Delhi Input Tax Credit

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SEMINAR
ON
VALUE ADDED TAX

By NIRC of ICAI
18th April 2009
Rakesh Garg, FCA
1 Default! 2004 By
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Input Tax Credit

1. WHAT IS INPUT TAX CREDIT (ITC) The concept of ITC is to replace declaration forms and to collect tax at multi-point. ITC, in general, is the a. Section 9(1) is s ubject to s ection 9(2). b. amount of tax paid/ payable by the purchas er in accordance with the provis ions of the Act c. on eligible local purchas e (not s pecified in Schedule V II) d. aris es in the cours e of his activity as a dealer e. from a local regd. dealer s upported by a valid tax invoice e. for the purpos e of us e by him directly/ indirectly in making Local Taxable Sales or inter-State Sale or Export out of India.
Rakesh Garg, FCA
2 Default! 2004 By
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Input Tax Credit

b.ELIGIBLE TAX (for which credit is available): Tax paid under DVAT Act in relation to eligible purchases. Therefore no credit can be claimed for: CST paid or payable on inter-state purchases; Central excise duty or service tax;
Any tax (other than DVAT), whatsoever, paid or payable to the home State or other states or UT.
c. ELIGIBLE DEALERS: Registered under the DVAT Required to be registered under the DVAT Act Exception - Casual dealer and Composition Dealer
Rakesh Garg, FCA
3 Default! 2004 By
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Input Tax Credit

d. ELIGIBLE Goods (for which credit is available): Trading Goods ; Raw Materials ; Packing Material; Cons umables other than fuel; Hire charges s ubjected to DV AT (Except contractors ); Capital Goods (unles ss pecified in Schedule V II) s ubject to res trictions s pecified under s ection 9(9); Components us ed in fabricating the machine in-hous e provided machine is us ed for purpos es s pecified u/ s 9(9)
Rakesh Garg, FCA
4 Default! 2004 By
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Input Tax Credit

e. ELIGIBLE PURCHASES IN GENERAL Goods purchased for the purpose of business and not for personal consumption; Goods purchased for the purpose of manufacturing taxable goods, e.g., ITC is not allowed on paper purchased for manufacturing books; Goods not purchased from a casual dealer or a dealer who has opted for the composition scheme; Goods purchased for the purpose of making Local taxable sales; Inter-State sales; Exports
Rakesh Garg, FCA
5 Default! 2004 By
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Input Tax Credit
ITC u/s 9 is available on making the eligible purchases Holding of tax invoice without making the purchase is not enough
If, under some circumstances, the local purchases are assessed as central purchases, Input Tax Credit would be denied To illustrate K.G. Khoslas case and DCM case Therefore, first ensure that goods are actually been purchased and, second, this is a local purchase
Rakesh Garg, FCA
6 Default! 2004 By
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Input Tax Credit

f.
Non-Creditable Goods Items are not s pecified in Schedule V II It is an exhaus tive lis t, amended further w.e.f. 30.11.2005 pare parts for repairs and All Automobiles and s maintenance and tyres and tubes thereof; el and keros ene, Fuels in the form of petrol, dies LPG, CNG, PNG, coal; Conventional clothing and footwear, fabrics ; clothing
umption; Food and beverages for human cons ic s ys tems , etc. Equipments for TV , DV D, Mus entertainment;
Rakesh Garg, FCA
7 Default! 2004 By
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Input Tax Credit

f. Non-Creditable Goods (contd) , air conditioning plants or units other Air conditioners than thos e us ed for manufacturing purpos es ; air coolers , fans and air circulators ; , furniture, carpets , s tationary items , Office equipments advertis ement and publicity materials , s anitation equipments , fixtures including electrical fixtures and fittings , generators and electrical ins tallation; ); Elevators (lifts , earthmovers , JCB, excavators , road rollers , Cranes concrete mixing machines and other s imilar machineries ;
Rakesh Garg, FCA
8 Default! 2004 By
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Input Tax Credit

f.
Non-Creditable Goods (contd) Computers other than thos e us ed for the purpos e in normal bus ines s ; Goods for pers onal cons umption or for gifts ; Goods purchas ed and accounted for in bus ines s but utilis ed for the facility to the employees ; Goods us ed for cons truction of or incorporation in civil s tructures and immovable goods or properties not cons tituting part of the works contracts .
Rakesh Garg, FCA
9 Default! 2004 By
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Input Tax Credit

