Vat Input Credit

This query is : Resolved

Vishal Sharma (Querist)
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04 December 2010
Querry: Branch purchases goods (which is in State A) and after processing transfer it as raw material to H O (which is in State B). H O received goods from branch and also from outside parties. After that H O processes material received from Branch and outside parties into finished goods and transfer the Finished goods to Branch and also make sales from H.O. located in state B. Branch receives Finished Goods from H.O and make sale in state A (where it is located) and pays vat output.

Question: Can Branch avail Vat input credit on goods purchased?
Answer also if percentage of Raw Material of Branch and of outside parties in Finished Goods is not Known, then vat input is availed to what extent?

Amit Bajaj

Amit Bajaj (Expert)
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05 December 2010 Branch will be allowed input tax credit on the raw material purchased by it against the output tax payable by it on the finished goods received from the head office.

However if we consider Punjab VAT Act then the input tax credit to the B.O. will be allowed only to the extent by which the amount of tax paid in the State exceeds four percent on purchase of goods that is to say if tax paid on raw material is 12.5% then ITC will be available only @ 8.5% in view of section 13(2) of PVAT Act since the raw material purchased after processing is disposed of as branch transfer outside the state i.e otherwise than as sales.

I think seperate accounts should be prepared for the goods received from B.O and goods received from other parties.