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ITC Treatment U/S 13(5)

As per Section 13(5) a taxable person shall not qualify for input tax credit in respect of tax paid on certain goods like Commercial Vehicles, Office equipments, electrical fixtures & fittings etc. To give effect to such transactions two new VAT Classes are provided namely:-

          1. "Purchase U/S 13(5) 12.5%"
          2. "ITC not eligible U/S 13(5)"
    (Note: Both the VAT classes are classified under 'Purchase'

Example Transactions:
  
A/c Head
Debit
Credit
Repair & Replacement A/c
10000.00
 
Add ITC @ 12.5 %
1250.00
 
Party A/c
 
11250.00

In this case, ITC of Rs. 1250 is disallowed under section 13(5) accounting entry will be passed as under: -
  
A/c Head
Debit
Credit
Repair & replacement A/c (Pur. U/S 13(5) 12.5%)
10000.00
 
Repair & replacement A/c (ITC not eligible U/S 13(5))
1250.00
 
Party A/c
 
11250.00

You may also open a separate a/c for recording the amount of ITC not eligible U/S 13(5).

In Form VAT-24, Purchase amount will be treated as 10000.00 and Tax on it will be shown as 1250.00

In Form VAT-15, Rs. 10000.00 will be shown in Column 2(k) Purchases not eligible for Input Tax credit U/S 13(5) and Input tax will not be shown.

We would like to bring it to your notice that is is wrong to resort to 'REVARSAL OF ITC' as the above type of transactions does not fall in the scope of the definition of the term 'Reverse Input Tax Credit' as given in Section 2 (ze) of The Punjab Value Added Tax.