Input tax reversal in case of inter stae branch stock transf

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C.A Manish Arya

C.A M.B.A

408 Points Joined August 2009

Dear Members.....

I have a Query regarding Reversal of ITC on Transfer of Stock to other state and Sale made from other state.

A Comapny in Punjab purchses raw materail and manufactures a finished product.It claims ITC on the vat paid on Purchases.. Ot of the Total production ...A certain part of the goods has been transferred to co.'s Branch in Delhi to be sold in Delhi as Stock transfer and it credits its' ITC by amount equilent to "CST @ 2%" or say Pay it .. which in nutshell .. means the same thing.. .... Now the point arises....

Do the co. need to Reverse the ITC claimed on the purchases made in punjab on contention that since the sale is not gonna happen in Punjab,hence No revenue gonna occur to the states so NO INPUT shall be admissible.

Company can avail ITC on purchases so made in punjab. (Although the output vat will be generated in Delhi )

I'm personally of the opinion that ITC should be available to the Co. after deducting the CST @ 2% on such stockk transfer.

Plz Clarify. A quote of the Relevant Rule /Provision shall be highly appreciable.

Regards

CA Manish Arya

Replies (2)

CA Lukesh Sethi

CHARTERED ACCOUNTANT

150 Points Joined December 2007

Dear Manish,

In your case, there are stages.

At 1st stage, Punjab company purchases raw material within punjab and pays VAT and get credit of Input VAT.

At 2nd Stage, company manufacutres goods and sold it with in punjab and out side punjab and some goods are stock transfer to Delhi branch to be sold in Delhi.

so there are three cases,:

In 1st case, if goods are sold within Punjab. Then full ITC will be available against Output VAT collected from customers.

In 2nd Case, if goods are sold outside punjab directly by company on declaration of Form C, then company collect CST @ 2% from outside customers then also company is eligible for ITC.

In 3rd case, if goods are transfered to delhi branch without tax on declaration Form F., then also company is elgible to to claim ITC, However there is risk as in some states like Himachal pradesh sales tax department reverse the ITC while on assessment, but in Karnal, there is no such requirement of ITC reversal as decided in case law of “Havell’s India limited” and “ITC Limited” in delhi High court.

Please also go through attach file.

Regds

C.A Manish Arya

C.A M.B.A

408 Points Joined August 2009

Dear Lukesh ...

Thank you very much for ur kind reply... Actually it's a bit controversial,.. the notification mentioned in the File attached relates to Transfers within States or Intra State..so Guess it's of no use heer.... What u have to say if i let my client go furthur on the premise of the Rulings of ITC and Haveli.