TMI Blog2019 (9) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... ity, which in turn, was exclusively used for manufacturing and processing of finished product of the petitioner for sale? - HELD THAT:- The Hon ble Supreme Court in its decision in the case of JK. COTTON SPG. WVG. MILLS CO. LTD. VERSUS SALES TAX OFFICER, KANPUR [ 1964 (10) TMI 2 - SUPREME COURT] was considering the provision of Section- 8(1) and 8(3)(b) of the Central Sales Tax Act, 1956 which is almost parametria to the provisions of Section 18(4)(iii) of the JVAT Act, 2005 and has held, in substance, that if a process or activity is so integrally related to the ultimate production of goods so that without that process or activity manufacture would be commercially inexpedient, goods required in that process would fall within the expression in the manufacture of goods . Thus, it would be evidently clear that use of coal by the petitioner-Company for generation of electricity, which in turn, was used for manufacturing of finished product, was integrally connected with the ultimate finished goods. Under the said circumstances, coal used for generation of electricity is to be categorized as raw material for ultimate production of the finished goods of the petitioner i.e. Spong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order dated 22.12.2015 passed in Appeal Case No. RG/JVAT/A-03/15-16 whereby the appeal filed by the petitioner against the assessment order dated 12.03.2015 has been rejected. The petitioner has also assailed the assessment order dated 12.03.2015 passed by the respondent No.4, the Assistant Commissioner of Commercial Taxes, Ramgarh Circle, Ramgarh to the extent claim of the petitioner for Input Tax Credit has been rejected. 2. In the instant writ application, two questions of law have been raised which is enumerated hereunder:- (i) Whether the petitioner is entitled to claim Input Tax Credit ( ITC in short) on tax paid by it on purchase of coal which is used by it for generation of electricity in its captive power plant and in turn, electricity so generated is used by the petitioner for manufacturing and processing of its finished goods for sale ?; and (ii) Whether in absence of production of statutory declaration form JVAT 404, the claim of ITC can be denied to the petitioner inspite of the fact that the petitioner produced substantial evidence to demonstrate it has purchased goods i.e. inputs after payment of Input Tax ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods for sale . 6. It is further case of the petitioner that despite the fact that in terms of Section-18(4)(iii) of the JVAT Act, 2005, the petitioner was entitled to claim ITC on the coal utilized by it as raw material for generation of electrical energy, which in turn, was utilized for carrying out manufacturing activity, the Assessing Officer at the time of passing of assessment order pertaining to the Assessment Year 2011-12 denied benefit of ITC on coal purchased by the petitioner, and utilized by it for generation of electricity, which in turn, was utilized for carrying out the manufacturing activity. The said Assessment Order to the extent of denial of benefit of ITC on purchase of coal utilized for generation of electricity was assailed by the petitioner by filing statutory appeal under Section- 79 of the JVAT Act, 2005 before the Appellate Authority, i.e., the Joint Commissioner of Commercial Taxes, Hazaribagh Division, Hazaribagh, vide Appeal Case No. RG/JVAT/A- 03/15-16. However, the appeal of the petitioner was dismissed vide order dated 22.12.2015 and while dismissing the appeal, reliance was placed upon the definition of Goods as con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Application. 8. It is the case of the petitioner that the learned Commercial Taxes Tribunal distinguished the aforesaid judgments of the Hon ble Apex Court which was directly applicable in the facts and circumstances of the petitioner s case, on an erroneous reasoning that ITC is only available in respect of such goods which when are sold within the State or by way of interstate sales, generates tax liability and if the goods is of such nature which does not generate any output tax liability, then ITC shall not be admissible. It is the submission of the learned counsel for the petitioner that said reasoning adopted by the Commercial Taxes Tribunal is wholly erroneous and is contrary to the very concept of Value Added Tax regime in the Country of India including promulgation of JVAT Act, 2005 by the State of Jharkhand. 9. The petitioner in order to buttress its contention that it is entitled for ITC on purchase of coal utilized by it for generation of electricity which in turn, is utilized for carrying out the manufacturing activity of Sponge Iron and M.S. Billet, has relied upon the following decisions before this Hon ble Court, namely; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying upon Rule- 35(2) of The Jharkhand Value Added Tax Rules, 2006 (hereinafter referred to as JVAT Rules, 2006 ) which apart from prescribing the condition of production of original tax invoices also lays down additional condition of producing declaration in Form JVAT 404. It has been submitted by the counsel for the petitioner that Rule- 35(2) of the JVAT Rules, 2006 to the extent it provides for furnishing declaration Forms JVAT 404 for availing benefit of ITC cannot be treated to be mandatory in nature and the same can, at best, be treated as directory in nature, especially in view of fact that Section-18(6) of the JVAT Act, 2005 does not provide for furnishing of JVAT 404 forms for the purpose of claiming benefit of ITC and it only contemplates production of tax invoices in original and even in appropriate case, the Assessing Officer can even dispense with requirement of production of tax invoices in original for good and sufficient reason to be recorded in writing . In support of the said contention, learned counsel has relied upon the following decisions, namely; (i) State of Orissa Vs. M.A. Tulloch Co. Ltd, reported in AIR 1966 SC 365: (1964) 7 SCR 816 (Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icity which was an anterior process of manufacture of finished goods i.e. Sponge Iron and Billet and, hence, the petitioner was not entitled to claim ITC on coal to the extent it was utilized for production of electricity. 