Credit for input tax

(1) Subject to the conditions, prescribed if any, an input tax credit shall be allowed to the TVAT dealer for the tax charged and paid by the seller in respect of all purchases of taxable goods, made by the purchaser VAT dealer during the tax period, if such goods are purchased within the State from a registered VAT dealer for the purpose of,- (i) Resale by him within the State; or use as input in the manufacturing or processing of goods in the State; or (ii) Use as containers, labels and other materials for packing of goods in the State; or (iii) Use as capital goods in the manufacture of taxable goods; or (iv) Sale in the course of inter-State trade or commerce falling under sub-section (1) of the Central Sales Tax Act, 1956: Provided that no input tax credit shall be allowed in respect of the tax paid on the purchase of goods specified in Schedule - VI and input tax credit, if already allowed, shall be reversed in the manner, as may be prescribed. (1-A) Notwithstanding anything contained in this section, where any registered dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of the input tax credit shall be restricted to the amount of output tax. (2) (a) A dealer registered as a VAT dealer on the date of commencement of the Act, shall be entitled to claim for the sales tax paid under Telangana General Sales Tax Act, 1957 on the stock held in any form in the State on the date of commencement of the Act subject to the conditions and in the manner as may be prescribed: Provided that such goods should have been purchased from 01-04-2004 to 31-03-2005 and are goods eligible for input tax credit. (b) Subject to the conditions if any, prescribed, input tax credit shall be allowed to a VAT dealer on registering as VAT dealer if any input tax is paid or payable in respect of all purchases of taxable goods, where such goods are for use in the business as VAT dealer, provided the goods are in stock on the effective date of registration and such purchase occurred not more than three months prior to such date of registration. (3) A VAT dealer shall be entitled to claim- (a) input tax credit under sub-section (1), on the date the goods are received by him, provided he is in possession of a tax invoice; (b) input tax credit or sales tax credit under sub-section (2) on the date of registration, provided he is in possession of documentary evidence therefor. (4) A VAT dealer shall not be entitled for input tax credit or sales tax credit in respect of the purchases of such taxable goods as may be prescribed. (5) No input tax credit shall be allowed on the following,- (a) works contracts where the VAT dealer pays tax under the provisions of clauses (b) and (d) of sub-section (7) of section 4; (b) transfer of a business as a whole; (c) sale of exempted goods except when such goods are sold in the course of export or exported outside the territory of India; (d) exempt sale; (e) transfer of exempted goods on consignment basis or to branches of the VAT dealer outside the State otherwise than by way of sale; (f) the purchase of any goods by an agent for supply of such goods to his resident principal; (g) the transactions on which VAT dealer pays tax under sub-section (8A) or sub-section (8B) of section 4 of the Act; (h) the supply or sale of goods, on which a VAT dealer pays tax under clause (b) and (d) of sub-section (9) of section 4 of the Act. (i) transactions on which tax is paid or payable under sub-section (11) of section 4. (5-A) Notwithstanding anything contained in sub-section (5), the resident principal, who receives the goods purchased on his behalf by his agent, is eligible to claim input tax credit on such goods subject to the possession of a declaration in the Form, as may be prescribed. (6) The input tax credit for transfer of taxable goods outside the State by any VAT dealer otherwise than by way of sale shall be allowed for the amount of tax in excess of five percent (5%). (7) Where any VAT dealer pays tax under clause (a) of sub-section (7) of section 4, the input tax credit shall be limited to 75% of the related input tax. (8) Where goods purchased by a VAT dealer are partly for his business use and partly for other than his business use the amount of the input tax credit shall be limited to the extent of input tax that relates to the goods used in his business. (9) A Turnover Tax dealer or a casual trader shall not be entitled to claim input tax credit. (10) Any dealer covered by Explanations III & IV of clause (10) of section 2 shall not be eligible for input tax credit against or relatable to sale of un-serviceable goods or scrap, surplus, old, obsolete or discarded material or waste products whether by auction or otherwise. (11) Any VAT dealer who purchases any taxable goods from a dealer covered under sub-section (10) above, shall be eligible for input tax credit on production of documentary evidence that tax has been charged.