Gujarat VAT Clarification: Provisional Refund of ITC on Closing Stock

Rule 37(5) read with Rule 15(6) of the Gujarat VAT Rules provide for provisional refund of upto 90% of the unadjusted `input tax credit’ (ITC) where the ITC (other than ITC on capital goods) admissible in the relevant period remains unadjusted against the output tax and if such unadjusted ITC is claimed as a refund in the returns.

Various representations were made by the industry that while granting the provisional refund, the amount of ITC on purchases lying in closing stock at the end of the relevant period is not being granted. In view of the representations, the Commissioner of Commercial Taxes has issued a clarification vide Circular No. GUJKA/VAT-20A/2011-12/132/113 dtd. 26-Mar-2012.

The Circular clarifies that considering the provisions of Rule 37(5) read with Rule 15(6), while granting the provisional refund, the amount of ITC on purchases lying in closing stock at the end of the relevant period should be allowed subject to the following conditions:

1. Such stock should be utilised for the purposes narrated in Section 11(3) of the Gujarat VAT Act;

2. The amount of ITC on purchases lying in closing stock at the end of the relevant period remains unadjusted against the output tax;

3. The Dealer has claimed such unadjusted amount as refund in the return;

4. After claiming the refund in the return, the Dealer has not brought forward such ITC in the subsequent return.

On fulfilment of the aforesaid conditions, the provisional refund as per Rule 37(5) should be granted including the unadjusted ITC on purchases lying in closing stock.

[By Shaleen Shah (Partner), VNCA]