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IN THE HIGH COURT OF DELHI
S.MURALIDHAR AND VIBHU BAKHRU, JJ.
JAGRITI PLASTICS LTD – Appellant
Versus
COMMISSIONER OF TRADE & TAXES – Respondent
ST.APPL 5, 23/2015
Decided On : 1.10.2015
DEPB Scrips - Input Tax Credit - Delhi Value Added Tax Act, 2004 - Section 9, Section 11 - Summary of Acts and Sections: The court discussed the entitlement of the Appellant Assessees to input tax credit on purchase of DEPB scrips and their liability to pay penalty under the DVAT Act. The court referred to Section 9 and Section 11 of the DVAT Act and analyzed the legal provisions to determine the applicability of input tax credit and the impact on the Appellants' tax liability.
Fact of the Case:
The appeals were directed against the orders passed by the ATVAT for the assessment years 2007-08 and 2008-09. The common question of law was whether the Appellant Assessees are entitled to input tax credit on purchase of DEPB scrips and whether they are liable to pay penalty under the DVAT Act. The Appellants, engaged in import and sales of goods, purchased DEPB scrips and used them for payment of customs duty on imports. The Department disallowed input tax credit and issued notices of demand of tax, interest, and penalty.
Finding of the Court:
The court held that the DEPB scrips were 'goods' for the purpose of the DVAT Act and that the Appellants were entitled to input tax credit. It found that the usage of DEPB scrips impacted the cost of the imported goods sold by the Appellants, directly or indirectly, and therefore, the credit of the input tax paid on the DEPB scrips could not be denied to them. The court set aside the demands created on the Appellant Assessees and the orders levying penalty.
Issues: The main issues were the entitlement to input tax credit on purchase of DEPB scrips and the liability to pay penalty under the DVAT Act.
Ratio Decidendi: The court interpreted Section 9 of the DVAT Act and held that the usage of DEPB scrips impacted the cost of the imported goods sold by the Appellants, directly or indirectly, and therefore, the credit of the input tax paid on the DEPB scrips could not be denied to them. It also rejected the contention that input tax credit cannot be availed of unless the Assessees are themselves dealing in DEPB scrips.
Final Decision: The impugned orders of the ATVAT and the corresponding orders of the OHA and VATO were set aside, and the appeals were allowed.
S. Muralidhar, J.
1. ST Appeal No.23 of 2015 by N.F. Impex Pvt. Ltd. (NFIPL) is directed against the impugned order dated 6th August 2014 passed 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 credit on purchase of duty entitlement pass book (‘DEPB’) scrips?
3. The second issue that arises as a corollary of the first above mentioned issue is whether the Appellant Assessees in both cases are liable to pay penalty under the Delhi Value Added Tax Act, 2004 (DVAT Act)?
4. Both the Appellants, who are registered dealers under the DVAT Act, are engaged in the business of import and sales of goods. While NFIPL is engaged in import of sale of ferrous and non-ferrous metals, JPL is engaged in the 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 DEPB scrips against the output tax liability and the balance net tax in terms of Section 11 of the DVAT Act was deposited by them.
6. As far as JPL was concerned, pursuant to an audit conducted for 2007-2008, the officials of the Department of Trade and Taxes (DTT) were of the view that the DEPB scrips could not be treated as capital goods and could not have been taken to have been 'used' even indirectly for making the sale of the imported goods but only used for the limited purposes of paying 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 Appellants filed their respective objections to the demand notices. In the case of JPL by orders dated 26th February 2011 and 24th September 2012, the Objection Hearing Authority (‘OHA’) negatived its objections. Likewise the objections of NFIPL were rejected by an order dated 28th October 2011 by the OHA.
9. NFIPL's appeal Nos. 1138-45/ATVAT/11-2012 were dismissed by the ATVAT by order dated 6th August 2014. JPL's appeal Nos. 53 & 93-97/ATVAT/11-2012 and Objection No.1258-1261/ATVAT/11-2012 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 requisite tax and interest. Accordingly the penalty amount was remitted to 10% of that fixed by the VAT Officer.
10. This Court has heard the submissions of Mr. Puneet Agrawal, learned counsel for the Appellants and Mr. Satyakam, learned Additional Standing counsel for the Respondents.
11. The first issue that arises is whether DEPB are 'goods' for the purpose of the DVAT Act
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