Broad input tax refund rules may cover incidental SEZ unit purchases if they are linked to the principal authorised activity.

Rule 130-A of the Karnataka Value Added Tax Rules, 2005 was read broadly to cover inputs purchased for development, operation or maintenance of a processing area or SEZ unit, as well as inputs used in the unit's principal manufacturing or processing activities. The court noted that incidental purchases reasonably connected with the authorised activity, such as items needed for day-to-day functioning, may qualify for refund or input tax credit, subject to verification of actual use. The Tribunal's remand for factual verification of the claimed items was left undisturbed, and no substantial question of law was found for interference.

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Issues: Whether the respondent-unit, being a developer or unit in a Special Economic Zone, was entitled to refund or input tax credit under Rule 130-A of the Karnataka Value Added Tax Rules, 2005 for inputs such as mobile phones, drinking water and electronic gadgets said to be used for the unit's activities.

Analysis: Rule 130-A grants refund or deduction in respect of inputs purchased for development, operation or maintenance of a processing area or for setting up, operation or maintenance of a unit in the processing area, and for inputs used in manufacture, trading, production, processing, assembling, repairing, reconditioning, re-engineering or packing. The provision was read as broad enough to cover inputs and incidental purchases connected with the principal activity of the unit. The Court also noted that the Tribunal had remanded the matter only for verification of the items to ascertain whether they were required for the principal activity within the rule.

Conclusion: The claimed items could fall within Rule 130-A if they were required for the principal activity or incidental operations of the SEZ unit, and no substantial question of law arose for interference.

Final Conclusion: The petitions were meritless and were dismissed, leaving the Tribunal's approach undisturbed.

Ratio Decidendi: Where the governing input-tax-refund rule uses broad expressions covering development, operation, maintenance and processing-related activities in an SEZ, incidental purchases reasonably connected with the principal authorized activity may qualify for refund or credit, subject to verification of use.

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