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2016 (9) TMI 1161 - MADHYA PRADESH HIGH COURT

2016 (9) TMI 1161 - MADHYA PRADESH HIGH COURT - [2016] 95 VST 260 (MP) - Proportionate dis-allowance of Input Tax Credit - Madhya Pradesh Value Added Tax Act, 2002 - by-product oil cake - commodity oil cake declared tax free under Section 16 by specifying in Entry No.3 of Schedule I of the Act - manufacture of oil - Input Tax for consumption or use of manufacture of oil, entitle the petitioners to Rebate of Input Tax (ITR) from the tax payable on sale of oil by such manufactures - explanation in .....

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Ordinance has been given a retrospective effect from 01.04.2006. The effect of the above amendment is that the petitioners are deprived of the benefit of ITR in respect of Input Tax paid by them for purchase of raw material used or consumed by them for / in the manufacture of Schedule II goods, viz. 'oil' from oil seeds, which was available to the petitioners in terms of Section 14 (1) (a) (2) of the Act - whether retrospective amendment introduced with retrospective effect is justified and hold .....

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e of the levy. It is not done, particularly when legislative clarity is required since the statutory provision imposes a tax, to untangle the legislative confusion. Explanation to Section 14 of the M.P. VAT Act, as introduced by Amendment Act of 2014 and amended in 2015, would apply prospectively. However, the legislature has power to validate the judicial invalid levy retrospectively by bringing Validation Act. - Explanation to amendment of Section 14 to apply prospectively - writ petition .....

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om cotton seeds having their respective units at various places in District Khargone and District Dhar. Cotton seed oil manufactured and sold by the petitioners is taxable commodity specified in Entry No.31 of Part-II, Schedule II of the Act, taxable at the rate specified in Schedule II. During the course of manufacture / extraction of the cotton oil from the cotton oil seeds, Oil Cake is a by-product generated as a result of such process. Manufacture or extraction of cotton oil is not possible .....

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stered dealer within the State of Madhya Pradesh, after payment of tax i.e. Input Tax for consumption or use of manufacture of oil, entitle the petitioners to Rebate of Input Tax (ITR) from the tax payable on sale of oil by such manufactures. Such Input Tax Rebate (ITR) is available to the petitioners, in accordance with Section 14 (1) (a) (2) of the Act, without any rider regarding proportionate disallowance of ITR in proportion to the generation of the tax commodity viz. Oil Cake declared tax .....

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Oil Cake , the benefit of ITR is available on proportionate basis i.e. no ITR will be available to the extent of generation of tax free commodity Oil Cake . The matter travelled up to this High Court. The Division Benches of Madhya Pradesh High Court, Bench at Gwalior and Principal Seat at Jabalpur in the case of Ruchi Soya Industries v. State of MP reported in (2014) 24 STJ 235 and M/s. Shri Ram Agro Industries v. Commissioner of Commercial Tax reported in (2014) 24 STJ 498 and Indore Bench of .....

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is entitled to the benefit of set-off on the entire amount of tax and the principle of apportionment cannot be invoked on the ground that during the process of manufacture of tax free by-product is also produced. Tax paid and amount refundable be refunded to the assessee, in accordance with law. 4. After the aforesaid judgment, the Governor of Madhya Pradesh has promulgated an Ordinance being Madhya Pradesh Value Added Act (Amendment) Ordinance, 2014 with effect from 16.09.2014 by inserting an .....

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ation that the explanation inserted in the Act by Ordinance has been given a retrospective effect from 01.04.2006. The effect of the above amendment is that the petitioners are deprived of the benefit of ITR in respect of Input Tax paid by them for purchase of raw material used or consumed by them for / in the manufacture of Schedule II goods, viz. 'oil' from oil seeds, which was available to the petitioners in terms of Section 14 (1) (a) (2) of the Act, as interpreted this Court in the .....

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ich is not permissible in law. 6. Learned counsel for the petitioners has submitted that the petitioners are only aggrieved by the insertion of the explanation by Section 14 of the MP VAT (Second Amendment) Act, 2014 with retrospective effect. 7. It is contended that explanation inserted by the above amendment for proportionate computation of ITR in proportion to the value of Schedule I and Schedule II goods can neither be said to be a clarificatory or declaratory amendment clarifying or declari .....

