TMI Blog2018 (2) TMI 1827X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts. Insofar as the expression raw materials is concerned, the same is defined under sub- section (19) of section 2 of the Act, to mean goods used as ingredient in the manufacture of other goods and includes process materials, consumable stores and material used in the packing of the goods so manufactured but does not include fuels for the purpose of generation of electricity. It is difficult to comprehend as to how the capital goods component would be worked out qua the goods which are sold in the inter- State trade and commerce. In terms of the notification dated 29.06.2010, the input tax credit is required to be reduced when the goods are used as input including raw material in the manufacture of goods. Therefore, insofar as the raw material is concerned, even in its widest terms, it would include material which would be consumed in the manufacture of the final product, and the input tax credit availed in respect thereof would be required to be reduced. It is settled legal position that in a taxing statute, if something cannot be computed, the legislature never intended to tax such item. In the present case, since it would not be possible to compute the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification No.(GHN 14)VAT 2010 S.11(6) (2)/TH dated 29.06.2010 (hereinafter referred to as the Notification dated 29.06.2010 ) for assessment year 2012 -13. The assessing officer issued a notice for audit assessment for the year 2012- 13. In response thereto, the dealer produced books of account in support of the tax liability discharged with returns filed under the GVAT Act and the CST Act. The assessing officer passed the assessment order and reduced tax credit in respect of capital goods also and took a view that the tax credit in respect of purchase of capital goods used in the manufacture of taxable goods that were sold in the course of inter- State trade and commerce was also required to be reduced. The assessing officer had reduced tax credit in respect of capital goods by considering them to be input for the purpose of the notification dated 29.06.2010. 3. Being aggrieved, the dealer went in appeal before the first appellate authority, contending that the assessing officer had not assigned any reasons for reduction of input tax credit in the assessment order and there were also certain calculation errors in the assessment order. It was also contended that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital goods and raw material , capital goods can be said to be included within the ambit of the expression input including raw materials . It was, accordingly, urged that the Tribunal has not properly correctly interpreted the notification dated 29.06.2010 and, hence, the impugned order does give rise to substantial questions of law as proposed or as may be deemed fit by the court and the appeal deserves to be admitted. 7. Opposing the appeal, Mr. Uchit Sheth, learned advocate for the respondent, reiterated the submissions advanced on behalf of the dealer before the Tribunal. The attention of the court was invited to sub- section (5) of section 2 of the GVAT Act which defines capital goods to mean plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable goods and accounted as capital assets in the books of accounts. Reference was also made to sub- section (19) of section 2 of the GVAT Act, which defines raw materials to mean the goods used as ingredient in the manufacture of other goods and includes processing materials, consumable stores and material used in the packing of the goods so manufactured but does not include fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only those raw materials or other consumable items which are consumed in the manufacturing process that can be termed as inputs and that the capital assets which are in the nature of plant and machinery can in no manner be said to be inputs . 7.3 Reference was also made to the decision of the Supreme Court in the case of Hindustan Lever Ltd. v. State of Karnataka, 2016 SCC OnLine SC 898, wherein the court has held that when raw materials, component parts and inputs are spoken of, obviously they refer to materials, components and things which go into the finished product, (which in the facts of the said case was tea) and cannot be extended to cover packing materials of the said tea, which is separately provided for by Schedule I Entry 66. It was submitted that in the facts of the present case, at best, the packing material can be said to be input , however, in no case can capital assets like plant and machinery be said to be input. 7.4 Reference was also made to the decision of the Supreme Court in the case of Scientific Engineering House (P) Ltd. v. Commissioner of Income Tax, Andhra Pradesh, (1986) 1 SCC 11, wherein the court observed that in the ordinary sense the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (ii) the goods are used as input including raw material in the manufacture of goods which are sold in the course of inter state trade and commerce. 9. Thus, in terms of sub- clause (ii) of clause (2) of the Column bearing the heading Restrictions and conditions if any of the above notification, input tax credit was required to be reduced when the goods were used as input including raw material in the manufacture of goods which are sold in the course of inter- State trade and commerce. 10. The fulcrum of the controversy involved in the present case, is the meaning of the expression input including raw material . According to the appellant, since the notification refers to input including raw material it means something other than raw material has to be considered as input and since tax credit has been provided on capital goods , the expression input including raw material has to be read to mean as inclusive of capital goods , inasmuch as capital goods also contribute in the manufacturing of final products, and hence, they are covered under the notification. 11. The term input has not been defined under the CST Act or the rules fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the packing of the goods so manufactured but does not include fuels for the purpose of generation of electricity. The basic distinction between capital goods and raw materials is that the capital goods are durable in nature and the same goods would be used again and again for the manufacture of goods over a considerable period of time; whereas raw materials would be consumed in the process of manufacturing the final item. Plant and machinery have a degree of durability and do not undergo any change in the manufacturing process except for the wear and tear, whereas raw materials and inputs would be consumed in the production of the final product and would form part of the final product. 13. The Tribunal, in the impugned order, has held thus: 34. As discussed earlier the term input and raw material is defined under the GVAT Act. The Courts have interpreted the term input means any thing or goods that is put in and refer to material, components and things which go into finished goods. The dictionary meaning of input means what is put in or enter . The term raw material is defined as goods used as ingredients in the manufacture of other goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Examining the matter from another angle, it is difficult to comprehend as to how the capital goods component would be worked out qua the goods which are sold in the inter- State trade and commerce. In terms of the notification dated 29.06.2010, the input tax credit is required to be reduced when the goods are used as input including raw material in the manufacture of goods. Therefore, insofar as the raw material is concerned, even in its widest terms, it would include material which would be consumed in the manufacture of the final product, and the input tax credit availed in respect thereof would be required to be reduced. However, insofar as capital goods are concerned, they are in the nature of plant and machinery, which are used over and over again for manufacture of goods and are not consumed in the process of manufacture. One wonders as to how the input tax credit component would be worked out if such capital goods are considered to be inputs. Insofar as the raw materials used as input are concerned, the input tax credit as contemplated in the notification would be reduced; however, in case of capital goods, the entire input tax credit availed in respect of the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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