Delhi Input Tax Credit

8/13/2019 Delhi Input Tax Credit

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2004 By Default!A Free sample background from www.awesomebackgrounds.comRakesh Garg, FCA 1

SEMINAR

ON

VALUE ADDED TAX

By NIRC of ICAI18thApril 2009


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Input Tax Credit

1. WHAT IS INPUT TAX CREDIT (ITC)

The concept of ITC is to replace declaration forms and to

collect tax at multi-point. ITC, in general, is the

a. Section 9(1) is subject to section 9(2).

b. amount of tax paid/ payable by the purchaser in accordancewith the provisions of the Act

c. on eligible local purchase (not specified in Schedule VII)

d. arises in the course of his activity as a dealer

e. from a local regd. dealer supported by a valid tax invoice

e. for the purpose of use by him directly/ indirectly in makin

Local Taxable Sales or inter-State Sale or Export out of India.


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Input Tax Credit

b.ELIGIBLE TAX (for which credit is available): -

Tax paid under DVAT Act in relation to eligible purchases. Therefore no credit can be claimed for: -

CST paid or payable on inter-state purchases; Central excise duty or service tax; Any tax (other than DVAT), whatsoever, paid or

payable to the home State or other states or UT.c. ELIGIBLE DEALERS: -

Registered under the DVAT Required to be registered under the DVAT Act Exception - Casual dealer and Composition Dealer


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Input Tax Credit

d. ELIGIBLE Goods (for which credit is available): -

Trading Goods; Raw Materials; Packing Material; Consumables other than fuel; Hire charges subjected to DVAT (Except contractors); Capital Goods (unless specified in Schedule VII) subject

to restrictions specified under section 9(9);

Components used in fabricating the machine in-houseprovided machine is used for purposes specified u/ s 9(9)


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Input Tax Credit

e. ELIGIBLE PURCHASESIN GENERAL

Goods purchased for the purpose of business and not forpersonal consumption;

Goods purchased for the purpose of manufacturing taxablegoods, e.g., ITC is not allowed on paper purchased formanufacturing books;

Goods not purchased from a casual dealer or a dealer whohas opted for the composition scheme;

Goods purchased for the purpose of making Local taxable sales; Inter-State sales; Exports


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Input Tax Credit

ITC u/s 9 is available on making the eligible

purchases Holding of tax invoice without making

the purchase is not enough

If, under some circumstances, the local purchases

are assessed as central purchases, Input Tax

Credit would be denied To illustrate K.G.

Khoslascase and DCM case

Therefore, first ensure that goods are actually been

purchased and, second, this is a local purchase


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Input Tax Credit

f. Non-Creditable Goods

Items are not specified in Schedule VII It is an

exhaustive list, amended further w.e.f. 30.11.2005 All Automobiles and spare parts for repairs and

maintenance and tyres and tubes thereof;

Fuels in the form of petrol, diesel and kerosene,

LPG, CNG, PNG, coal;

Conventional clothing and footwear, clothin

fabrics; Food and beverages for human consumption;

TV, DV D, Music systems, etc. Equipments for

entertainment;


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Input Tax Credit

f. Non-Creditable Goods (contd)

Air conditioners, air conditioning plants or units other

than those used for manufacturing purposes; ai

coolers, fans and air circulators;

Office equipments, furniture, carpets, stationary items,

advertisement and publicity materials, sanitation

equipments, fixtures including electrical fixtures and

fittings, generators and electrical installation;

Elevators (lifts);

Cranes, earthmovers, JCB, excavators, road rollers,

concrete mixing machines and other simila

machineries;


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Input Tax Credit

f. Non-Creditable Goods (contd)

Computers other than those used for the

purpose in normal business;

Goods for personal consumption or for gifts;

Goods purchased and accounted for in busines

but utilised for the facility to the employees;

Goods used for construction of or incorporation

in civil structures and immovable goods orproperties not constituting part of the work

contracts.


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Input Tax Credit

INPUT TAX CREDIT ON CAPITAL GOODS

Capital goods means plant, machinery and equipmentsused directly or indirectly in the process of trade,manufacturing or works contracts in Delhi.

But, ITC is not available on goods specified in Sch.VII.

Goods must be purchased within Delhi from a registereddealer, supported by a valid tax invoice.

ITC is available in three equal instalments and firstinstallment is in the tax period when it is purchased.

