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2015 (11) TMI 1321 - SUPREME COURT

2015 (11) TMI 1321 - SUPREME COURT - [2016] 87 VST 190 (SC) - Disallowance of the claim of Input Tax Credit (ITC) - pre-requisite for denying ITC under Section 18 - Exemption of tax - Rajasthan Value Added Tax Act, 2003 - charging of interest under Sections 18, 22 and 55(4) - Held that:- There is difference between exempted goods, i.e., goods on which no Value Added Tax is payable and are, therefore, not taxable and other cases where a particular transaction when it satisfies specific condition .....

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able 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 l .....

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rom 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 co .....

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.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 inspite of the exemption notifications under Section 8(3) of the Act.

Credit allowed - Decided against Revenue. - Civil Appeal No. 2806 to 2810 of 2015 - Dated:- 24-11-2015 - Dipak Misra And Prafulla C. Pant, JJ. JUDGMENT Dipak Misra, J. This batch of appeals, by special leave, calls in que .....

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d the assessment orders passed by the Commercial Taxes Officer in respect of various quarters of the years 2006-2007, 2007-2008 and 2008-2009 disallowing the claim of Input Tax Credit (ITC) and charging interest under Sections 18, 22 and 55(4) of the Rajasthan Value Added Tax Act, 2003 (for brevity the 2003Act ). 2. The facts giving rise to this batch of appeals are that the assessee-company is engaged in the business of manufacturing Asbestos Cement Pressure Pipe and Asbestos Cement Sheets and .....

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ailed before the Appellate Authority which declined to interfere with the orders appealed against, compelling the assessee to file second appeals before the Board which placed reliance on ACTO v. M/s. Suncity Trade Agency (2006) 147 STC 405 and dismissed the appeals. The Board while dismissing the appeals opined that the assessee-Company, a manufacturing unit, had not been charged on the sales of its product, as per the notification which squarely fall under the definition of exempted goods and .....

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mption of tax and the notification issued under the Rajasthan Sales Tax Act, 1994 (for short, the 1994 Act ) and the various notifications issued under the said Act from time to time deal with A.C. Sheets and in view of the postulates laid down in the notification dated 09.03.2007, issued under sub-section (3A) of Section 8 wherein the manufacturer of asbestos cement sheets and bricks have been exempted and, therefore, it could not be said that A.C. Sheets manufactured by the assessee were exemp .....

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nsport Co. (P) Ltd (1970) 2 SCC 192. The background of the issue of notification dated 09.03.2007 and the communication issued by the Commissioner, Commercial Taxes, Rajasthan, Jodhpur were stressed upon to bolster the plea that assessee was exempted from tax and not the A.C. Sheets manufactured by it. 4. 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 Schedul .....

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p; (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. For the said purpose, reliance was placed on M/s. Sun City Trade Agency (supra). 5. The High Court referred to the dictionary clause as enumerated in Section 2(13) which deals with exempted goods , Section 2(15) that defines the ter .....

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ted to sale of A.C. Sheets and Bricks, subject to the conditions indicated therein. The High Court further noted that the notification dated 01.06.2006 which had been issued in exercise of power under Section 8(2) and Schedule-I which was amended and A.C. Sheets and Bricks having contents of fly ash 25% more than by weight was inserted as entry 60A, and further adverted to the notification issued under the same provision, on 05.07.2006 vide which the Schedule-I was amended and entry 60A was subs .....

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nd Bricks manufactured in the state. 6. On the aforesaid basis, the Court proceeded to further observe that by notification dated 16.03.2005 under the 1994 Act and the notifications dated 16.02.2006 and 05.07.2006 read with notification dated 09.03.2007 A.C. Sheets and Bricks were exempted. The goods, that is, A.C. Sheets and Bricks were taken out by S.O. 371 and the manufacturers of A.C. Sheets and Bricks were exempted by inclusion in Schedule-II by S.O. 372 and conditions for availing such exe .....

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, therefore, it was apparent from the notifications issued on 09.03.2007 that the intention of the State was to exempt the manufacturers of A.C. Sheets and Bricks subject to fulfillment of conditions as indicated in S.O. 377 and to take away exemption available to A.C. Sheets and Bricks as goods, as was available before the said date on account of its inclusion in Schedule-I. 7. As the impugned order would show, the High Court distinguished the judgment rendered in Sun City Trade Agency (supra), .....

