V.V.S. Rao, J.

The petitioner company is engaged in the business of manufacture of cotton terry toweling fabrics. It is registered on the rolls of the first respondent under the Andhra Pradesh Value Added Tax Act, 2005 (the VAT Act). For the year 2006-2007, the petitioner filed returns in VAT Form 200 disclosing purchases, sales and input tax credit availed and output tax payable. The petitioner claims that he is entitled for tax refund of Rs.4,09,427/-. The returns under Central Sales Tax Act, 1956 (CST Act) were also filed in CST VI Forms for 2006-07 disclosing export sales of terry towels, taxable at zero rate. They claimed exemption of interstate sales as falling under Entry 45 of I Schedule to the VAT Act.

2. In pursuance of authorization issued by the second respondent, the Deputy Commercial Tax Officer (DCTO), Benz Circle, Vijayawada, conducted audit of the accounts of the petitioner on 20.01.2009 for the periods from 01.04.2006 to 30.11.2008. By order dated 27.02.2009, the DCTO disallowed the input tax credit on the goods for which exemption was claimed and by applying formula AXB/C as per Rule 20 of the Andhra Pradesh Value Added Tax Rules, 2005 (the VAT Rules)