Purchase of DEPB licenses is ineligible for Input Tax Credit under Section 19 of the TNVAT Act.

The Appellant, a registered dealer, purchased Duty Entitlement Passbook (DEPB) licenses and paid the applicable tax. These licenses were used to import plastic granules for manufacture and sale

The Appellant claimed Input Tax Credit (ITC) on the tax paid for the DEPB license purchase under Section 19 of the Tamil Nadu Value Added Tax (TNVAT) Act, 2006, arguing it was an "input" in the course of business

The Respondent issued re-assessment orders (AY 2012-13 and 2013-14) denying the ITC and imposing penalties, on the grounds that DEPB licenses are not "goods" specified in the First Schedule that qualify for credit for the sale of imported granules

The Single Judge dismissed the Appellant's writ petitions, following a Division Bench precedent, despite expressing reservations about the precedent's reasoning

1. Whether a Duty Entitlement Passbook (DEPB) license constitutes "goods" specified in the First Schedule of the TNVAT Act to qualify for Input Tax Credit under Section 19(1)

2. Whether there is a requirement for a nexus or one-to-one correlation between the input (DEPB license) and the final output (plastic granules) to avail ITC

The court primarily applied Section 19 of the TNVAT Act, 2006, which serves as a complete code for ITC entitlement, specifically requiring that tax be paid on "taxable goods specified in the First Schedule"

Section 2(21) defining "goods" and Section 2(23) defining "input"

The court further applied the precedent Yasha Overseas v. Commissioner of Sales Tax, which established that DEPB licenses are intangible "goods"

The court followed the Division Bench ruling in M/s. Sha Kantilal Jayanthilal v. State of Tamil Nadu, which held that even if DEPB licenses are "goods," they are distinct from the goods imported using them and do not fall within the enumerated categories of the First Schedule for ITC purposes

The court reasoned that while DEPB licenses are legally "goods" under Section 2(21) as per the Yasha Overseas doctrine, ITC eligibility is strictly governed by the specific conditions of Section 19

Section 19(1) restricts credit to tax paid on purchases of goods listed in the First Schedule. Upon examining Parts A, B, and C of the First Schedule, the court found that DEPB licenses are not included therein

The court emphasized that a DEPB license is a distinct entity from the physical goods (plastic granules) imported on its strength. It held that the "process-and-use" test requires a nexus; since DEPB licenses are not used in the manufacture or re-sale of the granules in a manner contemplated by Section 19(2), they do not qualify as "inputs" for credit adjustment against the output tax of the imported granules

The court rejected the Appellant's argument that the Sha Kantilal Jayanthilal case was per incuriam, finding its analysis of the cascading effect and the scheme of Section 19 to be sound and binding

Consequently, the Writ Appeals were dismissed, and the re-assessment orders and penalties against the Appellant were upheld. No costs were awarded