Whether assessee is entitled to avail Input Tax Credit on purchase of Duty Entitlement Pass Book (DEPB) Scrips?
The issue is no longer res integra as it has been decided by Hon’ble Delhi High Court in case of Jagriti Plastics Limited vs Commissioner of Trade & Taxes, [ST. Appl 5/2015], pronounced on 01st October, 2015.
Facts of the case
The appellant purchased DEPB scrips from registered dealers on payment VAT under Delhi VAT Act in the course of their regular business activity. The appellant imported certain goods for re-sale using the DEPB scrips for payment of customs duty thereon. Such goods were sold and VAT was charged thereon. The output VAT liability was discharged by the appellant by utilization of Input Tax Credit availed on purchase of such scrips.
The revenue opined that the said 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 and disallowed Input Tax Credit availed thereon.
Observations of the Hon’ble Court
Hon’ble Court noted that the price of the goods sold by the appellant included the component of customs duty paid at the time of their import and such component is reduced to the extent of usage of DEPB scrips by the company. In view of the afore-said, it was noted that the use of DEPB scrips is for the purpose of the assessee selling the imported goods.
Further, it was held stated that the DEPB scrip has contributed, if not directly then indirectly, to the price of imported commodity sold by the assessees in the market. Hon’ble High Court while answering the question of law in favour of the assessee held that
“The Court also rejects the other contention of the DTT that input tax credit cannot be availed of unless the Assessees are themselves dealing in DEPB scrips. In other words, in order to avail of the input tax credit in the present case it is not necessary that the Assessees have to be dealers in the same commodity, i.e. the DEPB scrips which were used in payment of customs duty on the imported goods in which they were dealing. Such an interpretation will negate the object of introducing the system of value added taxes, i.e. to reduce the cascading effect of multiple taxes at various stages.
As long as it is shown that use of the DEPB scrip has impacted the cost of the product that is sold, either directly or indirectly, the credit of the input tax paid on the DEPB scrip cannot be denied to the Assessees.”