National Engineering Industries Limited vs. Assistant Commissioner Anti Evasion

Held

The High Court allowed the appeals in favour of the petitioner. Regarding the first issue, the Court held that the petitioner is entitled to ITC on the purchase of DEPB/Duty Free Licenses/Duty Credit Scrips under Section 18(1)(e) of the RVAT Act. The Court reasoned that these scrips were purchased from registered dealers after paying VAT and were used for importing raw materials, which were then used in manufacturing final products. By extension, the scrips would be deemed part of the raw material as their cost is embedded in the raw materials' cost. The Court found no specific exclusion by notification and noted that the definition of 'raw material' is broad. Disallowing ITC would defeat the objective of avoiding cascading tax effects and double taxation, as well as the EXIM Policy's aim to provide exporters with a level playing field. The Court distinguished the judgments relied upon by the revenue, finding them inapplicable to the facts and the interpretation of 'raw material' and ITC under the RVAT Act. Regarding the second issue, the Court implicitly allowed the petitioner's claim by quashing the orders that levied interest, as the primary disallowance of ITC was overturned. The Court agreed with the underlying principle of ITC as outlined in the Delhi High Court judgment in Jagriti Plastics Ltd., applying it to the RVAT Act.

Facts

The petitioner, National Engineering Industries Limited, a manufacturer of bearings, purchased Duty Entitlement Pass Book (DEPB) / Duty Free Licenses / Duty Credit Scrips from registered dealers within Rajasthan and claimed Input Tax Credit (ITC) on the tax paid for these purchases. The Anti-Evasion Authorities surveyed the petitioner's premises and found that these scrips were used for payment of customs duty on imported raw materials, which were then used in manufacturing taxable goods. The Assessing Officer disallowed the ITC, levied interest on non-deposition of 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 the purchase of DEPB / Duty Free Licenses / Duty Credit Scrip can be refused, even though these scrips were used for the purpose of manufacture of finished goods within the State of Rajasthan, as per Section 18 of the Rajasthan Value Added Tax (RVAT) Act, 2003? 2. Whether interest can be levied and charged when the full amount of tax due from the dealer, as per returns, has been deposited, and interest on differential tax determined on reopened assessment is sought to be charged, as per the RVAT Act? Petitioner's arguments: The petitioner contended that DEPB/Duty Free Licenses/Duty Credit Scrips were purchased from registered dealers, VAT was paid on them, and they were used for importing raw materials for manufacturing taxable goods in Rajasthan. Therefore, the VAT paid should be deemed input tax under Section 18 of the RVAT Act. They relied on judgments from the Apex Court and High Courts of Madhya Pradesh and Delhi. Revenue's arguments: The revenue argued that no question of law arises. They contended that ITC is only allowed as enumerated in Section 18(1) of the RVAT Act, and the utilization of scrips against customs duty does not fall under any of these clauses. They relied on judgments from the Madras High Court and Apex Court, asserting that ITC is a concession requiring strict compliance with statutory conditions and that the provisions of the RVAT Act are not pari materia with other state VAT Acts.