Vat credit for tax paid in construction of windmill

[Guest]

Dear members,

The facts of the case are as below:

A Ltd. has given the contact for construction of wind mills to B Ltd.

B Ltd. supplies materials on which it has charged local VAT.

The elctricity generated is intially sold to electricity distribution company and this company inturn gives the credit of electricity generated to A ltd. in its monthly bill. A ltd. consumes this electricity in generation of taxable products. 

Can A ltd. claim the credit for input VAT paid against its output tax liability.

Two things are to be noted here:

 As the input VAT is paid for geneartion of electricity which is not taxable output under VAT, input VAT credit shall not be allowed.

However, as the A ltd. is using this in manufacture of final taxable product as a captive, Credit can be allowed.

 Please guide whether input VAT credit can be allowed to A ltd.

[CA Rachit Agarwal]

Unlike Cenvat Credit Rules 2004. input credit is not be allowed even though the power is used for captive purposes which is taxable product. As the power is exempted from vat, hence the inputs used for the purpose of generation of power would not be eligible for the input credit tax.

The above opinion is applicable in case of Orissa Vat and Jharkhand Vat. As regarding the other states, it depends upon the Vat Act prevailing on that state.

Conclusion: A will not be eligible for the ITC

AI Summary

A Ltd. Ineligible for Input VAT Credit on Windmill Power Generation Due to VAT Exemption in Orissa and Jharkhand Laws. A company, A Ltd., contracted B Ltd. for the construction of windmills, with B Ltd. charging local VAT on supplied materials. The electricity generated is initially sold to a distribution company, which credits A Ltd. in its monthly bill. A Ltd. uses this electricity to manufacture taxable products. The query is whether A Ltd. can claim input VAT credit against its output tax liability. The response indicates that input VAT credit is not allowed for power generation, as electricity is VAT-exempt, and this applies specifically to Orissa and Jharkhand VAT laws. A Ltd. is not eligible for input tax credit.