(1) Where a dealer effects sales of goods both, subject to tax and exempt from tax, under the Act, the following calculation for claiming input tax credit shall apply -

(a) where all the sales effected by a dealer in a tax period are subject to tax under the Act, the whole of the input tax may be claimed as credit.

(b) where all the sales effected by the dealer for a tax period are exempt from tax under the Act, no input tax may be claimed as credit.

(c) where a part of the sales effected by a dealer in a tax period are subject to tax and the remaining part of the sale are exempt from tax under the Act, the amount that can be claimed as input tax credit shall be calculated from the following formula:

Where "P" is the total amount of input tax;

"Q" is the taxable turnover of sales including zero- rated sales: and

"R" is the total amount of all sales including exempt sales:

during that tax period.

(d) where the fraction Q/R, is less than 0.05, the dealer may not claim any input tax credit for that period.

(e) where the fraction Q/R is more than 0.95, the dealer may claim the entire input tax as credit for that period.

(2) Input tax credit on capital goods under clause (e) of sub-section (5) of section 20 shall be allowed in the following manner:

(a) the total input tax eligible for credit on capital goods for each tax period shall be equally apportioned over a period of thirty six months

and -

(i) in case of a start up or new business, input tax credit shall be allowed as apportioned for each tax period, beginning from the first sale after commencement of commercial production;

(ii) in case of a continuing business, input tax credit shall be allowed as apportioned for each tax period following the tax period during which such input tax credit accrued.

(b) the input tax credit, admissible under clause (a), where there is sale of both taxable and tax exempt finished products, shall be determined on application of the principles as provided under sub-rule (1) in respect of each tax period.

Explanation. - For the purpose of this sub-rule, the expression " input tax" referred to in sub-rule (1) shall be the input tax as apportioned in respect of a tax period :

Provided that for the purpose of calculating input tax credit under this subrule, if the value of the capital goods is within rupees one lakh in a tax period, the input tax credit claimed on such amount shall be allowed in one instalment.