If capital goods are transferred out of Delhi within three

years, than 2% of the purchase price will be reversed.When the goods are received back in Delhi, ITC could notbe reclaimed since rule 7(2) refers to non-capital goodsand sec. 9(6) of the Act. A big issue for works contractors.


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Input Tax Credit

INPUT TAX CREDIT ON CAPITAL GOODS

Depreciation will not be claimed on the amount of

ITC availed by the dealer, i.e., on the principal

amount.

Tax credit in respect of capital goods shall also notbe allowed if such capital goods are used

exclusively for the purpose of making sale of

exempted goods specified in the first schedule.

If capital goods are used partly for the purposes of

manufacturing and/or trading taxable goods or

making exports and partly for other purposes, the

amount of the tax credit in relation to such capital

goods shall be reduced proportionately.

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Input Tax Credit

ADJUSTMENT IN INPUT TAX CREDIT

If the invoice raised by the seller/contractor is passed

by buyer/contractee for a lesser amount, and the

amount is subsequently adjusted in output tax by

contractor u/s 8, the seller must issue to the buyer a

debit note, issuance of which is mandatory.

The buyer/contractee shall adjust his ITC on the basis

of such debit note

Where goods are returned/rejected by the buyer, hewill reduce his ITC in relation to those goods, in the

T.P. when goods are returned/ rejected. Double

taxation if goods are returned after 6 month

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Input Tax Credit

PROPORTIONATE REDUCTION IN INPUT TAX CREDIT

Where a dealer has purchased goods, which are to be

used partly for the purpose of making sales referred to

u/s 9(1) and partly for other purposes, then amount of

tax credit shall be reduced proportionately.

To illustrate, X purchased raw material for Rs. 1,00,000

plus tax of Rs. 12500/- for manufacture of taxable as

well as exempted goods. At that time, he estimatedthat the raw material would produce 80% taxable

goods. In such case, his input tax credit will be

restricted only to 80% of Rs. 12500/, i.e., Rs. 10000/-.

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Input Tax Credit


If goods are subsequently used for different purposes,

then the reduction shall be made in the tax period

when so used. What is the difference between 9(4) and 10(2)

Method of reduction should be fair and reasonable;

otherwise the Commissioner is empowered to reject

the method or prescribe another method.

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Input Tax Credit


Valuation:

If commodity wise register maintained At the

purchase price

Otherwise On the basis of the purchase price of

such goods immediately preceding their use for

other purposes or their FMV, w.e.i. higher

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Input Tax Credit

STOCK TRANSFER TO OTHER STATES

The amount of the tax credit shall be reduced by 2%

of the purchase price (1% in case of bullion) if the

goods or goods manufactured out of such goods are

to be exported from Delhi by way of transfer to a

(i) non-resident consignment agent; or

(ii) non-resident branch of the dealer;

ITC will be reduced only in relation to those goods

where it is claimed or is claimable, i.e., no reductionshall be made in respect of those goods which are

purchased from local unregistered dealers or in the

course of inter-State trade.

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Input Tax Credit


What is the difference between 9(6) and 10(3)

At what value goods to be transferred At cost or at

FMV? It should be the cost since reversal to be made

on the basis of purchase price

Valuation of stock transfer:

If commodity wise register maintained At the

purchase price

Otherwise On the basis of the purchase price ofsuch goods immediately preceding their use for

stock transfer or their FMV, w.e.i. higher

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Input Tax Credit


In addition, Form F shall also be obtained

Where the goods so transferred are received back

in Delhi either in the original form or in some otherform, tax credit already reduced can be reclaimed in

the tax period when goods are so received.

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Input Tax Credit

GOODS INCORPORATED IN OWN STRUCTURE

If goods are used for construction of or incorporation in

civil structures and immovable goods or properties not

constituting part of the works contracts, ITC shall be

denied on such goods, e.g., cement, bricks, tiles, etc.

If goods which have been purchased by a dealer were

intended to be used for the purposes specified u/s 9(1)

but are subsequently incorporated into the structure of

a building owned or occupied by that person, the tax

credit claimed in respect of such purchases shall bereduced in the tax period during which such

incorporation takes place.


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Input Tax Credit

Can ITC be claimed in the tax period subsequent tothe tax period when goods were actually purchased,

without filing an objection, on the ground

He do not have in procession the Original Tax

Invoice when goods were purchased :Shou ld state

the amount of purchase and cla im ITC in

subsequent months

He forgot to claim ITC in the original tax period :

Since it is an error or mistake Object ion is

required

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Input Tax Credit-Traders

Input Tax Credit can be claimed in respect of

Purchases meant for local taxable sales, ISS and

Exports out of India

Capital goods used in the process of trade such as

weighing machines, computers, delivery rickshaws,etc.

