TMI Blog2023 (1) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... mistake. None of the Notifications in this case touch upon the aspect of Input Tax Credit in the hands of the selling dealers, and had they done so, the officer would perhaps have been right in stating that the grant of ITC even in the place of such express provision for reversal in the Notification, was an error apparent on record. Since the Notification did not mention anything about ITC or reversal, the impugned proceedings would also have to be tested in the context of whether at all Section 84 could be applied in this case, and thus fail. The impugned orders are quashed and these writ petitions are allowed. - Honourable Dr. Justice Anita Sumanth For the Petitioner : Mr.N.Prasad For the Respondent : Mr.HajaNazirudeen Additional Advocate General Assisted by Mr.M.Venkateswaran, Special Government Pleader And Mr.V.Prashanth Kiran, Government Advocate COMMON ORDER The petitioner in both Writ Petitions is an Oil manufacturing Company, the Indian Oil Corporation Limited (in short IOCL ), a Public Sector Undertaking engaged in the marketing of petroleum products and registered as a dealer under the provisions of the Tamil Nadu Value Added Tax Act, 2006 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the conditions imposed under the Notifications. 9. While this is so, there was a proposal by the respondent to reverse Input tax credit (ITC) under Section 19(5)(a) of the Act for the period 01.02.2012 to 06.02.2013, vide notice dated 08.09.2016. In reply dated 21.10.2016, the main submissions of the petitioner echo the stand of the petitioner in these Writ Petitions. 10. The petitioner submitted that it has effected re-sale of furnace oil to various purchasers charging tax at 5% and ITC had also been availed. Furnace oil was purchased by the purchasing dealers not just from OMCs but also by way of stock transfer from their own refineries or by way of inter-state purchases. 11. Section 15 which speaks of exempted sales is specific to either goods that are exempted by Notification or as specified in the 4th Schedule. Thus, the scope of sales referred to under Section 15 cannot be expanded to other categories of transactions. Section 30 notifies exemptions under 3 modes, i.e., goods (specified taxable goods), assessee (specified class of assessee) and events (specified combinations of goods and assessees). 12. In the last category, the commodity, by itself, is not exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by his communication dated 13.08.2019. 19. The proceedings relating to reversal of ITC concluded adverse to the petitioner vide order dated 24.06.2019, reversing the ITC in respect of the transactions that were exempt from tax by application of the provisions of Section 19(5)(a) of the Act. 20. Refunds of tax were sought and for both the periods, 2011-12 and 2012-13 and the petitioner, has, admittedly passed on the same to the purchasing dealers. On 10.04.2019, the petitioner had reported certain errors that had crept in the computation, re-quantifying their eligibility for refund. The excess determined by it has been repaid electronically. 21. The petitioner also informed the Assessing Authority that when a refund order had been issued on 10.04.2019 reiterating refund of tax to the petitioner, the petitioner has sought to restore the tax to the consumers. One of the consumers, i.e., Tamil Nadu Petro Products Limited had returned the refund indicating their inability to accept the same. 22. This is for the reason that credit had been availed by TNPPL on the strength of the invoice raised originally and hence the benefit of exemption was not preferred by them, since it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ITC under Section 19(5)(a) would thus be only in the case of goods exempted under the Fourth Schedule of the Act and goods covered by exemption notification under Section 30(1)(a) of the Act. 29. In the present case, the exemption granted would fall under the third category of Section 30, covered under Section 30(1)(c), which constitutes a combination of specified classes of goods and assessee, and this limb of exemption is not, according to the petitioner, contemplated under Section 19(5)(a) of the Act. Reliance is placed on the judgement of the Hon ble Apex Court in Commercial Taxes Officer v. A Infrastructure Limited [(2015) 15 SCC 98]. 30. Mr.Haja Nazirudeen, Additional Advocate General, assisted by Mr.M.Venkateswaran, learned Special Government Pleader and Mr.V.Prashanth Kiran, learned Government Advocate appears for the respondent. A detailed counter has also been filed on 23.09.2020. 31. The respondent reiterates the position that reversal of ITC qua exempted transactions is a universal proposition and no exclusions have been carved out in this regard. At first blush, this argument, appears plausible, since there is no restriction envisaged in either the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to the whole State or to any specified area or areas therein; or (b) may be subject to such restrictions and conditions as may be specified in the notification. (3) The Government may, by notification, cancel or vary any notification issued under subsection (1). 37. Section 30 is an enabling provision in terms of which the State extends an exemption in three specific situations, (i) qua taxable goods (ii) qua taxable persons and (iii) qua taxable events, that is, in respect of transactions involving both specified goods and assessees. 38. Three judges of the Hon ble Supreme Court in the case of The State of Tamil Nadu v. M.K.Kandaswami and others ((1975) 4 SCC 745), has noted this categoric distinction in the context of a challenge to the provisions of section 7-A inserted in the Madras General Sales Tax Act, 1959 by virtue of the Tamil Nadu Amendment Act (2 of 1970). 