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2011 (12) TMI 654 - RAJASTHAN HIGH COURT

2011 (12) TMI 654 - RAJASTHAN HIGH COURT - TMI - S.B. Civil Sales Tax Revision Petition Nos. 193 and 194 of 2009 - Dated:- 8-12-2011 - Dr. Vineet Kothari, J. For the Petitioner/Revenue :- G.R. Punia, AAG and Sr. Advocate with Mahendra Choudhary, Advocate For the Respondent/assessee :- Sanjeev Johari, Advocate JUDGMENT Dr. Vineet Kothari, J. The petitioner - Revenue has filed these two revision petitions being aggrieved by order dated 13.03.2009 of the Rajasthan Tax Board, Ajmer dismissing Revenu .....

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ot;Chokar") in the process of manufacture of "Aata", "Maida" and "Suji", which are taxable wheat products and for manufacture of which the wheat (raw material) was purchased by the respondent-assessee upon payment of Sales Tax/VAT and full input tax credit in respect of which was claimed under Section 18 of the Act against the tax payable by the assessee on the sale of "Aata", "Maida" and "Suji" during the period in question. 2. Th .....

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" were taxable whereas wheat bran (Chaff/Chokar) was not taxable or was exempted from payment of tax, therefore, the Input Tax Credit was not allowable to the assessee to the extent of 25% of its claim assuming that production of wheat bran (Chaff/Chokar) was to the extent of 25% of the total production, out of such wheat used as raw material by the assessee-respondent. 3. The first appeal filed by the assessee was, however, allowed by the learned Deputy Commissioner (Appeals) vide order da .....

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13.03.2009, the learned Tax Board held that the assessee was entitled to full input tax credit and the same could not be proportionately reduced merely because the wheat bran (Chaff/Chokar) was produced as a byproduct in the process of manufacture by using the wheat as raw material for manufacture of taxable goods, namely, "Aata", "Maida" and "Suji". The learned Tax Board also relied upon aforesaid two decisions of the Hon'ble Supreme Court in the case of Bharat .....

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ufacture of VAT exempted goods, namely, wheat bran (Chaff/Chokar); and the Assessing Authority was justified in proportionately reducing the input tax credit to the extent of 25% of the total input tax credit claimed by the assessee for the period In question. He drew the attention of the Court towards the words "to the extent of in Section 18 (1) of the Act and then last para of said Section, namely, "if the goods purchased are used partly for the purposes specified in this sub-sectio .....

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byproduct, the sale thereof, admittedly made by respondent-assessee as VAT exempted goods, as the same was specifically included in Schedule-I, to the Act and Entry No.3 of the said Schedule, therefore, the proportionate input tax credit was rightly disallowed by the learned Assessing Authority and Tax Board has erred in holding otherwise. 6. Explaining these two judgments, cited above and relied upon by the assessee before the appellate forums below, Mr. G.R. Punia, Sr. Advocate, submitted tha .....

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available before this r urt in the present matter, but on the other hand, these judgments would support the case of the Revenue as a necessary corollary. 7. E-Converso, Mr. Sanjeev Johari, learned counsel appearing for the respondent-assessee vehemently urged that intention of the assessee was not to manufacture wheat bran, the exempted goods, but the wheat was used as raw material, mainly and solely, for purposes of manufacture of taxable goods, namely, "Aata", "Maida" and .....

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No.3), the intention of legislature in allowing the full input tax credit, cannot be said to be defeated and same was allowable to the assessee in the present case. He also urged that unless the raw material is intended to be used in manufacture of tax exempted goods as such, the full input tax credit cannot be denied to the assessee and no bifurcation or proportionate reduction can be made in this regard. He again relied upon the aforesaid two judgments in favour of respondent-assessee in suppo .....

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, the order of Tax Board deserves to be upheld. 8. I have given my thoughtful consideration to the rival submissions, relevant provisions and judgments cited at bar. 9. The provision of Section 18 of the VAT Act of 2003 are reproduced below for ready reference. "18. Input Tax Credit :- (1) Input tax credit shall be allowed, 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 fr .....

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le within the State of in the course of Inter-state trade or commerce; or (f) being used as packing material of goods or as raw material in manufacture of goods for sale in the course of export outside the territory of India; or (g) being used in the State as capital goods in manufacture of goods other than exempted goods; however, if the goods purchased are used partly for the purpose specified in this sub-section and partly as otherwise, input tax credit shall be allowed proportionate to the e .....

