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Jindal Agro Oils Balwada & 35 others Versus State of Madhya Pradesh & another

2016 (9) TMI 1161 - MADHYA PRADESH HIGH COURT

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 inserted, Sub Clause (6) of Clause (a) of Sub Section (1) of Section 14 of .....

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ct 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 holds good? - It is well settled that by inserting an Explanation in sta .....

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equired 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 allowed - decided in favor of petitioner. - Writ Petition No. 8118/2015 - .....

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ct 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 without generation of Oil Cake as a byproduct. Oil Cake is a commodity de .....

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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 free under Section 16 of the Act. 3. All the petitioners herein have file .....

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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 Madhya Pradesh High Court in the case of M/s. Jindal Agro Oil v. Commissi .....

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e 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 explanation below Sub Clause (6) of Clause (a) of Sub Section (1) of Sect .....

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n 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 above judgments. The said retrospective amendment introduced with retrosp .....

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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 declaring or explaining the provisions which were already there in the statute, .....

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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 Schedule II, which is used by the petitioners for manufacture of cotton oil .....

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f 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 judgment in the case of Commissioner of Sales Tax v. Bharat Petrolium Corp .....

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duct 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 Amending Act, if the same has been made for the purpose of explanation, .....

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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 II goods, Input Tax Rebate should be computed after apportioning the Input .....

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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 mentioned therein by the selling registered dealer. 14. Learned counsel for the .....

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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 India reported in [2015] 55 Taxmann.com 455 (Gujarat); and a Division Bench d .....

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n 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 collected on excise duty and cess imposed on arrack and the high court had issue .....

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aised 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 retain the amount wrongfully and illegally collected as sales tax and this ob .....

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ve 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 sales tax and this object was sought to be achieved by the Amendment Act .....

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t 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 provisions of sub-section (5) and such restriction and conditions as may be pres .....

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ified 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 packaging, other than mentioned in sub-clause (5) above, and in connection .....

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ay 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 Section *[11 and 11-A]; (iv) who opts for composition under Section *[11 and .....

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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, grass, hay, straw, [de-oiled cake including soyameal, cotton seed oil ca .....

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d 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 principles would not apply to the 2003 Amendment since it is in the form of an Ex .....

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ent, 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 mischief and advance the object of the Act it can help or assist the Court i .....

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ed 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 charge in Section 3(2) continues to be on the production of the electric .....

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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 have avoided the controversy, if it had wished to make the incidence of .....

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eable 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 Ruch Soya (supra), the benefit of ITR is available on the entire amount of .....

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at 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 provided in the context of judicially invalidate legislation would not app .....

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ows: 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 Parliament deems to have been a judicial error, whether in the statement of the c .....

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ct, 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 generally intended. The language 'shall be deemed always to have meant&# .....

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efore, 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 explain the meaning and intendment of the Act itself, (b) where there is a .....

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