2023 (1) TMI 986 - HC - VAT and Sales Tax

Reversal of Input tax Credit - on purchase of R.E.P. license which is goods, tax has been paid by the applicant - When a dealer after purchasing any import license from open market and after paying tax at the rate of 4% as per the notification and having used the license for import of chemical and thereafter selling the goods so imported by him in furtherance of his business is entitled for the benefit of I.T.C. or not? HELD THAT - Section 13 of the Act of 2008 is charging section which deals for grant of Input Tax Credit to a dealer liable to pay tax subject to conditions given in Column (2), in respect of all taxable goods, where such taxable goods are purchased on or after date of commencement of the Act, are allowed credit of the amount, as Input Tax Credit, to the extent provided in Column (3) of the table - if goods purchased are used in manufacture of any goods and where such manufactured goods are sold in the course of export of goods outside the territory of India or any taxable goods manufactured are sold either inside the State or in the course of inter- State trade or commerce, a dealer is entitled to full amount of I.T.C. In the instant case, the claim of assessee-dealer was solely rejected on the ground that he had not dealt with the sale and purchase of license which he had purchased from open market and was thus not entitled to claim I.T.C. The authorities as well as the Tribunal recorded a finding that no manufacturing activity was carried out by the assessee after importing the goods from outside the country using the import license. In VIKAS SALES CORPORATION AND ANOTHER VERSUS COMMISSIONER OF COMMERCIAL TAXES AND ANOTHER (AND OTHER APPEALS AND WRIT PETITIONS) 1996 (5) TMI 363 - SUPREME COURT , the Apex Court had already held that grant of license by Licensing Authority to the registered exporter is not a sale. The sale is when the registered exporter or purchaser sells it to another person for consideration - In the instant case, the assessee-dealer had purchased import license from another person after paying the taxes as was applicable and the licence, which was in a intangible form was converted into a tangible form by the assessee importing chemical from outside the country. The findings recorded by the Tribunal to the extent that I.T.C. can only be availed in case the assessee-dealer selling the licence itself and not importing the goods using the said import license and reselling the same in the market is not correct - revision allowed.

Summary

Issues Involved:
1. Reversal of Input Tax Credit (ITC) on purchase of R.E.P. licenses.
2. Applicability of the Apex Court's judgment in Vikas Sales Corporation regarding R.E.P. licenses as goods and entitlement to ITC.

Issue-wise Detailed Analysis:

1. Reversal of Input Tax Credit (ITC) on purchase of R.E.P. licenses:

The primary issue was whether the authorities were justified in reversing the Input Tax Credit claimed by the assessee on the purchase of R.E.P. licenses. The assessee, a registered dealer under the U.P. Value Added Tax Act, 2008, engaged in trading chemicals, purchased R.E.P. licenses from the open market for Rs. 43,89,000 to import chemicals. The Assessing Authority accepted the books of accounts and turnover but rejected the ITC claim of Rs. 2,01,427.89 on the purchase of R.E.P. licenses, which was upheld by the Appellate Authority and the Commercial Tax Tribunal.

The counsel for the assessee argued that the rejection of ITC was incorrect as the Apex Court in Vikas Sales Corporation held that R.E.P. licenses are goods liable to tax on their transactions. The assessee had paid the tax on the purchase of these licenses, and the licenses were taxed at 4% as per the notification dated 10.01.2008. The authorities denied ITC on the grounds that the assessee did not engage in the business of purchase and sale of import licenses and did not comply with Section 13(1)(a) of the Act of 2008, which requires manufacturing activities.

The Tribunal's finding that no manufacturing activity was done by the assessee was challenged, arguing that the definition of "manufacturer" under Section 2(t) of the Act includes "adapting any goods." The assessee contended that importing chemicals and selling them in smaller quantities amounts to adaptation, thus qualifying as manufacturing.

2. Applicability of the Apex Court's judgment in Vikas Sales Corporation regarding R.E.P. licenses as goods and entitlement to ITC:

The court examined whether the benefit of ITC under Section 13(1)(a) of the Act of 2008 could be extended to a dealer who purchased an import license, paid the requisite tax, imported goods, and sold them. The court noted that the issue of R.E.P. licenses being goods had already been settled by the Apex Court in Vikas Sales Corporation, which held that such licenses are goods liable to tax on sale and purchase. Therefore, the benefit under Section 13 of the Act of 2008 cannot be denied to a dealer in this business.

The court also referenced the Delhi High Court's decision in Jagriti Plastics Limited, which granted ITC to an assessee using import licenses for importing and selling commodities. The court rejected the argument that ITC could only be availed if the assessee dealt in the same commodity (i.e., the licenses themselves), as this interpretation would negate the purpose of the value-added tax system, which aims to reduce the cascading effect of multiple taxes.

Conclusion:

The court concluded that the assessee's action of importing chemicals using the R.E.P. license and selling them in smaller quantities constitutes adaptation, fitting the definition of "manufacturer" under the Act. The court found the Tribunal's decision unsustainable, set it aside, and allowed the revision. The questions of law were answered in favor of the assessee, affirming the entitlement to ITC on the purchase of R.E.P. licenses.