2016 (4) TMI 968 - HC - VAT and Sales Tax

DEPB licenses ineligible for tax credit under Tamil Nadu VAT Act; court clarifies purposes as non-exhaustive.

M/s. Shah Kantilal Jayantilal Versus The State of Tamilnadu rep. by Joint Commissioner (CT)

The High Court upheld the denial of input tax credit for DEPB licenses, stating they did not meet the criteria under Section 19(1) of the Tamil Nadu Value ... Whether the reversal of input tax credit on the purchase of DEPB licence used for payment of import customs duty was in order or not - Importer and exporter of spices, crude drugs, kiran items and chemicals - Can the Department deny the benefit of input tax credit for the duty paid by the petitioner on the purchase of DEPB licences, when such licences are considered to be 'goods' within the meaning of Section 2(21) and the tax paid on the purchase of such licences are considered as 'input tax' under Section 2(24) and also when the charging provisions in Section 3(3) clearly entitle a registered dealer to such a benefit. Held that:- before considering the issue as to whether DEPB licences constitute 'goods' within the meaning of Section 2(21) of TNVAT Act, 2006, it may be useful to look at the ratio decidendi of the decision of the Supreme Court in Yasha Overseas Vs. CST [2008 (5) TMI 43 - SUPREME COURT ]. The said decision arose under interesting circumstances. In H.Anraj v. The State of Tamil Nadu [1985 (10) TMI 258 - SUPREME COURT OF INDIA], the Supreme Court held that lottery tickets constituted 'goods' within the meaning of the expression 'goods' as given in the Tamil Nadu General Sales Tax Act, 1959 and the Bengal Finance (Sales Tax) Act, 1941. In view of the above said Supreme Court judgments, the petitioner is basically right in contending that DEPB licences are goods. But, the mere fact that these licences constitute goods within the meaning of Section 2(21) of Tamil Nadu Act 32 of 2006, is not sufficient to make the petitioner entitled to input tax credit. Section 19(1) provides for input tax credit shows that the entitlement for such credit is restricted only to the amount of tax paid or payable under the Act by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule. Therefore, unless the claim for input tax credit relates to the tax paid or payable on the purchase of taxable goods specified in the First Schedule, it is not possible to grant credit. DEPB licences do not even fall under any of the categories mentioned in Section 19(2). The case of the petitioner does not even fall under Sub-Section (3) or Sub-Section (4) of Section 19. Therefore, the Department was right in denying the benefit of input tax credit in respect of the duty paid by the petitioner on the purchase of DEPB licences, despite the fact that these licences constitute goods within the meaning of Section 2(21). The petitioner has used these DEPB licences, for the purpose of payment of import duty. Therefore, the benefit that they are claiming now under the Tamil Nadu Value Added Tax Act appears to be a double benefit. As we have pointed out earlier, the petitioner cannot claim credit, unless he satisfies all the three conditions specified in Section 19(1) namely (i) that he is a registered dealer (ii) that he actually paid or became liable to pay tax on the purchase of taxable goods and (iii) that the tax paid or payable was in respect of goods specified in the First Schedule. The petitioner does not satisfy all the three conditions. Hence, the denial of input tax credit on the purchase of DEPB licences is perfectly in order and the first question of law is answered against the petitioner. Whether the purposes indicated in Clauses (i) to (vi) of Sub-Section (2) of Section 19 are enumerative or exhaustive - Held that:- Section 19(2) directs input tax credit to be allowed for the purchase of goods made within the State from a registered dealer, if they are for the purposes indicated in Clauses (i) to (vi) therein. Section 19 is a complete Code in itself. There are 20 sub-sections under Section 19, each of which serves a different purpose. While Sub-Section (2) gives a list of purposes for the purchase of goods within the State, which would make a registered dealer entitled to input tax credit, Sub-Section (3) speaks about a similar entitlement in so far as the purchases of capital goods are concerned. Sub-Sections (5) and (6) indicate the circumstances, under which, the input tax credit cannot be allowed. But, the entitlement of a registered dealer to input tax credit, does not arise solely out of Sub-Section (2) of Section 19. It arises actually out of Sub-Section (1) of Section 19. But, since Sub-Section (1) covers all types of purchases of all types of goods specified in the First Schedule by all types of registered dealers, it is generic in nature. Out of such generic entitlement stipulated in Sub-Section (1), the statute carves out. Therefore, entitlement, non-entitlement, etc., are covered with reference to specifics in the other Sub-Sections of Section 19. It does not mean that the very entitlement to credit could be traced only to Sub-Sections (2) to (4) and the non-entitlement could be traced to Sub-Sections (5) to (10). If a dealer satisfies the essential conditions stipulated in Sub-Section (1), he is entitled to credit. Therefore, we are of the considered view that Sub-Section (2) of Section 19 is enumerative and not exhaustive. The second question of law is answered accordingly. But, our answer to the second question of law as above, will not actually advance the cause of the revision petitioner. This is in view of our answer to the first question of law that no input tax credit can be claimed merely on the purchase of DEPB licences. Therefore, despite the fact that on the second question of law, we agree with the submission of the learned counsel for the petitioner, the revision petitioner is not entitled to any relief. - Decided against the petitioner Issues Involved:1. Denial of input tax credit for the duty paid on the purchase of DEPB licenses.2. Interpretation of whether the purposes listed in Clauses (i) to (vi) of Sub-Section (2) of Section 19 are enumerative or exhaustive.Issue-wise Detailed Analysis:1. Denial of Input Tax Credit for the Duty Paid on the Purchase of DEPB Licenses:The petitioner, an importer and exporter, claimed input tax credit on the purchase of DEPB (Duty Entitlement Pass Book) licenses during the assessment year 2007-08. The Assessing Officer initially proposed to reverse this credit, and despite the petitioner’s objections, the Appellate Deputy Commissioner and the Tamil Nadu Sales Tax Appellate Tribunal upheld the reversal. The Tribunal reasoned that DEPB licenses, though considered goods, were not covered under any of the clauses of Sub-Section (2) of Section 19, which specifies circumstances under which input tax credit can be allowed.The High Court analyzed the scheme of Section 19 of the Tamil Nadu Value Added Tax Act, 2006, which provides for input tax credit. The court noted that to be eligible for input tax credit under Section 19(1), the goods must be specified in the First Schedule, and the tax must have been paid or payable under the Act. DEPB licenses, while classified as goods, were not listed in the First Schedule and thus did not meet the criteria for input tax credit under Section 19(1).The court further emphasized that the petitioner did not pay any tax under the Tamil Nadu Value Added Tax Act on the purchase of DEPB licenses but used them to pay import duty, seeking a double benefit. The court concluded that the petitioner did not satisfy the conditions specified in Section 19(1) and upheld the denial of input tax credit.2. Interpretation of Whether the Purposes Listed in Clauses (i) to (vi) of Sub-Section (2) of Section 19 are Enumerative or Exhaustive:The court examined whether the purposes listed in Clauses (i) to (vi) of Sub-Section (2) of Section 19 were enumerative or exhaustive. Section 19(2) directs input tax credit to be allowed for the purchase of goods made within the State from a registered dealer for specific purposes, such as resale within the State, use in manufacturing, and sale in the course of inter-State trade or commerce.The court noted that Section 19(1) provides a generic entitlement to input tax credit for purchases of taxable goods specified in the First Schedule by registered dealers. Sub-Sections (2) to (4) of Section 19 carve out specific entitlements for certain purchases, while Sub-Sections (5) to (10) list circumstances where input tax credit cannot be allowed. The court concluded that Sub-Section (2) is enumerative, not exhaustive, meaning it lists examples rather than limiting the scope of input tax credit.However, the court clarified that this interpretation did not benefit the petitioner, as the primary issue was the ineligibility of DEPB licenses for input tax credit under Section 19(1).Conclusion:The High Court dismissed the revision petition, affirming that DEPB licenses do not qualify for input tax credit under the Tamil Nadu Value Added Tax Act, 2006, and that the purposes listed in Section 19(2) are enumerative, not exhaustive. The court held that the petitioner did not meet the necessary conditions for claiming input tax credit, and thus, the denial by the Department was justified.