Proportionate input tax credit and no penalty in a debatable VAT dispute where exempt goods are involved.

Where raw material is used for both taxable and VAT-exempt goods, input tax credit is admissible only proportionately to taxable turnover under the Rajasthan Value Added Tax Act, 2003, and not on exempt output. Penalty under Section 61 is not justified where the claim raises a debatable issue and no mala fide conduct is shown. Applying the earlier binding view on identical facts, the HC rejected the assessee's challenge and dismissed the revision, subject to any contrary final decision of the Supreme Court in the connected matter.

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Issues: Whether the assessee was entitled to full input tax credit on raw material used for both taxable and VAT-exempt goods, and whether penalty could be sustained.

Analysis: The petition was disposed of by following the earlier decision on identical facts under Section 18 of the Rajasthan Value Added Tax Act, 2003. That decision had held that input tax credit was allowable only proportionately to the extent of taxable sales and could not be claimed in respect of VAT-exempt goods. It had also held that penalty under Section 61 of the Rajasthan Value Added Tax Act, 2003 was not justified where the claim involved a debatable issue and no mala fide conduct was established.

Conclusion: The claim for full input tax credit did not succeed, and the challenge to the Revenue action was rejected.

Final Conclusion: The revision petition was dismissed by applying the earlier binding view on identical facts, with the matter left to abide by any contrary final decision of the Supreme Court in the connected matter.

Ratio Decidendi: Where raw material is used for both taxable and exempt outputs, input tax credit is admissible only proportionately to taxable turnover, and penalty is unwarranted in the absence of mala fide conduct in a debatable dispute.

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