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2015 (10) TMI 291 - DELHI HIGH COURT

2015 (10) TMI 291 - DELHI HIGH COURT - TMI - Input tax credit - whether the Appellant Assessees are entitled to input tax credit on purchase of duty entitlement pass book scrips - DEPB Credit - Held that:- The resultant position was that input tax credit can be claimed in respect of the turnover of purchases made for all of the aforementioned periods except the period 1st April 2010 to 30th September 2011 in respect of the purchases arising in the course of the Assessee”s activities as a dealer. .....

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nstitute usage for the purposes of Section 9(4) of the Act.

There can be no doubt that the price of the goods imported has an element of customs duty paid on such goods. The component of customs duty is reduced to the extent of the usage by the Assessee of the DEPB scrips. The reduced customs duty is embedded in the resale price of the imported goods. Thus, the use of the DEPB scrips is for the purpose of the Assessee selling the imported goods. 'Usage' in this context has to be seen .....

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the purposes of sale of the imported commodity. The DEPB scrip has contributed, if not directly then indirectly, to the price of the imported commodity sold by the Assessees in the market. There could be any number of intangibles that have an impact on the value of the final product like advertisement costs in respect of which input service tax credit may have been availed of, as was in the case of Coca Cola India Pvt. Ltd. (2009 (8) TMI 50 - BOMBAY HIGH COURT). All that is to be shown is that .....

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ng effect of multiple taxes at various stages. As long as it is shown that use of the DEPB scrip has impacted the cost of the product that is sold, either directly or indirectly, the credit of the input tax paid on the DEPB scrip cannot be denied to the Assessees. - demands created on the Appellant Assessees, forming the subject matter of these appeals, are held unsustainable in law. Consequently, the question of payment of penalty does not arise and the orders levying penalty on each of the App .....

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by the Appellate Tribunal Value Added Tax ( ATVAT ) for the assessment year ( AY ) 2008-09. ST. Appeal No.5 of 2015 is by Jagriti Plastics Ltd. (JPL) and is directed against the order dated 11th August 2014 passed by the ATVAT for AY 2007-08. 2. The common question of law that arises in both the appeals as framed by this Court (by its order dated 6th May 2014 in ST Appeal No. 23 of 2015 and 14th July 2015 in ST Appeal No. 5 of 2015) is whether the Appellant Assessees are entitled to input tax cr .....

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e trading of imported chemicals, plastic dana and raw materials. 5. Both the Appellants purchased DEPB scrips from registered dealers on payment of value added tax ( VAT ) under the DVAT Act in the course of their regular business activity. They used the DEPB scrips for payment of customs duty on the imports made by them. Both Appellants thereafter sold the imported material in the local market after charging output VAT. The Appellants adjusted the input tax paid by them on the purchase of the D .....

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aying customs duty on such imported goods. Therefore JPL was not allowed to avail of the input tax credit in respect of the VAT paid on DEPB scrips. On 27th August 2010, JPL was issued a notice calling on it to pay the default tax, interest and penalty. 7. NFIPL was likewise also not permitted to avail of input tax credit as regards the VAT paid by it on the DEPB scrips and was issued notices of demand of tax, interest as well as penalty for each of the four quarters of 2008-09. 8. Both the Appe .....

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2012 were dismissed by the ATVAT order dated 11th August 2014. The ATVAT in both impugned orders held as under: (i) The DEPB scrips were not goods for the purpose of sale directly or indirectly by the dealer. (ii) The Appellants did not use the DEPB scrips in the course of their business activities as dealers. (iii) The purchases made by the Appellants fell within the purview of Section 9 (7) (c) of the DVAT Act. (iv) There was no deliberate defiance by either of the Appellants in paying the req .....

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ettle the legal position in this regard, in the context of other similar taxing statutes, are Vikas Sales Corp. v. CCT(1996) 4 SCC 433 and Yash Overseas v. CST & Ors. (2008) 17 VST 182 (SC). 12. The central controversy revolves around the issue of input tax credit in terms of Section 9 of the DVAT Act. It should be recalled that the periods with which these appeals are concerned are 2007-08 and 2008-09. 13. Up to 31st March 2010, Section 9 (1) read as under: 9. Tax credit. (1) Subject to sub .....