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ying for declaration of the explanation inserted by Section 14 of the MP VAT (Second Amendment) Act, 2014 with retrospective effect from 01.04.2006 as arbitrary, unreasonable and unconstitutional as being violative of Articles 14 and 19 (i)(g) of the Constitution and prayed for striking down the retrospective part of the said explanation. 8. Section 14 of the Amendment Act, 2014 provides for ITR on the goods specified in Schedule II. In the present case, commodity cotton seeds finds place in Sch .....

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tries v. State of MP (supra), the issue of non-grant of benefit of set off was duly considered by this Court and it has also been considered that whether petitioner was entitled for the benefit of set off as provided in Section 14 (1) (a) (2) of the Amendment Act, 2014 on entire purchase of soya seeds. Division Bench of this Court held that the petitioner is entitled to get set off on entire raw material purchased by them. Division Bench decided the controversy on the strength of Supreme Court j .....

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act regarding the Input Tax Rebate on entire raw material, whereas byproduct are both taxable and non-taxable, therefore, using power conferred under the Act, the amending notification has been issued providing explanation for ITR, which shall be computed after apportioning the input tax in proportion to the value of Schedule I and Schedule II goods so manufactured. 11. Learned Deputy Advocate General for the respondent / State submits that the law relating to the retrospective operation of the .....

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sal of the writ petition. 12. We have heard the arguments of the learned counsel for the parties at length. 13. Section 3 of the Madhya Pradesh Value Added Tax (Second Amendment) Act, 2014 provides, as under: - 3. Amendment of Section 14 In Section 14 of the Principal Act, - (i) in sub-section (1), in clause (a), after the second proviso, the following explanation shall be inserted, namely: Explanation : where a manufacturing process results in the manufacture of Schedule I as well as Schedule I .....

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if any, may be carried over for adjustment in the subsequent year and if not carried over, shall be granted by way of refund after assessment of the relevant financial year. . (iii) in sub-section (6), in clause (ix), for full stop, the semi colon shall be substituted and thereafter the following clause shall be inserted, namely, - (x) in respect of goods, the bill, invoice or cash memorandum of which does not indicate registration certificate number of the purchasing registered dealer as mentio .....

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ndustries Limited, Kerala v. Assistant Commissioner of Commercial Tax, VI Circle, Bangalore & others reported in (2007) 15 SCC 435; (5) Zile Singh v. State of Haryana & others reported in AIR 2004 SC 5100; (6) Commissioner of Income Tax v. Gold Coin Health Food P. Limited reported in [2008] 304 ITR 308 (SC); (7) S. Sundaram Pillai v. V.R. Pattabiraman reported in AIR 1985 SC 582; a Division Bench decision of High Court of Gujarat in the case of (8) Niko Resources Limited v. Union of Indi .....

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such, the said explanation introduced with retrospective effect is bad in law. 15. In the case of D. Caswasji & Co. V/s. State of Mysore & Ors. (Supra), by amendment sought to raise the rate of tax from 6 ½% to 45% with retrospective effect from April 1996, to avoid the liability of excess amount. The Karnataka High Court in its earlier judgment (D. Cawasji & Co. V/s. State of Mysore & Ors. reported as 1969 (1) Mysore L.J. 461) had held that sales tax could not be collect .....

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ting to refund of the excess amount illegally collected had amended and raised the rate of the tax from 6 ½% to 45% with, retrospective effect from 1.4.1996 to avoid the liability of refunding the excess amount collected. The validity of the said amendment was challenged by filing writ petition. The matter went upto the Supreme Court. The Hon'ble Supreme Court has held that the only object of enacting the amendment act to nullify the effect of judgment and the State Government to reta .....

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the rate of tax from 6 ½ per cent to 45 per cent with retrospective effect from April 1, 1996, to avoid the liability of refunding the excess amounts collected and had further purported to nullify the judgment and order passed by the High Court which had become conclusive and become binding on the parties. Thus, the only object of enacting the Amendment Act was to nullify the effect of the judgment and enable the State Government to retain the amount wrongfully and illegally collected as .....

