D.E.P.B., (Duty Entitlement Pass Book) Its Taxability - Issues Therein

By Sanjeev Malhotra, F.C.A, F.C.S, A.I.C.W.A.

The case of Sadhu Overseas, Faridabad Vs State of Haryana decided by Haryana Tax Tribunal on 21.10.03 has held DEPB as equal to money and thus not goods taxable under HGST Act, 1973. DEPB was earlier decided as taxable goods liable to tax by Delhi High Court. Whether DEPB is eligible goods under Central Sales Tax Act, 1956 for charging of lower rate of tax? Whether form C under CST Act can be issued for purchase of DEPB? Whether Tax invoice can be issued by seller of DEPB in the State of Haryana under Haryana Value Added Tax Act, 2003? And Whether a buyer registered dealer of DEPB avail the input tax credit of tax paid on such purchase?

Hon'ble Haryana Tax Tribunal in its judgement in the case of Sadhu Overseas, Faridabad Vs State of Haryana has held that DEPB is not 'Goods' and are not chargeable to tax under the provisions of Haryana General Sales Tax Act, 1973. Earlier, Hon'ble Supreme Court of India, in the case of Vikas Sales Corporation had held that 'REP licenses' are goods and are chargeable to tax under the State sales tax Act. In the case of Philco Exports, Hon'ble Delhi High Court held that 'DEPB' as goods and upheld the right of the State of Delhi to tax this. In the case of KMA Finished leather private Limited, Hon'ble Madras High Court held that ' Duty drawback' availed of by the exporter dealer is not goods and should not be subject to tax as goods.

The Haryana State Cabinet approved proposal of Excise and Taxation Department Haryana on 7th January 2004 to amend Section 61 of Haryana Value Added Tax Act, 2003 to reduce tax rate on DEPB under Haryana General Sales Tax Act. In view of the judgement of Hon'ble Tax Tribunal of Haryana, the question of rate of tax on DEPB does not arise. Thus, the move of Haryana cabinet on the issue is not very clear.

Before analyzing the above judgements and their impact, let us first look at various export benefit schemes provided to the exporters. Idea behind all the schemes is to make exports free from the impact of excise duties paid on domestic inputs.

Rep License / Exim Scrips

The scheme of issuance of REP Licenses (Replenishment licenses) was in vogue till around six years back. Under this Scheme exporter of goods was given benefit to replenish his stocks of inputs by importing the same without payment of customs duty, used in the exports made by him. In other words, an exporter making export of goods by using domestic inputs on which excise duty has been paid is given the facility to import inputs without payment of customs duty, which virtually replenish the input stocks used by the exporter in making that export. The said REP licenses were transferable.

DEPB Scheme

DEPB (Duty Entitlement Pass Book) Scheme is an export incentive scheme provided in Import and Export policy. The objective of the scheme is to neutralize the incidence of basic custom duty on the import content of the exported products. Under the scheme, an exporter is eligible to claim credit as a specified percentage of value of exported product and is available at a rate of exported product as may be determined by Director General of Foreign Trade (DGFT). The credit amount in DEPB only entitles you to adjust that amount for payment of customs duty and is not permitted to be withdrawn or adjusted in some other manner. There is no bar for transfer of this credit to another person and from him to another person ie this credit amount is freely tradable.

Duty Drawback Scheme

The duty drawback scheme is another option available to exporters. Instead of opting for DEPB, an exporter can choose to take Duty drawback also. Under this scheme, exporter of goods is allowed to take back refund of money at a rate of exported products as may be determined by DGFT. It neutralizes the duty impact in the goods exported. In comparison to DEPB, this is the refund of money to exporter and is not an instrument which can be transferred to anybody.

Let us now consider the definition of goods under Haryana Value Added Tax Act, 2003 and under Central Sales Tax Act, 1956.

Definition Of 'Goods'

The term...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT