WELCOME
Delhi VAT Amendments
ON
INPUT TAX CREDIT
w.e.f. 01.04.2010
Rakesh Garg, FCA
Amendments in Rate of Tax
Four Entries – If the goods cost more than the
specified amount – higher rate of tax is attracted.
 Readymade
Garments
costing
more
than
5000/ Mobile
Phone costing more than 10000/-
 Writing
Instruments costing more than 1000/-
 Watches

costing more than 10000/-
Meaning of the term “costing”
What will happen if goods are sold inclusive of
tax, at a lump-sum price.

Amendments in ITC – A Glance
1.
No input tax credit on closing stock held at
the end of the tax period – Section 9(1) read
with Rule 6A(1)
2.
No input tax credit if output tax has not been
paid by the selling dealer – Obligation casted
upon the purchasing dealer and duty of
verification upon the A.A. – Section 9(2)(g)
read with Rule 6A(2) and 34(9)
3.
Restrictions on input tax credit if goods are
sold below purchase price, otherwise than in
normal circumstances – Section 10(5) read
with Rule 6A(3) & (4)
Scheme of DVAT
1. Buy materials against tax Invoice.
2. Claim ITC as per un-amended Section 9 without
any requirement of sale or put up for sale.
3. Refund u/s 38 is possible whether goods are
sold or not.
4. Carry forward of input tax is permitted u/s 11.
5. No condition that ITC will be restricted to the
extent of goods sold.
6. Simpler returns. Opening Stock and Closing
stock details not required to be given, no one to
one reconciliation to be done.
Scheme of DVAT
7.
No responsibility on purchasing dealers to
ensure tax payment by the selling dealer.
8.
No condition that ITC will not be allowed
unless selling dealer deposits the tax or law
fully adjusts by filing the correct return.
10. No stoppage of refund if selling did not
deposit the tax if tax invoice was available.
11. Goods can be sold at a price lower than the
purchase price – no questions asked.
Input Tax Credit – 9(1)
Amendment in Section 9(1)
“Subject to sub-section (2) of this section and
such conditions, restrictions and limitation as
may be prescribed, a dealer who is registered or
is required to be registered under the Act shall be
entitled to a tax credit in respect of the turnover
of purchases occurring during the tax period to
the extent of proportion of the goods which have
been put to sale in the course of his activities as a
dealer and the goods are to be used by him
directly or indirectly for the purpose of
making…………..”
Substituted for “where purchases arises”
Input Tax Credit – 9(1)

Rule 6A (1)
For the purpose of working out the
entitlement of tax credit under sub-section (1)
of section 9 of the Act of the extent of
proportion of the goods which have been put
to sale during the tax period, the input tax
credit on the closing stock available with the
dealer at the end of every tax period shall be
carried forward to the next tax period or the
following tax period or periods, as the case
may be, till such stock is sold by the dealer;
Input Tax Credit – 9(1)

Proviso to Rule 6A(1)
Provided that this sub-rule shall not prevent the
claim of refund of a dealer
- for sales already effected during the relevant tax
period or
- to a dealer who makes sales in the course of
exports out of
India,
- or in the course of inter-state trade and
commerce, or,
- in such cases where the dealer being a
manufacturer is required to make purchases of raw
materials taxable at a higher rate of tax, while the
sales of goods manufactured by him (not being
goods exempt under section 6 as specified in the
first Schedule to the Act) are taxable at the lower
rate under the Act.
Input Tax Credit – 9(1)
NO Adverse Impact on:

Dealers making Stock Inwards;

Dealers making Central Purchases;

Dealers making Imports; and

Dealers procuring goods on the basis of
confirmed orders.
Implications
In general, if the dealer is selling goods
locally only, and at a profit, he needs to
pay some tax to the Government every tax
period. That is, a tax on value addition.
Input Tax Credit – 9(1)

IMPLICATIONS

Meaning of the terms :

Put to sale

Proportionate

Significance of the Proviso to Rule 6A(1)

Do we require one-to-one correlation and
proper maintenance of tax rate wise stock
records mandatorily

Investment in closing stock goes up to the
extent of tax paid on such stock

Litigation might go up – Default assessment

Trading A/C of dealer will finalised by next 28th
April - Adjustments
Input Tax Credit – 9(1)

Maintenance of Stock Records:

Maintain comprehensive Stock Records showing:

Tax – Rate wise
 Local Purchases,
 Central Purchases,
 Transfer Inwards,
 Local Sales,
 Central Sale,
 Transfer Out.

Make calculation and valuation of stock at the
end of every tax period
Input Tax Credit – 9(1)

Practical Solution (Alternative Method)


It is practically impossible to value tax-rate
wise stock every month/quarter even if
stock records are maintained practically
Therefore, calculate the purchase
price of Sales and input tax credit on
closing stock on proportionate basis
– G.P. Ratio Method
Input Tax Credit – 9(1)
NATURE OF INFORMATION
SOURCE
 Tax Rate wise opening stock
Available
DVAT-16
in
 Tax – Rate wise purchase /
Inwards – Aggregate
Form DVAT-30
Last
 Tax – Rate wise Local Taxable Form DVAT-16
purchase – Aggregate
 Tax – Rate wise Sales /
Transfers – Aggregate
Form DVAT-31
 Tax – Rate wise cost of goods
sold/consumed –
Average of Last 2/3
years
(+) A FAIR & REASONABLE BASIS
Input Tax Credit – 9(1)

Proportionate Method - Complexities

Traders : To ascertain the tax rate wise cost
of goods sold
In case of stock transfers- Separate Transfer
Note to be prepared – Rate wise goods

Manufacturers : To ascertain the tax rate
wise cost of goods consumed.
Difficulty will further increase if number of
products with different sale price are
manufactured by the dealer.
Requires a fair and reasonable guess work,
which is also acceptable to the Department.
Input Tax Credit – 9(1)
TRANSITION PROVISIONS AS ON 1.4.2010:

Provisions came into force w.e.f. 1.4.2010

Eligible for refund or carry forward, as the
case may be, on stock as on 31.3.2010

Returns for tax period commencing 1.4.2010
– Show Opening Stock as NIL

Value tax-rate wise stock (at cost or market
value w.e.i. less) as at 31.03.2010 – Which
should also match with your Balance Sheet –
If wants to take benefit of carry forward on
such stock (held on 31.03.2010)
Input Tax Credit – 9(1)
PROCUREMENT POLICY:
 Segregate the purchases into
goods and slow moving goods



