Tuesday, 6 May 2014

Soft loan given by the State Government based on VAT/CST collected for the purpose of promoting industrial growth of the State, does not amount to “refund of tax”

We are pleased to release a Tax Alert which gives an update on the recent decision of the Gujarat High Court, in the case of Public Interest Litigation (PIL) filed by Himanshu V. Patel against the State of Gujarat [2014-VIL- 105(GUJ)].

The PIL was filed against the soft loan granted by Gujarat State Govt. to Tata Motors Limited (the Company) for its Nano project, contending that it is illegal, as it tantamounts to refund of VAT.

The High Court dismissed the writ petition filed by the petitioner and held that provision of loan equal to the gross amount of VAT and CST does not amount to the refund of tax paid.

This case deals with an important issue, especially in a scenario where several states have formulated Industrial policy to incentivise investments through a soft loan scheme.

The Gujarat HC has clearly distinguished a soft loan for industrialisation vis-à-vis a refund of VAT/CST.

High Court has also confirmed that there is no legal bar under the provisions of Motor Vehicles Act, 1988 for transferring a vehicle to distribution and logistics company.

Impact of this judgement should be analysed in the context of specific language of local VAT laws which might have specific provisions to disallow any kind of VAT related incentives in so far as they pertain to sale through a distribution company

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