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M/s. Shah Kantilal Jayantilal Versus The State of Tamilnadu rep. by Joint Commissioner (CT)

2016 (4) TMI 968 - MADRAS HIGH COURT

Whether the reversal of input tax credit on the purchase of DEPB licence used for payment of import customs duty was in order or not - Importer and exporter of spices, crude drugs, kiran items and chemicals - Can the Department deny the benefit of input tax credit for the duty paid by the petitioner on the purchase of DEPB licences, when such licences are considered to be "goods" within the meaning of Section 2(21) and the tax paid on the purchase of such licences are considered as "input tax" u .....

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State of Tamil Nadu [1985 (10) TMI 258 - SUPREME COURT OF INDIA], the Supreme Court held that lottery tickets constituted "goods" within the meaning of the expression "goods" as given in the Tamil Nadu General Sales Tax Act, 1959 and the Bengal Finance (Sales Tax) Act, 1941. In view of the above said Supreme Court judgments, the petitioner is basically right in contending that DEPB licences are goods. But, the mere fact that these licences constitute goods within the meaning of Section 2(21) of .....

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e First Schedule, it is not possible to grant credit. DEPB licences do not even fall under any of the categories mentioned in Section 19(2). The case of the petitioner does not even fall under Sub-Section (3) or Sub-Section (4) of Section 19. Therefore, the Department was right in denying the benefit of input tax credit in respect of the duty paid by the petitioner on the purchase of DEPB licences, despite the fact that these licences constitute goods within the meaning of Section 2(21). - T .....

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ax paid or payable was in respect of goods specified in the First Schedule. The petitioner does not satisfy all the three conditions. Hence, the denial of input tax credit on the purchase of DEPB licences is perfectly in order and the first question of law is answered against the petitioner. - Whether the purposes indicated in Clauses (i) to (vi) of Sub-Section (2) of Section 19 are enumerative or exhaustive - Held that:- Section 19(2) directs input tax credit to be allowed for the purchase .....

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al goods are concerned. Sub-Sections (5) and (6) indicate the circumstances, under which, the input tax credit cannot be allowed. But, the entitlement of a registered dealer to input tax credit, does not arise solely out of Sub-Section (2) of Section 19. It arises actually out of Sub-Section (1) of Section 19. But, since Sub-Section (1) covers all types of purchases of all types of goods specified in the First Schedule by all types of registered dealers, it is generic in nature. Out of such gene .....

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the considered view that Sub-Section (2) of Section 19 is enumerative and not exhaustive. The second question of law is answered accordingly. But, our answer to the second question of law as above, will not actually advance the cause of the revision petitioner. This is in view of our answer to the first question of law that no input tax credit can be claimed merely on the purchase of DEPB licences. Therefore, despite the fact that on the second question of law, we agree with the submission of th .....

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er of the Tamil Nadu Sales Tax Appellate Tribunal, confirming the orders of the Assessing Officer and the Appellate Authority, reversing the input tax credit. 2. We have heard Mr.V.Sundareswaran, learned counsel for the petitioner and Mr.A.N.R.Jayaprathap, learned Additional Government Pleader (Tax) for the respondent. 3. The petitioner is an importer and exporter of spices, crude drugs, kiran items and chemicals. During the assessment year 2007-08, the petitioner purchased DEPB (Duty Entitlemen .....

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x credit had to be availed over and above 3%, on the transfer of goods to other State otherwise by way of sale. It was also proposed in the notice to reverse the ITC claim for the purchase of DEPB to the extent they were used for their own purposes. 5. The petitioner gave a reply to the notice contending that they had effected purchases within Tamil Nadu, outside Tamil Nadu and also from other countries and that the import purchase and Inter-State purchases were more than 90%. In so far as the I .....

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icences are concerned, the Assessing Officer held that the petitioner had accepted the proposal and paid a sum of ₹ 5,44,815/-. Therefore, the Assessing Officer confirmed the proposal. 7. But, the petitioner filed a statutory appeal under Section 51 of the Tamil Nadu Value Added Tax Act, 2006, to the Appellate Deputy Commissioner contending that the input tax credit was utilized for the purpose of import of goods and that therefore it cannot be reversed. However, by an order dated 23.11.20 .....

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ed by the order of the Appellate Deputy Commissioner, the petitioner filed a further appeal under Section 58 of the Act to the Tamil Nadu Sales Tax Appellate Tribunal, Chennai Bench. But, the Tribunal, by an order dated 30.04.2015 dismissed the appeal in T.A.No.22 of 2011. It is against the said order that the petitioner has come up with the above revision. 9. As seen from the order of the Tribunal, the main question that arose for consideration was as to whether the reversal of input tax credit .....

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duty on import. Though these licences are also held to be goods, the purchase of such goods are not covered by any of the Clauses of Sub-Section (2) of Section 18. Therefore, the Tribunal dismissed the appeal forcing the petitioner to come up with the above revision. 10. Since the revision to this court is maintainable under Section 60(1) of the Act, only on the ground that the Appellate Tribunal had either decided erroneously or failed to decide any question of law, we have to see if the Tribu .....

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i) to (vi) of Sub-Section (2) of Section 19 are only enumerative and not exhaustive. 12. In the light of the above, we are of the considered view that the following questions arise for our consideration: (i) Can the Department deny the benefit of input tax credit for the duty paid by the petitioner on the purchase of DEPB licences, when such licences are considered to be "goods" within the meaning of Section 2 (21) and the tax paid on the purchase of such licences are considered as &qu .....

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s (a) levy of taxes on sale of goods; (b) levy of taxes on the right to use any goods; (c) levy of tax on transfer of goods involved in works contract; (d) levy of tax on food and drinks, bullion and jewellery; (e) levy of tax on sugarcane and (f) levy of purchase tax. 14. Though a variety of levies are contemplated under the Act, the Act seeks to protect a registered dealer from double taxation. The Act seeks to give this protection in the form of what is known "input tax credit" unde .....

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ealer establishes that the tax on such purchases had actually been paid by him in the manner prescribed. (ii) Sub-Section (2) stipulates that input tax credit should be allowed for the purchase of goods made within the State from a registered dealer, if such purchase was for any one of the 6 purposes indicated in Clauses (i) to (vi) of Sub-Section (2). (iii) Sub-Section (3) provides for input tax credit, in respect of purchases of capital goods, whenever they are used in the manufacture of taxab .....

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: (a) sale of goods exempted under Section 15; (b) goods brought into the State from outside the State; (c) purchase of goods sold as such or used in the manufacture of other goods and sold in the course of Inter-State Trade or Commerce; and (d) purchase of capital goods used exclusively in the manufacture of goods exempted under Section 15. (vi) Sub-Sections (7), (8), (9) and (10) of Section 19 list out the circumstances, under which, a registered dealer will not be entitled to input tax credit .....

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sfer of input tax credit, whenever the business of a registered dealer is transferred on account of change of ownership due to sale, merger or amalgamation etc. (xi) Sub-Section (15) speaks about the consequences of cancellation of the certificate of registration of the selling dealer. (xii) Sub-Section (16) speaks about the power of the assessing authority to revoke the input tax credit, under certain circumstances. (xiii) Sub-Section (17) deals with the contingencies, when the input tax credit .....

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y the Legislature to be a complete Code in itself, as it speaks of (i) entitlement to tax credit (ii) the transactions on which, the entitlement would arise (iii) the persons, who are entitled to tax credit (iv) the transactions on which, there is no entitlement (v) persons, who are not entitled to tax credit (vi) the manner and the period, within which, a claim for credit is to be made (vii) the circumstances, under which, the credit availed could be reversed and the authority, who is competent .....

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purchase of taxable goods; and (iii) such taxable goods, on the purchase of which, he paid or became liable to pay tax under the Act, are also specified in the First Schedule. 17. Keeping in mind the scheme of Section 19 as enumerated above, if we come back to the case on hand, it is seen that what the petitioner claims is an input tax credit on the amount of duty paid for the purchase of a DEPB licence. The claim of the petitioner is that a DEPB licence is also a "good" within the me .....

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things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale;" 18. According to the petitioner, the DEPB licences purchased by him not only constitute goods within the purview of Section 2(21), but also constitute "input" within the meaning of the expression under Section 2(23) and constitute "input tax" within the meaning of Section 2(24). Sections 2(23) and 2(24) read as follows:- "2(23) "input" .....

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on DEPB licences, are liable to be given credit to. Reliance is placed on the language of Section 3(3), which reads as follows:- "3(3) The tax payable under sub-section (2) by a registered dealer shall be reduced, in the manner prescribed, to the extent of tax paid on his purchase of goods specified in Part-B or Part-C of the First Schedule, inside the State, to the registered dealer, who sold the goods to him." 20. In support of his contention that DEPB licences constitute goods with .....

