Vat credit for tax paid in construction of windmill

[Asked by 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.

AI Summary

Input VAT credit denial when inputs generate VAT-exempt electricity, even if electricity is used in manufacture of taxable goods.
Where electricity is VAT-exempt, inputs used to generate that electricity are not eligible for input VAT credit even if the electricity is consumed as captive power in manufacturing taxable products; this approach is applied under Orissa and Jharkhand VAT, while other states depend on their VAT statutes.