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) FD/Tax/08-02 dated 2.4.2008 for the words - "supplement and husk of cereals and pulses. *[bran of wheat] concentrates and additives and de-oiled cake". "Inserted vide Notification No. F.12 (63) FD/Tax/2005-3 dated 11.4.2006 w.e.f. 1.4.2006." 11. Admittedly, for the period in question before this Court in the present case, namely, 01.04.2006 to 30.06.2006 is prior to the amendment w.e.f. 02.04.2008 and, therefore, bran of wheat or Chaff/Chokar was exempted goods under Schedu .....

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otton, 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 Petroleum case, the kerosene was also taxable for nine months in the year and in the case of Phulgaon Cotton Mills, yarn was also manufactured and it was subject to tax. Sri D .....

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(1963) 48 ITR (SC) and Commissioner of Income-tax v. Best & Co. (Private) Ltd., (1966) 60 ITR 11 (SC). We do not think these cases are of assistance. The first two cases dealt with the question as to when profits and gains can be said to accrue or arise in a manufacturing business and the third held that when a receipt is a composite one of capital and revenue nature, it is open to the Revenue to apportion the same and bring the latter to tax. These are situations in which the taxable elemen .....

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purpose and some for the second purpose and so only the purchase tax paid in respect of the quantity utilised for the first purpose will be eligible for set-off. But the type of user with which we are concerned is a composite one in which it is not possible to correlate any part of the purchased goods as having gone in for the purpose of manufacture of taxable goods. The position is picturesquely brought out in the case of Bharat Petroleum. The entire sulphuric acid purchased has no doubt been u .....

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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 possible to cut down the quantum of relief clearly outlined in the rule on the basis of some general principle claimed to underlic the provision. As Sri Bodbe rightly pointed out, the basis for the relief provided is not every clear-cut. Various reliefs have been provided in a group of rules which come in for application in various situations. The rel .....

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rnover and the purchases of raw materials on which tax has been paid. In this background, the straight-forward answer to the question raised lies in the literal interpretation of the language of the rules without straining to discover some doubtful principle for denying relief. For the above reasons, we agree with the view taken by the High Court and followed by the Tribunal and dismiss these appeals. We, however, make no order regarding costs." 13. By a close scrutiny of aforesaid extract, .....

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e for implicit principle of apportionment on the basis of turnovers of various items of goods manufactured and restriction of quantum of set-off to a proportionate basis of turnover of taxable goods to the total turnover, should be applied was liable to be negatived. More particularly, In view of the fact that "the rules do not require that purchased goods must have been used only for manufacture of taxable goods." These words, as a matter of crux, renders the present assessee before t .....

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ommerce. 14. Admittedly, while the wheat bran, the exempted goods, were sold as exempted goods and were obtained in the process of manufacture of taxable goods viz. "Aata", "Maida" and "Suji" as merely byproduct Section 18 of the Act of 2003 does not make any distinction between such byproduct or final product, which are taxable goods for the manufacture of which the raw material, namely, wheat was used. Therefore, in the face of specific provision, the ratio of Sup .....

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n the case of Jyoti Luxman Roller Flour Mills P. Ltd., Rohtak v. State of Haryana, in which facts were almost similar to the facts of the present case, as the assessee there was also engaged in manufacturing of "Aata", "Maida" and "Suji" by holding that assessee was entitled to full rebate or set- off of tax paid by him on wheat, even though wheat bran was a tax-free item yet since the Tribunal took the subsequent view against the assessee, specially the same Presid .....

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o the order, annexure p5, passed by Tribunal in the case of Jyoti Luxman Roller Flour Mills (S.T.M. Nos. 10-11 of 1999-2000 decided on June 22, 2000). The facts of that case were that the assessee was manufacturing atta, maida, suji and wheat by using tax paid wheat. It claimed rebate/refund of tax in lieu of the wheat used in the manufacture of the final product. The Assessing Authority rejected its claim for full rebate on the ground that wheat bran was a tax-free item. The Joint Excise and Ta .....

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e Supreme Court has held that if a relevant and material provision of law was not brought to the notice of the court, the court would be justified to review its order. The counsel for the petitioner, for the question under the State Act, has relied upon the judgment of the honourable Supreme Court reported in (1992) 85 STC 220, Commissioner of Sales Tax, Bombay v. Bharat Petroleum Corporation Ltd. at page 231 which reads as under: "Turning now to the main question, we are inclined to agree .....