INPUT TAX CREDIT ON CAPITAL GOODS Capital goods means plant, machinery and equipments used directly or indirectly in the process of trade, manufacturing or works contracts in Delhi. But, ITC is not available on goods specified in Sch.VII. Goods must be purchased within Delhi from a registered dealer, supported by a valid tax invoice.
ITC is available in three equal instalments and first installment is in the tax period when it is purchased.
If capital goods are transferred out of Delhi within three years, than 2% of the purchase price will be reversed. When the goods are received back in Delhi, ITC could not be reclaimed since rule 7(2) refers to non-capital goods and sec. 9(6) of the Act. A big issue for works contractors.
Rakesh Garg, FCA
200410 By Default!
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Input Tax Credit

INPUT TAX CREDIT ON CAPITAL GOODS
Depreciation will not be claimed on the amount of ITC availed by the dealer, i.e., on the principal amount. Tax credit in respect of capital goods shall also not be allowed if such capital goods are used exclusively for the purpose of making sale of exempted goods specified in the first schedule. If capital goods are used partly for the purposes of manufacturing and/or trading taxable goods or making exports and partly for other purposes, the amount of the tax credit in relation to such capital goods shall be reduced proportionately.
Rakesh Garg, FCA
200411 By Default!
Slide 12
Input Tax Credit

ADJUSTMENT IN INPUT TAX CREDIT
If the invoice raised by the seller/contractor is passed by buyer/contractee for a lesser amount, and the amount is subsequently adjusted in output tax by contractor u/s 8, the seller must issue to the buyer a debit note, issuance of which is mandatory.
The buyer/contractee shall adjust his ITC on the basis of such debit note
Where goods are returned/rejected by the buyer, he will reduce his ITC in relation to those goods, in the T.P. when goods are returned/ rejected. Double taxation if goods are returned after 6 month
Rakesh Garg, FCA
200412 By Default!
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Input Tax Credit

PROPORTIONATE REDUCTION IN INPUT TAX CREDIT
Where a dealer has purchased goods, which are to be used partly for the purpose of making sales referred to u/s 9(1) and partly for other purposes, then amount of tax credit shall be reduced proportionately.
To illustrate, X purchased raw material for Rs. 1,00,000 plus tax of Rs. 12500/- for manufacture of taxable as well as exempted goods. At that time, he estimated that the raw material would produce 80% taxable goods. In such case, his input tax credit will be restricted only to 80% of Rs. 12500/, i.e., Rs. 10000/-. Rakesh Garg, FCA
200413 By Default!
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Input Tax Credit

If goods are subsequently used for different purposes, then the reduction shall be made in the tax period when so used. What is the difference between 9(4) and 10(2)
Method of reduction should be fair and reasonable; otherwise the Commissioner is empowered to reject the method or prescribe another method.
Rakesh Garg, FCA
200414 By Default!
Slide 15
Input Tax Credit

Valuation:
If commodity wise register maintained At the purchase price
Otherwise On the basis of the purchase price of such goods immediately preceding their use for other purposes or their FMV, w.e.i. higher
Rakesh Garg, FCA
200415 By Default!
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Input Tax Credit

STOCK TRANSFER TO OTHER STATES
The amount of the tax credit shall be reduced by 2% of the purchase price (1% in case of bullion) if the goods or goods manufactured out of such goods are to be exported from Delhi by way of transfer to a (i) non-resident consignment agent; or (ii) non-resident branch of the dealer;
ITC will be reduced only in relation to those goods where it is claimed or is claimable, i.e., no reduction shall be made in respect of those goods which are purchased from local unregistered dealers or in the course of inter-State trade.
Rakesh Garg, FCA
200416 By Default!
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Input Tax Credit


What is the difference between 9(6) and 10(3)
At what value goods to be transferred At cost or at FMV? It should be the cost since reversal to be made on the basis of purchase price
Valuation of stock transfer: If commodity wise register maintained At the purchase price Otherwise On the basis of the purchase price of such goods immediately preceding their use for stock transfer or their FMV, w.e.i. higher
Rakesh Garg, FCA
200417 By Default!
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Input Tax Credit


In addition, Form F shall also be obtained

Where the goods so transferred are received back in Delhi either in the original form or in some other form, tax credit already reduced can be reclaimed in the tax period when goods are so received.
Rakesh Garg, FCA
200418 By Default!
Slide 19
Input Tax Credit

