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2016 (8) TMI 88 - GUJARAT HIGH COURT

2016 (8) TMI 88 - GUJARAT HIGH COURT - TMI - Input tax credit - purchase of timber - emergence of firewood - section 80 of GVAT - Held that:- it is not even the case of the department that the entire timber purchased by the assessee was not used for the purpose of manufacturing sawn timber or logs. The department however, contends that howsoever unintentional, since the firewood came into existence as a byproduct, the proviso would apply. This begs the question of use of the raw material for the .....

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at the raw material purchased was not used fully for manufacture of the specified product. - Entire credit allowed - Decided in favor of assessee. - TAX APPEAL NO. 216 of 2015 - Dated:- 28-7-2016 - MR. AKIL KURESHI, MR. A.J. SHASTRI, JJ. FOR THE APELLANT : UCHIT N SHETH, ADVOCATE FOR THE OPPONENT : MR PRANAV TRIVEDI, AGP ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The appellant assessee has challenged the judgement of the Value Added Tax Tribunal dated 12.12.2014 in the follo .....

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he assessee also sales the firewood which is by virtue of entry 23(i) in the First schedule to the Gujarat Value Added Tax Act, 2003 ( VAT Act for short), exempt from payment of tax. The proportion of firewood is about 1% of the raw material. 3. In this background, the question of assessee taking full tax credit on the purchase of timber came up for consideration on an application filed by the assessee to the Commissioner of Commercial Tax under section 80 of the VAT Act. The Joint Commissioner .....

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was of the opinion that : Further, the scheme of the Act, to our mind is such that all the taxable goods carry tax until it reaches the last customer for consumption. Thus, the last customer who would consume the goods has to bear the ultimate burden of the tax. From production/manufacture to market to agency, to subagency, stockiest, the whole seller, retailer and the last consumer who purchases the goods for consumption, forms a long chain. And in this chain the consumer is at the last point, .....

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ction of the input tax credit. 4. This judgement the assessee has challenged in the tax appeal in which at the time of admission, following question of law was framed : Whether in the facts and circumstances of the case the learned Gujarat Value Added Tax Tribunal is justified in holding that input tax credit of tax paid on purchases of timber logs is required to be proportionately reduced under the proviso to Section 11(3)(a) or Section 11(8)(a) of the Gujarat Value Added Tax Act, 2003 to the e .....

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ll portion of the timber by way of waste was sold as firewood, would not mean that the entire quantity purchased by the assessee was not used for manufacturing of taxable goods. He highlighted that the scrap generated during such process was barely about 1% of the entire quantity of timber. Counsel relied on the following decisions in support of his contentions : (1) In case of State of Gujarat v. Jayant Agro Organics Ltd, order dated 10,11,8.2015 passed in Tax Appeal No.1129/2013. (2) In case o .....

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n Petition Nos.774 to 794 of 2013) 6. On the other hand, learned AGP Shri Pranav Trivedi opposed the appeal contending that the Tribunal has correctly applied the statutory provisions. To the extent firewood was generated, the assessee was not entitled to tax credit on purchase of timber since such firewood was exempted from payment of tax. Proviso to section 11(3)(a) would therefore, apply. 7. Facts are seriously not in dispute. The appellant purchased timber which is taxable for the purposes o .....

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subsection (2) of section 11, the registered dealer intending to claim the tax credit is required to maintain register and the books of accounts in such manner as may be prescribed. Relevant portion of subsection( 3) reads as under : (3)(a) Subject to the provisions of this section, tax credit to be claimed under subsection (1) shall be allowed to a purchasing dealer on his purchase of taxable goods made in the State, which are intended for the purpose of xxx (vi) use as raw material in the man .....

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hereof. Clause (h) reads as under : (h) of the goods which are used in manufacture of goods specified in Schedule I or the goods exempt from the whole of the tax by a notification under subsection( 2) of section 5 or in the packing of goods so manufactured; 10. Subsection (8) of section 11 reads as under : 8(a) If the goods purchased were intended for the purposes specified under subsection (3) and are subsequently used fully or partly for purposes other than those specified under the said subse .....

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dit shall be reduced proportionately having regard to the period falling short of the period of five years. 11. From the above statutory provisions, it can be seen that as per clause (a) of subsection( 3) of section 11, tax credit under subsection( 1) would be allowed to a purchasing dealer for his purchase of taxable goods which are intended for the purposes mentioned in clauses (i) to (vii). Clause (vi) thereof refers to use as raw material in the manufacture of taxable goods intended for clau .....

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the extent they are used for the purpose they are so specified. 12. In terms of proviso, thus if the purchases mentioned in clause (vi) namely, the raw material is used only partially for specified purposes, the tax credit would be restricted proportionate to the extent they are so used for such purpose. In other words, to the extent the raw material is used partially for the purposes other than those specified in the subsection, there shall be proportionate disallowance of available tax credit .....

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sawn timber or logs. The department however, contends that howsoever unintentional, since the firewood came into existence as a byproduct, the proviso would apply. This begs the question of use of the raw material for the specified purpose. In our opinion, since the entire commodity purchased by the dealer was used for the specified purpose, namely, as a raw material in manufacturing of taxable goods, entire tax credit was required to be granted. The restriction or disallowance referred to in th .....

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cture of goods specified in ScheduleI i.e. goods which are exempt from payment of tax. Likewise, subsection (8)(a) of section 11 applies where the goods are purchased with intention for use of specified purposes under subsection( 3) but are subsequently used or partially for other purposes. On the same logic adopted by us for holding that proviso to subsection (3) (a) would not apply, neither clause(h) of subsection( 5) nor subsection (8)(a) of section 11 would apply. 15. Division Bench of this .....

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the proviso to section 11(3). The High Court negatived the contention making the following observations : 19 Considering the above observations, compared with the facts of the present case, it is clear that the entire purchase made by the company is intended to manufacture castor oil and oil based products. In the first phase, when crushing of the seeds takes place, only some portion of the seeds turn into oil. After the first process of crushing the seeds, most of the oil is extracted. The said .....

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the Division Bench of Madhya Pradesh High Court in case of Ruchi Soya Industries Ltd.(supra), making the following observations : 13. From the aforesaid finding of the honourable Supreme Court,it is clear that manufacturer is eligible the benefit of setoff on the entire amount of tax paid on purchase of raw material and principle of apportionment could not be invoked. In the facts and circumstances of the present case, the judgement of the honourable Supreme Court is applicable because the DOC, .....

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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 deoiled cake. The entire raw material named as sunflower cake purchased is for the manufacture of sunflower oil. But, in the process, after the entire sunflower oil is extracted, deoiled cake remains. The said deoiled cake also has a value. He cannot keep that deoiled cake in his premises as it could occupy a large space and no purpose would be s .....

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