ITC on capital goods not to be reduced to 4% when tax on the same is paid at 12.5%-Punjab VAT Tribunal

Punjab VAT Tribunal has held in L.S. Rice Exports Pvt. Ltd. vs State of Punjab (2013) 45 PHT 597 (PVT) that reduction of input tax credit on capital goods from 12.5% to 4% when the purchases made by the assessee are on 12.5% is not sustainable. So the assessee is entitled to full ITC.

In this case designated officer while framing assessment observed that the appellant dealer in his return had wrongly claimed ITC on capital goods and also wrongly carried forwarded the ITC from previous year on the same goods.It accordingly, invoked interest and penalty provisions of the Act and also reduced the ITC on capital goods from 12.5% to 4%.

DETC(A) in its appellate order also observed that provisions of section 13 and Rule 19 of the Act do not restrict the ITC on capital goods. However instead of deciding the appeal, DETC(A) remanded the case to the Designated officer.

On further appeal Tribunal held as under:

"Obviously, he has agreed in principle that the spirit of the aforementioned provisions of law do not restrict the ITC on capital goods. To my mind, the Deputy Excise and Taxation Commissioner (A), Patiala division, Patiala could have disposed off the matter one way or the other at his own level instead of remanding it back to the Designated Officer. It is held that the Designated Officer has misdirected himself by reducing the ITC on the capital goods from 12.5% to 4% on the purchase of capital goods when the appellant-assessee has paid 12.5% tax on the purchase of such goods. In the given circumstances, the appellant-assessee is entitled to claim full I.T.C., as the provisions of section 13 and Rule 19 referred to above, do not impose any restriction in allowing the ITC on purchase of capital goods. Of cource, in view of Rule 19 ibid, the cut on pro rate basis would be applied, while allowing ITC on purchase of capital goods, if such goods are partially used for manufacture of taxable goods and partially for tax free goods or for job work."


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