Input tax credit adjustment for zero-rated sales to a 100% EOU cannot be denied merely because refund was not claimed.

Section 18 of the Tamil Nadu VAT Act, 2006 was construed as providing two separate options for zero-rated sales to a 100% EOU: adjustment of input tax credit or a refund claim in the prescribed form. Because the dealer had elected to adjust input tax credit and had not chosen the refund route, it was not required to file Form W under Rule 11. The orders denying the adjustment on the assumption that refund was unavailable were inconsistent with the statutory scheme and were unsustainable to that extent.

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Issues: Whether a dealer effecting sales to a 100% EOU was required to file a refund claim in Form W under Rule 11 of the Tamil Nadu Value Added Tax Rules, 2007, or whether the dealer could instead adjust input tax credit under Section 18 of the Tamil Nadu Value Added Tax Act, 2006.

Analysis: Section 18 provided two distinct options in relation to zero-rated sales to a 100% EOU: adjustment of input tax credit or claim of refund under the specified sub-section. On the facts, the petitioner had opted to adjust input tax credit and had not chosen the refund route. The impugned orders proceeded on the footing that refund was unavailable and therefore adjustment of input tax credit was also impermissible, which was inconsistent with the scheme of Section 18.

Conclusion: The petitioner was entitled to adjust input tax credit and was not bound to file a refund claim in Form W for the zero-rated sales in question. The orders denying that entitlement were unsustainable to that extent.

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