TMI Blog2017 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to input tax credit. While Section 11 of the KVAT Act provides for restriction on input tax credit, in its exception carved out under Section 11(a)(2) as well as Section 12 of the KVAT Act, providing for deduction of input tax credit in respect of the capital goods, both would support the case of the present assessee. Reliance was placed in the case of Maruti Suzuki Limited Vs. Commissioner of Central Excise, [2009 (8) TMI 14 - SUPREME COURT], where it was held that installation of electrical and electronic goods which have nexus to the manufacturing process like the Speeder System used in that case to provide backup electricity in the manufacturing process, the Court allowed the input tax credit in respect of the tax paid on such Speeder System under the provisions of KVAT Act dealing with Section 11(a)(2) and Fifth Schedule of the KVAT Act. The petitioner would be entitled to claim input tax credit in respect of the tax paid by it in respect of such cement purchased and used by it during the relevant period, prior to the commencement of its commercial production, for the purpose of erection of the plant and machinery - petition allowed - decided in favor of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te law on sale or purchase of goods other than newspapers subject to Entry No.92A and 92B of the Union List. The word goods appearing in Entry No.54 of the State List has to be understood as defined under Article 366 (12) which defines goods as goods includes all materials, commodities and articles; . Thus, the meaning of goods assigned under the General Sales Tax Law or the VAT Law is with reference to the goods which are moveable in nature rather than immovable goods. No doubt capital goods are defined under clause (7) of Section 2 of the Act, which includes the expression plant also. There is no dispute to the fact that factory building is plant but the input tax rebate or credit is not claimed on the factory or silos or foundation but on cement which is used as raw material for the construction of the same. There is no tax under the General Sales Tax Law or KVAT Law on the sale of factory building or any immovable property, since the same do not come under the purview of definition of goods. It has to be understood in this background alone. As per the principle laid down by the Hon ble Apex Court, when functional test is applied, factory building is plant. If input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or production or fabrication. This itself clearly distinguishes the factory building, silos and foundation from the other capital goods like machinery, goods vehicles etc. The decisions of this Tribunal cited by the appellant are of no help since, the same deals with moveable goods like printing machinery. The decisions rendered under the Income Tax Act, 1961 are with reference to the immoveable assets and not on the materials which are used for the purpose of constructing such immoveable assets. Therefore, all the case laws cited and relied by the appellant in the instant case is not at all applicable for the purpose of claiming tax credit on cement. Thus it has to be held that the cement which is used as raw material or input for the construction of immoveable property is not eligible for input tax credit as it does not qualify as capital goods. 12. Further to this, Section 11(a)(4) stipulates that in order to qualify as capital goods, two conditions are to be satisfied. First condition is that such goods are capital goods and second condition is that they should not come under the purview of Section 11(a)(2) or 11(a)(3) of the Act. In the instant case, cement is a commodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. 6. We have heard the learned counsels at length and perused the records, relevant statutory provisions and the case laws cited at the Bar. 7. To answer the aforesaid question of law, we need to first look into some of the definitions given in the Karnataka Value Added Tax Act, 2003. They are quoted below for ready reference: 2. Definitions.- In this Act unless the context otherwise requires.- x x x (7) Capital goods for the purposes of Section 12 means plant, including cold storage and similar plant, machinery, goods vehicles, equipments, moulds, tools and jigs, and used in the course of business other than for sale. -- 11. Input tax restrictions. - (a) Input tax shall not be deducted in calculating the net tax payable, in respect of: (1) tax paid on purchases attributable to sale or manufacture or processing or packing or storage of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India; (2) tax paid on goods as specified in the Fifth Schedule subject to such conditions as may be specified, purchased and put to use for purposes other than for,-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the amount of output tax of such goods 12. Deduction of input tax in respect of Capital goods.- (1) Deduction of input tax shall be allowed to the registered dealer in respect of the purchase of capital goods on or after the commencement of this Act for use in the business of sale of any goods in the course of export out of the territory of India and in the case of any other dealer in respect of the purchase of capital goods wholly or partly for use in the business of taxable goods. (2) Deduction of input tax under this Section shall be allowed only after commencement of commercial production, or sale of taxable goods or sale of any goods in the course of export out of the territory of the India by the registered dealer [xxx]. -- Act No.32 of 2004 [From 1.4.2005] FIFTH SCHEDULE INPUT TAX RESTRICTED GOODS [Section 11(3)] Serial Number Description of Goods 1 2 1. x x x 2. x x x 3. x x x 4. x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f manufacturing of other goods for sale, namely cement itself, after the commencement of commercial production. Therefore, it falls in exception of negative clause of Section 11 of the KVAT Act and the assessee would be entitled to input tax credit. 