(1) Subject to the provisions of this Act for the purpose of calculating the net tax payable by a registered dealer for any tax period after being registered, an input tax credit as determined under this Section shall be allowed to such registered dealer for the tax paid or payable in respect of all taxable sales or any other sales or purchases as may be prescribed, under Section 10 during that period.

(2) The input tax credit to which the registered dealer is entitled to shall be the amount of tax paid by the registered dealer to the seller, on his turnover of purchases made during the tax period, intended to be used for the purposes and subject to the conditions as specified in sub-section (3), sub-section (4) and sub-section (5) and calculated in such manner as may be prescribed.

(3) Subject to such conditions and restrictions as may be prescribed, partial input tax credit may be allowed in such cases as may be notified by the Government.

(4) Input Tax credit shall be allowed for purchase of goods made within the state of Nagaland from a registered dealer holding a valid certificate of registration and which are intended for the purpose of -

(a) Sale or resale by him in the state of Nagaland; or

(b) Used as raw material or as capital goods in the manufacturing and processing of goods other than those exempt from tax under this Act intended for sale in the state of Nagaland; or

(c) Sale in the course of export out of the territory of India; or

(d) Sale in the course of inter-state trade or commerce under the CST Act, 1956 in full paid or payable; or

(e) Goods used for transfer of stocks other than by way of sale outside the State of Nagaland in respect of input tax credit paid in excess of four percent;

(f) Use as raw materials in manufacture or processing of goods where the finished products are dispatched outside the State of Nagaland other than by way of sales in respect of tax paid in excess of four percent on the raw materials used directly in the manufacture of finished products; or

(g) For use as containers for packing of goods other than those exempt from tax under this Act for sale or resale in the state of Nagaland.

Provided that if purchases are used partially for the purposes specified in this sub-section, input tax credit shall be allowed proportionate to the extent they are used for the purposes specified in this sub-section.

(5) Input Tax credit on capital goods shall be limited to plant and machinery directly connected with the manufacturing or processing of the finished products and input credit as admissible under this Section shall commence from the date of commencement of commercial production and shall be adjusted against tax payable on output over a period of three years:

Provided that in case of closure of business before the period specified above, no further input tax credit shall be allowed and input tax credit carried forward, if any, shall be forfeited.

(6) Input Tax credit shall not be claimed by the dealer until the tax period in which the dealer receives the tax invoice in original containing the prescribed particulars of the sale evidencing the amount of input tax:

Provided that for good and sufficient reasons to be recorded in writing and in the prescribed manner the Commissioner may allow such credit subject to such conditions and restriction as may be specified.

(7) A registered dealer who intends to claim input tax credit under sub-section (1) shall, for the purpose of determining the amount of input tax credit, maintain accounts, and such other records as may be prescribed in respect of the purchases and sales made by him in the state of Nagaland.

(8) No input tax credit under sub-section (1) shall be claimed or be allowed to a registered dealer -

(i) In respect of any taxable goods under this Act purchased by him from another registered dealer for resale but given away by way of free sample or gift;

(ii) Who has been permitted by the Commissioner to make payment of presumptive tax at a percentage of the turnover of sales in lieu of tax as provided under Section 21;

(iii) In respect of capital goods other than those directly used for manufacturing or processing of goods for sale;

(iv) In respect of goods brought from outside the State against the tax paid in other States;

(v) In respect of stock of goods remaining unsold at the time of closure of business;

(vi) In respect of goods purchased on payment of tax, if such goods are not sold because of any theft;

(vii) Where the tax invoice is -

(a) Not available with the dealer, or

(b)There is evidence that the same has not been issued by the selling dealer from whom the goods are purported to have been purchased;

(viii) In respect of goods purchased from a dealer whose certificate of registration has been suspended;

(ix) In respect of purchases of the following taxable goods;-

(a) air conditioning units, air coolers, fans and air circulators unless the registered dealer is in the business of dealing in such goods;

(b)all automobiles including commercial vehicles, two and three wheelers and spare parts for repairs and maintenance thereof, unless the registered dealer is in the business of dealing in such automobiles or spare parts;

(c) Crude oil unless the registered dealer is in the business of dealing in such products;

(d) food, beverages, and tobacco products, unless registered dealer is in the business of providing such food, beverages and tobacco products;

(e) goods purchased and accounted for in business but utilized for the purpose of providing facility to the employees including any residential accommodations; and

(f) such goods or classes of goods as specified in schedule-VII;

(x) In respect of sales exempt from tax as specified in schedule-I;

(xi) In respect of any works contract, or the transfer of the right to use any goods for any purpose.

(9) If goods purchased are intended for use specified under sub-section (4) or loss of goods arising out of theft or destruction for any reason or the stock of goods remaining unsold at the time of closure of business and are subsequently used, fully or partly, for purposes other than those specified under the said sub-section, the input tax credit availed at the time of such purchase shall be reduced from the tax credit for the period during which the said utilization has taken place:

Provided that if part of the goods purchased are utilized otherwise, the amount of reverse tax credit shall be proportionately calculated in a manner that is just and reasonable.

(10) The methods that are used by a registered dealer in a year to determine the extent to which goods are used, consumed or supplied or intended to be used, consumed or supplied, in the course of making taxable sales, shall be fair and reasonable in the circumstances. The Commissioner may, after giving sufficient reason in writing, reject the method adopted by the registered dealer and calculate the amount of input tax credit after giving the registered dealer concerned an opportunity of being heard.