Input Tax Credit

[RAMASWAMY KRISHNAIYER]

Under the state VAT Act, for availing input tax credit (ITC), the sale should be from one registered dealer to another registered dealer.

By virtue of specific explanation in the definition of dealer a financing company selling pledged ornaments is a deemed to be a dealer, hence such a sale is taxable.

In the past RBI permitted self purchase of such pledged ornaments by the financing company themselves. Even this is accepted in the decision of Hon'be Supreme Court in Karnataka Pawn Brokers Association.

Subsequent to the purchase this gold is sold and tax is collected.

In this background kindly advise whether Input tax credit is available to such financing company.

AI Summary

Financing Company Can't Claim Input Tax Credit When Self-Purchasing Pledged Ornaments; Sales Must Be Between Dealers A query was raised regarding the availability of input tax credit (ITC) for a financing company selling pledged ornaments under the state VAT Act. The discussion highlighted that for ITC eligibility, sales must occur between registered dealers. A financing company selling pledged ornaments is considered a dealer, making such sales taxable. However, the financing company's self-purchase of pledged ornaments, as previously permitted by the RBI and upheld by a Supreme Court decision, does not qualify as a sale under the VAT regime. Therefore, ITC would not be available for such transactions.