National Engineering Industries Limited vs. Assistant Commissioner, Anti Evasion

Held

The Court held in favor of the petitioner on the first issue. It found that the petitioner's case was covered by Section 18(1)(e) of the RVAT Act. The Court reasoned that the petitioner purchased the goods (DEPB scrips) from a registered dealer after paying VAT, and these were used for importing raw material, which was then used in manufacturing. The Court deemed the DEPB scrips, by extension, to be part of the raw material, as their cost would be embedded in the raw material's cost. The Court noted there was no specific exclusion by notification under Section 18(1)(e) and that the definition of 'raw material' is broad. Disallowing ITC would defeat the objective of avoiding cascading tax effects and double taxation, and also the objective of the EXIM Policy. The Court distinguished the judgments relied upon by the revenue, stating that Jayam & Co. was not applicable as it concerned non-compliance with conditions, and Sha Kantilal Jayantilal was distinguishable due to different statutory provisions and the interpretation of 'raw material'. The Court agreed with the underlying principle of the Delhi High Court's judgment in Jagriti Plastics Ltd. Regarding the second issue, the judgment states that the AO rightly levied interest on non-deposit of due tax, implying this was upheld. However, the operative part of the judgment only quashes and sets aside the orders of the Tax Board and authorities below, allowing the STRs in favor of the petitioner, which suggests the levy of interest was also set aside or found to be incorrect in light of the ITC being allowed. The judgment does not expressly leave any issue undecided.

Facts

The petitioner, National Engineering Industries Limited, a manufacturer of bearings, claimed Input Tax Credit (ITC) on the purchase of Duty Entitlement Pass Book (DEPB) / Duty Free Licenses / Duty Credit Scrip within Rajasthan. These scrips were used for importing raw materials, which were then used in manufacturing taxable goods within the state. The Anti-Evasion Authorities surveyed the petitioner's premises and found that ITC was claimed on these intangible goods. The Assessing Officer disallowed the ITC, levied interest on the non-deposited tax, and imposed a penalty. The appellate authority confirmed the disallowance of ITC and levy of interest and penalty. The Rajasthan Tax Board confirmed the reversal of ITC and levy of interest but set aside the penalty. The petitioner filed Sales Tax Revisions before the High Court challenging the disallowance of ITC and levy of interest.

Key Issues

1. Whether the claim of Input Tax Credit (ITC) on tax paid for purchase of DEPB/Duty Free Licences/Duty Credit Scrip can be refused, even though the scrips have been used for the purpose of manufacture of finished goods, within the State of Rajasthan, under Section 18 of the Rajasthan Value Added Tax Act, 2003 (RVAT Act)? Petitioner's argument: The petitioner contended that they purchased DEPB scrips from registered dealers, paid VAT on them, and used these scrips for importing raw materials for manufacturing taxable goods. They argued that VAT paid on these scrips should be deemed input tax paid on goods purchased for further use in manufacturing, thus fulfilling the conditions of Section 18 of the RVAT Act. They relied on judgments from the Apex Court (J.K. Cotton Spinning, Vikas Sales Corporation, Yasha Overseas) and High Courts (Madhya Pradesh, Delhi). Revenue's argument: The revenue argued that no question of law arises and that ITC is only allowed as enumerated under Section 18(1) of the RVAT Act. They contended that DEPB scrips, used against payment of customs duty, do not fall under any of the clauses of Section 18(1). They relied on a Madras High Court judgment and the Apex Court judgment in Jayam & Co. to argue that ITC is a concession requiring strict compliance with statutory conditions. They also argued that the Delhi and MP VAT Acts are not pari materia with the RVAT Act. 2. Whether interest can be levied and charged, even though full amount of tax due from the dealer under the Act according to returns has been deposited and as such, interest on differential tax determined on reopened assessment could be validly and legally charged?