Nov 292013

The Tamilnadu Government has made few important amendments in TNVAT Act with regard to reversal of Input Tax Credits in respect of Inter-state sales and Stock Transfers outside the State.

These amendments were carried out by enacting a Tamilnadu VAT (Fifth Amendment) Act, 2013 (Amendment Act) on 8th November 2013.

The effective date for these amendments is 11th November 2013.

The effect of these amendments are as follows :-

Sl. NoNature of TransactionPosition upto 11th Nov 2013Position w.e.f 11th Nov 2013
1Inter-state sales against C Form (Chargeable to tax @ 2% at present)No reversal of ITC RequiredInput Tax Credit allowed in excess of 3% of Tax
2Stock Transfers outside the state (ie) Transfer outside the state otherwise than by sales.ITC allowed in excess of 3%.ITC allowed in excess of 5% of tax.

The relevant Notifications are reproduced below :-

Download (PDF, Unknown)

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  7 Responses to “Important amendment to TNVAT Act regarding ITC Reversal”

  1. Dear Sir,
    Namaste. Under the TNVAT , I seek your kind guidance . A company is having a foreign branch. They stock transfer the goods to the foreign Branch periodically. The foreign Branch effects sale locally against their own invoice and remit the proceeds to the HO in India as and when sold..This transaction is accounted as Stock transfer and later accounted as export sale in the Books of HO against foreign Branch invoice.
    In this scenario, whether the stock transfer to Foreign Branch would attract Sec 19(4) for reversal of ITC ? Whether it can be treated as Export sale ? Kindly clarify.
    Thanks & regards.

    • Dear Sir,
      You have not indicated whether the foreign branch is registered as a seperate entity in the foreign country or not. Kindly clarify the same. If the same is registered as a seperate entity in the foreign country, then it will be considered as a Export sales and not as a branch stock transfer as the two are different entities.
      This requires detailed analysis of documents and facts of the question.

      • Dear Sir,

        I thank U very much for Ur kind response. I wish to clarify that the office at Germany is a Branch office registered under their local rules in the same name.That is why we account it in the Books as Branch transfer. Can it be still considered as different entity to qualify as sale? Is our accounting treatment correct ? Pl, clarify.

        Thanks & regards.

        • Dear Sir,
          In our opinion, if the branch is registered as a separate entity under the relevant local laws, prima facie, it will be considered as a different entity even though the name/share holding is same. In such a case, the transaction should be considered as an Export Sales only and not as Stock transfer.
          In order to be considered as a Stock transfer, it shall be transferred to the assessee’s place of business place in other states , which should be registered under CST Act. Since the branch is in a foreign country, the same cannot be registered under either VAT/CST Act, and hence in our opinion you cannot take it as a stock transfer.
          Kindly revert in case of any different interpretation..

  2. 1. Exempted sale to SEZ is Rs.1 lakh [within tamil nadu]
    2. 5% taxable sale within TN is Rs. 3 lakhs
    3. Input VAT credit is Rs.2 lakhs

    Can I take full input credit of Rs.2 lakhs? or should i take input vat credit pro-rata? that is 2*3/4=1.5 lakhs

    • Sir

      1) When the purchase & sale within TN is less than 10 lakhs, the obligation to register itself does not arise.
      2) Sales to SEZ is not EXEMPT but it will be a Zero Rated Sales (Refer Sectoin 18 of the TNVAT Act)
      3) Input Tax credit (ITC) on zero rated sales need not be reversed and ITC can be claimed against the tax liability, if any

  3. Sir,

    We are manufacturers in tamil nadu. we purchase raw materials and manufacture in tamil nadu. we make branch transfer to our branch in rajasthan.

    Do we have to reverse ITC for branch transfer eventhough we collect Form-F from our branch. please clrify

    thanks & regards

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