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2016 (7) TMI 1125 - ALLAHABAD HIGH COURT

2016 (7) TMI 1125 - ALLAHABAD HIGH COURT - TMI - Input tax credit - whether the tax which the assessee has paid on the purchase of raw material and packing material which is ultimately used in the manufacture and packing of goods is liable to be adjusted in full from the ultimate tax liability which a dealer may stand faced with or is it liable to be adjusted only to the extent of the taxable turnover. - Held that:- Applying the ratio of Bharat Petroleum [1992 (2) TMI 250 - SUPREME COURT OF INDI .....

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already paid by the revisionist could not be denied adjustment based upon the liability or otherwise of another dealer. - Thirdly, the Court notes that the revisionist has effected a sale of goods to entities within the State. However since these enjoyed exemption under Section 4-B, no tax was collected on these sales. The mere fact that tax has not been collected, does not detract from the position that a sale of goods took place. - Lastly, the Court notes that the section itself provid .....

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vision No. - 160 of 2006 - Dated:- 18-7-2016 - Hon'ble Yashwant Varma, J. For the Applicant : Ashok Kumar For the Opposite : S. C. ORDER Heard the learned counsel for the revisionist and Sri B.K. Pandey, learned standing counsel for the respondent. The short and interesting issue involved in this revision is as to whether the tax which the assessee has paid on the purchase of raw material and packing material which is ultimately used in the manufacture and packing of goods is liable to be ad .....

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7; 3.41 lacs in that year. Admittedly the revisionist had also effected sales of ₹ 61,56,650/- to certain units which enjoyed exemption from payment of tax by virtue of the provisions of Section 3-B of the U.P. Trade Act 1948. What the assessing authority has proceeded to do however is that while setting off the tax which had been pre-paid by the assessee on the raw material, it has reduced the set off amount to ₹ 4,21,406/- against what the assessee originally paid namely ₹ 5, .....

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onsideration. Admittedly the set off of taxes paid on raw material and packing material stands covered by the provisions of Section 4-BB of the U.P. Trade Tax Act 1948. The said provision reads as under: "Where tax has been paid on the purchases or sale of raw material or packing material inside the State and such raw material or packing material has been used in manufacture or packing of such goods as are notified by the State Government in this behalf and such goods are sold in the State .....

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nter-state trade or commerce, to the extent the tax has been paid on the purchase or sale of raw material or packing material, from which the goods sold in the course of inter-state trade or commerce were manufactured or packed. Provided that the amount of tax to be deducted under clause (a) or clause (b) shall not exceed the amount of tax payable separately under this Act or the Central Sales Tax Act, 1956." Learned counsel for the revisionist has contended that section 4-BB does not envis .....

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submitted that the set-off which was claimed by the assessee is directly connected with the tax payable on the sale of goods. He submits that the tax paid on raw or packing material to the extent used and utilized in the manufacture and sale of goods to tax exempted entities must necessarily be proportionately reduced. He submits therefore that to the extent that the raw material may have been used in the manufacture of goods valued at ₹ 61,56,650/- there has to necessarily be a reduction .....

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and collected. From the plain and unambiguous language of Section 4-BB, this Court finds no indication that set off which is claimed by the assessee is liable to be reduced and restricted only to such sales which have suffered or have been subjected to tax. The set off which is claimed is of all taxes that have been paid on the purchase of raw material. The set off is not restricted in any manner to only those sales upon which tax has been levied or collected. This becomes further evident from .....

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ds" as used in the substantive part of 4BB firstly cannot be read in isolation. Secondly, they stand duly explained by sub clause (a) which follows. In order to appreciate the dictum laid down by the Supreme Court in Bharat Petroleum, it would first be apposite to consider what was actually urged from the side of the revenue therein. This is how the Supreme Court recorded the submission: - "14. Shri Dholakia, learned counsel for the State of Maharashtra, submits that the issue in these .....

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" were inserted by a notification dated August 31, 1970] , the manufactured goods viz., pure kerosene were neither sold by the respondent so as to attract sales tax in his hands nor, indeed, liable to sales tax at all for the first three months. ..............Even assuming that the sulphuric acid or cotton purchased can be said to have been used for the manufacture of two commodities (viz. kerosene and acid sludge in the one case and cloth and cotton waste in the other), the set-off under t .....

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ain question, we are inclined to agree with respondents' counsel that they are entitled to a set-off of the entire tax paid by them on the purchases of sulphuric acid and cotton respectively. The only condition under the rule is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale. Their concurrent user for the manufacture of another item of goods which may or may not be taxable is immaterial though we may point out that in the Bharat .....

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this contention: Anglo-French Textiles Co. Ltd. v. CIT [(1954) 25 ITR 27 : AIR 1954 SC 198] ; Tata Iron & Steel Co. v. State of Bihar [AIR 1963 SC 577 : 1963 Supp (1) SCR 199 : (1963) 48 ITR 123] and CIT v. Best & Co. [(1966) 60 ITR 11 : AIR 1966 SC 1325 : (1966) 2 SCR 480] We do not think these cases are of assistance............ The rules do not require that the purchased goods must have been used only for the manufacture of taxable goods for sale. In this situation, it is not possibl .....

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he manufactured goods are exported which may yield no tax but earn foreign exchange, or even that the purchases are utilised for manufacture of goods in the State thus contributing to the industrial development of the State. It is, therefore difficult to read into the provision a quantitative correlation of the goods resulting in a taxable turnover and the purchases of raw materials on which tax has been paid. In this background, the straightforward answer to the question raised lies in the lite .....

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