18 April 2014
Section 11: Input Tax Credit [ITC] Input Tax Credit is at the core of the scheme of taxation under GVAT Act. Input tax credit is available on the inputs of a dealer in full immediately on receipt of tax invoice. The ITC is available of VAT & Additional Tax paid on purchases and Entry Tax. In case of manufacturers, it is the tax paid on purchase of raw material for manufacturing taxable goods. The term raw material includes processing materials, consumable stores and packing material but does not include fuels for the purpose of generation of electricity.
For getting ITC, the prime condition is that the goods purchased should be intended for; a) for sale within the state b) for sale in the course of Inter State trade or commerce c) for sale in the course of export d) for sale to EOU or to a unit located in SEZ e) for Branch Transfer or for sale on consignment basis f) For use as raw material for manufacturing taxable goods or for packing of such manufactured finished goods. g) For use as capital goods manufacturing taxable goods. h) For being used in the execution of works contract. i) For making other zero rated sale.
ITC ON FUEL AND BRANCH/CONSIGNMENT TRANSFER TRANSACTIONS ITC of fuel used in motor vehicles or in generation of electrical energy is not admissible. However, ITC of fuel, if used in manufacture, is available after reduction of input tax credit @ 4% of the turnover. Similarly, ITC on goods dispatched by way of branch/consignment transfer outside the Gujarat State or of raw materials used in the manufacture of goods which are dispatched by way of branch/consignment transfer outside the Gujarat State is eligible after deducting 4% or applicable lower rate of tax on taxable turnover of their purchases within the State.
ITC NOT ALLOWED ON PURCHASES a) From an unregistered dealer; b) From a registered dealer who has opted composition scheme for payment of VAT; c) Made prior to the date of registration; d) Made from outside the state/India; e) Of goods which are disposed off (such as, personal use) otherwise than by way of sale, resale or manufacture; f) Of exempted goods; g) Of the goods which are used, in the manufacture of exempted goods or in the packing of such goods; h) Of capital goods used in the manufacture of exempted goods or in generation of electricity; i) Of vehicles - Its equipments, accessories and spares (except for vehicle dealers); j) Of goods or property, not connected with business; k) Of goods used as fuel in generation of electric energy or in motor vehicles; l) Of Petrol, Diesel, crude oil & lignite unless intended for resale; m) Of capital goods for being transferred through use in the execution of works contract; n) Of goods for transferring the right to use for any purpose; o) Of the goods remaining unsold on closure of business; p) Where the original invoice does not show the amount of tax separately; q) Where the invoice seems to be bogus/fake bills or is not available with the claimant; r) Made during the unregistered period (except for stock on date of Registration or purchases before one year of registration); s) On account of cancellation/invalidity of composition scheme (except for stock on such date or purchases before one year of such date). • Tax credit shall not exceed the tax actually paid on purchases by the dealer. However, if tax payable is shown in books or such tax is deferrable under any tax incentive scheme then the tax shall be deemed to have been paid to the government & credit can be availed thereon. • ITC is required to be reversed (fully or partly) when ITC availed goods are used for non-specified purposes. • ITC is also required to be adjusted for Debit Note or Credit Note for any change in consideration if tax is separately shown. • ITC of Purchase Tax will be available in the month of liability shown. But Purchase Tax on Sugarcane will be available when the actual payment is made by the dealer.
ITC ON CAPITAL GOODS ITC on Capital Goods (not second hand) is also available. Further, it should not be used for manufacture of Exempted Goods (Other than zero rated sales) or for Electrical Power Generation including Captive Use. Further, the capital good on which ITC has been claimed should be used for a continuous period of 5 years, or else proportionate reduction in ITC is required to be made. Besides, ITC is not admissible on capital goods used in the execution of works contract. ITC is available to traders as well as manufacturers. Explanation – Allowing credit reduces the cost of asset – depreciation diminishes – cost of product reduces – selling price becomes low, thereby avoids double taxation.
ITC REVERSAL @ 2% FOR INTER STATE SALES In case of inter-state branch transfer of; a) goods on which credit was taken, or b) final products manufactured out of goods on which credit was taken. Then tax paid on such inputs shall be available as credit except to the extent of tax upto 2% which shall be retained by the Gujarat government. However, w.e.f. 01-10-2010, no such reversal will have to be made for following goods of schedule II; Entry 13, Entry 24, Entry 48(i), Entry 54, Entry 76.