Mfg.of Shoes.

[Ramesh Parmar]

We Mfg. Shoes, Vat rate of Mtl of shoes is @ 5% but the complete shoes rate is 12.5%. Our cost is including Labour. The difference of 7.5% can be adjusted or not.

[Rama Krishana]

When the VAT rate on material is 5% and VAT rate  on finished goods is 12.5%, you can take the full VAT credit of 5% and pay the balance amount of VAT. Where is the question of adjustment of 7.5%?

AI Summary

VAT credit: claim input tax on materials and pay the remaining output VAT on finished goods. When materials attract a lower VAT rate than the finished footwear, the manufacturer may avail full input VAT credit for tax paid on materials and must remit the remaining output VAT due on the finished shoes; any shortfall between input credit and output liability is payable by the manufacturer.