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CTO (A-E) , Sriganganagar Versus M/s. Durgeshwari Food Ltd.

2011 (12) TMI 654 - RAJASTHAN HIGH COURT

Input tax credit - whether input tax credit was liable to be reduced proportionately by 25% to the extent of manufacture of tax exempted "Chaff" ("Chokar") in the process of manufacture of "Aata", "Maida" and "Suji", which are taxable wheat products and for manufacture of which the wheat was purchased by the respondent-assessee upon payment of Sales Tax/VAT and full input tax credit in respect of which was claimed u/s 18 of the Act against the tax payable by the assessee on the sale of "Aata", " .....

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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. - Input tax credit in the present case, was rightly reduced and was allowed only proportionately to the extent of manufacturing and sale of taxable goods by the assessee in the present case, n .....

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- 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 Revenue's appeals against the order of Deputy Commissioner (Appeals) dated 05.11.2007 and holding that for the per .....

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h 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. The Assessing Authority vide the assessment order dated 30.08.2007 disallowed the input tax credit to the extent o .....

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fore, 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 dated 05.11.2007 relying upon the decision of Hon'ble Supreme Court in the case of Commissioner of Sales Tax, .....

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d 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 Petroleum Corporation Ltd. (supra) and Punjab & Haryana High Court in the case of Sharda Cotton Ginning &am .....

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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-section and partly as otherwise, input tax credit shall be allowed proportionate to the extent they are used for the p .....

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ifically 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 that in the cases before the Hon'ble Supreme Court and Punjab & Haryana High Court, the statutory provision .....

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e 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 "Suji"; and on the VAT payable upon the sale on such taxable goods, the entire and full input tax cred .....

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e 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 support of his contention as aforesaid. He also urged that even if two views are possible, while interpreting these p .....

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ions, 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 from a registered dealer to the extent and in such manner as may be prescribed, for the purpose of (a) sale within .....

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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 extent they are used for the purposes specified in this sub-section." 10. Entry No. 3 of Schedule-I, contain .....

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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 Schedule-I of the VAT Act and there is no dispute on this from the side of the assessee. 12. Now as far as the Hon' .....

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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 Dholkia contends for an implicit principle of apportionment on the basis of turnovers of various items of goods m .....

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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 element Is severable. Under the rules presently under consideration also, situations are conceivable where such severa .....

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r 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 used in the manufacture of kerosene though perhaps not a drop of acid clings to the kerosene manufactured. Equall .....

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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 relief may be based on the principle that the manufactured product is taxed either in the hands of the same assesse .....

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nswer 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, it is clear that the Hon'ble Supreme Court while holding in favour of assessee that he was entitled to full .....

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estriction 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 this Court without any help from the aforesaid decision of the Apex Court in the present matter because Section 1 .....

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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 Supreme Court decision in the case of Bharat Petroleum Corporation Ltd. (supra), would support the contention of th .....

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milar 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 Presiding Officer of the Tribunal, the Division Bench of Punjab & Haryana High Court set aside the subsequent orde .....

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f 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 Taxation Commissioner (Appeals) and the Tribunal upheld the order of the Assessing Authority. However, while decid .....

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ourt, 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 with respondents' counsel that they are entitled to a set-off the entire tax paid by them on the purchases o .....

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, 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 decide these two questions under section 41 (3) of the Haryana General Sales Tax Act, 1973 as these are covered by t .....

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ave 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 reason, reliance by the counsel upon (1994) 94 STC 98 (P&H), Jagraon Co-operative Sugar Mills Ltd. v. State .....

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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 as a result of the process of manufacture. And in the event of the process resulting into production of taxable .....

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ding 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 of the judgment referred to by the departmental representative could be validly made use. This view has already .....

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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 said remand order of Punjab &-Haryana High Court in State of Haryana v. Satish Oil & General Mills, repo .....

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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 remand was made. We, therefore, see no reason to interfere with the decision of the High Court. The same is affirmed .....

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oduct 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 the twin tests, namely, that the commodity which is produced is marketable and is regularly marketed as a product, .....

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fore, 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 business and is also sold regularly from time to time, there may be attributed an intention to the manufacturer .....

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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 Appellate Authority has essentially proceeded on the amendment to the Schedule and inclusion of cotton waste therein .....

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t 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, have both to be considered in the light of the decided cases. In this situation, we think it appropriate to set .....

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n." 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 Court come to be affirmed by Hon'ble Supreme Court in Satish Oil and General Mills case (supra). 20. In the co .....

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