GOODS INCORPORATED IN OWN STRUCTURE
If goods are used for construction of or incorporation in civil structures and immovable goods or properties not constituting part of the works contracts, ITC shall be denied on such goods, e.g., cement, bricks, tiles, etc. If goods which have been purchased by a dealer were intended to be used for the purposes specified u/s 9(1) but are subsequently incorporated into the structure of a building owned or occupied by that person, the tax credit claimed in respect of such purchases shall be reduced in the tax period during which such incorporation takes place.
Rakesh Garg, FCA
200419 By Default!
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Input Tax Credit

GOODS LOST OR DESTROYED
Where any goods or goods manufactured out of such goods are lost or destroyed, the credit taken in any earlier tax period shall be reversed in the tax period in which goods are claimed to have been lost or destroyed.
However, input tax credit should not be denied on normal loss arising during the course of manufacture.
Rakesh Garg, FCA
200420 By Default!
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Input Tax Credit

Can ITC be claimed on the strength of Retail Invoice instead of Tax Invoice if all other conditions are satisfied
The answer depends whether the provisions of section 50(2) are directory or mandatory. If mandatory, ITC could be claimed only on the basis of tax invoice.
Rakesh Garg, FCA
200421 By Default!
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Input Tax Credit

Can ITC be claimed in the tax period subsequent to the tax period when goods were actually purchased, without filing an objection, on the ground
He do not have in procession the Original Tax Invoice when goods were purchased : Should state the amount of purchase and claim ITC in subsequent months He forgot to claim ITC in the original tax period : Since it is an error or mistake Objection is required
Rakesh Garg, FCA
200422 By Default!
Slide 23
Input Tax Credit-Traders
Input Tax Credit can be claimed in respect of Purchases meant for local taxable sales, ISS and Exports out of India Capital goods used in the process of trade such as weighing machines, computers, delivery rickshaws, etc. Not available in respect of furniture/furnishing of office
Schemes, distribution Gift articles, etc.? Reversal of input tax credit on account of credit notes? Evaporation Loss? Stock transfers to agents within Delhi ?
Rakesh Garg, FCA
200423 By Default!
Slide 24

Free Offers to the Customers ITC on Purchases
Deter. u/s 84 dt. 31.10.2005 L.G. Electronics Gifts (Tshirts, TV, AC, Phone, etc.) to customers through scratch cards debited to sales promotion No ITC However, in our opinion, where gifts are given along with the main product - Necessary for completion of sale contracts 2+1 shirt (or) Bucket with detergent (or) Mosquito machine with mats (or) Car + Accessories Supply of free items is part of sale contract ITC should be available To be debited to purchases instead sale promotion Post sale gifts No ITC/benefit of Form C available
Rakesh Garg, FCA
200424 By Default!
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Credit Note resulting in reduction of purchases Need reversal of ITC by the purchaser even if output tax has not been reversed by the seller u/s 8 Circular No. 2 dated 7.8.2008
However, Judgments to be referred for contrary answer: Andhra Agencies vs. State of A.P. (2009) 19 VST 1 (SC) Priya Agencies vs. CTO (2008) 14 VST 293 (Ker)
Rakesh Garg, FCA
200425 By Default!
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Goods Lost ITC on Purchases Evaporation of oil No ITC on oil evaporation Commissioner Ruling u/s 85 Same opinion by P&H High Court recently Bharat Petroleum Ltd.
The same analogy might be applied to all trading losses. For example loss of cement in transit Waste/scrap generated at the end, e.g. confectionery powder, vegetable/fruit waste at the end of the day Measurement/weighment difference in purchase vis-a-vis sale
Rakesh Garg, FCA
200426 By Default!
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STOCK TRANSFER WITHIN DELHI In accordance with Notification No. F.4(3)/P-II/Noti/ VAT/2005/1158 dated 2nd December 2005
The principal in Delhi will raise tax invoice on agent; & The agent will claim ITC on the basis of such tax invoice.
However, if that is so, even without substantial provisions:
Tax will have to be paid by the principal even without affecting sale and adjustments to be made at the time of
return of unsold stock by the agent;
ITC will be claimed by agent without making purchases.
Rakesh Garg, FCA
200427 By Default!
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Input Tax Credit-Manufacturers

