VAT Expenses on Deemed Import eligible to be set off against VAT Output: ITAT [Read Order]

VAT Expenses - Deemed Import - VAT Output - ITAT - ITAT Ahmedabad - Taxscan

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) held that the Value Added Tax (VAT) expenses on deemed import eligible to be set off against the VAT output.

The assessee, Starline Organics Pvt. Ltd. in the present case is a private limited company and engaged in the business of trading of Unrefined Sulphur. The case of the assessee was selected under scrutiny and therefore the assessment was made under section 143(3) of the Act dated 7th September 2016 at Rs. 28,64,460/- under normal computation of income and at Rs. 28,27,027/- under MAT provisions.

As per the PCIT, the amount of deemed import was not shown in the VAT return which implies that all the purchases shown by the assessee are domestic purchases. Thus, there was no occasion for the assessee for claiming the import duty as shown in the profit and loss account along with the purchases. But this fact has not been verified by the AO during the assessment proceedings. Accordingly, the learned Principal CIT proposed to hold the order of the AO as erroneous insofar prejudicial to the interest of revenue vide notice dated 15th January 2019.

The assessee also contended that the above information was also verified by the AO during the assessment proceedings framed under section 143(3) of the Act. The assessee further submitted that the amount of purchases from Reliance Industries Ltd SEZ represents the deemed import on which customs duty was paid. The assessee in support of its contention filed the necessary documents such as the bill of entry about the customs duty on the purchases from the Reliance Industries Ltd SEZ.

However, the learned Principal CIT disregarded the contention of the assessee by observing that the assessee has claimed the credit of input tax on all the purchases including the purchases from Reliance Industries Ltd SEZ. As per the learned PCIT, the assessee has not disclosed any information in VAT return about the purchases representing the deemed import. This fact has not been verified by the AO during the assessment proceedings. Accordingly, the learned principal CIT concluded that the assessment framed under section 143(3) of the Act is erroneous insofar prejudicial to the interest of Revenue on account of non-verification.

The coram headed by the Vice President, Rajpal Yadav, and Accountant Member, Wassem Ahmed held that the assessee has incurred VAT expenses on the deemed import which are eligible to be set off against the VAT output. Thus the finding of the principal CIT that there was no VAT input available to the assessee on the deemed import appears to be incorrect.

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