2003 (5) TMI 75 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of Duty Entitlement Pass Book (D.E.P.B.) credit as "goods" under the Bombay Sales Tax Act, 1959.
2. Validity of the amendment to Schedule 'C' of the Bombay Sales Tax Act to include D.E.P.B. credit.

Detailed Analysis:

1. Classification of D.E.P.B. Credit as "Goods":

Factual Background:
The petitioners, a company engaged in the manufacture, sale, and export of pharmaceuticals, challenged the inclusion of D.E.P.B. credit as "goods" under the Bombay Sales Tax Act. The D.E.P.B. Scheme aims to neutralize the incidence of basic customs duty on the import content of export products by granting duty credits.

Petitioners' Arguments:
The petitioners contended that D.E.P.B. credit is not "goods" as defined under Section 2(13) of the Bombay Sales Tax Act. They argued that D.E.P.B. credits are akin to money or actionable claims, both of which are excluded from the definition of "goods." They likened D.E.P.B. credits to bank account credits, asserting that such credits fall within the scope of "money" and are thus not taxable under the Act.

Respondents' Arguments:
The respondents argued that D.E.P.B. credit is a movable property with intrinsic value, freely transferable in the market, and thus qualifies as "goods." They emphasized that sales tax is levied on the sale or purchase of D.E.P.B. credits, not on the credit itself. They cited the Delhi High Court's judgment in Philco Exports, which upheld the taxation of D.E.P.B. credits.

Court's Consideration:
The court examined the definition of "goods" under Section 2(13) of the Bombay Sales Tax Act and concluded that D.E.P.B. credits do not qualify as "money." The court noted that "money" refers to currency that can be freely exchanged for debts or commodities, which is not the case with D.E.P.B. credits. The court also rejected the argument that D.E.P.B. credits are actionable claims, as they represent a determined amount of liability that does not require legal action for realization.

Conclusion:
The court held that D.E.P.B. credits are neither money nor actionable claims but are movable property with intrinsic value. Therefore, they fall within the definition of "goods" under the Bombay Sales Tax Act and are subject to sales tax.

2. Validity of the Amendment to Schedule 'C':

Factual Background:
The State of Maharashtra amended Schedule 'C' of the Bombay Sales Tax Act to include D.E.P.B. credit as taxable goods, with retrospective effect from April 1, 1997. The petitioners challenged the validity of this amendment.

Petitioners' Arguments:
The petitioners argued that the amendment was arbitrary and beyond the provisions of the Act. They contended that D.E.P.B. credits do not qualify as "goods" and thus cannot be included in Schedule 'C.'

Respondents' Arguments:
The respondents defended the amendment, asserting that it was consistent with the provisions of the Act. They emphasized that D.E.P.B. credits are recognized as goods in commercial parlance and are subject to sales tax in various states. They also pointed out that the petitioners had previously paid taxes on the sale of D.E.P.B. credits, indicating their understanding of the credits as taxable goods.

Court's Consideration:
The court examined the legislative intent and the statutory scheme of the Bombay Sales Tax Act. It noted that the Act aims to levy tax on the sale or purchase of certain goods, and the inclusion of D.E.P.B. credits aligns with this objective. The court also considered the petitioners' prior tax payments on D.E.P.B. credits as an acknowledgment of their taxable nature.

Conclusion:
The court upheld the validity of the amendment to Schedule 'C' of the Bombay Sales Tax Act, concluding that D.E.P.B. credits are goods and are subject to sales tax. The petition was dismissed, and the rule was discharged with no order as to costs.

Final Judgment:
The petition challenging the classification of D.E.P.B. credits as goods and the validity of the amendment to Schedule 'C' of the Bombay Sales Tax Act was dismissed. The court confirmed that D.E.P.B. credits are taxable goods under the Act.