EFFECTS OF NOTIFICATION DATED 15.11.2013 ON INPUT TAX CREDIT WHICH IS APPLICABLE FROM 01.04.2014

Input tax credit is the amount which every taxable person who fulfills the conditions is entitled the claim the benefit of same while discharging his output tax liability. In other words, it can be said that after calculating the figure of Output tax liability the taxable person is liable to deposit the tax by deducting the figure of Input tax credit which taxable person avails under different circumstances which is explained as under:

(a)               INPUT TAX – As per Section 2 sub-clause (o) of the Punjab Value Added Tax Act, 2005, “input tax” in relation to a taxable person means value added tax (VAT), paid or payable under this Act by a person on the purchase of taxable goods for resale or for use by him in the manufacture or processing or packing of taxable goods in the State.

(b)               INPUT TAX CREDIT – As per Section 2 sub-clause (p) of the Punjab Value Added Tax Act, 2005, “input tax credit” means credit of input tax (in short referred to as ITC) available to a taxable person under the provisions of this Act.

o    Input tax includes tax paid on:

(i)                    Purchases of raw material;

(ii)                  Goods purchased for resale;

(iii)                Purchase of capital goods such as machinery or equipment for use in business;

(iv)                Tools and accessories used in business; and

(v)                  Packing material for resale and use in manufacture

o    Input tax credit or set-off is the allowance of input tax against the tax payable on the sale and purchase of goods.

o    Net VAT payable by a taxable person is equal to the output tax payable less available input tax credit.

o    for use in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-State trade or commerce or in the course of export.

Now the Excise & Taxation Department has introduced new amendment in Section 13(1)  w.e.f. 01/04/2014 which has changed the concept of availing the Input tax credit

After Amendment

Section 13(1) lays down as under:

13.  (1)   A taxable person shall be entitled to the input tax credit, in such  manner and subject to such conditions, as may be prescribed, in respect of input tax on taxable goods, including capital goods,  purchased by him from a taxable person within the State during the tax period:

"Provided that the input tax credit shall not be available as input tax credit unless such goods are sold within the State or in the course of inter-state trade or commerce or in the course of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-state trade or commerce or in the course of export."

Prior to Amendment

13.  (1)   A taxable person shall be entitled to the input tax credit, in such  manner and subject to such conditions, as may be prescribed, in respect of input tax on taxable goods, including capital goods,  purchased by him from a taxable person within the State during the tax period:

Provided that such goods are for sale in the State or in the course of inter-State trade or commerce or in the course of export or for use in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-State trade or commerce or in the course of export:

By virtue of this amendment the taxable person can only avail the input tax credit when such goods are sold or used in the manufacturing processing of taxable goods mean for sale.

EFFECTS OF THIS AMENDMENT

The major effect of this amendment is on every business community as earlier while calculating the output tax liability. The taxable person deducts the value of Input tax credit by considering the goods which were lying in the stock but now taxable person cannot avail the Input tax credit for the goods which were lying in the stock unless such goods are sold or used in manufacturing or processing.

Conclusion

No doubt that government will get the revenue immediately instead of getting two or three month later but this change will effect the trade circles as every dealer has to maintain more records for maintaining such type of cumbersome accountability which will ultimately create problems both for the dealers as well as for the officers   who has to keep check and to frame assessments.

Authored by

J S Bedi Advocate