11. We see no justification in the contention of the learned Additional Government Advocate appearing for the Revenue that a narrow meaning should be given to the word Plant and restrict it to the value or cost of purchase of plant itself. The plant and machinery for manufacturing of cement by itself would be nothing and would be useless, unless they are properly installed and erected with proper foundations and civil work for erection thereof and in that process, the use of cement would constitute an integral part of the overall cost of the plant and machinery itself. Such overall immoveable asset in the form of plant and machinery purchased, installed and erected by the petitioner assessee, would only be fit for use for manufacturing of cement itself later on. But, the term Plant is not defined in the KVAT Act and therefore, one can take a broad view and interpret the meaning of the word Plant with the help of precedents or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for aiding the manufacturing process, the same will have a direct nexus to the manufacturing activity and there is no reason why they could be treated as an independent capital goods disentitling the benefit. They cannot be segregated just on a mere ground that they are capital goods. (iii) That considering section 11(a)(2) of the Act and entry 3 of the Fifth Schedule to the Act, all electrical and electronic goods including air- conditioners, air coolers, telephones, fax machines, etc., used would fall in the category of the goods for which the input-tax credit would be inadmissible unless the goods are for resale or for manufacturing of any other goods for sale. The electrical or electronic goods should have nexus to the manufacturing process if they are purchased and put to use for the purpose of or in furtherance to the manufacturing process. The various items mentioned at entry 3 include air-conditioner, air- cooler, fax machines which can be broadly considered as capital goods. The language for all electrical or electronic goods is inclusive and not exhaustive. The speeder system was used to back up the electricity in the manufacturing process and the input-tax cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is liability to pay output tax by the assessee. The assessee is entitled to the benefit of input tax rebate on the total taxable turnover of his business. Therefore, the approach of the lower authorities that the assessee is not entitled to the benefit of input tax rebate in respect of consumables used in relation to the job work in respect of which no output tax is paid by the assessee is erroneous. The Tribunal rightly set aside the said order and extended the benefit of the tax rebate to the assessee. Therefore, the said finding is affirmed. 16. While dealing with a central excise matter, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of Lloyds Steel Industries Limited Vs. Commissioner of Central Excise, Nagpur, 2007 (211) E.L.T. 275 (Tri.-Mumbai), held that the cement and steel used for laying foundation for installation of very heavy plant, machinery and equipments, required to carry out manufacturing activity would fall within the definition of Capital Goods and CENVAT/MODVAT credit in respect of the same would be admissible under Rule 57Q of the erstwhile Central Excise Rules, 1944. Though it is a judgment from the Tribunal, but i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding or a part of a building has no connection with the business or manufacturing activity that is being carried on, then obviously such a building or portion of the building will not be part of the plant. These aspects of the matter have not been considered or dealt with by the Revisional authority. He has merely proceeded on the basis that the decisions relied on by the appellant are not applicable as they were rendered with reference to Income-Tax Act. 11. Therefore, the word installed is used in connection with the words plant and machinery , can also refer to installation of a factory building. After all, the intention of the Notification is to encourage setting up of new industries in Karnataka. There is nothing in the Act or the Notification to exclude the factory building from plant . We find no reason why the meaning attached to the said work, while examining the provisions of the Income-Tax Act, cannot be applied while construing the meaning of the said word in the exemption Notification issued under the Karnataka Sales Tax Act. Therefore, the mere use of the word installed with reference to plant and Machinery is not sufficient to exclude the factory b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of plant given in Sec.10(5) of the 1922 Act which was similar to the definition given in Sec. 43(3) of the 1961 Act and this Court after approving the definition of plant given by Lindley L.J. in Yarmouth v. France as expounded in Jarrold v. John Good and sons Limited, 1962 40 T.C. 681 C.A., held that sanitary and pipe-line fittings fell within the definition of plant. In Inland Revenue Commissioner v. Barly Curle Co. Ltd., 76 I.T.R. 62, the House of Lords held that a dry dock, since it fulfilled the function of a plant, must be held to be a plant. Lord Reid considered the part which a dry dock played in the assessee company's operations and observed: It seems to me that every part of this dry dock plays an essential part....The whole of the dock is, I think, the means by which, or plant with which, the operation is performed. Lord Guest indicated a functional test in these words: In order to decide whether a particular subject is an 'apparatus' it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary 20. In the following case, dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was carrying on his business activity. On the analogy of the above cases, Sri Prasad, learned counsel for the assessee, contended that the whole theatre should be treated as plant with which the assessee carries on his show business. The other decision to which specific reference may be made here is Benson v. Yard Arm Club Ltd. [1978] 2 All ER 958,968; [1979] Tax LR 778, 785 (Ch D), upon which strong reliance is placed by Sri K. Srinivasan, learned counsel for the Revenue. In this case, the subject- matter was a ship which was converted into a restaurant by the assessee. The whole ship was claimed as an apparatus for carrying on their business of a floating restaurant, and as such it was a plant to claim allowance. On a review of various earlier decisions, the Chancery Division has held that the vessel is the place or setting where the restaurant business was carried on and was not plant and hence, the expenditure on them did not qualify for capital allowance. 21. Thus, on a conspectus of the legal precedents cited above, when we view the facts and controversy in the present case, we find considerable force in the submissions made by the learned counsel for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
