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2023 (11) TMI 298 - SC - VAT and Sales TaxInterpretation of statute - Section 13(1)(f) of the UP VAT Act - Claim of full ITC on inputs - amount of tax paid towards the purchase of raw Rice Bran - scope of the word “goods” as defined under Section 2(m) of the UP VAT Act as outlined in Section 13(1)(f) of the UP VAT Act should be limited to only “taxable goods” or not - applicability of decision of this Court in the case of M.K. Agro Tech [2017 (9) TMI 1308 - SUPREME COURT]. HELD THAT:- A bare perusal of the scheme under Section 13 of the UP VAT Act [and specifically under Section 13(1)(a)] makes it abundantly clear that in cases where the purchased goods (in the present case Rice Bran) are used in the manufacture of taxable goods (in the present case RBO and physically refined RBO) except the non-VAT goods, and where such manufactured goods are sold within the State or in the course of inter-state trade and commerce, the registered dealers (like the assessee herein) are entitled to claim input tax credit of the full amount. The charging section of the UP VAT Act, therefore, entitles the assessee to claim full amount of tax paid on the purchases as ITC - Furthermore, Section 13(3)(b) of the UP VAT Act, introduces the concept of proportionality in the scheme of the enactment and by means of a deeming fiction provides that where during the manufacture of VAT goods, exempt and non-VAT goods (except as by-product or waste product) are produced, the amount of ITC credit may be claimed and may be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than the non-VAT goods and exempt goods. Explanation (iii) to Section 13, therefore, forbids the Assessing Authority as well as the assessee from raising any dispute in regard to the allowability of the ITC in cases where exempted goods are being produced as a by-product or waste product during the process of manufacture. Whether the High Court was right in placing on the decision of this court in the case of M.K. Agro Tech? - HELD THAT:- In the case of M.K. Agro Tech, the assessee was engaged in the manufacture of sunflower oil (taxable goods), which is extracted from sunflower cake, by employing solvent extraction process. Sunflower oil cake is the input/raw material on which VAT was payable. During the extraction process, a ‘by-product’ in the form of de-oiled sunflower oil is produced. The said by-product was also exempted under the Karnataka VAT Act - This Court while examining Section 17 of the KVAT Act, read with Rule 131 of the KVAT Rules, held that ITC was admissible to the extent of inputs used in the sale of taxable goods. In the case of M.K. Agro Tech, this Court held that only partial ITC was permitted to the assessee as they were making taxable and exempted sales from the dutiable raw materials procured by them. In Para 28, this Court has elaborated on the scheme under the Karnataka VAT Act, to emphasise that the provision which allows partial rebate is made applicable on the ‘sales’ of taxable goods and goods exempt under Section 5. It refers to ‘sale’ of ‘goods’, taxable as well as exempt, and is not relatable to the ‘manufacture’ of the goods. Further elaboration has been made to hold that upon the ‘sale’ of goods exempted under Section 5 of the Karnataka VAT Act, partial rebate shall only be admissible - The High Court committed an error in passing the impugned judgment relying on the decision of this Court rendered in M.K. Agro Tech. The impugned common judgment and order passed by the High Court of Allahabad is hereby set aside and the orders passed by the Commercial Tax Tribunal dated 04.05.2016 and 05.07.2017 are hereby restored - appeal allowed.
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