Sec 11 (a) , Sec 11(b) , Sec 11 (c) and Sec 13 of Karnataka VAT Act, 2003 deal with Input Tax restriction on Purchases . There are two types of restrictions

  1. Transactions and Goods in respect of which Input tax is completely inadmissible
  2. Transactions and Goods in respect of which partial deduction is admissible

Let us try to understand the First case i.e. Complete Input Tax restrictions which is Inadmissible 

Complete Restriction 

  1.  Input Tax paid on all TAXABLE Goods put to use in the business of EXEMPTED GOODS specified in First Schedule and the goods specified in the notification issued under Sec 5(1)
    Exception :- When such goods are used in business of export
  2. Input tax paid on Fifth schedule goods Sl no 1,2, 4, 5 - when such goods are put to use in business 
    Exception :- When such goods are for RESALE / USED IN PROCESSING OF GOODS FOR SALE
    1. Motor vehicles, Aero planes, Helicopters and their accessories Food, Drinks, Fruits, vegetables, tobacco etc
    2. Textiles, Crockery, cutlery, carpets, paintings, Artifacts
    3. Furniture, slotted angles, Stationery articles, Cement, Construction materials, Sanitary fittings

  3. Input tax paid on Fifth Sch Sl no 3 Goods  - when put to use in business
    Exception :- When used for resale OR processing or packing or storage or When used for Computing/Issuing Tax invoices , storing information etc
    Ex :- Electrical/Electronic Goods like AC, telephone, fax, Xerox machines, etc

  4.  Input Tax paid on Goods specified in Not no FD 116 CSL 2006 even if used in business of taxable goods
    Ex:- 1. All taxable goods used in business of liquor, narcotics, and rectified spirits etc
    2. Cement used in Business of Pipes & Fittings and Cement Bricks
    3.  Naptha used in manufacture of any goods
    4. All goods used in business relating to denatured spirits, denatured anhydrous alcohol, ethyl alcohol except when used in Business of Molasses and when used for resale of Denatured spirits

  5. Input tax paid on Purchase of capital goods other than 1 to 4 above
    Conditions: - 1. No deduction for CG purchased before 1-4-2005
    2. No deduction to dealer of Exempted Goods
    3. For Exporters, ITC on CG is available only after Export, For new units - only after commencement of business, Others- after sale of taxable goods

  6.  Purchase tax paid on Purchase of Fuel from URD

  7. Purchase tax paid on Purchase of any taxable goods other than fuel until such goods are resold/used in manufacturing  and the manufactured goods are sold and output tax is payable thereon

  8. ITC can’t be claimed by Purchasing/Selling Commission agent for goods purchased on behalf of resident principal

  9. Principal Contractor cannot claim ITC paid to Sub-contractor if Principal contractor claims deduction of amount paid to sub-contractor in valuation of Works contract.

  10.  ITC on purchases made 3 months prior to date of Vat registration. And Also ITC can’t be claimed on goods which are not actually held as stock as on the effective date of registration.

  11. Input tax paid on fuels used in Motor vehicles.

Posted 2 years, 5 months ago by Half-God Half-Man

Can you please explain point number 8 as it is very much practical since much of the work is nowdays done on commission based?

Posted 2 years, 5 months ago by Rahul Rai

Thank you Mr. CA Vedanta Deshika for providing such a nice piece of information. It is very difficult to find such a superbly arranged information at one place.

Award for you:

Karnataka VAT-Input tax restricted Goods

Posted 2 years, 5 months ago by CA Pulkit Sharma

Hi Rahul,

Sl no 8 above says agents cant claim ITC. If agent purchases some goods, then the principal is entitled to ITC for purchases by agent. In the same way, if the principal transfers goods to agents which is sold by the agent, even then ITC would be eligible in the hands of the Principal. 

Moreover, Agents need not pay VAT on sales of good received from Principal.

Posted 2 years, 5 months ago by Half-God Half-Man

It is my pleasure CA Pulkit Sharma.  My heartfelt thanks for such kindwords of appreciation. It made my day.

Posted 2 years, 5 months ago by Half-God Half-Man

Thank you very much Vedanta, can you please throw some light on capital goods and pre-registration purchases also. TIA

Posted 2 years, 5 months ago by Rahul Rai

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