Claim for ITC

[Mohd Shariq]

Sir,I am purchasing construction material from unregistered dealer and reselling to registered dealer and I am paying tax on purchase also so can i claim ITC on sale?

[RAM AVTAR]

No ITC is available only on the basis of Valid Tax invoice. You are liable to pay tax on your entire sale without availing ITC

[CSSANJAY MALHOTRA]

Dear Mr. Shariq,

Please refer to VAT Act of your state as most of the states have provisions incorporated that the benefit of Purchase Tax is available in case of purchase from unregistered dealer provided the final product is taxable. (Set off can be made to have Revenue Neutrality)

Some states have provisions in the VAT Act that if the final product is exempt from tax in any circumstances, then credit of Purchase Tax is not admissible.

[Ganeshan Kalyani]

In the state of Andhra Pradesh purchase tax is applicable on purchases made from unregistered dealer and subsequently input credit is also allowed provided the final product is taxable.

[YAGAY and SUN]

Dear Mohd Shariq,

Please refer Section 5 (Levy of Tax on turnover of purchase) read with Section 13 (Input Tax Credit) meticulously. In our view since you are paying purchase tax and disposing such goods within State on payment of tax, therefore, you are eligible to avail the Input Tax Credit. Please also do contact with Concerned Authority in this regard for cross check on this matter.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[CS RAHUL AGARWAL]

Sir,

I am unable to understand as to why is buyer paying tax on purchase when it is being made from unregistered dealer ? How can an unregistered dealer collect tax and what would would such unregister dealer do with the tax if it is collecting from buyer, when such unregistered dealer is not liable to deposit it with department ?? Even if such unregistered dealer collects tax from buyer (querist in this case) he cannot issue taxable invoice with an evidence of tax collected and most of all the invoice being issued by such unregistered dealer reflect only ex-duty price. Please explain

[CSSANJAY MALHOTRA]

Dear Mr. Rahul,

Issue is entirely different here. Unregistered Dealer is not collecting any tax. Purchase Tax is being paid by Buyer in case of purchase from unregistered dealer in the Reverse Charge Mode as the provisions of law.

[CS RAHUL AGARWAL]

Dear Sanjay Sir,

Ok. I got it now. Its "Purchase Tax" over here in query. Thank you so much Sir for the clarification.

[SURESH ASTEKAR]

Dear Mohd Shariq

If you are in Uttar Pradesh, you are entitled to input tax credit (ITC) as long as you are registered dealer. Section 2(p) (ii) of UPVAT Act clearly provides for the same.

(p) "input tax" in relation to a registered dealer who has purchased any goods from within the State, means the aggregate of the amounts of tax, - (i) paid or payable by such registered dealer to the registered selling dealer of such goods in respect of purchase of such goods; and (ii) paid directly to the State Government by the purchasing dealer himself in respect of purchase of such goods where such purchasing dealer is liable to pay tax under this Act on the turnover of purchase of such goods. Provided that tax paid or payable in respect of transfer of right to use any goods shall not form part of the input tax.

Hope this answers your query.

[YAGAY and SUN]

Yes, the query was in relation to the UPVAT Act and we had in our reply referred the relevant Sections of UPVAT Act in this regard.

AI Summary

Input tax credit may be available where purchase tax is paid directly under reverse charge, subject to VAT Act conditions.
Claiming input tax credit for purchases from unregistered dealers hinges on statutory provisions and documentary proof: while a valid tax invoice is generally required, several State VAT Acts treat tax paid directly by the purchaser as purchase tax and include such payments within the definition of input tax, permitting ITC where the subsequent sale is taxable and statutory conditions and procedures are met.