LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

INTER STATE PURCHASE

SUSHILA BISHT (ARTICLE) (29 Points)

26 February 2011

Please help me in understanding the concept of "INTER-STATE PURCHASE" (CENTRAL PURCHASE)

I have a problem in a question i.e why input tax credit is not availalbe to the purchaser (assessee) in case of inter-state purchase (Central Purchase) ?

why we hav'nt to adjust the tax credit of inter state purchase against the central & local sale???

If anyone have good reasons please forward me............

thanks

Reply
Follow
Share

4 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 27 February 2011

input credit is concept of Value Added Tax which come in existance from 2003, and replaced Sales Tax,

in Sales Tax , there was no credit available, but the party had to pay tax on sales, and subsequent sales also, so VAT rationalized the situation that one good would not get taxed multiple times unless the value is added, and vat is payable on the gross value but input credit is available on cost price to set off the tax liability, i.e the assesee has to pay the tax on the value added portion only.

CST act 1956 is not related with VAT and the interstate transactions are under the rules of CST act only,

VAT has limitations within state only.

we can take input credit of goods purchased within the same state only,

1 Like

SUSHILA BISHT (ARTICLE) (29 Points)
Replied 01 March 2011

thanks for reply me ........

but my problem is if input tax credit is given in the following cases:

1. Local Sales tax (VAT) is adjusted by the Local Tax (VAT paid at the time of Purchase ) (Same Govt.)

2. Central Sales Tax (CST) is also adjusted by the Local Tax (VAT paid at the time of Purchase) (Different Govt)

why input tax credit on inter state purchase (Central Purchase) is not adjusted with the tax on Central & Local Sales??

What they (Govt) thought input tax credit on inter state purchase is not given to the dealer at the time of introduction of VAT......???

is there any problem to give input tax credit on inter state purchase ?????

DAYANANDA K N (ACCOUNTS EXCECUTIVE) (575 Points)
Replied 01 March 2011

CST is central subject. Tax is levied by Central govenment. But it is collected and retained by state governements where the trasanction originates.

If tax credit is given on CST than revenue will go to originating state and tax credit needs to be given by destination state. This will lead loss of revenue to the destination government.

Hence law does not provide for CST credit on purhcase.

I have tried to explain crisply. Hope it is clear now.

Regards

Dayananda

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 01 March 2011

Originally posted by : SUSHILA BISHT

thanks for reply me ........
but my problem is if input tax credit is given in the following cases:
1. Local Sales tax (VAT) is adjusted by the Local Tax (VAT paid at the time of Purchase ) (Same Govt.)
2. Central Sales Tax (CST) is also adjusted by the Local Tax (VAT paid at the time of Purchase) (Different Govt)
why input tax credit on inter state purchase (Central Purchase) is not adjusted with the tax on Central & Local Sales??

- if you recall memory then CST is reduced from 4 to 3 and now 2 percent, and with implementation of GST in due course it would go ZERO, so question of CST payment would go outdated in due time, so input credit will remain zero, its the process of rationatiosation of state vat and cst. the time frame set is working and in coming years CST would be only notional for most of commodities,

- CST act and input credit is very different and its not possible to any state govt to pass on the CST to target state, as it will take loads of paper work and data transfer for allowing credit, hence making CST zero is a reasonable step taken by state govt's steering comitee, which is likely to get implemented by 01-04-2012.

What they (Govt) thought input tax credit on inter state purchase is not given to the dealer at the time of introduction of VAT......???

- if govt allow CST credit to buying dealer, then imagine the situation, in cross checking of dealers invoice, the target govt VAT office has to transfer whole cheking system to originating state vat office. which would be long time process, and dealer would suffer a lot.

is there any problem to give input tax credit on inter state purchase ?????

- Wait for GST implementation, with notification of GST such abnormalities will go disappeared.