15. The counsel appearing for the respondent-State further by relying upon the provision of Section- 18(3) of the JVAT Act, 2005, read with Assessment order, contended that Section-18(3) of the JVAT Act, 2005 permits the State of Jharkhand to lay down condition and restriction for allowing partial or proportionate ITC to a dealer in certain circumstances. While referring to the assessment order it was contended that from bare reading of assessment order, it would be evident that proportionate ITC has been granted to the petitioner and only ITC in respect of coal utilized for manufacturing of electricity has been denied, which is in accordance with law and the scheme of the JVAT Act, 2005. 16. The counsel for the respondent-State of Jharkhand further by relying upon the definition of Goods as contained under Section- 2(xxii) of the JVAT Act, 2005 has submitted that Electricity is not falling under the definition of goods under the JVA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an Assessee and it is in exercise of said power under Section 18(3), Rule- 35(2) has been framed providing production of JVAT 404 forms as a condition precedent for availing benefit of ITC. In view of aforesaid, it has been submitted by the counsel for the respondent-State that the impugned orders are perfectly justified in the eyes of law and have been passed in accordance with the provisions of the JVAT Act and Rules and do not require any interference by this Hon ble Court. 21. Heard learned counsels for the parties. In order to properly appreciate the issues involved in the instant writ application, it would be appropriate to quote certain provisions of the Jharkhand Value Added Tax Act, 2005 and the Jharkhand Value Added Tax Rules, 2006 which are quoted hereunder:- (I) Section-2 (xxii) Goods means all kinds of movable property (other than newspapers, actionable claims, electricity, stocks and shares and securities) and includes livestock, all materials, computer software sold in any form, Sim cards used in Mobile Telephony or for any other similar activation purposes, commodities and articles and every kind of property (whether as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined, from the following formula: Tax payable = (O+P)-I Where 'O' denotes the output tax payable for any tax period as determined under Section 15, P denotes the purchase tax paid by a registered dealer for any tax period as determined under Section 10 and 'I' denotes the input tax paid or payable and includes tax paid on Entry of Goods, for the said tax period as determined under Section 15. (VI) Section- 18- Input Tax Credit - (1) Subject to the provisions of this Act, for the purpose of calculating the tax payable by a registered dealer for any tax period after being registered, an input tax credit as determined under this Section shall be allowed to such registered dealer for the tax paid or payable in respect of all taxable sales other than any other sales as may be prescribed, or purchases under Section 10 during that period, (2) The input tax credit to which the registered dealer is entitled shall be the amount of tax paid by the registered dealer to another registered dealer, on his turnover of purchases made during any tax period, intended to be used for the purposes and subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling dealer, in Form JVAT 404 evidencing that the goods in question have already been subjected to Tax at the preceding stage of their sale in the State of Jharkhand. 22. From the reading of the aforesaid provisions of the JVAT Act, 2005 it would transpire that said provisions are in consonance with the scheme of Value Added Tax Regime introduced in the Country. From the scheme of JVAT, 2005 it would be thus evident that output tax liability of a dealer was required to be determined after subtracting therein the input tax paid by the dealer. 23. Section-18 of the JVAT Act, 2005 provides for determination of the Input Tax Credit which is available to a dealer in respect of input tax paid by it on the goods. For the purpose of adjudication of the dispute pertaining to issue no. (i), provision of Section- 18(4)(iii) of JVAT Act, 2005 is relevant. A bare reading of provision of Section 18(4)(iii) of the JVAT Act, 2005 it would be evident that the following conditions are required to be complied with by a dealer in order to avail Input Tax Credit on raw materials used by it in manufacture and /or processing of goods for sale, namely, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determined whether the petitioner is entitled to ITC under Section- 18(4)(iii) of the JVAT Act, 2005 on input tax paid by it on coal which was utilized for generation of electricity, which in turn, was exclusively used for manufacturing and processing of finished product of the petitioner for sale. 27. The Hon ble Supreme Court in its decision in the case of M/s J.K.Cotton Spinning Weaving Mills Co. Ltd Vs. Sales Tax Officer, Kanpur, reported in AIR 1965 SC 1310: (1965) 1 SCR 900 as held as under:- 8..................... The expression in the manufacture of goods should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connection with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment fall within the expression in the manufacture of goods . For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end result would also be a process in or in relation to manufacture to attract the relevant clause in the exemption notification. In our view, the work process in the context in which it appears in the aforesaid notification includes an operation or activity in relation to manufacture. 