M/s. P.I. Polymers v. The Commerical Tax Officer

What happened

The assessee bought Duty Entitlement Passbook (DEPB) licences and used them to import plastic granules, which it partly used to make plastic products and partly sold, and availed input tax credit under section 19 of the Tamil Nadu Value Added Tax Act on the tax borne when buying the licences. It argued that the licence was an 'input' under section 2(23), purchased in the course of business, that no one-to-one correlation was needed, and relied on the Commissioner's clarification of 12 March 2007. The Commercial Tax Officer, Pattarawalkam, by re-assessment orders of 13 November 2015, proposed tax of ₹3,94,100 with penalty of ₹1,97,050 for 2012-13 and tax of ₹3,70,447 with penalty of ₹1,85,224 for 2013-14, relying on the Commissioner's clarification of 25 July 2007. The Single Judge on 23 January 2020 dismissed W.P. Nos. 38508 and 38509 of 2015, following the Division Bench decision in Sha Kantilal Jayantilal v. State of Tamil Nadu (2016 (339) ELT 520 (Mad)) though he thought it required a re-look. The assessee appealed, contending that the Single Judge had accepted that the licence was goods in light of Yasha Overseas and that the earlier Division Bench ruling was per incuriam.

Questions before the court

• Is the tax paid on purchasing DEPB licences eligible for input tax credit under section 19 of the TNVAT Act?

Why the court ruled this way

The Court noted that the Single Judge dismissed the writ petitions only because he was bound by Sha Kantilal Jayantilal, which it found squarely applicable (paragraphs 9 and 19). That decision explained the scheme of section 19 as a complete code and held that to qualify under section 19(1), the dealer must be a registered dealer, must have paid tax to the seller on taxable goods, and those goods must be specified in the First Schedule (paragraphs 19 and 20). It accepted, following Yasha Overseas, that DEPB licences are goods under section 2(21), but held that this alone does not entitle a dealer to input credit, because DEPB licences are not in Part A, B or C of the First Schedule and do not fall under section 19(2), (3) or (4); only the goods imported on the strength of the licence may qualify if listed and taxed (paragraphs 28 to 34 as extracted). Section 19(2) is enumerative but section 19(1)'s essential conditions must still be met (paragraphs 39 and 40 as extracted). The Division Bench therefore found no infirmity in that ruling, and the impression that it was per incuriam was not correct (paragraph 22).

Controlling point

The input tax credit claim on the purchase of DEPB licences was not allowable.

Order and next steps

The writ appeals were dismissed with no order as to costs and the connected miscellaneous petitions were closed.

Practical implications

A dealer buying DEPB licences should not take input tax credit on the tax paid for them under the TNVAT Act in Tamil Nadu, as the licences are not First Schedule goods.

Limits of this ruling

• The Court followed an earlier Division Bench ruling and did not reconsider other High Courts' views on DEPB as intangible goods; it applied the TNVAT Act of 2006 as it stood for the assessment years concerned.