2020 (8) TMI 136 - HC - VAT / Sales Tax

Reopening of assessment - levy of tax on turnover - tax on sale of Duty of Entitlement Pass Book (DEPB) - it was claimed that since the relevant exports have been transacted at Chennai, the transfer of DEPB credit had to be in Tamil Nadu - HELD THAT - The object of DEPB scheme is to neutralize the incidence of customs duty of the import content of the export product. The neutralization is granted by way of grant of duty credit against the export product, thereby enabling the exporter to claim set-off of the customs duty component at the time of import. The petitioner was granted the DEPB under the provisions of the MVAT Act at Mumbai and the sale and delivery of the pass book was completed in Maharashtra - Section 2(33) of the Tamil Nadu Value Added Tax Act restricts levy of tax on sales that takes place outside the State of Tamil Nadu. The petitioner's right to claim set-off had originated by grant of the DEPB in the State of Maharashtra and delivered for sale in Maharashtra. The petitioner was also subjected to sales tax in the State of Maharashtra. The issue with regard to respondent's right to levy tax for a sale that takes place outside the state of Tamil Nadu was the subject matter in PREMIER MARINE PRODUCTS VERSUS THE ASSISTANT COMMISSIONER (CT) (ADDITIONAL) 2020 (6) TMI 546 - MADRAS HIGH COURT , whereby this Court, had answered the issue in favour of the assessee, by holding that there being no dispute on the position that the goods in question, the DEPB, and additionally, the seller as well as the buyer were all located in Bombay at the time when the transaction in question was finalised, the turnover from the transaction is liable to tax only in Maharashtra. The aforesaid order is self explanatory. As such, the respondent herein will not have jurisdiction to levy tax on sale of a Duty Entitlement Pass Book for a sale and delivery, which was completed in Maharastra. As such, the levy of tax itself is liable to be quashed. Petition allowed - decided in favor of petitioner.

Summary

Issues:
Jurisdiction to levy tax on sale of Duty of Entitlement Pass Book (DEPB) completed in Maharashtra.

Analysis:
The petitioner challenged the re-opening of their assessment for the financial year 2007-08 regarding the levy of tax on a turnover related to the sale of DEPB. The respondent claimed jurisdiction to levy tax since the exports were transacted in Chennai, implying the transfer of DEPB credit had to be in Tamil Nadu. However, the petitioner argued that the DEPB was issued and delivered in Mumbai, with the sale completed in Maharashtra, where Maharashtra VAT was paid. The petitioner contended that the respondent lacked jurisdiction to levy tax on the sale of DEPB.

The DEPB scheme aims to neutralize customs duty on the import content of export products by granting duty credit against the export product. The petitioner received DEPB under the MVAT Act in Mumbai, and the sale and delivery of the pass book occurred in Maharashtra. Section 2(33) of the Tamil Nadu Value Added Tax Act limits tax levy on sales occurring outside Tamil Nadu. The petitioner's right to claim set-off originated in Maharashtra, where the DEPB was granted and delivered, and where the petitioner was subjected to sales tax.

The court referred to previous judgments to support its decision. In Premier Marine Products vs. The Assistant Commissioner (CT), Chennai, the court held that the turnover from the transaction involving DEPB, located in Bombay with the seller and buyer, is liable to tax only in Maharashtra. The court also cited Yasha Overseas case, stating that both DEPB and REP licenses are subject to sales tax. The court rejected the Revenue's argument that the petitioner's export-import operations through Tuticorin Port established Tamil Nadu's nexus, finding it insufficient for tax imposition in Tamil Nadu.

The court distinguished between tangible and intangible assets, emphasizing that the DEPB, a tangible asset, was reduced to a passbook, constituting specified goods. It rejected the Revenue's argument by citing cases involving intangible goods reduced to physical form, clarifying that once in a physical commodity form, assets are ascertained goods for sales tax purposes. Consequently, the court ruled that the respondent lacked jurisdiction to levy tax on the sale of DEPB completed in Maharashtra, quashing the tax levy and the impugned order.

In conclusion, the court allowed the writ petition, quashed the impugned order related to the tax on the turnover from the sale of DEPB, and closed the connected miscellaneous petition without costs.