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ained in Section 2(13) of the Act which deals with exempted goods and not with exemption of person or class as indicated in Section 8(3) of the Act, and observed that the intention of the legislature in incorporating Section 18(1)(e) of the Act takes away the exempted goods from the purview of the ITC and not the person or class of persons exempted under Section 8(3) and the intention of the legislature was not to include exempted goods in the category of exempted persons as mentioned in Section .....

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stries Board by the notifications S.O. 376 and S.O. 378 issued on 09.03.2007 wherein a specific stipulation had been made to the extent that no input tax credit shall be claimed by such dealers in respect of purchase of raw materials used for manufacture of aforesaid goods. Thereafter, the High Court proceeded to observe:- If the persons included in Schedule-II were not entitled to claim ITC, there was no reason to include the said conditions for the above noted persons. Apparently, it is the sa .....

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put 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. 11. The expression of the said view and the ultimate setting aside of the orders of the Court below, as stated earlier, is the subject matter of assail in these appeals. 12. We have heard Mr. Shovan Mishra and Mr. Milind Kumar, learned counsel for the appellant and Mr. Paras Kuhad, l .....

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tangible or intangible, other than newspapers, money, actionable claims, stocks, shares and securities, and includes materials, articles and commodities used in any form in the execution of works contract, livestock and all other things attached to or forming part of the land which is agreed to be served before sale or under the contract of sale. 14. Section 8 deals with exemption of tax and Section 18 lays down the method, the manner and the conditions prescribed for availing the input tax cred .....

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vely, and thereupon the Schedule shall be deemed to have been amended accordingly. (3) The State Government in the public interest, by notification in the Official Gazette, may exempt whether prospectively or retrospectively from tax the sale or purchase by any person or class of persons as mentioned in Schedule-II, without any condition or with such condition as may be specified in the notification. (3A) Subject to such conditions as it may impose, the State Government may, if it considers nece .....

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the scheme of Special Economic Zones or promoting exports, subject to such conditions as may be laid down in the notification. (5) Every notification issued under this section shall be laid, as soon as may be after it is so issued, before the House of the State Legislature, while it is in session for a period of not less than 30 days, which may comprised in one session or in two successive sessions and if before the expiry of the sessions and if before the expiry of the sessions in which it is s .....

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to registered dealers, other than the dealers covered by sub-section (2) of Section 3 or Section 5, in respect of purchase of any taxable goods made within the State from a registered dealer to the extent and in such manner as may be prescribed, for the purpose of :- (a) sale within the State of Rajasthan or; (b) sale in the course of Inter-State trade and commerce; or (c) sale in the course of export outside the territory of India; or (d) being used as packing material of goods, other than exe .....

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d 16.03.2005 under the Act of 1994:- S. No. 1874; F.4(78)FD/Tax/2004-168 dated 16.03.2005 In exercise of the powers conferred by section 15 of the Rajasthan Sales Tax Act 1994 (Rajasthan Act No. 22 of 1995) and in supersession of this Department s Notification No. F.4/(68)FD/Tax-Div/99-271 (S.No. 1147), dated, January 24, 2000 (as amended from time to time), the State Government being of the opinion that it is expedient in the public interest so to do, hereby exempts form tax the sale of asbesto .....

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When the said notification was in vogue another notification dated 1.6.2006 was issued under Section 8 of the 2003 Act. The said notification is as under:- Notification Jaipur, Dated : 01.06.2006 In exercise of the powers conferred by sub-section (2) of Section 8 of the Rajasthan Value Added Tax Act, 2003 (Rajasthan Act No. 4 of 2003), the State Government being of the opinion that it is expedient in the public interest so to do, hereby makes the following further amendments is SCHEDULE-I append .....

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was issued by the Finance Department (Tax Division) vide which S. No. 68A from Schedule-I appended to the Act (2) deleted. May it be noted that S. No. 60A was substituted by notification dated 05.07.2006 which has been referred to hereinbefore. 18. The notification dated 09.03.2007, S.O. 372 was issued by the Finance Department (Tax Division) and the said department also issued another notification on the same day which is relevant. Both the notifications are reproduced below:- Notification date .....

