tnvat credit on lease rental charges-reg

[Ramakrishnan Seshadri]

Dear Sir,

We are purchasing lpg for manufacturing our finished products. For storage of the lpg the supplier has supplied storage tanks for storing the lpg. For this they are charging lease rental charges and charging vat 14.5% under tnvat.

Our question is whether the vat paid on this lease rental charges is eligible for vat input credit under tnvat.

Awaiting the reply.

Thanks and REgards,

S.Ramakrishnan.

[YAGAY andSUN]

Dear Ramakrishnan,

As per the Rule 10 of the TNVAT Rules, on capital goods, you can avail Input Tax Credit. If storage tank is capitalized in your financials, then, you can avail the input tax credit. Further, In respect of capital goods purchased within the State, the registered dealer shall be entitled to avail up to fifty per cent of the input tax credit in the same financial year and the balance of the input tax credit before the end of the third financial year, provided the said capital goods are in possession of the dealer. After the expiry of the third financial year, the un-availed input tax credit, if any, shall lapse to Government:

Regards,

SameerMalhotra- Consultant

YAGAY and SUN - Management, Business and Indirect Tax Consultants

[Ramakrishnan Seshadri]

Dear Sir,

Thanks for your reply.

For your information we have not purchased the storage tanks. The supplier supplied to us on lease rent. For that lease rent only they have charged tnvat.

Awaiting your reply.

Thanks and REgards,

S.Ramakrishnan.

[YAGAY andSUN]

Dear Ramakrishnan,

It seems your matter falls under the Section 2 (33) iv of the TNVAT Act,2006 and goods are being used for storing of LPG which is in turn being used for manufacturing of goods intended for sales. Hence, in our opinion, you can avail the Input Tax Credit on such Storage Tanks.

Regards,

SameerMalhotra- Consultant

YAGAY and SUN - Business, Management and Indirect Tax Consultants

AI Summary

Input tax credit on leased storage tanks allowed where tanks are used in manufacturing, subject to TNVAT capital-goods conditions. VAT charged on lease rentals for storage tanks used to store LPG for manufacturing may qualify as input tax credit under TNVAT because the tanks are goods used in the production process. Credit availability is subject to the capital-goods/production-use principles in the TNVAT credit framework and to any phased utilisation rules applicable to capital-type assets, even where the asset is leased rather than purchased.