DEPB Licences Not Eligible For ITC Under TNVAT Act Even If Classified As Goods: Madras High Court

The Madras High Court on 24 July held that dealers cannot claim Input Tax Credit (ITC) on purchase of Duty Entitlement Pass Book (DEPB) licences under the Tamil Nadu Value Added Tax (TNVAT) Act, as such licences, despite being classified as “goods”, do not meet the statutory conditions for availing credit.

A Division Bench of Justices G. Jayachandran and N. Mala dismissed the writ appeals filed by P.I. Polymers and upheld the Single Judge's order denying ITC on DEPB licences, while reaffirming the earlier Division Bench ruling in Sha Kantilal Jayanthilal v. State of Tamil Nadu. The judges held:

“Perusal of Section 19(2) of the TNVAT Act and the conditions enumerated under the Section for entitlement to input tax credit, what emanates is that though the DEPB license is “goods” as defined under the Act, the view expressed that the term “goods,” without any prefix, makes a difference whether the DEPB licence, which is a tangible goods, will fall within the expression “goods” as found in Section 19(1) of TNVAT Act.”

The dispute arose after the Commercial Tax Department rejected the ITC claim made by P.I. Polymers on the purchase of DEPB licences used for importing plastic granules, which were subsequently sold to manufacturers.

P.I. Polymers argued that DEPB licences qualified as “goods” under the TNVAT Act and therefore fell within the definition of “inputs” under Section 19, which allows dealers to claim ITC on eligible purchases of taxable goods.

Rejecting the contention, the Court held that the classification of DEPB licences as “goods” alone does not make them eligible for ITC. It held that Section 19 of the TNVAT Act allows ITC only on taxable goods specified in the First Schedule and used for purposes permitted under the provision. Since DEPB licences are not included in the First Schedule and do not fall within the categories specified under Section 19, dealers cannot claim ITC on their purchase.

Further, the Bench noted that a DEPB licence is different from the goods imported using the licence. While imported goods may qualify for ITC if they satisfy the statutory requirements, the licence itself does not become eligible for credit. It observed that P.I. Polymers failed to establish the required connection between the DEPB licence and the manufacture of taxable goods.

Accordingly, the High Court found no error in the earlier Division Bench ruling or the Single Judge's order and dismissed the writ appeals, upholding the denial of ITC on purchase of DEPB licences.

For Appellant: Aparna Nandakumar, Advocate

For Respondent: Amirta Poongodi Dinakaran, Government Advocate