Vat Refund
This query is : Resolved
16 December 2010
Please clarify that how the VAT credit can be claimed if the goods are transferred as " Stock / Branch Transfer" as inter state (i.e. branch located at other state)and the VAT amount is paid on the Raw Material which is also purchased from other states.
17 December 2010
Under the Punjab VAT Act if taxable goods are purchased from within Punjab and are sent as branch transfer outside the state i.e otherwise than as sales then the input tax credit to the dealer branch in Punjab will be allowed only to the extent by which the amount of tax paid in the State exceeds four percent on purchase of goods that is to say if tax paid on raw material is 12.5% then ITC will be available only @ 8.5% in view of section 13(2) of PVAT Act since the raw material purchased is disposed of as branch transfer outside the state i.e otherwise than as sales.
If the goods are purchased from outside Punjab and sent as branch transfer outside the state then there is no question of input tax credit since no credit of CST is available in any case.
If the goods are purchased from outside Punjab and sent as branch transfer outside the state then there is no question of input tax credit since no credit of CST is available in any case.
17 December 2010
Please also clarify that what will be the situation when the goods are produced / Manufactured and the whole Ram Material is purchased from outside punjab
03 August 2025
Here’s a detailed explanation regarding **VAT credit on inter-state branch transfers** and treatment of raw materials purchased from outside the state, based on your query and typical VAT rules (using Punjab VAT Act as reference):
---
### 1. **VAT Credit on Branch Transfers (Inter-State) within the same dealer group**
* When goods are transferred as **stock or branch transfer** to a branch located in **another state** (inter-state), such transfer is **not considered a sale** under VAT.
* Since it's not a sale, VAT paid on such goods is **treated differently** in terms of Input Tax Credit (ITC).
---
### 2. **If Raw Materials are Purchased Within the Same State (Punjab)**
* Under **Section 13(2) of Punjab VAT Act**, when goods purchased within Punjab are transferred outside the state branch-wise (not as sales), **input tax credit is allowed only to the extent that VAT paid exceeds 4%.**
* For example:
* VAT paid on raw material purchase = 12.5%
* Since branch transfer outside the state is “otherwise than sales,” ITC allowed = 12.5% - 4% = **8.5%** only.
---
### 3. **If Raw Materials Are Purchased From Outside the State (Inter-State Purchase)**
* For raw materials purchased from outside Punjab:
* **No input tax credit on CST** (Central Sales Tax) is allowed under VAT law. CST is not creditable under VAT.
* Thus, if raw materials are bought from outside the state and sent as branch transfer out of Punjab, **no VAT credit can be claimed on CST**.
---
### 4. **If Goods are Manufactured and Raw Materials Are Purchased from Outside the State**
* The **manufacturing unit in Punjab** will have paid VAT on local purchases.
* For raw materials bought from outside Punjab (inter-state purchase), CST is paid, and **CST is not eligible for VAT credit**.
* The VAT paid on local raw materials can be claimed as input credit **subject to rules** (e.g., 4% threshold deduction for branch transfer).
---
### **Summary Table**
| Situation | VAT Credit Allowed |
| --------------------------------------------------------------- | ----------------------------------------------- |
| Raw material purchased in Punjab, branch transfer outside state | VAT paid minus 4% (e.g., 12.5% - 4% = 8.5%) |
| Raw material purchased outside Punjab (CST paid) | No VAT credit allowed on CST |
| Manufactured goods from mixed raw materials | VAT credit only on local raw material (less 4%) |
---
### Important
* These rules **vary slightly from state to state**, but the principle that CST is not creditable under VAT is universal.
* Always refer to specific state VAT laws for exact percentages and rules.
---
If you want, I can help you find the exact relevant sections for Karnataka or Maharashtra or draft a simple illustration sheet for VAT credit calculation in such cases. Would you like that?
---
### 1. **VAT Credit on Branch Transfers (Inter-State) within the same dealer group**
* When goods are transferred as **stock or branch transfer** to a branch located in **another state** (inter-state), such transfer is **not considered a sale** under VAT.
* Since it's not a sale, VAT paid on such goods is **treated differently** in terms of Input Tax Credit (ITC).
---
### 2. **If Raw Materials are Purchased Within the Same State (Punjab)**
* Under **Section 13(2) of Punjab VAT Act**, when goods purchased within Punjab are transferred outside the state branch-wise (not as sales), **input tax credit is allowed only to the extent that VAT paid exceeds 4%.**
* For example:
* VAT paid on raw material purchase = 12.5%
* Since branch transfer outside the state is “otherwise than sales,” ITC allowed = 12.5% - 4% = **8.5%** only.
---
### 3. **If Raw Materials Are Purchased From Outside the State (Inter-State Purchase)**
* For raw materials purchased from outside Punjab:
* **No input tax credit on CST** (Central Sales Tax) is allowed under VAT law. CST is not creditable under VAT.
* Thus, if raw materials are bought from outside the state and sent as branch transfer out of Punjab, **no VAT credit can be claimed on CST**.
---
### 4. **If Goods are Manufactured and Raw Materials Are Purchased from Outside the State**
* The **manufacturing unit in Punjab** will have paid VAT on local purchases.
* For raw materials bought from outside Punjab (inter-state purchase), CST is paid, and **CST is not eligible for VAT credit**.
* The VAT paid on local raw materials can be claimed as input credit **subject to rules** (e.g., 4% threshold deduction for branch transfer).
---
### **Summary Table**
| Situation | VAT Credit Allowed |
| --------------------------------------------------------------- | ----------------------------------------------- |
| Raw material purchased in Punjab, branch transfer outside state | VAT paid minus 4% (e.g., 12.5% - 4% = 8.5%) |
| Raw material purchased outside Punjab (CST paid) | No VAT credit allowed on CST |
| Manufactured goods from mixed raw materials | VAT credit only on local raw material (less 4%) |
---
### Important
* These rules **vary slightly from state to state**, but the principle that CST is not creditable under VAT is universal.
* Always refer to specific state VAT laws for exact percentages and rules.
---
If you want, I can help you find the exact relevant sections for Karnataka or Maharashtra or draft a simple illustration sheet for VAT credit calculation in such cases. Would you like that?
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