Vat registration ...? & cenvat input

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 August 2016 Dear Sir,

One of new company " X " buying machinery/ or etc., from " Y ". in this case Y is having VAT registration, excise registration. However, X business in future is only service providing and no sales. In this case for " X " can avoid VAT registration and no input will be taken by " X " and tax liability will be cleared by " Y ".

Moreover, cenvat credit can avail by " X " please clarify.

With Regards,

Narasimhan

Querist : Anonymous

Querist : Anonymous (Querist)

09 September 2016 Please arrange reply

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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03 August 2025 Hi Narasimhan,
Here’s a clear explanation regarding your query about VAT registration, VAT input credit, and CENVAT credit:

Scenario:
Company X buys machinery from Company Y.
Company Y has VAT and Excise registration.
Company X will be providing only services in the future, no sale of goods.
1. VAT Registration for Company X
Since Company X is only providing services and not selling taxable goods, VAT registration is generally not required for X.
VAT is a tax on sale of goods, so if X is purely a service provider (and services are not under VAT but under Service Tax or GST), no VAT registration is needed.
X will not claim input VAT credit because it is not registered under VAT.
2. VAT on Purchases
Company Y (the seller) will charge VAT on machinery sale to X.
X pays VAT as a customer, but cannot claim input VAT credit if not registered.
Tax liability for VAT remains with Y on its sales.
3. CENVAT Credit for Company X
If machinery is liable to Excise Duty and Company X is registered under Excise or GST (Input Tax Credit framework), then X can claim CENVAT (or GST ITC) credit on inputs like machinery used in providing services (if eligible).
CENVAT credit is separate from VAT and pertains to excise/service tax/GST credit.
So, even if X is not VAT registered, it may be eligible to claim CENVAT/GST credit if it has excise/service tax/GST registration and the machinery is used for taxable activities.
Summary Table:
Aspect Company X’s Position
VAT Registration Not required if only services provided
Input VAT Credit Cannot claim (no VAT registration)
VAT Liability on purchase Paid by X, charged by Y
CENVAT Credit Can be claimed if excise/GST registered and eligible

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