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Conditional Input Tax Credit Allowed to the Buyer


The Commissioner of Sales tax, has recently issued Circular 8T of 2012, dated 21 June 2012 'the Circular' regarding claim of input tax credit 'ITC' under the provisions of the Maharashtra Value Added Tax Act, 2002 'MVAT Act'. The Circular reiterates the conditions for grant of ITC and lays down the Revenue's approach to ensure compliance in this regard. Taxand India discusses whether the contents of the circular will have significant effect on the revenues of genuine dealers in the state.

The Circular is a consequence of a recent ruling of the Bombay High Court 'the Court' in the case of Mahalaxmi Cotton Ginning Pressing and Oil Industries 'Mahalaxmi case'. The Court upheld the constitutional validity of Section 48(5) of the MVAT Act which provides for set-off of ITC only if tax is actually paid by the supplier of goods into the Government Treasury.

Taxand India discusses the consequences of a recent ruling in more detail

Taxand's Take

This is an important ruling by the High Court in respect of a long standing battle between dealers and the Revenue in the State of Maharashtra. It is a shot in the arm of the Revenue which is grappling with a staggering Rs 54,000 crores worth of refund claims of which the Revenue estimates Rs 1,000 crores to be in respect of 'hawala' transactions.

While the Circular will cause hardships to genuine dealers in grant of set off/ refund, it will certainly go a long way in plugging the hole on claims by unscrupulous dealers. The VAT legislation in Delhi has similar language (for claim of set-off/ refund) as that in the MVAT Act. The VAT laws in Gujarat, West Bengal, Kerala, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh, Orissa etc, provide for ITC if the amount of tax is paid to the selling dealer. The Revenue authorities in these States may seek to deny ITC to dealers applying the principles laid down in the Mahalaxmi case.

Another important consideration is that the State of Maharashtra, unlike most other states does not permit carry forward of ITC to the next financial year; any excess ITC should necessarily be claimed as a refund. This restriction impacts the cash flow of the taxpayer, an issue which will be further aggravated by the Circular.

Your Taxand contact for further queries is:
Mukesh Butani
T. +91 124 339 5010


Taxand's Take Author