Set of duty paid u/s 3 (5) of custom tariff act
This query is : Resolved
MD YUSUF NAGARIYA
(Querist)
31 March 2016
Please let me know whether a dealer ( Not manufacturer) registered under Vat can avail set off of duty paid U/s 3 (5) of customs act which is equivalent to vat subject to limit 4 %
Saket Jain
(Expert)
11 April 2016
pls specify state also.
MD YUSUF NAGARIYA
(Querist)
12 April 2016
Maharashtra
Message likes :
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MD YUSUF NAGARIYA
(Querist)
12 April 2016
Maharashtra
25 July 2025
Your query relates to availment of set-off of duty paid under Section 3(5) of the Customs Tariff Act, 1975 by a dealer (not manufacturer) registered under VAT in Maharashtra.
Let’s break this down:
🔍 Background:
✅ What is Section 3(5) of the Customs Tariff Act?
This refers to Special Additional Duty (SAD) of customs, levied at 4% to counterbalance local sales tax/VAT on imported goods.
SAD was applicable on imported goods, over and above Basic Customs Duty and CVD (countervailing duty).
SAD was meant to ensure level playing field for domestic traders — since domestic sales attract VAT.
🧾 Can a VAT Dealer (Not Manufacturer) Avail Set-off of SAD?
✅ Yes, but with conditions.
In Maharashtra, a VAT dealer (even if not a manufacturer) could claim VAT set-off of the 4% SAD, subject to certain conditions, under MVAT Rules.
📌 Key Conditions (as per MVAT Act & rules):
Importer should be registered under MVAT.
Goods should be sold within the state (Maharashtra).
SAD component should be shown separately in the purchase invoice/bill of entry.
The claim should be supported with relevant import documents (e.g., Bill of Entry, TR6 Challan, etc.).
Input Tax Credit (ITC) claim should be within the statutory time limit (usually within one year from date of tax invoice).
⚠️ If goods are resold as such or used in trading, SAD credit is allowed. If transferred out of Maharashtra or stock-transferred, credit may not be allowed.
📌 Maharashtra VAT Guidance:
As per the MVAT Act and Trade Circulars (like Circular No. 14T of 2012):
Set-off is allowed on SAD to the extent of 4%, if the dealer pays output VAT on subsequent sale.
If dealer is not selling locally, then no set-off is allowed.
✅ Summary:
Condition SAD Set-off Eligibility under MVAT
Dealer is importer & registered under MVAT ✅ Yes
Goods resold in Maharashtra ✅ Yes
Goods stock-transferred or exported ❌ No set-off
SAD component shown & documented properly ✅ Required
🧾 Documents Required:
Copy of Bill of Entry with SAD shown
Copy of VAT return (Form 231 etc.)
Invoice showing sale of imported goods
Proof of payment of VAT on resale
Let’s break this down:
🔍 Background:
✅ What is Section 3(5) of the Customs Tariff Act?
This refers to Special Additional Duty (SAD) of customs, levied at 4% to counterbalance local sales tax/VAT on imported goods.
SAD was applicable on imported goods, over and above Basic Customs Duty and CVD (countervailing duty).
SAD was meant to ensure level playing field for domestic traders — since domestic sales attract VAT.
🧾 Can a VAT Dealer (Not Manufacturer) Avail Set-off of SAD?
✅ Yes, but with conditions.
In Maharashtra, a VAT dealer (even if not a manufacturer) could claim VAT set-off of the 4% SAD, subject to certain conditions, under MVAT Rules.
📌 Key Conditions (as per MVAT Act & rules):
Importer should be registered under MVAT.
Goods should be sold within the state (Maharashtra).
SAD component should be shown separately in the purchase invoice/bill of entry.
The claim should be supported with relevant import documents (e.g., Bill of Entry, TR6 Challan, etc.).
Input Tax Credit (ITC) claim should be within the statutory time limit (usually within one year from date of tax invoice).
⚠️ If goods are resold as such or used in trading, SAD credit is allowed. If transferred out of Maharashtra or stock-transferred, credit may not be allowed.
📌 Maharashtra VAT Guidance:
As per the MVAT Act and Trade Circulars (like Circular No. 14T of 2012):
Set-off is allowed on SAD to the extent of 4%, if the dealer pays output VAT on subsequent sale.
If dealer is not selling locally, then no set-off is allowed.
✅ Summary:
Condition SAD Set-off Eligibility under MVAT
Dealer is importer & registered under MVAT ✅ Yes
Goods resold in Maharashtra ✅ Yes
Goods stock-transferred or exported ❌ No set-off
SAD component shown & documented properly ✅ Required
🧾 Documents Required:
Copy of Bill of Entry with SAD shown
Copy of VAT return (Form 231 etc.)
Invoice showing sale of imported goods
Proof of payment of VAT on resale
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