availed credit, it is not required to reduce the already available credit on Iron and Steel Goods because rate of vat was reduced w.e.f. 29-01-2014 and the rule that requires reduction in ITC is applicable after 29-01-2014  that is w.e.f. 01-02-2014.