2023 (9) TMI 1627 - HC - VAT / Sales Tax

Refusal of Input Tax Credit on tax paid for purchase of Duty Entitlement Pass Book / Duty Free Licences / Duty Credit Scrip - levy of interest even though full amount of tax due from the dealer under the Act according to returns has been deposited and as such interest on differential tax determined on reopened assessment could be validly and legally charged. Whether the purchase of DEPB / Duty Free Licenses / Duty Credit Scrip within the State after paying VAT on it can a dealer claim ITC on VAT so paid if the goods in question are used for set off against or payment of custom duty payable on import of raw materials? HELD THAT - This Court is of the view that the case of the petitioner-assessee is covered by Section 18 (1)(e) of the RVAT Act and therefore this Court is not in agreement with the view taken by the Tax Board. Because the petitioner-assessee has purchased the goods in question from a registered dealer after payment of VAT and used the same against the import of raw material which was admittedly used in the manufacturing of final product in the State of Rajasthan. The goods in question i.e. DEPB / Duty Free License / Duty Credit Scrip by extension would also necessarily be deemed to be part of the raw material as the cost of the goods in question would be embedded in cost of the raw materials thereby affecting the purchase price and sale price - Because there is no specific exclusion of the goods in question by way of notification of the State Government as prescribed in Section 18 (1)(e) of the RVAT Act and as observed earlier the definition of raw material is broad and exhaustive and not narrow and inclusive. Although the judgment of Jagriti Plastics Ltd. 2015 (10) TMI 291 - DELHI HIGH COURT is based on provisions which are not pari materia to Section 18 of the RVAT Act the fact remains that the underlying principle / jurisprudence of ITC has been outlined in great detail and this Court is in complete agreement with the view adopted by the Division Bench of Delhi High Court. Applying the principles which emerge therein to the provisions of RVAT Act the inevitable consequence would be that the petitioner-assessee would be held entitled to the benefit of ITC under Section 18 (1) (e) of the RVAT Act especially when there is no specific exclusion qua the same. Conclusion - The petitioner-assessee is entitled to ITC on DEPB under Section 18(1)(e) of the RVAT Act. DEPB when used to offset customs duty for importing raw materials qualifies for ITC under the RVAT Act as it indirectly contributes to the manufacturing process. The questions of law framed herein-above have to be answered in favour of the petitioner-assessee and against the respondent-revenue - all these STRs are allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around two core issues:

i) Whether the claim of Input Tax Credit (ITC) on tax paid for the purchase of Duty Entitlement Pass Book (DEPB) / Duty Free Licenses / Duty Credit Scrip can be refused, even though the scrips have been used for the purpose of manufacturing finished goods within the State of Rajasthan?

ii) Whether interest can be levied and charged, even though the full amount of tax due from the dealer under the Act according to returns has been deposited, and as such, interest on differential tax determined on reopened assessment could be validly and legally charged?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: ITC on DEPB / Duty Free Licenses / Duty Credit Scrip

Relevant legal framework and precedents: The relevant legal framework is Section 18 of the Rajasthan Value Added Tax Act, 2003 (RVAT Act), which outlines the conditions under which ITC can be claimed. The court also considered precedents from the Supreme Court and various High Courts regarding the interpretation of ITC and its applicability to DEPB and similar instruments.

Court's interpretation and reasoning: The court interpreted Section 18 of the RVAT Act, particularly focusing on sub-section (1)(e), which allows ITC for goods used as raw material in the manufacture of goods for sale. The court reasoned that DEPB, when used to offset customs duty for importing raw materials, indirectly contributes to the manufacturing process and should be considered part of the raw material.

Key evidence and findings: The petitioner-assessee purchased DEPB from a registered dealer and used it for importing raw materials used in manufacturing. The court found that the cost of DEPB is embedded in the final product's price, thereby affecting the purchase and sale prices.

Application of law to facts: The court applied the broad definition of "raw material" and "input tax" under the RVAT Act, concluding that DEPB qualifies for ITC as it is indirectly used in manufacturing.

Treatment of competing arguments: The revenue argued that DEPB does not fall under any sub-clause of Section 18(1) and relied on judgments from other jurisdictions. The court distinguished these cases, emphasizing the specific wording and intent of the RVAT Act.

Conclusions: The court concluded that the petitioner-assessee is entitled to ITC on DEPB under Section 18(1)(e) of the RVAT Act.

Issue 2: Interest on Differential Tax

Relevant legal framework and precedents: The RVAT Act provisions regarding interest on differential tax assessments were considered, alongside relevant case law.

Court's interpretation and reasoning: The court did not provide a detailed analysis for this issue as the primary focus was on the ITC entitlement. However, the quashing of the Tax Board's order implies that the interest levied was also set aside.

Key evidence and findings: The petitioner-assessee had deposited the full amount of tax due according to returns, challenging the imposition of interest on reassessment.

Application of law to facts: The court's decision to quash the lower authorities' orders suggests that the imposition of interest was not justified under the circumstances.

Treatment of competing arguments: The revenue's justification for interest was not explicitly addressed, but the overall decision favored the petitioner-assessee.

Conclusions: The court implicitly concluded that interest on the differential tax was improperly levied.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The petitioner-assessee has purchased the goods in question from a registered dealer, after payment of VAT, and used the same against the import of raw material, which was admittedly used in the manufacturing of final product in the State of Rajasthan."

Core principles established: The judgment establishes that DEPB, when used to offset customs duty for importing raw materials, qualifies for ITC under the RVAT Act as it indirectly contributes to the manufacturing process.

Final determinations on each issue: The court determined that the petitioner-assessee is entitled to ITC on DEPB under Section 18(1)(e) of the RVAT Act and quashed the orders of the Tax Board and lower authorities, thereby setting aside the interest and penalties imposed.

Cross-references between related points: The court's reasoning aligns with the principles outlined in the Delhi High Court's judgment in Jagriti Plastics Ltd., emphasizing the broad interpretation of ITC to avoid the cascading effect of taxes.

End of Summary

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