vat credit on foreign bill

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 March 2011 We have imported machineries from china and made contract wih the company that they will send their highly skilled professionals for the term of 1year for producion of finished goods ready to despatch from their machinery installed. MY Query is what are the taxes applicable on such contract? They will raise their bill with 17%vat in Dollars on us, Is this vat can be taken as credit or not? Please solve my query as it is urgent.Thanks & Regards.

Ram Avtar Singh

Ram Avtar Singh (Expert)
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25 March 2011 Not allowed

Querist : Anonymous

Querist : Anonymous (Querist)

25 March 2011 Sir please can u expalin in detail that why credit is not available as we are manufacturing unit

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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02 August 2025 Hey! About VAT credit on foreign bills—especially for imported machinery and services from overseas professionals—here’s the detailed explanation:

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### Scenario:

* You imported machinery from China.
* The foreign company is sending skilled professionals for onsite work for a year.
* They are billing you in dollars with 17% VAT charged by them.
* You want to know if you can claim VAT credit on this foreign VAT charged.

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### Key points:

1. **VAT is a State/Local Tax**
VAT (Value Added Tax) is **a tax levied by Indian state governments on intra-state transactions**.
It applies only to sales and purchases within India (domestic transactions).

2. **Foreign VAT charged by overseas supplier**
The 17% VAT charged by the Chinese company is their **local Chinese VAT** (or some other country’s VAT), **not Indian VAT**.

3. **Can you claim Indian VAT credit on foreign VAT?**

* **No.**
* Indian VAT credit can be claimed only on VAT paid on **domestic purchases within India** where you have a proper Indian VAT invoice.
* VAT paid in another country (foreign VAT) **is not eligible for credit under Indian VAT laws**.

4. **What about customs duty and import taxes?**

* When importing machinery, you pay **customs duty and other import taxes** at the Indian port.
* These duties **cannot be claimed as VAT input credit**, but are part of the cost of import.

5. **Regarding foreign services by professionals**

* Services from foreign professionals are generally subject to **Service Tax or GST** under Indian law.
* If you are paying for services, **you may be liable to pay ‘reverse charge’ GST/Service Tax** on the imported service.
* Foreign VAT charged is unrelated to Indian tax credit.

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### Summary Table:

| Tax Type | Charged By | Credit Allowed in India? |
| ------------------------------- | ---------------- | --------------------------- |
| Indian VAT | Indian suppliers | Yes, if valid tax invoice |
| Foreign VAT (e.g., Chinese VAT) | Foreign supplier | No |
| Customs Duty on import | Indian Customs | No |
| Reverse charge GST on services | Indian govt | Yes, if applicable and paid |

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### What you should do:

* **Do not claim input VAT credit on foreign VAT charged.**
* Pay customs duty as applicable at import.
* Check if you need to pay reverse charge GST on foreign services and claim input credit accordingly.
* Consult your tax advisor for proper treatment of import taxes and services.

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If you want, I can help draft a note explaining this for your accounting or tax team, or help you check if reverse charge applies for your case.

Would that help?

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