Goods must be exempted goods as pre-requisite for denial of ITC

[Rakesh Singh]

2015 (11) TMI 1321 - SUPREME COURT

Commercial Taxes Officer Versus A. Infrastructure Ltd.

ITC under Rajasthan VAT can be availed unless goods fall under the category of exempted goods in general. This concept has been dealt by Honorable Supreme Court in the case of M/s A. Infrastructure Ltd., at length. The assesse was denied ITC based upon the contention that assesse / transaction being exempted based upon its inclusion in Schedule II , which entitles the manufacturer / assesse to claim exemption from tax under certain conditions. The honorable court considered the distinguishing features among taxable goods, taxable person and taxable transaction and dismissed the appeal assailing allowance of ITC to the manufacturer / assesse falling in Schedule II and entitled to avail exemption from tax.

Issues:

• assessee-company is engaged in the business of manufacturing Asbestos Cement Pressure Pipe and Asbestos Cement Sheets and it had availed ITC on the purchase of raw material used in the manufacture of A.C. Sheets.
• The AO issued notice to the assessee for the purpose of disallowing ITC on purchase of raw material used in manufacturing A.C. Sheet and passed orders under Section 22 of the Act disallowing the ITC and charged interest.
• The said orders were assailed before the Appellate Authority which declined to interfere.
• Assesse filed second appeals before the Board which placed reliance on ACTO v. M/s. Suncity Trade Agency (2005 (11) TMI 445 - RAJASTHAN HIGH COURT) and dismissed the appeals.
• The grievance of dismissal constrained the assesse to file the revision petitions before the High Court, seeking interference in the revision petition
• The stand of the assessee was controverted by the revenue contending, inter alia, that vide notification S.O. 372, manufacturers of A. C. Sheets and Bricks were included at S. No. 20 in Schedule-II, which entitles the units to claim exemption on the sale of manufactured goods on the fulfillment of certain conditions and in view of the specific conditions stipulated in Section 18(1)(A) of the Act, ITC was not allowed. Reliance was placed on notification S.O. 377, dated 09.03.2007 issued under Section 8(3) of the Act to harp that A.C. Sheets clearly fall within the category of exempted goods. Reference was made to the definition of ‘exempted goods’ and ‘goods’ contained in Section 2(13) & (15) of the Act. It was further submitted that irrespective of whether the notification was issued under sub-Section (1) or (3) or (3A) or (4), the goods would fall within the definition of exempted goods and consequently the assessee would not be entitled to ITC.
• learned Single Judge held that:-

“In view of express language of Section 18(1)(e) of the Act, notifications S.O. 371 and S.O. 372 read with S.O. 377, the petitioner who is a manufacturer of A.C. Sheets is entitled to avail ITC and the authorities below were not justified in denying Input Tax Credit to the petitioner based on interpretation put by them on inclusion of the petitioner in Schedule-II under Section 8(3A) and notification S.O. 377 dated 09.03.2007 issued under Section 8(3) of the Act.”

• The expression of the said view and the ultimate setting aside of the orders of the Court , is the subject matter of assail.

Held:

• There is no doubt that a distinction has to be drawn between exempted goods, which means complete exemption for the specified goods, and when the goods are taxable goods, but a transaction or a person is granted exemption. When the goods are exempt, there would be no taxable transactions or exemption to a taxable person. In other cases, goods might be taxable, but exemption could be given in respect of a taxable event, i.e., exemption to specified transactions from liability of tax or exemption to a taxable person, though the goods are taxable. Such exemptions operate in circumscribed boundaries and not as expansive as in the case of taxable goods. Exemptions with reference to taxable events or taxable persons would not exempt the goods as such, for a subsequent transaction or when the goods are sold or purchased by a non-specified person, the subsequent transaction or the taxable person would be liable to pay tax. It is, in this context, it has been highlighted by the respondent and, in our opinion, absolutely correctly that Section 4 of the Act provides for levy of tax in a situation where the goods, which were not exempted but could otherwise not be subjected to tax on account of exemption granted to a person or to a transaction. The goods remain taxable goods through exemption stands granted to a particular individual or a specified transaction. That being so, all subsequent transactions in those goods, which are not specifically exempt and not undertaken by an exempted person could be subjected to taxation. Therefore, the appellant though exempted from payment of tax, subsequent transactions of sale of asbestos cement sheets would be taxable. The transaction of sale by the manufacturer/dealer covered by the exemption notifications issued under Section 8(3) of the Act would be protected or an exempted transaction, but the goods not being exempted goods would be taxable and could be taxed on the happening of a taxable or charging event. It is simply because the goods are not exempt from tax or exempted goods, but are taxable. As a logical corollary it follows that the Value Added Tax would have to be paid on the taxable goods in a subsequent transaction by the purchasing dealer.
• As a sequitur, we are obliged to observe that if the contention of the appellant is to be accepted, the respondent though covered by exemption notification under Section 8(3) of the Act could be at a disadvantage because finally when the subsequent sale is made by a non-exempted dealer or tax stands paid on the non-exempted transfer, the goods, i.e., asbestos cement sheet, would suffer the tax on the entire sale consideration. This would place an exempted manufacturer-dealer at a disadvantageous position and make his products uncompetitive in spite of the exemption notifications under Section 8(3) of the Act.
• In the context of the issue in question, the respondents have rightly highlighted that where the appellant wanted to restrict the benefit of ITC when a particular dealer or transaction was exempted, it was so stipulated in the exemption notification issued under Sections 8(3) and 8(4) of the Act. Such notifications admittedly do exist and were issued by the appellant. They are also right in drawing support from the note sheets relating to Finance Bill 2007 as also the communications issued by Commissioner of Commercial Taxes. The note sheets and the communication of the Commissioner draw a clear distinction between exemptions when the goods were not taxable as they do fall under the First Schedule and when an exemption was granted under the Second Schedule, which relates to specified transaction of sale or exempted dealers even when the goods were taxable goods. In latter cases, subsequent dealers undertaking sale of goods would be liable to pay tax on sale of such products. There can be no shadow of doubt that subsequent dealers undertaking sale of goods manufactured and sold by the respondent company would be liable to pay tax on such products.
• In view of the aforesaid premised reasons, we do not find any merit in these appeals and accordingly they stand dismissed. There shall be no order as to costs.