Reversal on input tax credit on capital goods under Tnvat act

[THYAGARAJAN KALYANASUNDARAM]

Dear expert,

one of my manufacturers of automobile components and related goods. They have purchased capital goods and which is used for producing finished taxable goods. In the financial year 2014-15 they have sold goods within the state as well as interstate sales. The sales tax authority reverse the input tax credit proportionately towards cst sales.

my question is even reversal of itc even applicable to capital goods?

[JSW CEMENTLIMITED]

Dear Mr. Thyagarajan,

The proviso to SEction 19 subsection (6) reads as under:

(6) No input tax credit shall be allowed on purchase of capital goods, which are used exclusively in the manufacture of goods exempted under section 15. 2

[Provided that on the purchase of capital goods which are used in the manufacture of exempted goods and taxable goods, in put tax credit shall be allowed to the extent of its usage in the manufacture of taxable goods in the manner prescribed.]

Accordingly you will have to reverse proportionate input tax credit availed on Capital Goods.

[THYAGARAJAN KALYANASUNDARAM]

Dear sir,

In our case all the goods which are manufactured by our customer is all taxable goods only. There is no question of reversal would arise sec 19(6) of Tnvat act since no exempted goods are produced by our client and the sec 15 is not applicable. But the sales tax authority invoking sec 19(5)(c) and 19(2)(v) reverse the input tax credit to the extent the sales made to outside the state during the financial year 2014-15. Even as per the sec 19(3) clearly says that if the goods are taxable one then there is no question of reversal. Whereas the sales tax authority is interpreting our case invoking 19(5)(c) and 19(2)(v). If any citation to support this eligibility of input kindly share.

[JSW CEMENTLIMITED]

Dear Mr. Thyagarajan

I am extremely sorry to misunderstand the question raised. The Section 19(5)(c) and 19(2)(v) of TNVAT as referred by the Sales Tax authorities have been omitted by Act No.5 of 2015 Tamil Nadu Value Added Tax (Amendment) Act, 2015 dated 31st March 2015. As such, you can fight with them based on the provisions of Section 19(3)(a) of TNVAT

[THYAGARAJAN KALYANASUNDARAM]

Dear sir,

These transactions are during the financial year of 2014-15. Not after the 1.04.2015.

[Ganeshan Kalyani]

Sir, from one of the article of Sri Mariappan Sir, i am representing the relevant para for your reference.

There is no provision for reversal of credit on capital goods. The credit on capital goods shall be availed up to 50% in the same financial year. In subsequent year (i.e., in the second and third year) he can avail the balance 50% of credit on capital goods provided the capital goods are in the possession of the dealer. Therefore even after availing the balance credit on capital goods, if the dealer sells or transfers the capital goods there is no requirement of reversal of credit, in my opinion.

Thanks.

[JSW CEMENTLIMITED]

Sir,

Section 19(5)(c) talks of goods sold as such or goods used in manufacture of other goods (Goods other than the goods specified in the Registration certificate) in the course of interstate trade. Thus reversal of credit citing this provision is completely ruled out as your client is manufacturing taxable goods (i.e. goods which are specified in the Registration certificate).

Section 19(2)(v) talks of input tax credit availability in the case of goods specified in the registration certificate sold in the course of Interstate transfer. Since, your client is producing taxable goods specified in the registration certificate, as such reversal on this account is also ruled out.

You can explain to the Sales tax authority both the provisions as above read with Section 19(3) and convince that no reversal is required in the case of Capital goods used in manufacture of Taxable goods sold within the state as well as sold in the course of Inter State Trade.

Thanks

AI Summary

Input tax credit reversal on capital goods: not triggered when capital goods produce taxable goods; contest reliance on omitted provisions. Proportional reversal of input tax credit on capital goods was contested where the manufacturer's capital goods were used exclusively to produce taxable goods but sales included interstate transactions. The tax authority invoked interstate-sale provisions to reverse credit; the dealer asserted those provisions do not apply because no exempt goods were produced and capital goods credit is allocated across years. A subsequent amendment omitted the invoked provisions, but the transactions predated that amendment; commentators advise challenging the reversal by relying on the rule limiting reversal to capital goods used for exempt goods and on allocation rules for capital goods credit.