39. Section 7-A provides for tax for purchase of and brings to sale goods that would normally have been taxed at some point in the State, subsequent to their purchase by the dealer, if such goods became unavailable for taxation owing to them having been a) consumed in manufacture on other goods for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash or for deferred payment or other valuable consideration, but does not include a mortgage hypothecation, charge or pledge. 19. Section 3(2) which is the main charging provision, enjoins that in the case of goods mentioned in the First Schedule, the tax under this Act shall be payable by a dealer, at the rate and only at the point specified therein on the turnover in each year relating to such goods whatever be the quantum of turnover in that year 20. The focal point in the expression, goods the sale or purchase of which is liable to tax under the Act, is the character and class of goods in relation to their exigibility. In a way this expression contains a definition of 'taxable goods', that is, goods mentioned in the First Schedule of the Act, the sale or purchase of which is liable to tax at the rate and at the point specified in the schedule. The words, the sale or purchase of which is liable to tax under the Act qualify the term goods , and exclude by necessary implication goods the sale or purchase of which is totally exempted from tax at all points, under Section. 8 or Section 17(1) of the Act. The goods so exempted-not being taxable goods - cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent into production. 50. Once again, the Court considered the question as to whether the exemption that was at issue in that matter was available in specified circumstances or under specified conditions or in a case where goods are exempt from tax generally. 51. Taking into account the aforesaid decisions, the Hon ble Supreme Court in A Infrastructure Limited (supra) accepted the difference and distinction between goods generally exempt and those exempt under specified circumstances. 52. When the goods are exempt, there would be no taxable transaction at all. On the other hand, where the exemption is granted in respect of a specific event, i.e, specified transactions or specified assessees, it is only upon concurrent satisfaction of the goods as well as assessee/circumstances be specified, that the exemption becomes available. 53. The identical distinction has been drawn between by the petitioner before me, and is well taken, finding support both from the judgments in M.K.Kandaswami and A Infrastructure Limited (supra). 54. As a sequitur to their acceptance of this position, the Court in A Infrastructure Limited went on to observe that if the assessee had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITC then would result in a position of great disadvantage to the petitioner and would distort the chain of transactions. 58. The petitioner has relied upon the following cases: 1. Mahadeolal Kanodia v. Administrator General of West Bengal [(1960) 3 SCR 578] 2. State of Karnataka v. M.K.Agro Tech. Private Limited [(2017) 16 SCC 210] 3. Koteswar Vittal Kamath v. K.RangappaBaliga Co. [1969 (1) SCC 255] 4. M/s.Frick India Ltd. V. Union of India and Others [(1990) 1 SCC 400] 5. Ajay Gandhi and another v. B.Singh and others [(2004) 2 SCC 120] 6. East India Commercial Co., Ltd., Calcutta and another v. Collector of Customs, Calcutta [(1963) 3 SCR 338] 7. The State of Tamil Nadu v. M.K.Kandaswami and Others [(1975) 4 SCC 745] 8. Fibre Boards Private Limited, Bangalore v. Commissioner of Income Tax, Bangalore [(2015) 10 SCC 333] 9. Deputy Commissioner, Central Excise and another v. Sushil and Company [(2016) 13 SCC 223] 10. National Insurance Co. Ltd. V. Mastan and Another [(2006) 2 SCC 641] 11. State of U.P. and Others v. Indian Hume Pipe Co. Ltd. [(1977) 38 STC 355 (SC)] 12. Chimanlal Premchand v. State of Bombay [(1960) 1 SCR 764] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that strict grammatical interpretation that gave rise to an absurdity or inconsistency must be eschewed, even, if necessary, by modifying the language used. 62. Applying these tests, the Court held that no relief could be granted in respect of applications that were pending as on date of the amendment ordinance, being 21.10.1952, Section 28 having ceased to exist retrospectively, as the Bench has stated there was no escape from the inevitable conclusion that the effect of the amendment was to say that nothing more or less than the provisions of the amended Thika Tenancy Act shall apply. 63. In Ajay Gandhi (supra), the question that came before the Hon ble Supreme Court concerned provisions relating to filing of appeals before the Income Tax Appellate Tribunal in terms of the Income tax enactments. The Court compared and considered Sections 5A of the 1922 Income Tax Act with Section 252(3) of the 1961 Act and in that context referred to the scope and import of executive construction under Corpus Juris Secundum and other scholarly commentaries. 64. Paragraphs 16 to 20 has been referred to by the learned counsel and are extracted below: 16. In Corpus Juris Secundum, Vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act but to the delegation of financial powers which have no nexus therewith. b By reason of amendment to certain circular letters also, the Central Government cannot confer upon it such statutory power of transfer and posting of the members of the Appellate Tribunal. 