Court affirms that DEPB licenses, though classified as goods, are not eligible for Input Tax Credit under TNVAT Act
In a significant ruling, the Division Bench of the Madras High Court, comprising Dr. G. Jayachandran and N. Mala, JJ., has dismissed the appeals filed by M/s. P.I. Polymers challenging the denial of Input Tax Credit (ITC) on Duty Entitlement Passbook (DEPB) licenses under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006. The judgment, delivered on July 24, 2026, upholds the decision of the Commercial Tax Officer, Pattarawalkam Assessment Circle, refusing ITC for the assessment years 2012-2013 and 2013-2014.
The core issue in the appeals was whether DEPB licenses, which are considered "goods" under Section 2(21) of the TNVAT Act, could qualify for ITC when they are not listed in the First Schedule of the Act. The appellant, M/s. P.I. Polymers, contended that these licenses were used in the course of business for importing plastic granules and thus should be eligible for ITC. However, the Commercial Tax Officer had reassessed and denied the ITC on grounds that DEPB licenses are not included in the First Schedule.
The High Court, referring to the precedent set in "Sha Kantilal Jayantilal v. State of Tamil Nadu", reiterated that while DEPB licenses are indeed goods, they are ineligible for ITC unless specified in the First Schedule. The judgment further clarified that the entitlement for ITC arises from Section 19(1) of the TNVAT Act and not from Section 19(2), emphasizing that the DEPB licenses do not meet the necessary criteria for ITC as outlined in the statute.
The court also addressed the appellant's argument for a re-evaluation of the precedent set in the Sha Kantilal Jayantilal case. It concluded that the judgment was not "per incuriam" and had correctly interpreted the scope of ITC under the TNVAT Act concerning DEPB licenses. The Division Bench found no infirmity in the earlier decision and accordingly dismissed the appeals.
This ruling highlights the stringent requirements for claiming ITC under the TNVAT Act, underscoring that only goods specified in the First Schedule are eligible, and any deviations require legislative amendments rather than judicial intervention.
Bottom line:-
Duty Entitlement Passbook (DEPB) licenses, though considered "goods" under Section 2(21) of the Tamil Nadu Value Added Tax (TNVAT) Act, 2006, are not eligible for Input Tax Credit (ITC) under Section 19(1) or 19(2) of TNVAT Act since they are not specified in the First Schedule of the Act.
Statutory provision(s): Tamil Nadu Value Added Tax Act, 2006 Sections 2(21), 2(23), 2(24), 19(1), 19(2), First Schedule