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herwise relied upon by the Tribunal in the impugned order fully supports the case of the petitioner. I therefore, taking matter suo motu under section 41 (3) hold that this case needs re- examination regarding rebate/refund of tax paid on wheat even if concurrently wheat was used in the manufacture of wheat bran which is tax-free commodity. ......... In view of these detailed observations, I do not find it tenable and proper to refer the aforesaid two questions to the High Court. Instead, I deci .....

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claim of total rebate by making the following observations : "I have considered the matter carefully and have also seen the facts on record, judgments relied upon by both the parties and the authorities below. The Supreme Court judgment reported in Commissioner of Sales Tax, Bombay v. Bharat Petroleum Corporation Ltd., (1992) 85 STC 220 makes it abundantly clear that products include by-products as well. Meaning there is no distinction between the two for the purpose of taxation. For this .....

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ment was delivered by the apex Court. Besides, the counsel could not establish similarity between the provisions interpreted by the honourable apex Court and those contained in Haryana General Sales Tax Rules (rule 24-A and 24-B) as stressed by the departmental representative and are absolutely clear. These will lead to conclude that if tax paid goods go into manufacture of taxable goods, relief into toto will be admissible. Such relief will not be admissible, if tax-free goods are also produced .....

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f law. The counsels, for dealers have also assailed the use of department instructions by the authorities. According to them such instructions can be made use of prospectively, nor retrospectively. But this contention cannot hold ground in view of clear law laid down by the Supreme Court of India in the case reported as Manickam and Co. v. State of Tamil Nadu, (1977) 39 STC 12. The instructions of the department, are in the nature of an exposition or explanation. Such an exposition in the light .....

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ingly upheld. The appeals are therefore, dismissed. 10. In our opinion, the orders passed by the Tribunal in the case of Jyoti Luxman Roller Flour Mills (S.T.M. Nos. 10-11 of 1999-2000 decided on June 22, 2000) and the petitioner are ex facie contradictory and the only proper course to remove the resultant discrimination qua the petitioner is to quash the impugned order with a direction to the Tribunal to decide the petitioner's appeal afresh. 17. The Hon'ble Supreme Court upholding the .....

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unal in Jyoti Laxman Roller Flour Mills case (supra) covered the facts in the respondent's case. Therefore, if the Tribunal was of the view that the earlier decision was wrong it should have referred the matter to a larger Bench. The High Court has not, as appears to be the apprehension of the appellant, decided the question of applicability of the decision in Bharat Petroleum to the respondent's case either as a matter of fact or as a matter of law. It is for that purpose that the reman .....

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n the following terms : "8. It is clear that the product involved herein is not a leftover after the end product is manufactured. Here the cotton waste is generated during the process of manufacture of yarn. In other words, when cotton purchased in the domestic market is used for manufacture of yarn, by initiating the process of manufacture, at an intermediate stage, the so-called cotton waste is produced, which is a marketable commodity and which is regularly marketed. Therefore, one of th .....

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ufacturing entity it will be liable to duty as provided in the proviso to Section 3 (1) of the Tariff Act. Therefore, the question involved is whether a process of manufacture is involved when the cotton waste is generated during the process of converting domestically purchased cotton into exportable yarn manufactured by the appellant. 9. In CST v. Bharat Petroleum Corpn. Ltd. this Court held that where a subsidiary product is turned out regularly and continuously in the course of manufacturing .....

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involve several processes and various changes on the raw material at different stages. Manufacture would occur at the point where the changes take the product to a point that commercially, it cannot be regarded as the original commodity, but, instead, recognised as a new distinct article. The decision of this Court in J.G. Glass Industries is relied on in support. 10. The scope of the expanded definition of manufacture has been considered In the decision in Shyam Oil Cake Ltd. v. CCE. The Appel .....

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tice of the Tribunal. The argument that it was only after the process of manufacture had started that the product has come into existence and it has marketability and hence, it is dutiable and the counter argument that it was only impure cotton which has got separated from the cotton purchased from the open market so as to enable the appellant to manufacture the yarn intended for export and this product produced at the intermediate stage still remains cotton and it is not a manufactured product, .....

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on. All contentions including whether the Department could invoke the extended period of limitation are left open." 19. Thus, it is clear that view of Division Bench of Punjab & Haryana High Court supports the Revenue's case before this Court and Hon'ble Division Bench of Punjab & Haryana High Court remanded the case to Tribunal setting aside the contradictory later view of the Tribunal and the matter was remanded back to the learned Tribunal and such remand order of High Co .....

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