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order of the High Court, the Act was invalid and unconstitutional. 16. It is well settled that by inserting an Explanation in statute, the main provision of the Act cannot be defeated or enlarged. Ordinarily, the purpose of Explanation is to clarify that it is already enacted and not to introduce something new. 17. Section 14 (1) (a) and Clause II of M.P. VAT Act, which deals with the rebate of input tax is relevant which reads as under :- Sec.14 : Rebate of input tax (1) Subject to the provisi .....

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ption or use for/in the manufacture or processing or mining of goods specified in Schedule II for sale within the State of Madhya Pradesh or in the course of inter-state trade or commerce or in the course of export out of the territory of India; or (5) Consumption or use for/in the manufacture or processing or packaging of goods declared tax free under Section 16, for sale in the course of export out of the territory of India; or (5-a) Consumption or use for/in the manufacture or processing or p .....

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by him by way of free sample or gift or given to or received by him by way of replacement; (ii) in respect of goods specified in Schedule II for use or consumption for manufacture or processing or mining of goods but the goods manufactured or processed or mined are given away by him by way of free sample or gift or given to or received by him by way of replacement; (iii) in respect of goods purchased by him from another such dealer who opts for the composition of tax under the provisions of Sec .....

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eeds rupees one thousand and it has not been authenticated in accordance with the provision of subsection (1-A) of Section 40; (ix) in respect of goods notified under Section 9-A 18. In Serial No.3 of Schedule - I de-oiled cake including soyameal and cotton seed oil cake was substituted by VAT (Amendment) Act, 2011 w.e.f. 1.4.2011. Relevant part of Sr. No.3 of VAT Schedule - I, reads as under :- 3. Aquatic feed, poultry feed and cattle feed including feed supplements, concentrates and additives, .....

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x court has held that the legislature has the power to validate an invalid levy and to do so retrospectively. The proscription provided in the context of judicially invalidated legislation would not apply as the 2001 amendment had not, till the promulgation of the 2003 Act, been held to be invalid by any Court. The legislature can also change the character of the tax or duty from impermissible to permissible but the tax or levy should be within its legislative competence. However, these principl .....

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t itself, b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve, c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mis .....

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t;for the purpose of sub-section (2) of Section 3, the cess shall be levied on units of electrical energy sold or supplied". Since the purpose of sub-section (2) of Section 3 continues to be a levy on production, the word 'levied' in the context would at the highest mean 'assessment' and not 'imposition'. It is not the respondents' case that any new or additional or alternative cess was sought to be introduced by the Explanation. Thus despite the Explanation, the .....

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Section 3(2) is a singularly ill drawn provision. The 2003 amendment was obviously introduced for the purpose of rectifying the obvious error in Section 3(2), an object which cannot be achieved by introducing an Explanation since an Explanation cannot be read as changing or as interfering with the incidence of the levy. It is not for us, particularly when legislative clarity is required since the statutory provision imposes a tax, to untangle the legislative confusion. 26. The legislature could .....

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whatever." 27. We are, therefore, of the opinion that the cess chargeable at all material times under Section 3(2) is only on the production of electrical energy units as far as producers of electricity for captive consumption are concerned and the Explanation does not serve to change the character of the tax from an impermissible to a permissible levy. 22. In this particular case also the provisions regarding incidence of tax has not been amended. 23. That as already held in the case of Ru .....

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le I and Schedule II so manufactured. It is only by way of Explanation that the provisions of apportioning the input tax in proporti0nate to the value of Schedule I and Schedule II has been introduced. Such an Explanation cannot fulfill the deficiency of apportionment of input tax in proportionate to the value unless and until the provision dealing with the incidence of tax is amended. 25. The legislature has the power to validate and invalid levy and to do so retrospectively. The Proscription p .....

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stated the position regarding retrospective operation of statutes as follows: The presumption against retrospective operation is not applicable to declaratory statutes. As stated in Craies and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliame .....

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essarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is wellsettled that if a statute is curative or merely declaratory of the previous law retrospective operation is gen .....

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icatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force, the amending Act also will be part of the existing law." 27. The object of Explanation to statutory provision has been culled out from the earlier judicial decision and succinctly restated in S. Sundaram Pillai & Ors. V/s. V.R. Pattabiraman & Ors., reported as 1985 (1) SCC 591 Para 53 is relevant which reads as under :- (a) to e .....

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