(1) Input Tax Credit (ITC). For the purpose of calculating the net tax (VAT) payable by a dealer for each tax period, an input tax credit shall be allowed against the output tax subject to such conditions or restrictions or adjustments, if any, as may be prescribed for the purposes of this section :

Provided that,-

(i) for all capital goods except those provided under sub-section(2), the input tax credit shall be allowed in three years by equal monthly instalments commencing from the month following the commencement of commercial production or sale of taxable goods;

(ii) when the input is transferred, either in same form or otherwise, other than by way of sale and if such transfer is outside the Union Territory, the input tax credit shall be allowed for the input tax paid in excess of the rate prescribed under sub-section (1) of section 8 of the Central Sales Tax Act,1956. (Central Act 74 of 1956.)

(2) The input tax credit shall not be allowed,-

(i) when the input is used for manufacture of exempted goods;

(ii) when the goods purchased are consumed for own use (i.e) not connected with the business of the dealer;

(iii) in respect of following goods:-

(a) Indian Made Foreign Liquor;

(b) sugarcane (sugarcane is taxable at the point of purchase and such purchase tax is not eligible for input tax credit);

(c) all kinds of pan masala with or without tobacco;

(d) narcotics;

(e) civil structure and immovable goods or properties;

(f) building material used in construction activity, except when used by a workscontractor;

(g) office equipment;

(h) capital goods purchased prior to the date of commencement of this Act or capital goods purchased by dealers in IMFL, rectified spirit, narcotics, pan masala with or without tobacco after the commencement of this Act;

(i) petrol, diesel, aviation turbine fuel and other motor spirit;

(j) Molasses; and

(k) Rectified spirit;

(iv) for goods purchased prior to twelve months from the date of commencement of this Act:

Provided that input tax credit will be allowed for the stock held on the date of commencement of this Act subject to such terms and conditions as may be prescribed:

Provided further that such goods are falling within the list of goods specified in Part-A of the Second Schedule, Part-A of the Third Schedule or Part-A of the Fourth Schedule to this Act ;

(v) for goods purchased from non-taxable dealers;

(vi) for goods purchased from a dealer paying tax on compounded rate, as provided under sub-section (2) of section 15 and under section 19 of this Act; and

(vii) for a casual trader.

(viii) for the dealers paying tax under sub-section (2) of section 15 of this Act.

(3) The input tax credit shall, at no time, exceed the amount of tax payable at the prescribed rate in Schedule applicable to the input.

(4) Where the dealer has not adjusted the input tax credit or has not made a claim for refund within the prescribed period from the date of accrual of such input tax credit, such credit shall lapse to Government.

(5) Where input tax credit is availed by a dealer on a taxable purchase and such input tax credit shall be liable for reversal in such circumstances and subject to such conditions as may be prescribed.

(6) No registered dealer shall be entitled to input tax credit in respect of -

(a) goods purchased and accounted for in business but utilized for the purpose of providing facility to the proprietor or partner or Director including employees and in any residential accommodation; or

(b) purchase of all automobiles including commercial vehicles, two wheelers and three wheelers and spare parts for repair and maintenance thereof, unless the registered dealer is in the business of dealing in such automobile or spare parts; or

(c) purchase of airconditioning units unless the registered dealer is in the business of dealing in such units.

(7) No input tax credit shall be allowed to any registered dealer in respect of any goods purchased by him for sale but given away by him by way of free sample or gift or goods consumed for personal use.

(8) No input tax credit shall be available to a registered dealer for tax paid or payable at the time of purchase of goods, if such -

(i) goods are not sold because of any theft, loss or destruction for any reason, including natural calamity. If a dealer has already availed input tax credit against purchase of such goods there shall be reversal of tax credit; or

(ii) inputs destroyed in fire accident or lost while in storage even before use in the manufacture of final products; or

(iii) inputs damaged in transit or destroyed at some intermediary stage of the manufacture.

(9) Calculation of taxable turnover when sale price is inclusive of tax.. Notwithstanding the provisions in clause (zj) of section 2, when sale price shown in a tax invoice is inclusive of tax, the taxable turnover for that invoice may be calculated applying the following formula, namely:-

Tax inclusive of sale proceeds x 100

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(100 + Rate of Tax)