20. Having regard to the fact that the Central Government had acted sub silentio and even allowed the President to delegate his power to constitute Benches to various Senior Vice-Presidents over a number of years is itself a pointer to the fact that the Central Government was also of the opinion that the power of transfer and posting is a part of the administrative function of the President as an ancillary power of constitution of Benches. 65. The judgments at serial numbers 3, 4, 6 and 8 to 20 have been cited, but have not been referred to in the course of submissions by the petitioner. 66. The revenue has relied upon the judgement of the Hon ble Supreme Court in case of M.K.Agro Tech. Private Limited (supra). The assessee was a manufacturer of sunflower oil, which is extracted from sunflower cake. Sunflower oil cake was an input, on the purchase of which VAT was payable under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the limbs of Section 17 related to, or used the term manufacture . The conclusion of the High Court to the effect that the de-oiled cake was emerged as a by-product, was thus, according to the Hon ble Supreme Court, not material and thus the fact that de-oiled cake was not consciously/specifically manufactured ought not to have weighed with the High Court. 75. What was important was to note that it was a saleable commodity that was actually sold, and gave rise to turnover. De-oiled cake thus fit the definition of goods and the turnover of such goods being exempt under Section 5 of the KVAT Act, Section 17 stood triggered automatically. 76. This conclusion was also supported by a proper construction of Rule 131 of the KVAT Rules. Since no output tax had been paid on the sale of deoiled cake, Section 17 which provided for reversal of ITC in the case of exempted turnover would be applicable straightaway by applicable of principle of literal construction in a taxing statute. 77. The Court also went into the scheme of the KVAT Act and their observations to the effect that a statutory scheme has to be looked into, understood and applied in a schematic, thematic and wholistic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of sales effected within the State of Maharashtra. It cannot levy or collect tax in respect of goods which are dispatched by the appellant to his branches and agents outside the State of Maharashtra and sold there. In law (apart from Rules 41 and 41-A) the appellant has no legal right to claim set-off of the purchase tax paid by him on his purchases within the State from out of the sales tax payable by him on the sale of the goods manufactured by him. It is only by virtue of the said Rules-which, as stated above, are conceived mainly in the interest of public-that he is entitled to such set-off. It is really a concession and an indulgence. More particularly, where the manufactured goods are not sold within the State of Maharashtra but are dispatched to out-State branches and agents and sold there, no sales tax can be or is levied by the State of Maharashtra. The State of Maharashtra gets nothing in respect of such sales effected outside the State. In respect of such sales, the rule-making authority could well have denied the of But it chose to be generous and has extended the said benefit to such out-State sales as well, subject, however to deduction of one per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the sale of furnace oil to oil companies/HT consumer (purchasing dealers) by the petitioner (selling dealer). The first annexure (certificate-I) is to be given by the purchasing dealer certifying the purchases of furnace oil from the selling dealer concerned. 82. Certificate-II is to be furnished by the selling dealer to the assessing officer concerned, certifying the exact quantity of furnace oil sold by it for the specified period and to whom it was sold. 83. Certificate-III is to be furnished by the purchasing dealer to the concerned assessing officer also selling out the details of purchases made of furnace oil and from whom. 84. Certificate-I, II and III are intended to be cross-matched to arrive at a proper reconciliation of the sales and purchases effected by the selling/purchasing dealers. 85. Certificate-IV is to be executed by the purchasing dealer to confirm the receipt/refunds of tax paid by it for the purchases of furnace oil. The purchasing dealer is also to confirm and declare that no ITC has been claimed by it in respect of those transactions where the tax has been refunded. The Notification, and the form of certificate-IV reads as follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Apart from there being no stipulation whatsoever in regard to the claim of ITC by the selling dealer, the forms annexed refer specifically only to the embargo placed upon the purchasing dealer in this regard. To my mind, this is an indication of how these notifications are to be understood. No exercise of interpretation is really required as this conclusion appears evident just from a plain reading of the notification and the annexures. 87. There have been instances wherein similar exemptions have been granted and the petitioner draws attention to the fact that those Notifications specifically provide for the denial of ITC. The instances are: (i) G.O.Ms.No.33 dated 29.03.2010 wherein an exemption was granted in respect of tax payable under the TNVAT Act on the sale of imported sugar. (ii) The same G.O. exempted tax payable on the sale or purchase of zari excluding polyester film yarn and radiant yarn. (iii) G.O.No.30 dated 23.03.2015 exempts sale of goods produced during the course of training conducted by rehabilitation by way of sanction at Tiruvannamalai subject to the condition that no input tax credit shall be levied on the tax paid by them on their purchase. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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