Not available in respect of furniture/furnishing of office

Schemes, distribution Gift articles, etc.?

Reversal of input tax credit on account of credit notes?

Evaporation Loss?

Stock transfers to agents within Delhi ?

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Free Offers to the Customers ITC on Purchases

Deter. u/s 84 dt. 31.10.2005 L.G. Electronics Gifts (T-

shirts, TV, AC, Phone, etc.) to customers through

scratch cards debited to sales promotion No ITC

However, in our opinion, where gifts are given alongwith the main product - Necessary for completion of

sale contracts 2+1 shirt (or) Bucket with detergent

(or) Mosquito machine with mats (or) Car +

Accessories Supply of free items is part of salecontract ITC should be available

To be debited to purchasesinstead salepromotion

Post sale gifts No ITC/benefit of Form Cavailable


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Credit Note resulting in reduction of purchases

Need reversal of ITC by the purchaser even if

output tax has not been reversed by the seller u/s

8 Circular No. 2 dated 7.8.2008

However, Judgments to be referred for contrary answer:

Andhra Agenc ies vs. State o f A.P. (2009) 19 VST 1 (SC)

Priy a Agenc ies vs. CTO (2008) 14 VST 293 (Ker)


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Goods Lost ITC on Purchases

Evaporation of oil No ITC on oil evaporation

Commissioner Ruling u/s 85 Same opinion by P&H

High Court recently Bharat Petroleum Ltd.

The same analogy might be applied to all trading losses. Forexample loss of cement in transit Waste/scrap generated at the end, e.g. confectionery powder,vegetable/fruit waste at the end of the day Measurement/weighment difference in purchase vis-a-vis sale


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STOCK TRANSFER WITHIN DELHI

In accordance with Notification No. F.4 3)/P-II/Noti/ VAT/2005/1158 dated2nd December 2005 -

The principal in Delhi will raise tax invoice on agent; &

The agent will claim ITC on the basis of such tax invoice.

However, if that is so, even without substantial provisions:

Tax will have to be paid by the principal even without

affecting sale and adjustments to be made at the time ofreturn of unsold stock by the agent;

ITC will be claimed by agent without making purchases.



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Input Tax Credit-Manufacturers

Input Tax Credit can be claimed in respect of

Capital goods used in the process of manufacture

such as plant, machinery, tools, equipments,

weighing machines, etc. [ Judgments applicable to

purchase against form C squarely applies except

goods listed in Sch. VII ]

Normal Manufacturing Loss

As per the Advance Ruling by the Commissioner,

where scrap generated out of goods manufactured isexempt, then tax credit on the raw material shall be

reduced proportionately.

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Input Tax Credit-Manufacturers


Where the goods so transferred are received backin Delhi either in the original form or in some other

form, tax credit already reduced can be reclaimed

in the tax period when goods are so received.

Where a dealer, who is engaged in manufacturing

of taxable as well as exempt goods, transfers

certain goods to other States, then

He will first reduce the ITC proportionately in

relation to the exempted goods; then He will further reduce the amount of ITC as

calculated in (i), in relation to stock transfer to

other States.

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A person, who is exclusively engaged in the business of

labour/job work (other than a manufacturer), is noteligible for ITC on purchase of consumables or capital

goods, merely because he is liable to pay tax on sale of

any waste/ scrap goods generated during the process of

labour job.

To i l lustrate, a job worker is exclusively engaged in the

business of labour job of cutting iron sheets (supplied

by the customer) into circles. He sells scrap, generated

in this process, and pays VAT due to the Govt. Even thanhe is not eligible for tax credit on purchase of any

consumable or capital goods used for carrying his

labour job.

Input Tax Credit-Job Workers

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Works contractors can claim ITC on following purchases:-

Raw Material

Consumables which do not get destroyed

Packing Material

Capital Goods other than those specified in Sch. VII

Contractors are deemed either as trader or as manufacturer

VAT paid on hire charges and consumable which get

destroyed can not be claimed as ITC since these are

allowable deductions as labour and services and are

exempted sales. ITC on temporary shed/yard/office?

