Input tax credit on import licence purchases allowed where the licence was used for business imports and statutory conditions were met.

Input tax credit under the U.P. VAT Act could not be denied merely because the dealer purchased an import licence, used it to import goods for its business, and did not resell the licence itself. The licence was treated as goods, tax had been paid on its purchase, and its use for importing chemicals was held to amount to adaptation for business use within the statutory concept of manufacture. An interpretation that denied credit in these circumstances would frustrate the object of value added taxation by preserving tax cascading. The assessee was therefore entitled to input tax credit, and the Revenue's denial of credit was unsustainable.

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Issues: Whether input tax credit under Section 13(1)(a) of the U.P. Value Added Tax Act, 2008 could be denied to a dealer who purchased an import licence after payment of tax, used it for importing goods, and sold the imported goods in the course of business.

Analysis: The import licence was treated as goods, and once tax had been paid on its purchase, the claim to input tax credit could not be rejected merely because the dealer did not resell the licence itself. The definition of manufacturer under Section 2(t) was construed to include adapting goods for use, and the use of the licence to import chemicals in a manner suited to the dealer's business was held to amount to adaptation. The interpretation adopted by the tax authorities would defeat the object of value added taxation by preserving the cascading effect of tax. The reading of Section 13(1)(a), together with the table governing full credit where purchased goods are used in manufacture and the manufactured goods are sold, supported the dealer's claim.

Conclusion: The dealer was entitled to input tax credit, and the denial of credit was unsustainable.

Final Conclusion: The revision succeeded, the order of the Tribunal was set aside, and the question of law was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Where a purchased licence is recognised as goods and is used in a manner amounting to adaptation for business use, input tax credit cannot be denied solely because the dealer did not trade in the licence itself, if the statutory conditions for credit are otherwise satisfied.

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