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) After the existing S.No.18 and entries thereto the following new S.Nos. and entries thereto shall be added; namely :- 19 Self Help Group 20 Manufacturers of asbestos cement sheets and bricks Notification dated 09.03.2007, S.O. 377 FINANCE DEPARTMENT (TAX DIVISION) NOTIFICATION Jaipur, March 9, 2007 S.O. 377 - In exercise of the powers conferred by sub-section (3) of Section 8 of the Rajasthan Value Added Tax Act, 2003 (Rajasthan Act No. 4 of 2003), the State Government being of the opinion tha .....

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3) that the exemption shall be available up to 23.01.2010. 19. As we find the High Court in the impugned order has referred to the provisions of the Act and the notifications. On a careful scrutiny of the order passed by the High Court, it is perceivable that it has proceeded on the foundation that there is a distinction between the exempted units and exempted sales, and finally manufactured sales area, or to put it differently, the final transactions of goods or a sale when it takes place. Thus .....

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mi & others (1975) 4 SCC 745, would be seemly, for this Court had adverted to three distinct concepts; taxable persons, taxable goods and taxable events and how they were distinguished. It was observed in the said case that if the said distinction is overlooked, it may lead to serious error in construction and application of a taxing provision or enactment. In the case of taxable or non-taxable/exempted goods, the focal point and the focus is on the character and class of goods in relation t .....

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oods, there could be circumstances in a given case by reason of which a particular sale or purchase would not attract sales tax. 21. Be it noted, in the said decision, Section 7-A of the Madras General Sales Tax Act, 1959, which reads as under, fell for consideration:- (1) Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable .....

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tever be the quantum of such turnover in a year: Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods the sale of which is liable to tax under sub-section (1) of Section 3 shall not be liable to pay tax under this sub-section, if his total turnover for a year is less than twenty-five thousand rupees. Section 7-A, it was observed, provided for such situations where the goods were taxable goods in the hands of the purchasing dealer, if any of the c .....

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fficer, Palai (1972) 30 STC 537 (Ker). 22. With reference to the decision in Ganesh Prasad Dixit (supra) and the language in Madhya Pradesh General Tax Act, 1959, it was observed: 29. The impugned Section 7-A is based on Section 7 of the Madhya Pradesh Act. Although the language of these two provisions is not completely identical, yet their substance and object are the same. Instead of the longish phrase, the goods, the sale or purchase of which is liable to tax under this Act employed in Sectio .....

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High Court :- 32. Holding that Section 5-A, was valid and intra vires the State Legislature, the learned Judge explained the scheme of the section, thus:- Though normally a sale by a registered dealer or by a dealer attracts tax, there may be circumstances under which the seller may not be liable as, for example, when his turnover is below the specified minimum. In such cases the goods are liable to be taxed, but the sales takes place in circumstances in which no tax is payable at the point in w .....

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or otherwise. From the definition of turnover in Section 2 (xxvii) of the Act it is evident that the proceeds of such sale would be excluded from the turnover of a person who sells goods produced by him by manufacture, agriculture, horticulture or otherwise, though merely by such sales he satisfies the definition of dealer in the Act. Thus, such a person selling such produce is treated as a dealer within the meaning of the Act and the sales are of goods which are taxable under the Act but when h .....

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. The simple question before us is whether the Bench which decided Pine Chemicals is right in holding that the benefit of the said sub-section is available even where the goods are exempted with reference to industrial unit and for a specified period, viz., period of five years from the date the relevant unit goes into production. In other words, the question is whether an exemption of the nature granted under Government Order No. 159 dated 26-03-1971 is an exemption available only in specified .....

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fter noticing that Section 8(2A) of the Central Sales Tax Act specifically uses the expression exempt from tax generally or subject to tax generally at a rate which is lower than 4% , and accordingly observed that when the goods are exempt under certain specified circumstances alone, the exemption is not a general, but a conditional one. In such circumstances, it cannot be said that the goods are exempt from tax generally for the exemption may vary from unit to unit and would depend upon date of .....

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e 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 .....

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ur 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 perso .....

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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. 27. 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 .....

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