Karnataka value added tax act, 2005. vat audit

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HAROON MOTIWALA (Querist)
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19 January 2014 ABC Private Limited is manufacturing unit situated in Karnataka, engaged in the business of manufacturing of HDPE Mono filament Net (Mosquito Net). During the period 2012-13, HDPE Mono filament Net was brought under tax rate @5% wef 01-04-2012 and same continued till 31-07-2012 ( 4 months). wef 01-08-2012 said commodity(HDPE Mono filament net i.e.Mosquito Net) was exempted from tax.
During the period 01-04-2012 till 31-07-2012 dealer collected out put vat on his sales and also paid Input Vat on his purchase of raw material to be consumed in production of Mosquito Net, and in the Return of Turnover paid the tax to department after taking into considering output and input vat.
From the period 01-08-2012 till 31-03-2013 dealer did not collected any tax on his sale as the Mosquito Net was declared as exempted. The Raw material purchased suffered the tax at the hands of supplier. The dealer did not availed any input vat credit in his return of turnover from 01-08-2012 to 31-03-2013.(since commodity was declared exempted wef 01-08-2012. Dealer shown his input vat credit as disallowed).
Now my question is 1) How to arrive at ineligible input vat credit for the year 2012-2013, since from April to July 2012, Mosquito net is taxable @5% and wef Aug 2012 till March 2013 is declared exempted commodity. 2)Whether it is correct to pay his tax dues to department after taking into considering the INPUT and OUTPUT VAT from the period April 2012 to July 2012. 3)The dealer completely disallowed and did not avail any INPUT VAT CREDIT from the period August 2012 till March 2013.
Now my request to learned friends to guide me as whether Dealer is correct as he had paid taxes as per normal business practice for the period April 2012 to July 2012 and did not availed any INPUT VAT CREDIT for the period August 2012 to March 2013 since commodity was declared as exempted. Now please guide me as to how prepare FORM VAT 240 (AUDITED ANNUAL STATEMENT),how to mention ineligible input vat credit under partial rebate of INPUT VAT CREDIT.
Guidance in this critical matter is required at the earliest.
You are kindly requested to send me your valuable opinion on my email id 1)hsmotiwala@gmail.com and 2) motiwala2@hotmail.com.
With warm regards,
MOTIWALA HAROON SATTAR, BANGALORE.

HAROON MOTIWALA

HAROON MOTIWALA (Querist)
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24 January 2014 Dear experts, the mentioned above is unanswered. It is requested to guide and help me at the earliest. Regards/ Haroon Motiwala, Bangalore.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2024 Here’s how to handle the situation regarding VAT for the period you described under the Karnataka Value Added Tax (KVAT) Act, 2005:

### **1. Calculating Ineligible Input VAT Credit for 2012-2013**

**Background:**
- From April 2012 to July 2012, HDPE Mono Filament Net was taxable at 5%.
- From August 2012 to March 2013, it was exempt from VAT.

**Steps to Calculate Ineligible Input VAT Credit:**

1. **Determine Input VAT Credit for Taxable Period:**
- Calculate the total input VAT credit you availed from April 2012 to July 2012. This should include VAT on purchases of raw materials and other inputs used in manufacturing HDPE Mono Filament Net.

2. **Identify Exempt Period Input VAT:**
- For the period August 2012 to March 2013, since the product is exempt from VAT, you are not entitled to claim input VAT credit on purchases related to exempt sales.

3. **Calculate Proportional Input VAT Credit:**
- Use the formula to apportion the input VAT credit:
\[
\text{Ineligible Input VAT Credit} = \text{Total Input VAT} \times \frac{\text{Exempt Turnover}}{\text{Total Turnover}}
\]
- Here’s how to do it step-by-step:
- **Identify Total Input VAT** for the entire year.
- **Determine Exempt Turnover** (sales made from August 2012 to March 2013).
- **Determine Total Turnover** (sales made from April 2012 to March 2013).

4. **Calculate Ineligible Portion:**
- Apply the ratio of exempt turnover to total turnover to the total input VAT credit to determine the proportion that is ineligible.

### **2. Correctness of Tax Payment and Input VAT Credit Availment**

**For April to July 2012:**
- It is correct to pay VAT on output sales and avail input VAT credit during this period, as the commodity was taxable.

**For August 2012 to March 2013:**
- You should not collect VAT on sales of exempt goods, which is correct.
- However, **input VAT credit on raw materials** purchased during the exempt period cannot be claimed. This is also correct as per the VAT regulations.

### **3. Disallowance of Input VAT Credit**

- **Correct Approach:** As the commodity was exempt from VAT from August 2012 onwards, the dealer’s approach of not availing input VAT credit for the exempt period is correct. This aligns with the principle that input VAT credit is not available for goods or services used in making exempt sales.

### **Preparation of Form VAT 240 (Audited Annual Statement)**

1. **Input VAT Credit Disallowed:**
- Report the ineligible input VAT credit as calculated. You will need to include this information in the section of VAT 240 that deals with the apportionment of input VAT.

2. **Details to Include:**
- Mention the total input VAT claimed.
- Specify the amount of input VAT that is disallowed due to the exempt status of the sales from August 2012 to March 2013.

3. **Additional Documentation:**
- Ensure that all relevant documents, invoices, and calculations supporting the disallowed input VAT credit are maintained for audit purposes.

### **Summary**

1. **Calculate Ineligible Input VAT Credit** based on the proportion of exempt sales to total sales.
2. **Pay VAT correctly** for the taxable period and correctly handle input VAT credit.
3. **Do not avail input VAT credit** for the exempt period.
4. **Prepare Form VAT 240** by reporting the disallowed input VAT credit accurately.

For the most accurate guidance tailored to your specific situation, consider consulting with a tax professional or auditor who is familiar with Karnataka VAT regulations. They can provide precise instructions based on the latest laws and practices.

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