Section 10 of Delhi Value Added Tax Act, 2004 - Adjustment to Tax Credit
Section 10 of the Delhi Value Added Tax Act, 2004 (DVAT Act) sets out when a purchasing dealer must increase or reduce input tax credit already claimed. It addresses credit and debit notes, returned or rejected goods, changes in the use of purchases, transfers outside Delhi, building materials and specified sales below purchase price.
Meaning of adjustment to tax credit
Tax credit, commonly called input tax credit (ITC), is the credit of qualifying tax on purchases available under Section 9. An adjustment under Section 10 changes that credit when the purchase price, transaction, use or subsequent disposal of goods changes in a way specified by law. It is distinct from an adjustment to output tax under Section 8.
Section 10(1) - Credit notes, debit notes and purchase returns
If the purchaser receives a credit note or debit note issued in accordance with Section 51, or returns or rejects purchased goods, and the earlier credit becomes too high or too low, the purchaser must correct the credit in the tax period in which the note is issued or the goods are returned.
- A credit note reducing tax on the purchase ordinarily requires a corresponding reduction in eligible purchase tax credit.
- A debit note increasing tax properly chargeable may increase the available credit, subject to Section 9 and supporting documents.
- Goods returned or rejected require adjustment to the credit attributable to those goods.
The legal effect of commercial discounts must be assessed under the applicable provisions and documents; not every commercial discount automatically produces the same VAT adjustment.
Section 10(2) - Subsequent change in use
Where goods were purchased for eligible activities described in Section 9(1) but later used wholly or partly for other purposes, the credit must be reduced. Conversely, if goods initially intended for ineligible purposes are later used wholly or partly for eligible activities, the credit may be increased, subject to the Act and rules. The adjustment belongs to the period of the changed use.
Section 10(3) - Exports from Delhi and branch transfers
If credit was originally claimed without the applicable prescribed reduction, the dealer must reduce that credit by the prescribed proportion when the goods are exported from Delhi in either of these circumstances:
- A sale covered by Section 8(1) of the Central Sales Tax Act, 1956; or
- A transfer otherwise than by sale to the registered dealer's branch or to a consignment agent.
The reduction must be worked out with the relevant rules, notifications and the period concerned; Section 10(3) itself does not specify a universal percentage.
Section 10(4) - Incorporation into own building
If purchased goods were intended for activities qualifying under Section 9(1) but are subsequently incorporated into the structure of a building owned or occupied by the dealer, the credit claimed must be reduced in the tax period of incorporation. This reflects the separate restrictions on credits for such building materials under Section 9.
Section 10(5) - Sales below purchase price
Section 10(5) provides for a proportionate reduction of purchase tax credit when purchased goods are sold below their purchase price. Its explanation limits the credit on a particular purchase to the tax payable on the corresponding sale. However, the provision must be read with Rule 6A, judicial interpretation and the effective date applicable to the transaction.
In particular, the explanation to Rule 6A(3) clarifies that Section 10(5) does not apply where goods are sold at a loss in the ordinary course of business. Rule 6A(4) also addresses sales at prices fixed under the administered pricing of specified oil companies. A below-cost invoice alone should therefore not be treated as an automatic reversal without examining the facts and exceptions.
Illustration
Suppose qualifying goods are purchased for Rs. 10,000 plus Rs. 1,000 VAT, but a subsequent qualifying credit note reduces the purchase tax by Rs. 100. If Rs. 1,000 credit was previously claimed, the purchaser ordinarily adjusts it downward by Rs. 100 in the period covered by Section 10(1), subject to the actual note and eligibility. This example concerns a credit note, not the separate below-cost sale rule.
Rules 6, 7 and 6A of the Delhi VAT Rules
The official consolidated Act references Rules 6 and 7 alongside Section 10. Related provisions, including Rule 6A, set out conditions and restrictions relevant to tax credit and below-cost transactions. Dealers should verify the applicable version, contemporaneous tax invoices, debit or credit notes, stock and use records, and returns.
Practical records and compliance
- Retain the original tax invoice and any credit or debit note issued under Section 51.
- Maintain evidence of returned or rejected goods and dates of adjustment.
- Document any change in the purpose for which purchases are used.
- Maintain evidence of inter-State sales, branch transfers or consignment dispatches.
- For below-cost transactions, examine ordinary-course losses, Rule 6A exceptions and relevant judicial rulings before computing reversals.
Official statutory references
- Delhi VAT Act, 2004 - official departmental compilation (as on 5 March 2014)
- Delhi VAT Rules - official departmental compilation (as on 5 March 2014)
- Departmental VAT circulars, including circulars relating to credit/debit notes and ITC reversal
- Department of Trade and Taxes, Government of NCT of Delhi - amendments, notifications and current administration
Reviewed 6 October 2026. The linked 2014 compilations are historical reference texts, not a guarantee that every provision remains unchanged. This article is general information and should be read with amendments and binding decisions applicable to the relevant period.