29. Further the Hon ble Supreme Court in the case of Collector of Central Excise New Delhi Vs. M/s Ballarpur Industries Ltd, reported in (1989) 4 SCC 566 differentiated between the expression Used in the manufacture and Used as Input (raw material) . In the said judgment, it was held that undoubtedly the said two expressions are distinct and separate, but when an ancillary process aids the making of an end product, then ancillary process gets integrally connected to the end product. Thus, from the ratio laid down from the aforesaid judgments it would be evidently clear that use of coal by the petitioner-Company for generation of electricity, which in turn, was used for manufacturing of finished product, was integrally connected with the ultimate finished goods. Under the said circumstances, coal used for generation of electricity is to be categorized as raw materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court while delivering its judgment has even upheld the said submission of Assessee that once a commodity was already entered in its registration certificate as raw material, it would not be open for the Revenue to contend that said commodity/goods is not a raw material. 31. Incidentally, the ratio of the judgment of the Hon ble Supreme Court rendered in the case of Commercial Taxation Officer, Udaipur Vs. Rajasthan Taxchem Ltd, (Supra) has been further discussed by the Hon ble Supreme Court in its subsequent decision rendered in the case of Maruti Suzuki Limited Vs Commissioner of Central Excise, Delhi-III reported in (2009) 9 SCC 193 wherein it was held as under: - 43. In CCE V. Rajathan State Chemical Works, the test laid down by this Hon ble Court is whether the process and the use are integrally connected. As stated above, electricity generation is more of a process having its own economics. Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity and the input used in that electricity generation is an input used in the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not have been manufactured. We have further held that coal would be treated as raw material for manufacturing of finished product i.e. Sponge Iron and M.S. Billet. It is an admitted fact that Sponge Iron and M.S. Billet manufactured by the petitioner has been intended for sale and even output tax liability has been generated and thus, the petitioner is complying with the provision of Section- 18(4)(iii) of the JVAT Act, 2005 and is entitled for ITC accrued on coal utilized by it for generation of electricity. 33. The learned counsel for the respondent-State while relying upon the definition of goods under Section- 2(xxii) of the JVAT Act, 2005 has contended that since electricity is not goods under the Act, the petitioner would not be entitled to the benefit of ITC. We do not agree to the said arguments advanced by the learned counsel for the respondent-State as admittedly, the petitioner is not claiming Input Tax Credit on electricity, but is claiming ITC on tax paid by it on purchase of coal, and, admittedly coal is Goods as per definition as contained under Section- 2(xxii) of the JVAT Act, 2005. The contention of respondent-State for denying the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even for good and sufficient reasons to be recorded in writing where a dealer is prevented from furnishing tax invoices in original the prescribed authority may even then allow ITC by recording its reason. Thus, Section-18(6) of the JVAT Act, 2005 does not contemplate production of JVAT -404 Forms as a mandatory condition for availing benefit of ITC. However, Rule- 35(2) of the JVAT Rules, 2006 stipulates further condition of production of JVAT 404 Form as requirement for claiming benefit of ITC. To this extent, Rule- 35(2) of the JVAT Rules, 2006 is inconsistent with the provision of Section- 18(6) of the JVAT Act, 2005 and is required to be held directory in nature and not mandatory. 37. It would be relevant to state here that under the scheme of the JVAT Act, 2005 output liability is required to be reduced to the extent of Input Tax paid by a dealer. The State Government in order to protect its revenue and to ensure that benefit of ITC is not availed by a dealer without discharge of Input Tax liability, can lay down sufficient safeguards to ensure that credit of Input Tax is granted to a dealer only where such dealer has actually paid input tax liability. It is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar provisions of furnishing declaration Form- IX-C under Bihar Sales Tax Rules, 1957 as directory in nature and not mandatory. 40. For the reasons stated hereinabove, our conclusion is as follows: - (i) Coal used for generation of electricity in the captive power plant of the petitioner and electricity generated, in turn utilized exclusively for the manufacture of finished goods, is to be treated as raw material of the finished goods and, would qualify for the benefit of Input Tax Credit as per Section- 18(4)(iii) of the JVAT Act, 2005. Accordingly, we direct the respondent-State of Jharkhand to extend the benefit of Input Tax Credit to the petitioner on tax paid by it on purchase of coal utilized by it for generation of electricity; (ii) We further conclude and hold that the provisions of Rule-35(2) of the JVAT Rules, 2006 which prescribes the condition of furnishing of JVAT- 404 Forms for the purpose of claiming Input Tax Credit is merely directory in nature and not mandatory. However, the Assessee who fails to produce JVAT- 404 Forms in terms of Rule- 35(2) of the JVAT Rules, 2006 is required to substantiate its claim of Input Tax C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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