fast
moving
Make cost benefit analysis – CST burden vs.
Interest on ITC
If beneficial, make purchases from neighboring
States
In many cases, the dealer procures raw
material locally and transfers the majority of
manufactured goods from Delhi and reverses
ITC u/s 9(6) – Procure raw material from
NOIDA – neither section 9(1) [closing stock]
nor section 9(6) will be invoked – No hassles
Input Tax Credit – 9(2)(g)
Amendment in Section 9(2)(g) – New Clause:
No tax credit shall be allowed 
(g) to the dealers or class of dealers unless
the tax paid by the purchasing dealer has
actually been deposited by the selling dealer
with the government or has been lawfully
adjusted against output tax liability and
correctly reflected in the return filed for the
respective tax period.
Input Tax Credit – 9(2)(g)
Rule 6A(2)
Before allowing the claim of input tax credit
to a dealer, the assessing authority may
satisfy himself that the conditions laid down
in clauses (g) of sub-section (2) of section
9 of the Act are also satisfied.
Rule 34 (9)
Before allowing the claim for refund to a
dealer under section 38 of the Act, the
Authority concerned shall satisfy himself
that the conditions laid down in the clause
(g) of sub-section (2) of section 9 of the Act
are fulfilled.
Input Tax Credit – 9(2)(g)
IMPLICATIONS:
1. Burden of ensuring tax is paid shifted from
selling dealer to the purchasing dealer.
2. Implement issues - When seller and buyer are
having different tax periods
3. Not the responsibility of buyer to ensure the
above conditions but he has to face the
consequences. No control over the activity of
selling dealer
4. Perhaps ultra vires the powers of the State
Government as it changes the basic fabric the
VAT Legislations and also changes the concept
of sales tax as such, and moreover, impractical.
Input Tax Credit – 10(5)
Amendment in Section 10(5) – New Clause
(5)Where the goods which have been
purchased by dealer are sold at a price lower
than the price at which it was purchased by
the dealer, the tax credit on such purchases
shall be reduced proportionately in the tax
period during which the goods are sold.
Explanation – the credit claimed on a
particular purchase shall not exceed the
amount of tax payable on its sale.
Input Tax Credit – 10(5)
To reduce the rigour of Section 10(5) : Rule 6A(3):
The provisions of sub-section (5) of section
10 of the Act relating to proportionate reduction
of tax credit on purchases of goods sold at a price
lower than the purchase price shall apply to the
cases where, during the tax period, the dealer
receives credit note or notes from the selling
dealer on account of discount, commission,
rebate, remission in price or incentive, or by
whatever name called.
Input Tax Credit – 10(5)
Rule 6A(3)- contd..:
Explanation- For the removal of doubt, it is
hereby clarified that the provisions of sub-section
(5) of section 10 of the Act shall not apply to a
case where in the ordinary course of business the
goods are sold by a dealer at a loss.
Rule 6A(4):
In the cases where the sale has been made at
price lower than the purchase price in Pursuance of
the administered prices of the oil companies, that
is to say, Indian Oil Corporation, Hindustan
Petroleum Corporation Ltd. and Bharat Petroleum
Corporation Ltd. the provisions of section 10(5)
shall not apply.
Input Tax Credit – Form 16
(I)
Break-up of purchases in Column R6.2:
In
the revised Form DVAT-16, the dealer shall
give the break-up of all local purchases (taxrate-wise).
These
details might facilitate the assessing
authority to compare the tax-rate wise
purchases vis-à-vis sales from the return form
itself.
Input Tax Credit – Form 16
Annexure-2A & 2B of Form DVAT-16:
The
dealer shall also attach copy of month
wise summary of Sale and Purchase registers
maintained in Form DVAT-30 & 31 in Annexure2A & 2B of the Return Form DVAT-16.
This
should be reported dealer wise instead of
bill & date wise. Sale/purchase made from unregistered dealers may be reported in one row
for a month.
Input Tax Credit – Form 16
Annexure-2A & 2B of Form DVAT-16:
It
may be noted that the dealer has to furnish
the details of all local and central purchases and
sales, stock transfers inwards and outwards
and exports and imports in these Annexures.
A
special care is required, particularly to the
purchasing
dealer
while
providing
this
information since a wrong TIN of selling dealer
might deprive him from the benefit of input tax
credit.
Input Tax Credit – Form 16
Annexure-2A & 2B of Form DVAT-16:
Moreover,
the purchasing dealer must enter
his purchases in the month of purchase itself
(i.e. in the month in which, the selling dealer
has shown his sales in his DVAT-31on the basis
of date of invoice), to avoid any variance.
Since
dealers are providing summary only, it
will be difficult for the purchasing dealer to
reconcile in case of any discrepancy.
Amendments
OVERALL – TO CONCLUDE
Although the purpose of these amendments
is to plug the loop-holes and ensure the
better compliance of Law, but the manner in
which these have been brought, is certainly
impractical for the trade as well as
professionals, and moreover, is against the
basic scheme of VAT.
THANK YOU
Rakesh Garg, FCA
Ph: (011) 65960912-13, 9810216270