Dabur Reaches High Court Regarding ITC Liabilities on Pre-GST Goods

DBB, a large FMCG sector company, has filed a petition in the Nainital Bench of the Uttarakhand High Court. The petition is regarding Dabur’s refusal to pay ITC under GST on goods manufactured in special exempted states during the VAT regime. The Goods, however, were sold post-July 1 2017 when GST was fully functional.

In the erstwhile VAT regime, the State and Central Government would provide tax exemptions to manufacturers who invested in economically backward states like Uttarakhand, Himachal Pradesh. The excise tax was not levied on the produced goods. However, with the introduction of GST in India, all the provisions under VAT are now null and void.

Dabur claims that the goods on which ITC is claimed were manufactured before GST came into effect. This according to one of India’s largest FMCG company makes the goods free of the GST ambit. And hence not within the scope of ITC provision under the GST.

However, the sales of the goods were done post-July 1 2017. This brings the company at loggerheads with the Tax Authorities who claim that ITC is liable on these goods. The Next hearing of the court is on August 2. Reportedly, the exemptions in the VAT region were given to promote investment in the region. If the court rules in favour of Dabur than the Centre stands to lose CGST and IGST tax liable under GST and stand to lose more ITC from other FMCG companies who could follow Dabur’s suit.

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