Input credit on electrical items.

This query is : Resolved

sony10 (Querist)
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02 April 2014 Hello experts,

Our company manufactures machinery and sell it @6.05% in Punjab and @2% against form 'C' out of Punjab. Except other raw materials which is purchased @6.05%, we also use electric motor, ac drives and other electrical items purchased @14.30% for this machines. So the query is:

1. Can we claim / deduct (ITC) full tax of 14.30% of electrical items used for such machinery, even though we are selling the machine @6.05% vat or 2% cst.

2. Also, can we claim / deduct (ITC) full tax in case where we use such electrical items in our factory for our machinery [used in production and not being sold].

Rupesh Jain

Rupesh Jain (Expert)
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02 April 2014 in items use for production and as raw material you can claim local vat and purchase agasint C form and sell.

but items not using for production then you can not cliam VAT

sony10

sony10 (Querist)
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03 April 2014 Dear Rupeshji,

Thank you for the reply.

So we can deduct full 14.30% of vat on purchase, even if we are selling our items @6.05% in local and @2% outside the state.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 In Punjab, as per the VAT and CST regulations, the treatment of Input Tax Credit (ITC) on electrical items used in manufacturing machinery and the related queries are as follows:

### 1. **Claiming ITC on Electrical Items Used for Machinery:**

**a. **Full ITC Claimable:**
- **ITC Eligibility:** You can claim the full Input Tax Credit (ITC) of 14.30% on electrical items such as electric motors, AC drives, and other electrical components used in the manufacturing of machinery, even though you are selling the machinery at a lower VAT rate of 6.05% locally or at 2% CST out of state.
- **Reasoning:** The VAT paid on inputs, including electrical items, is eligible for ITC irrespective of the VAT rate applicable to the final sale of the product. The credit is available on inputs used in the manufacturing of the final product.

**b. **Documentation:**
- **Invoices:** Ensure that you have proper tax invoices for the electrical items purchased showing the VAT charged at 14.30%.
- **Records:** Maintain detailed records of the inputs used in the manufacturing process and how they contribute to the final product.

### 2. **Claiming ITC on Electrical Items Used in the Factory:**

**a. **ITC on Inputs for Production:**
- **Full ITC Claimable:** You can also claim the full ITC of 14.30% on electrical items used in the factory for manufacturing purposes, even if the machinery is sold at a lower VAT rate or under CST.
- **Usage:** The ITC is available for inputs used in the production process, irrespective of whether the final product is sold locally at a lower rate or outside the state.

**b. **Documentation:**
- **Invoices and Records:** Maintain proper documentation and records to show that the electrical items are used for manufacturing purposes within the factory. Ensure invoices reflect the VAT rate paid and that it is accounted for correctly in your VAT returns.

### **Relevant Provisions and Rules:**

**a. **Punjab VAT Act:**
- **[Punjab VAT Act](https://www.punjab.gov.in)** provides the framework for VAT credits and deductions. Under the VAT Act, input tax credit on raw materials and other inputs used for manufacturing is generally allowed, subject to certain conditions.

**b. **Input Tax Credit Rules:**
- **Section 17 of the Punjab VAT Act** and related rules deal with the provisions for input tax credit. Refer to these sections for detailed rules and conditions applicable to ITC.

**c. **Circulars and Notifications:**
- **Check Circulars:** Refer to any circulars or notifications issued by the Punjab Sales Tax Department for any specific guidance or updates regarding ITC on inputs used in manufacturing.

By following these guidelines and ensuring that you maintain proper documentation, you can effectively claim the input tax credit on electrical items used for manufacturing machinery in Punjab, regardless of the VAT or CST rates applied to the final sale of the product.