14 December 2013
If we talk about general principles relating to VAT, Set off of Input is allowed against Output VAT irrespective of rates of Input VAT and Output VAT. For. Eg. If a manufacturer is purchasing input Raw Material and making Finished goods out of that Raw material then he will be eligible to take the credit of VAT paid on Raw Material. As per your question 3 situations are possible: 1. VAT rate on Raw Material is less than VAT rate on Finished goods. 2. VAT rate on Raw Material is same as of VAT rate on Finished Goods. 3. VAT rate on Raw Material is more than VAT rate on Finished Goods.
These 3 situations are possible only if the purchaser is manufacturer and he is utilising the goods purchased for further production.
For dealer only situation no. 2 will be applicable as he is merely selling the purchased goods and hence rate will be same.
In case of situation no. 1 & 3, purchasing party will be eligible to take credit of VAT paid on purchase.. depending on the situation, there can be balance VAT payable or VAT refund which shall be accordingly dealt with....
However, few states have provided that if VAT rate on input is greater than VAT rate of Output then refund shall be allowed after retention i.e. some portion of refund amount shall be retained by department...
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