Intangibles have impact on value of final product, HC

Facts in Brief:

1. 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.

On appeal HC held as under,

2. The Court finds no reason why in respect of the input tax credit provided under Section 9 (1) read with Section 9(4) of the DVAT Act a similar approach should not be adopted. The usage by the Assessees, who are registered dealers, of the DEPB scrips purchased by them from another registered dealer after paying the input tax for reducing the incidence of customs duty should be held to constitute use of such DEPB scrip for the purposes of sale of the imported commodity.

3. The DEPB scrip has contributed, if not directly then indirectly, to the price of the imported commodity sold by the Assessees in the market. There could be any number of intangibles that have an impact on the value of the final product like advertisement costs in respect of which input service tax credit may have been availed of, as was in the case of Coca Cola India Pvt. Ltd. (supra).

4. All that is to be shown is that such input tax paid goods have contributed to the sale of the final product in some way directly or indirectly.

5. 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.

6. 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 Jagriti Plastics Ltd vs Commissioner Of Trade & Taxes on 1 October, 2015 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.

7. For the aforementioned reasons, the question framed is answered in the affirmative, i.e., in favour of the Assessees and against the Revenue. The demands created on the Appellant Assessees, forming the subject matter of these appeals, are held unsustainable in law. Consequently, the question of payment of penalty does not arise and the orders levying penalty on each of the Appellants are also set aside.

8. The impugned orders dated 6th August 2014 and 11th August 2014 of the ATVAT and the corresponding orders of the OHA and VATO are hereby set aside. The appeals are allowed but in the circumstances no orders as to costs.

Case Reference - Jagriti Plastics Ltd vs Commissioner Of Trade & Taxes.