VARIOUS MODELS OF COMPUTING VAT CREDIT AND EVENTUAL VAT PAYABLE UNDER DIFFERENT SCENARIOS:

This section attempts to explain the procedure for taking and setting off credit in various situations. Two Models covering 4 scenarios are presented here.

MODEL1: 

1. Scenario I: Inputs purchased from within the State and sold partly within the State and partly outside the state-Result in Net Tax payable
   
   

2. Scenario II: Inputs purchased from within the State and sold partly within the State and partly outside the State-Results in carry forward of excess input tax credit.
   
   

3. Scenario III: Inputs purchased from within the State and sold partly within the State and partly consigned to a branch/Agent outside the State.

1. It may be noted that when local purchases are sold locally or on interstate sale, either by way of resale (Trading) or used in the manufacture of goods sold, the input tax paid thereon is unconditionally available as credit against tax payable under VAT and CST in that order.
   
   

2. Input tax paid on purchases, which remain in stock, can also be set off against output tax payable.
   
   

3. In all State VAT Acts, where the inputs are used in output that is branch transferred outside the state, input tax credit is available against other taxable Despatches to the extent of tax paid over and above 
   4%. Where the input suffers 4% or lesser tax, it means that no credit can be taken.
   
   

4. Tax up to 4% on inputs used in outputs that are branch transferred outside the State should be reversed immediately, and should not be used against any other output tax payable.

MODEL : 2

INPUTS purchased from within the State while output is sold locally, exported, branch transferred to another State, and is sold as an exempt commodity.

Description Inputs Output Local purchases Local Taxable Exports Exempted Br. Trfr. outside State 12.5% 12.5% 0% 0% 0% Purchase/Sales (Rs.) 100000 20000 20000 60000 100000 Units 100000 10000 10000 30000 50000 Tax paid 12500   Tax payable   2500 0 0 0 Less:           Input tax allocated (a)   1250 1250 3750 6250 Input tax credit reversed (b)   0 0 3750 2000 Input Tax credit set off (a-b) 3750 1250 1250 Nil 4250 Tax payable   1250 Nil Nil Nil Tax refundable/Carried over   Nil 1250 0 4250 Net Tax refundable/Carried over   Nil 1250 0 3000

The above model illustrates the following:

1. Though one-to-one correlation of Input and Output is not required for setting off the input credit, in cases where the output is exempt from tax, or certain portion of output is exported, or branch transferred outside the state, the tax on inputs used in relation thereto needs to be reversed. This is called "Reverse Tax Credit".
   

2. The excess of tax over 4% paid on the inputs used in Branch transferring the final goods can be used for setting off against other taxable Despatches since consignment/Branch transfer is not a taxable transaction. 
   

3. Therefore, Rs. 4,250 is used to the extent of Rs. 1,250/- as credit against tax payable on local sale.
   

4. The balance of Rs. 3,000/- is carried forward to the subsequent tax periods till the year is over. This can also be used to set off against CST payable, if any, for the year. 
   

5. If after all adjustments, there is still some outstanding credits, a refund will be made.