Input Tax Credit can be claimed in respect of : Purchases meant for manufacture of goods meant local taxable sales, ISS and Exports out of India including raw material and consumables Facilities, such as bulbs, exhaust fans, shoes, etc. used in the manufacturing plant Status of goods manufactured at Third Party Unit (i) With material (some material supplied by Mfr. and (ii) without material (purely labor)
Rakesh Garg, FCA
200428 By Default!
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Input Tax Credit can be claimed in respect of Capital goods used in the process of manufacture such as plant, machinery, tools, equipments, weighing machines, etc. [ Judgments applicable to purchase against form C squarely applies except goods listed in Sch. VII ]
Normal Manufacturing Loss As per the Advance Ruling by the Commissioner, where scrap generated out of goods manufactured is exempt, then tax credit on the raw material shall be reduced proportionately.
Rakesh Garg, FCA
200429 By Default!
Slide 30

STOCK TRANSFER TO OTHER STATES Where the goods so transferred are received back in Delhi either in the original form or in some other form, tax credit already reduced can be reclaimed in the tax period when goods are so received. Where a dealer, who is engaged in manufacturing of taxable as well as exempt goods, transfers certain goods to other States, then He will first reduce the ITC proportionately in relation to the exempted goods; then He will further reduce the amount of ITC as calculated in (i), in relation to stock transfer to other States.
Rakesh Garg, FCA
200430 By Default!
Slide 31
Input Tax Credit-Job Workers
A person, who is exclusively engaged in the business of labour/job work (other than a manufacturer), is not eligible for ITC on purchase of consumables or capital goods, merely because he is liable to pay tax on sale of any waste/ scrap goods generated during the process of labour job.
To illustrate, a job worker is exclusively engaged in the business of labour job of cutting iron sheets (supplied by the customer) into circles. He sells scrap, generated in this process, and pays VAT due to the Govt. Even than he is not eligible for tax credit on purchase of any consumable or capital goods used for carrying his labour job.
Rakesh Garg, FCA
200431 By Default!
Slide 32
Input Tax Credit-Contractors
Works contractors can claim ITC on following purchases: Raw Material
Consumables which do not get destroyed

Packing Material Capital Goods other than those specified in Sch. VII
Contractors are deemed either as trader or as manufacturer
VAT paid on hire charges and consumable which get destroyed can not be claimed as ITC since these are allowable deductions as labour and services and are exempted sales. ITC on temporary shed/yard/office?
Relations between contractor & sub-contractor (a) If property is tfd. directly on principle of accretion (b) Otherwise
Rakesh Garg, FCA
200432 By Default!
Slide 33
Input Tax Credit-Service Sector

SERVICE SECTOR ALSO ENGAGED IN SALE LIKE HOTELS
Input tax is available on those purchases (including rent) which are relatable for making sale by the dealer.
Where goods (including capital goods) are used partly for making sale and partly for providing service, ITC will be available proportionately, e.g., common generator used in the restaurant as well as rooms. Capital goods used exclusively for providing services is not available for ITC, e.g., equipments used in Jim, Swimming Pools etc.
Rakesh Garg, FCA
200433 By Default!
Slide 34
Input Tax Credit-Right to Use

LESSER (Transfer Of Right To Use Goods) As per Determination by Commissioner u/s 84 in Digitech - Benefit of Input tax credit is not available to leasing company on its purchases even if its sales are taxable in Delhi VAT
Matter is pending before DVAT Tribunal

If that is so purchase from other States against Form C, paying 2% CST
Rakesh Garg, FCA
200434 By Default!
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LESSER (Transfer Of Right To Use Goods)
Right to use goods, i.e., leasing is covered under the DVAT/CST and is covered in the definition of sale; Whenever, goods are purchased by the hirer for the purpose of leasing, the local tax paid on purchases should be eligible for ITC against output tax payable on lease rent; Goods which are purchased and hired by the hirer shall be treated as stock in trade and not non-capital goods.
Rakesh Garg, FCA
200435 By Default!
Slide 36

LESSEE (Transfer Of Right To Use Goods)
The lessee can also claim the benefit of input tax credit if the goods are delivered at Delhi and used by him for the purpose of use in trade, manufacture or execution of works contract in Delhi
The lessee will claim in installments on the basis of periodical tax invoices raised by the lesser Refer Section 105(2)(b).
Rakesh Garg, FCA
200436 By Default!
Slide 37
Input Tax Credit - Records

er can claim ITC if he has in his The purchas pos s es s ion a valid tax invoice. ITC is not available unles s the words Tax Invoice are s tated on the invoice. t contain: Tax Invoice mus (a) (b) (c) (d) The words tax invoice in a prominent place; N ame, addres s and regis tration number of the s elling regis tered dealer; N ame and addres s of the purchas er and his regis tration no., if already regis tered; An individual pre-printed s erialized number and the date on which tax invoice is is s ued;
Rakesh Garg, FCA
200437 By Default!
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(e) Des cription, quantity, volume and value of goods s old and s ervices provided and the amount of tax charged thereon indicated s eparately; Signature of the s elling dealer or his s ervant, manager or agent, duly authorized by him; and N ame and addres s of the printer and firs t and las t s erial number of tax invoices printed and s upplied by him to the dealer.
(f) (g)
Rakesh Garg, FCA
200438 By Default!
Slide 39