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or (b) sales which are not liable to tax under section 7 of this Act. Explanation.- Sales which are not liable to tax under section 7 of this Act involve exports from Delhi whether to other States or Union territories or to foreign countries. 14. With effect from 1st April 2010, Section 9(1) stood amended by the Delhi Value Added (Amendment) Act, 2009 (Delhi Act 1 of 2010) as under: (a) in sub-section (1), for the words where the purchase arises , the words to the extent of proportion of the go .....

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ned periods except the period 1st April 2010 to 30th September 2011 in respect of the purchases arising in the course of the Assessee s activities as a dealer. As already noticed hereinbefore the periods with which these two appeals are concerned are prior to 1st April, 2010. Therefore, during that relevant period the change brought about by the DVAT Amendment Act 2009, was not operational. 17. The next question that, therefore, arises is whether it can be said that the DEPB scrips on which inpu .....

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the Act. 18. Section 9(4) has to be read with Section 9(3) both of which read as under: 9. Tax credit:- .... .... .... .... .... (3) The amount of the tax credit to which a dealer is entitled in respect of the purchase of goods shall be the amount of input tax arising in the tax period reduced in the manner described in sub-sections (4), (6) and (10) of this section. (4) Where a dealer has purchased goods and the goods are to be used partly for the purpose of making the sales referred to in sub- .....

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imported goods. 'Usage' in this context has to be seen as a use that affects the price of the goods although it may not be used tangibly in the goods themselves. There is no warrant to limit the understanding of the word use to an actual direct tangible or physical use in the imported goods. 20. It is possible in this context to draw an analogy with CENVAT or MODVAT credit, the purpose of which, like VAT, was to mitigate the cascading effect of multiple taxes at various stages of the tra .....

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ONGC also manufactured the downstream products, which were dutiable, it availed of the CENVAT credit in respect of the service tax paid on the input services in terms of the facility extended to manufacturer of excisable goods under the CENVAT Credit Rules. The Department took the stand that CENVAT credit pertained to the input service availed of and used exclusively at the oil fields of Mumbai Offshore and that since the crude oil and natural gas were exempted from excise duty, the CENVAT cred .....

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. The High Court of Madhya Pradesh in M/s. Commercial Engineers & Body Building Company Ltd. v. Divisional Deputy Commissioner, Commercial Tax Office (decision dated 5th August 2015 in WP No.7628/2015) was dealing with the claim of an Assessee to input tax credit under the Madhya Pradesh Value Added Tax Act (MPVAT Act). There certain components on which the input tax was paid were used for fabricating plant and machinery used in the manufacture of the final product, i.e. the motor vehicle bo .....

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r processing of something or used as a plant, machinery, equipment and parts in respect of goods then the final product would be entitled for input rebate. The High Court rejected the contention of the Department that the material on which input tax was paid should itself be sold and should not be further used in respect of anything for the making of a final product which is ultimately sold. 22. In Coca Cola India Pvt. Ltd. v. Commissioner of Central Excise Pune-III 2009 (15) STR 657 (Bom.) it w .....

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ion between the input stage goods and services is established. Conceptually as well as a matter of policy, any input service that forms a part of the value of the final product should be eligible for the benefit of CENVAT credit. 23. Other decisions which hold likewise include Deepak Fertilisers and Chemicals Corporation Ltd. v. CCE, Belapur 2013 (32) S.T.R. 532 (Bom.) and National Aluminium Co. Ltd. v. Deputy Commissioner of Commercial Taxes (2012) 56 VST 68 (Orissa). In the latter decision, th .....

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inium ingots and sheets, etc.?" In answering the said question in the affirmative, the Orissa High Court held: "It is not at all necessary that coal, alum, caustic soda and other consumables, etc., purchased on payment of tax and used in manufacturing of electrical energy in order to qualify as input should directly go into composition of the finished products, what is required is that those goods should be directly used in manufacturing and processing for production of finished goods. .....

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for manufacturing/generating of electrical energy, are inextricably connected with the manufacturing process of aluminium and aluminium ingots; they are nothing but input and tax paid on purchase of such input shall qualify for set off against output tax paid/payable on sale of finished products." 24. The Court finds no reason why in respect of the input tax credit provided under Section 9 (1) read with Section 9(4) of the DVAT Act a similar approach should not be adopted. The usage by the .....

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