Relations between contractor & sub-contractor (a) If pro-

perty is tfd. directly on principle of accretion (b) Otherwise

Input Tax Credit-Contractors

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I T C di S i S


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Input Tax Credit-Service Sector

SERVICE SECTOR ALSO ENGAGED IN SALE LIKE

HOTELS

Input tax is available on those purchases (including

rent) which are relatable for making sale by the dealer.

Where goods (including capital goods) are used partlyfor making sale and partly for providing service, ITC

will be available proportionately, e.g., common

generator used in the restaurant as well as rooms.

Capital goods used exclusively for providing services

is not available for ITC, e.g., equipments used in Jim,

Swimming Pools etc.

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I t T C dit Ri ht t U


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Input Tax Credit-Right to Use

LESSER (Transfer Of Right To Use Goods)

As per Determination by Commissioner u/s 84 in

Digitech - Benefit of Input tax credit is not available

to leasing company on its purchases even if its sales

are taxable in Delhi VAT

Matter is pending before DVAT Tribunal

If that is so purchase from other States against Form

C, paying 2% CST

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LESSER (Transfer Of Right To Use Goods)

Right to use goods, i.e., leasing is covered under the

DVAT/CST and is covered in the definition of sale;

Whenever, goods are purchased by the hirer for the

purpose of leasing, the local tax paid on purchases

should be eligible for ITC against output tax payable

on lease rent;

Goods which are purchased and hired by the hirershall be treated as stock in trade and not non-capital

goods.


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LESSEE (Transfer Of Right To Use Goods)

The lessee can also claim the benefit of input tax credit

if the goods are delivered at Delhi and used by him for

the purpose of use in trade, manufacture or executionof works contract in Delhi

The lessee will claim in installments on the basis of

periodical tax invoices raised by the lesser Refer

Section 105(2)(b).


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I t T C dit R d


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Input Tax Credit - Records

The purchaser can claim ITC if he has in hi

possession a valid tax invoice. ITC is not availableunless the words Tax Invoice are stated on the

invoice.

Tax Invoice must contain:-

(a) The words tax invoice in a prominent place;

(b) Name, address and registration number of the

selling registered dealer;

(c) Name and address of the purchaser and hi

registration no., if already registered;

(d) An individual pre-printed serialized number and the

date on which tax invoice is issued;

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I t T C dit R d


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(e) Description, quantity, volume and value of

goods sold and services provided and the

amount of tax charged thereon indicated

separately;

(f) Signature of the selling dealer or his servant,manager or agent, duly authorized by him; and

(g) N ame and address of the printer and first and

last serial number of tax invoices printed and

supplied by him to the dealer.

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I t T C dit R d


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Explanation to section 50(1) of the DV AT Act A registered dealer shall be authorized to issue ta

invoice only after certificate of registration i

issued by the Commissioner.

V ide clarification no. V AT/ Policy III/ 2005 -

06/ 898 dated 13th July 2005, it has been

clarified that the dealer who has been informed

his TIN can issues tax invoice from the date ofcommunication of TIN .


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I t T C dit R d


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DEBIT AND CREDIT NOTE

TO be signed by the person authorized to sign the return andcontain the following details:-

(a) N ame, address and registration certificate number o

selling registered dealer;

(b) N ame and address of the purchaser and his registrationnumber where the purchaser is a registered dealer;

(c) Description of the reason for issuing the credit note or

debit note, as the case may be;

(d) Serial number of the relevant tax invoice affected by the

credit note or debit note, as the case may be; and

(e) Amount of the variation to the tax amount shown on the

tax invoice.

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Inp t Ta Credit Records


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A monthlyaccount

specifying

- Total output tax,- Total input tax, and

- Net tax payable or the excess

tax credit due for carry forward.

Input Tax

Calculations

Details of input tax calculations

where the taxable person is

making both taxable and tax free

sales.

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Input Tax Credit


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Input Tax Credit

TO CONCLUDE

Input Tax Credit can be claimed by the dealers for their

eligible purchases of creditable goods (other than those

listed in Sch. VII) for the specified purposes made from

local registered dealers on the basis of a valid tax invoice.

No one to one correlation of purchase and sale is required.

Unclaimed amount of ITC at the end of the tax period can be

carried forward indefinitely or claimed as refund.

To hold a valid Tax invoice at the time of filing of return for

claiming ITC is a mandatory requirement.

Input Tax Credit is the essence of VAT Regime and

legitimate claim thereof is a true saving.

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THANK YOU

Delhi Input Tax Credit

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