One of my friend a registered dealer in Karnataka value added tax Act has purchased raw materials of Rs. 100000 and sold finished products for 75000 only ( Incurred loss of Rs.25000) on Purchase he claimed Input tax of Rs.14500. Is he liable pay tax loss of Rs.25,000 or is he required to reverse input tax credit on purchase to the extent of Rs.25,000
21 June 2013
Sir Here sales price is lessthan purchase price and hence incured loss. As out put is less than input on same product weather any input restrictions apply this is my concern. is there any any clause in KVAT 2003 to prevent from taking entire input tax credit when goods were sold for lesser price than purchase price kindly let me know
21 June 2013
Sir Here sales price is lessthan purchase price and hence incured loss. As out put is less than input on same product weather any input restrictions apply this is my concern. is there any any clause in KVAT 2003 to prevent from taking entire input tax credit when goods were sold for lesser price than purchase price kindly let me know
01 August 2024
Under the Karnataka Value Added Tax (KVAT) Act, 2003, input tax credit (ITC) is generally available on the purchase of raw materials used in manufacturing or trading. However, there are certain provisions and restrictions related to input tax credit, especially when there is a loss or when the sale price is less than the purchase price.
### **Key Points Regarding Input Tax Credit in KVAT 2003:**
1. **Input Tax Credit on Purchase:** - **Eligibility:** A registered dealer can claim input tax credit on purchases used to manufacture or sell goods. - **Claiming ITC:** If the dealer has claimed ITC on raw materials purchased for ₹100,000 and the input tax is ₹14,500, this credit is typically permissible.
2. **Sale Price vs. Purchase Price:** - **Loss on Sale:** If the sale price of the finished products is ₹75,000 and the cost of raw materials is ₹100,000, resulting in a loss of ₹25,000, this fact alone does not generally affect the eligibility to claim ITC. - **Reversal of ITC:** The KVAT Act does not specifically mandate the reversal of ITC solely because the sale price is lower than the purchase price. ITC is usually related to the actual output tax liability rather than the profit or loss scenario.
3. **Provisions for Reversal of ITC:** - **Section 13 of KVAT Act 2003:** Discusses the reversal of ITC under certain conditions, such as non-payment of tax, incorrect claim, or misuse of ITC. However, it does not directly address scenarios where the sale price is lower than the purchase price.
4. **Tax Liability on Losses:** - **Tax Payable:** The dealer is generally liable to pay VAT based on the sale price. If the sale price is lower than the purchase price, the dealer will not be liable to pay tax on the loss; they will only need to account for VAT on the sales value. - **No Additional Liability on Loss:** There is no specific provision in KVAT 2003 that imposes an additional tax liability or requires reversal of ITC based solely on the loss incurred due to the lower sale price.
### **Summary:**
- **Input Tax Credit:** Your friend can claim the full ITC of ₹14,500 on the raw materials purchased, even though the sale price is less than the purchase price. - **No Additional Tax Liability:** There is no need to pay additional tax on the ₹25,000 loss. The tax liability is based on the sale value, not the purchase cost. - **No Specific Clause for Reversal:** KVAT 2003 does not have a specific clause that requires the reversal of ITC solely because the sale price is lower than the purchase price.
### **Conclusion:**
Your friend is not required to reverse the input tax credit or pay additional tax based solely on the loss incurred. The key is to ensure that ITC is claimed in accordance with the KVAT Act provisions and that proper documentation is maintained.
For further clarification or specific cases, it is advisable to consult with a tax professional or legal advisor familiar with KVAT regulations.
CAclubindia
