COMMERCIAL      TAX     DEPARTMENT  

 

 

ORISSA,   CUTTACK  

 

 

 

V A T     AWARENESS   PROGRAMME

 

 

 

 

 

U S E R   G U I D E  

 

 

 

 

INPUT  TAX  CREDIT  

 

 

 

 

Prepared for the use of tax-payers.

 

 

 

For details, please refer to the Orissa Value Added Tax Act, 2004 and  Orissa Value Added Tax Rules, 2005.

 

1.

 What is input tax?

            Input tax is the tax paid on purchases by a registered dealer in course of his business for,

        resale;

        use in the execution of works contract;

        use in processing or manufacturing; where such goods;

      directly goes into the composition of the finished products,

      are used as packing materials for packing of goods for sale,

      are consumables directly used in the process of manufacturing,

      are capital goods (other than those specified in schedule D) used directly in the process of manufacturing

 

2.

What is output tax?

            Output tax is the VAT charged on the sale of taxable goods by a registered dealer assigned with TIN and includes tax paid on purchase price or prevailing market price of goods subject to tax under the Orissa Value Added Tax Act, 2004

 

3.

What are the circumstances under which tax is levied on the purchase price or prevailing market price of the goods?

 

            Under the Orissa Value Added Tax Act, 2004, no goods have been specified for levy of tax on purchase price.  However, where no tax is payable or leviable on purchases / receipts and sales / dispatches of taxable goods (other than zero rate sales), the purchase price of such goods is subject to tax at the rate applicable.

Example:        Taxable goods purchased from an unregistered dealer, used in the manufacture of tax free goods and finished products are sold.  Here the purchase and the sale both are not subject to tax.  Hence, purchase price of the taxable goods is taxed.

 

4.

What is input tax credit?

            Input tax credit is setting off of the amount of input tax for any tax period against the amount of output tax by a registered dealer assigned with TIN.

 

5.

Who is entitled to claim input tax credit?

            A registered dealer assigned with TIN is entitled to claim input tax credit.

 

6.

What are the conditions of eligibility of input tax for credit?

        The purchasing dealer or the dealer availing input tax credit must be a registered dealer assigned with TIN.

        Purchases must be in respect taxable goods other than those specified in schedule C.

        Purchases should be made within the State.

        The evidence for claiming input tax credit i.e. the Tax Invoice issued by the selling registered dealer assigned with TIN is available.

7.

Can one claim input tax credit on all purchases?

            No.

            Only taxable goods purchased for,

a)      sale or resale inside the State,

b)      sale in course of inter-state trade or commerce,

c)      sale in course of export out of the territory of India,

d)      sale to a dealer under

                                                         i.            SEZ (special economic zone),

                                                       ii.            STP (software technology park),

                                                      iii.            EHTP (electronic hardware technology park),

e)   sale to a EOU (export oriented unit),

f)    use as container or packing materials for taxable goods intended for sale,

g)   use as raw materials for manufacturing, when such raw materials goes into the 

      composition of the finished products,

h)   use as consumables directly used in the process of manufacturing,

i)    use as capital goods (other than those specified in schedule D) directly for the purpose of manufacturing,

j)    use in the execution of works contract.

shall be eligible for input tax credit.

8.

What are the other circumstances under which input tax credit is available?

                                 i.            Input tax credit is available on the opening stock as on 01.04.2005 purchased within one year of this date i.e., between 01.04.2004 to 31.03.2005.

                               ii.            Input tax credit is available for stock held on the date of registration, which has been purchased within three months of such date.

9.

Under what circumstances capital goods are not eligible for input tax credit?

            Capital goods as specified in schedule D  and capital goods other than those directly used in the process of manufacturing are not eligible for input tax credit.

10.

What are the circumstances under which input tax credit is not available?

            No input tax credit shall be allowed to a registered dealer assigned with TIN for the following purposes.

a)      purchases of taxable goods for sale, if given away as free sample, gift or free of cost;

b)      purchases made by a dealer under the composition scheme;

c)      capital goods purchased prior to 01.04.2005 or for purposes as specified in schedule D;

d)      purchases made outside the state against the tax paid in that State;

e)      purchases made in course of inter-state trade or commerce against central sales tax paid;

f)        purchases made inside the State for sale, if goods so purchased are

                                                         i.            lost, or

                                                       ii.            destroyed, or

                                                      iii.            damaged;

g)      purchase of goods which remain unsold at the time of closure of business;

h)      purchase of taxable goods used in the manufacture of tax free goods;

i)        purchase of goods from a dealer whose certificate of registration has been suspended;

j)        purchase of goods as specified in schedule A;

k)      purchase of goods as specified in schedule C;

l)        purchase of goods in respect of which tax invoice is not issued by the seller or the tax invoice issued has been lost.

 

11.

How does one claim input tax credit when sales are both tax exempt and taxable?

 

            The claim of input tax credit shall be proportionate to the taxable sales.

12.

What is the evidence to claim input tax credit?

            Tax invoice in original issued by the selling registered dealer is the evidence to claim input tax credit.

13.

How input tax credit shall be claimed when taxable goods are used to manufacture tax free goods or both taxable and tax free goods?

 

            When taxable goods are used for the manufacture of tax free goods, no input tax credit is available.

            When taxable goods are used for the manufacture of both taxable  and tax free goods, input tax credit proportionate to the sale of taxable goods shall be allowed.

14.

Can one claim input tax credit on transfer of stock otherwise than by way of sales outside the State?

 

            Yes.

            But input tax credit shall be allowed in excess of 4% only.

15.

How does one claim input tax credit?

            Input tax credit is claimed in the return furnished for each tax period i.e. a month.

            Tax paid on purchases eligible for credit is deducted from the tax payable on sales for any tax period according to the return furnished and the balance is paid along with the return.

            If the deduction results in zero-balance or negative balance, no tax is payable or the balance amount is refundable.

            The amount found refundable is carried forward for 24 consecutive tax periods for adjustment.

 

FOR FURTHER INFORMATION OR CLARIFICATION, PLEASE CONTACT LOCAL OFFICE.

 

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