eligibility of tnvat credit on cranes and spares for cranes

[Ramakrishnan Seshadri]

Dear Sir,

We are the manufacturers of automobile parts in Irungattukottai.

We are using injection moulds for manufacturing our parts.These moulds can only  be lifted by overhead cranes  for use in the injecting machine to  manufacture  parts. The cranes were purchased locally on  charging vat. We have taken 50 percent credit treating as capital goods under tnvat.  During the sales tax assessment the department has objected that for cranes  and spares for cranes the vat is not eligible. They asked us to reverse the same and pay penalty for this.

The department is saying that as per section 2(11) capital goods definition says ' if it is  used for the purpose of manufacture,packing,processing or storing of goods in the course of business'.

As per the department the cranes is not manufacturing any  part and they  are not eligible for vat credit.

Could any body suggest whether we can take tnvat credit eligible for  cranes and spares for cranes.

Regards

S.Ramakrishan.

[YAGAY andSUN]

Dear S. Ramakrishan,

You would have to establish nexus between the cranes and manufacturing process.  As reiterated by you that without crane it won't be possible to lift the moulds and without moulds automotive parts cannot be manufactured.

Please also have a look on the Negative List of articles on which ITC cannot be availed and claimed under TNVAT Act.

Do also check the clarifications, DDQs and Advance Rulings in this regards which are available on the TNVAT Department's website.

Regards,

Team YAGAY & SUN

(Indirect Tax Consultants)

[Mahir S]

I assume that the sales tax department denied credit on the ground that the cranes were used for in relation to the manufacture of finished goods and not directly for the manufacture of finished goods.

[Ramakrishnan Seshadri]

Dear Sir,

Thanks for the replies.  The tnvat clarification  says that hoists and cranes are not capital goods vide tnvat  .Lr. No. VAT Cell / 42192/2007 (VCC No.1168 ) dated 31.8.2007Lr. No. VAT Cell / 42192/2007 (VCC No.1168 ) dated 31.8.2007. After this any other clariification is available. But the capital goods definition says plant and machinery,equipments can be treated as capital goods. Is this correct.

Thanks

S.Ramakrishnan

[RENGARAJ R.K]

Dear S Ramakrishnan,

Under TNVAT Act, Cranes and its spare parts are not considered as capital goods and hence they are not an eligible input to claim.   After the Advance Ruling given in the year 2007, there is no fresh clarification issued by the CCT, i believe.

regards,

rengaraj mcom mba llb 

advocate and tax consultant

[Guest]

Kindly go through TNVAT Website ACAAR_141_151(13_14) dt. 10/07/2014

AI Summary

Input tax credit eligibility for cranes questioned; departmental ruling treats cranes as non-capital goods, affecting credit claims. Eligibility for TNVAT input tax credit on overhead cranes and spare parts depends on whether they qualify as capital goods used in manufacture; the department treated cranes as not qualifying and disallowed credit, citing the capital goods definition, while commentators advised establishing factual nexus to production, reviewing the TNVAT negative list and existing departmental clarifications and advance rulings.