TMI Blog2015 (1) TMI 854X X X X Extracts X X X X X X X X Extracts X X X X ..... ase that assessee has put-up a separate industry for the purpose of manufacture of de-oiled cake and merely because the de-oiled cake has some value and it is sold, that would not take away the benefit conferred on the assessee by the statute. The assessee cannot be denied the benefit, taking into consideration the sale of de-oiled cake which is an exempted goods. In that view of the matter, the authorities have not properly appreciated the said statutory provisions. The Legislative intent is defeated in denying the benefit of input tax deduction relying on Sections-11(a)(1) r/w. Section-17 of the Act. The impugned order is unsustainable - assessee is entitled to the benefit of Full Input Tax Deduction - Decided in favour of assessee. - Strp Nos.774-974 of 2013 - - - Dated:- 17-7-2014 - N Kumar B Manohar, JJ. For the Appellant : Sri T N Keshava Murthy, Adv. For the Respondent : S Sujatha, Govt Adv. JUDGEMENT Per: N Kumar: The assessee has preferred this revision petition against the order passed by the Karnataka Appellate Tribunal holding that the assessee is not entitled to full input tax credit, as the residue Sunflower De-oiled Cake is not liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tends that the assessee is engaged in the manufacture of Sunflower Oil from the Sunflower Oil Cake. The Sunflower Oil is taxable goods. Incidentally, the de-oiled cake comes as a by-product which is sold by it which is an exempted goods. But that should not be the reason to deny the benefit of deduction of input tax relying on Section 11(a)(1) of the Act. The authorities have not properly appreciated the case of assessee and committed error in denying the said benefit. 4. Per contra, learned Addl. Government Advocate, supporting the impugned order, contends that it is not in dispute that the assessee is engaged in the business of extraction and selling of sunflower oil and also de-oiled cake which is an exempted product. Therefore, the assessee utilizing the Sunflower Oil Cake as an input and manufacturing both Sunflower Oil and Sunflower De-oiled Cake and sells them, therefore, Section 17 is attracted. Hence, the authorities are right in applying Section 17 of the Act and denying the relief to the extent of the exempted goods. Therefore, in the light of the aforesaid rival contentions, the point that arises for our consideration in this revision petition is,- Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. xxxx xxxx xxxx xxxx xxxx xxxx 6. It is to be noticed that at the inception, the words 'Manufacture or Processing or package or storage' were not conspicuously mentioned in the said provision. Those words were inserted by way of amendment by Act No.5/2008 and it has been given retrospective effect from the inception i.e., 01.04.2005. 7. Section 17, on which reliance is placed by the Revenue and which deals with partial rebate, reads as under:- 17. Partial Rebate Where a registered dealer deducting input tax - 1) makes sales of taxable goods and goods exempt under Section 5, or 2) in addition to sale of taxable goods or the sales referred to in clause (1) dispatches taxable goods or goods exempted under Section 5 outside the State not as a direct result of sale or purchase in the course of inter-State trade, or 3) puts to use the inputs purchased in any other purpose other than sale, manufacturing, processing, packing or storing of goods, in addition to use in the course of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. 10. Section-17 deals with the Partial Rebate. If a dealer/assessee makes sales of taxable goods and goods exempted under Section 5, then, the apportionment and attribution of input tax deductible between such sales and despatches of goods shall be made in accordance with rules. Rule 131 provides for apportionment. Sub-Rule(1) of Rule 131 categorically states that all input tax directly relating to sale of goods exempt under Section 5 is non-deductible. However, sub-rule (2) makes it clear that all input tax directly relating to taxable sales may be deducted subject to the provisions of Section-11. Therefore, the words 'Direct Relation' are used between the goods in respect of which input tax is paid and goods in respect of which output tax is payable. There should be a direct nexus. As is clear from the wordings of Section 11(a)(1), tax paid on purchases, attributable to sale or manufacture of exempted goods are non-deductible. Therefore, an assessee, if in the business of sale or manufacture of a particular goods, if that goods is liable for output tax, then he would be eligible for input tax deduction. Having regard to the language employed in Section 11(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay the tax or duty they are otherwise liable to pay. Therefore, in the instant case, if a literal construction is adopted, it leads to absurdity and it would defeat the object of the Act and the benefit conferred on the assessee by the Legislature is denied. On the contrary, purposive construction would achieve the object sought to be achieved. 11. In this case it is not in dispute that the assessee is in the business of sale and manufacture of Sunflower Oil from Sunflower Oil Cake had applied solvent extraction process. He did not set up any industrial unit for the purpose of manufacturing de-oiled cake. The entire rawmaterial named as Sunflower Cake purchased is for the manufacture of Sunflower Oil. But, in the process, after the entire Sunflower Oil is extracted, de-oiled cake remains. The said de-oiled cake also has a value. He cannot keep that de-oiled cake in his premises as it could occupy a large space and no purpose would be served by keeping the same. Merely because the said de-oiled cake also has a value and he sells the same, there is no justification to deny the benefit of deduction to the assessee, because there is no direct nexus between the sunflower oil cake ..... X X X X Extracts X X X X X X X X Extracts X X X X
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