Explanation to s ection 50(1) of the DV AT Act A regis tered dealer s hall be authorized to is s ue tax invoice only after certificate of regis tration is is s ued by the Commis s ioner. V ide clarification no. V AT/ Policy III/ 2005 06/ 898 dated 13th July 2005, it has been clarified that the dealer who has been informed his TIN can is s ues tax invoice from the date of communication of TIN .
Rakesh Garg, FCA
200439 By Default!
Slide 40

Duplicate Tax Invoice: Where a purchas ing dealer claims to have los t the original tax invoice, the s elling dealer may, upon a reques t made by the purchas ing dealer accompanied by an undertaking cum indemnity in Form DV AT-36, provide a copy of s uch las t tax invoice clearly marked as a duplicate and SHALL furnis h a copy of s uch undertaking cum indemnity along with his return for the tax period in which s uch duplicate tax invoice has been is s ued.
Rakesh Garg, FCA
200440 By Default!
Slide 41

DEBIT AND CREDIT NOTE Where a tax invoice has been is s ued in res pect of a s ale and (a) The amount s hown as tax in that tax invoice exceeds the tax payable in res pect of the s ale, the dealer s hall provide the purchas er with a credit note, containing s uch particulars as may be pres cribed; or The tax payable in res pect of the s ale exceeds the amount s hown as tax on the tax invoice, the dealer s hall provide the purchas er with a debit note, containing s uch particulars as may be pres cribed.
(b)
Rakesh Garg, FCA
200441 By Default!
Slide 42

DEBIT AN D CREDIT N O TE TO be s igned by the pers on authorized to s ign the return and contain the following details :(a) (b) (c) (d) (e) N ame, addres s and regis tration certificate number of s elling regis tered dealer; N ame and addres s of the purchas er and his regis tration number where the purchas er is a regis tered dealer; Des cription of the reas on for is s uing the credit note or debit note, as the cas e may be; Serial number of the relevant tax invoice affected by the credit note or debit note, as the cas e may be; and Amount of the variation to the tax amount s hown on the tax invoice.
Rakesh Garg, FCA
200442 By Default!
Slide 43

A monthly account specifying - Total output tax, - Total input tax, and - Net tax payable or the excess tax credit due for carry forward. Tax Details of input tax calculations where the taxable person is making both taxable and tax free sales.
Input Calculations
Rakesh Garg, FCA
200443 By Default!
Slide 44
Input Tax Credit

TO CONCLUDE
Input Tax Credit can be claimed by the dealers for their eligible purchases of creditable goods (other than those listed in Sch. VII) for the specified purposes made from local registered dealers on the basis of a valid tax invoice. No one to one correlation of purchase and sale is required.
Unclaimed amount of ITC at the end of the tax period can be carried forward indefinitely or claimed as refund.
To hold a valid Tax invoice at the time of filing of return for claiming ITC is a mandatory requirement. Input Tax Credit is the essence of VAT Regime and legitimate claim thereof is a true saving.
Rakesh Garg, FCA
200444 By Default!
Slide 45
THANK YOU
Rakesh Garg, FCA
200445 By Default!

Delhi Input Tax Credit

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Slide 1

VALUE ADDED TAX

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Input Tax Credit

Rakesh Garg, FCA

Input Tax Credit

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

Rakesh Garg, FCA

Input Tax Credit

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

A Free sample background from www.awesomebackgrounds.com

Rakesh Garg, FCA

Input Tax Credit

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Rakesh Garg, FCA

Input Tax Credit

What is the difference between 9(6) and 10(3)

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Rakesh Garg, FCA

Input Tax Credit

In addition, Form F shall also be obtained

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Rakesh Garg, FCA

Input Tax Credit

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Rakesh Garg, FCA

Input Tax Credit

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Rakesh Garg, FCA

Input Tax Credit

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Rakesh Garg, FCA

Input Tax Credit

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Rakesh Garg, FCA

Input Tax Credit-Traders

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