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decision arose under interesting circumstances. In H.Anraj v. The State of Tamil Nadu [1986 (1) SCC 414], the Supreme Court held that lottery tickets constituted "goods" within the meaning of the expression "goods" as given in the Tamil Nadu General Sales Tax Act, 1959 and the Bengal Finance (Sales Tax) Act, 1941. 23. After 10 years of the decision in H.Anraj, another question arose before the Supreme Court in Vikas Sales Corporation v. Commissioner of Commercial Taxes [1996 .....

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as well as the State Sales Tax Laws, the Supreme Court held in Vikas Sales Corporation that REP licences are neither chose-in-actions nor actionable claims, but constituted goods that have an inherent value and also traded as such, independent of and unrelated to the goods that can be imported on their basis. Consequently, the Court held that REP licences were goods. 24. But, in Sunrise Associates v. Government of NCT of Delhi [2006 (5) SCC 603], a Constitution Bench of the Supreme Court overru .....

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sha Overseas as to whether the three-Judge Bench decision in Vikas Sales Corporation, [holding that the transfer/sale of an import licence called replenishment licence (REP licence) granted under the 1992-97 Exim Policy was exigible to sales tax] stood impliedly overruled by the Constitution Bench decision in Sunrise Associates wherein it was held that lottery tickets were actionable claims and were, therefore, excluded from the definition of "goods" under the Sales Tax Act. 26. After .....

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EP licences could be equally applied in the case of DEPB licences. 27. It was contended on behalf of the assessees in Yasha Overseas that the transfer of a DEPB licence was nothing more than a mere transfer of a credit in the pass book and that therefore, such a credit could never be called goods under the Sales Tax Laws. Alternatively, it was contended that the sale of DEPB licence involved a mere transfer of the right to claim credit on a future import and that therefore, it could at the most .....

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oods within the meaning of Section 2(21) of Tamil Nadu Act 32 of 2006, is not sufficient to make the petitioner entitled to input tax credit. 29. The Act not merely defines the expression 'goods'. The Act defines the expression 'capital goods' under Section 2(11). It also defines the expression 'declared goods' under Section 2(16) and it defines the expression 'exempted goods' under Section 2(20). Therefore, the expression 'goods' appearing in every provis .....

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registered dealer to the seller on his purchases of taxable goods specified in the First Schedule. Therefore, unless the claim for input tax credit relates to the tax paid or payable on the purchase of taxable goods specified in the First Schedule, it is not possible to grant credit. 31. In so far as the First Schedule is concerned, the same is divided into three parts namely Part A, Part B and Part C. While Part A gives a list of goods, which are taxable at the rate of 1%, Part B gives a list .....

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constitute goods specified in the First Schedule. Hence, Section 19(1) has no application. 33. DEPB licences do not even fall under any of the categories mentioned in Section 19(2). The case of the petitioner does not even fall under Sub-Section (3) or Sub-Section (4) of Section 19. Therefore, our answer to the first question of law would be that the Department was right in denying the benefit of input tax credit in respect of the duty paid by the petitioner on the purchase of DEPB licences, des .....

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der the Tamil Nadu Value Added Tax Act, 2006 on those goods and those goods are also listed in the First Schedule to the Act. 35. Apart from the fact that DEPB licences purchased by the petitioner are not goods enumerated in the First Schedule, it is to be pointed out that the petitioner does not pay any tax under this Act namely the Value Added Tax Act on these purchases. What the petitioner is now seeking is a credit for the duty paid. 36. In addition, the petitioner has used these DEPB licenc .....

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ds specified in the First Schedule. The petitioner does not satisfy all the three conditions. Hence, the denial of input tax credit on the purchase of DEPB licences is perfectly in order and the first question of law is answered against the petitioner. QUESTION (ii): 37. The second question of law as to whether the purposes indicated in Clauses (i) to (vi) of Sub-Section (2) of Section 19 are enumerative or exhaustive. As we have pointed out earlier, Section 19(2) directs input tax credit to be .....

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falling under Section 8(1) of the Central Sales Tax Act, 1956 and (vi) agency transactions by the principal within the State. 38. We have already summarised the scheme of Section 19 in paragraph 14 above and indicated that Section 19 is a complete Code in itself. There are 20 sub-sections under Section 19, each of which serves a different purpose. While Sub-Section (2) gives a list of purposes for the purchase of goods within the State, which would make a registered dealer entitled to input tax .....

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