NOTE ON INPUT TAX
CREDIT AVAILMENT UNDER TNVAT ACT
(As amended with
effect from 29/01/2016)
by STVAT Consulting Team
The amendments relating to availment of Input Tax Credit by the
Tamil Nadu Value Added Tax (Second Amendment) Act, 2015, is
presented in this note.
A. Obligation to
ensure that the selling dealer has paid the tax charged in the
Hitherto Section 19(1) provided for
availment of Input Tax Credit ( ITC) on purchase of eligible goods
of the tax “paid or payable”. This is amended deleting the
Further the proviso has been amended
stipulating that the dealer availing ITC shall establish that the
tax due on purchase of goods has actually been paid by the
registered dealer who sold such goods and that the goods have
actually been delivered.
The amended Section 19(1) reads as
There shall be input tax credit of
the amount of tax paid under this Act, by the registered dealer to
the seller on his purchases of taxable goods specified in the First
Provided that the registered
dealer, who claims input tax credit, shall establish that the tax
due on purchase of goods
has actually been paid in the manner prescribed by the registered
dealer who sold such goods and that the goods have actually been
Two conditions specified are
(i) The dealer availing ITC shall
establish payment of tax by the selling dealer and
(ii) The goods should have been
received by / delivered to the dealer availing ITC
This applies to procurement of capital
goods as well.
The amendment providing for ITC of
only “tax paid” gives an impression that ITC can be availed only
after the value of goods procured and tax thereon has been paid.
We are of the view that ITC may be
continued to be availed as at present on accounting of the invoice
and we understand that the accounting would happen only after the
goods have been received. i.e ITC cannot be availed based on the Tax
Invoice before the receipt of the goods.
We are of the view that intention of
the amendment is only to ensure that ITC is not availed on bogus
invoices and that the selling dealer has declared the sales in his
return and has also paid the tax thereon.
This view is based on
a) Clause (d) of the statement of
objects and reasons of the TNVAT Act Amendment Bill which states
that the amendment is to provide for
allowing input tax credit only to the extent of the tax paid
to the exchequer by a registered dealer to another registered dealer
on the purchase of goods including capital goods in the course of
his business, only when such tax actually been paid by the
registered dealer who sold such goods, so as to curb undue claims
towards input tax credit resulting in tax evasion; and
b) Newly inserted sub rule 2-A of Rule
10 only casts an obligation on the dealer availing ITC to establish,
whenever it is deemed necessary by the assessing authority that the
tax due on such purchase of goods has actually been remitted into
the Government account.
Rule 10(2-A) reads as follows:
“(2-A) Every registered dealer who
claims input tax credit to the extent of the tax paid on purchases
of taxable goods specified in the First Schedule to the Act from the
other registered dealers inside the State, shall establish, whenever
it is deemed necessary by the assessing authority, that the tax due
on such purchase of goods has actually been remitted into the
Though we have to await the
clarification of the CT Department on whether the intention of the
amendment is to provide for availment of ITC only after the value of
goods invoiced and tax thereon is paid, for the reasons stated
hereinabove, it appears to us that ITC may be availed on receipt of
the goods and accounting in the books of accounts, though the
payment may happen in a later month.
In the event of any stipulation of
availment of ITC only on the payment of the bill of the vendor, the
possible exposure could be liability to pay interest from the month
of availment to the month of payment of the invoice of the vendor.
We shall update as and when the issue
B. Penalty for wrong
availment of ITC increased to 300% of ITC wrongly availed (Section
Hitherto the penalty for wrong
availment of ITC is 50% of ITC wrongly availed in the case of first
detection and 100% of ITC wrongly availed for subsequent detection.
Extract of Section 27(4) of the TNVAT
Act, as substituted reads as follows:
"(4) In addition to the tax determined
under sub-section (2), the assessing authority shall direct the
dealer to pay as penalty a sum which shall be three hundred per cent
of the tax due in respect of such claim:
It is to be noted that incorrect
reversal of ITC with reference to Stock transfer and omission to
reverse other ineligible credit would also be construed as wrong
availment of ITC.
We are sure proper internal control on
availment of ITC is in place but still we thought it appropriate to
highlight the following safeguards:
1. Purchase function to ensure proper
due diligence on the regulatory compliance culture of the vendor.
2. To exercise greater care on
availment of ITC on cash purchase for any immediate requirement and
preferably to have an approved list of vendors for cash purchase.
3. Accounts function to ensure that
ITC is availed only on eligible purchase and that reversal of
ineligible ITC is correct month on month. To verify that the
vendor’s TIN (validated from the CT department website),
particularly for cash purchase and your TIN is correctly noted in
the Tax Invoice.
4. To download every month diligently
the Report of Purchases/Sales mismatches from the commercial taxes
portal and reconcile.