VAT CREDIT TAKEN

This query is : Resolved

JAYANNA SV (Querist)
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13 August 2010 I AM JAYANNA , OUR COMPANY IS A MANUFACTURING COMPANY , WE PURCHASE ALL RAW MATERIALS ARE TAXABLE GOODS , BUT WE MANUFACTURED MAJOR EXEMPTED GOODS , SOME GOODS ARE TAXABLE , NOW MY QUESTION IS WE TAKE VAT CREDIT FULLY OR PARTIAL , SUPPOSE IN PARTIAL HOW WE TAKE , IN WHICH FORMULA , UNDER WHICH ACT , SECTION , RULE

sachin alwadhi

sachin alwadhi (Expert)
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15 August 2010 What if a person makes tax-free as well as taxable sales?

In case a Taxable Person sells tax-free as well as taxable goods, Input Tax Credit shall be available only for the input taxes related to the taxable goods either on specific identification basis or proportionate basis.

9. How would Input Tax Credit be apportioned in case a person makes tax-free as well as taxable sales?

The amount which can be claimed as Input Tax Credit is to be calculated by the formula

IT x T/
GT + BT
Where —

IT is the total amount of input tax for the period less reverse tax.
T is the total value of taxable sales (ie excluding tax-free sales) including branch transfers made by the Taxable Person in the return period, zero-rated sales & inter-state sales.
GT is the total value of all sales (ie including inter-state sales) during the return period but excluding tax.
BT is value of branch transfer

Illustration

A business has a total sales turnover of Rs 15 lacs and purchases worth 9 lacs in a month. The details of sales and purchases are as under:

a) Rs 9 lacs worth of purchases comprising:

 Rs 5 lacs worth of purchases with a local tax rate of 12.5%
 Rs 2 lacs worth of purchases with a local tax rate of 4%
 Rs 2 lacs worth of inter-state purchases

b) Rs 15 lacs worth of sales comprising:

 Rs 8 lacs worth of local sales at 12.5%
 Rs 2 lacs worth of tax-free sales
 Rs 3 lacs worth of sales on inter-state basis (against C-form)
 Rs 2 lacs worth of branch transfers outside Punjab (against F-Form)

Let’s assume that the inputs are common and not readily identifiable against each category of sales.

The total tax liability and Input Tax Credit are as under:

Calculation of Input Tax Credit Amount (Rs)
Inter state purchases 200,000
Purchases made in Punjab (excluding tax)
@ 12.5% 500,000
@ 4% 200,000
Input Tax on purchase made in Punjab 70,500
Less: Reduction in Put Tax for proportion of tax free sales (9,400)
Input Tax Credit eligible for setoff (A) 61,100
Less: Adjustment to Input Tax Credit for branch transfer (B) (3,733)
Net Input Tax Credit 57,367

Calculation of Output Tax Amount (Rs)
Taxable sales in Punjab @ 12.5% 800,000
VAT on taxable sales 100,000
Tax free sales 200,000
Sale against C Form 300,000
CST on sale against C Form @ 4% 12,000
Branch transfers against F Form 200,000
Total output tax (VAT + CST) 112,000
Net tax payable is therefore, Rs. 112,000 – Rs. 57,367 = Rs. 54,633
Working Notes:

a) Input tax (I) is calculated as under:
12.5% x 500,000 + 4% x 200,000 = 70,500

b) Input tax apportioned to taxable sales
= (IT x T) / (GT + BT) = (70,500 x 1,300,000) / (1,300,000 + 200,000) = 61,100

c) Retention of ITC against branch transfers:
= (IP x BT x 4) / (GT + BT) x 100 = (70000 x 200000 x 4) / (1,500,000 x 100) = 3,733

d) Net ITC available = 61,100 – 3,733 = Rs 57,367

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