TMI Blog2023 (11) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to claim input tax credit of the full amount. The charging section of the UP VAT Act, therefore, entitles the assessee to claim full amount of tax paid on the purchases as ITC - Furthermore, Section 13(3)(b) of the UP VAT Act, introduces the concept of proportionality in the scheme of the enactment and by means of a deeming fiction provides that where during the manufacture of VAT goods, exempt and non-VAT goods (except as by-product or waste product) are produced, the amount of ITC credit may be claimed and may be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than the non-VAT goods and exempt goods. Explanation (iii) to Section 13, therefore, forbids the Assessing Authority as well as the assessee from raising any dispute in regard to the allowability of the ITC in cases where exempted goods are being produced as a by-product or waste product during the process of manufacture. Whether the High Court was right in placing on the decision of this court in the case of M.K. Agro Tech? - HELD THAT:- In the case of M.K. Agro Tech, the assessee was engaged in the manufacture of sunflower oil (taxable goods), which is extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and are being disposed of by this common judgment and order. 2. For the sake of convenience, the appellant shall hereinafter be referred to as the assessee and the respondent shall hereinafter be referred to as the revenue. 3. These appeals are at the instance of an assessee, duly registered under Section 17 of the Uttar Pradesh Value Added Tax Act, 2008 (for short, the UP VAT Act ) and are directed against the common judgment and order dated 03.05.2019 passed by the High Court of Judicature at Allahabad in the Commercial Tax Revisions Nos. 315 of 2017 and 148 of 2018 respectively, by which the High Court allowed both the Commercial Tax Revisions filed by the revenue against the Orders dated 04.05.2016 and 05.07.2017 respectively passed by the Commercial Tax Tribunal, Bareilly Bench, Bareilly and thereby took the view that the assessee is not entitled to the full benefit of Input Tax Credit (for short, ITC ) claimed on the goods purchased by it for manufacturing its final product. FACTUAL MATRIX 4. The assessee is a company engaged in the business of manufacture and sale of Rice Bran Oil (for short, RBO ) and Physical Refined RBO. The assessee as stated above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er took the view that in terms of Section 13(1)(f), the assessee could have availed the ITC on the inputs only vis- -vis the taxable sales, as the sale price of the final goods was lesser than the manufacturing cost of the purchased goods. In other words, according to the Deputy Commissioner the term goods in Section 13(1)(f) of the UP VAT Act means only the taxable goods. The matter ultimately reached before the Additional Commissioner Grade II, (Appeals), 2nd Commercial Tax, Bareilly. The Incharge Additional Commissioner for the Assessment Year 2015-16 took the view that the assessee was entitled to claim full ITC and accordingly allowed the appeal of the assessee. The Incharge Additional Commissioner accepted the case put up by the assessee that the word goods in Section 13(1)(f) of the UP VAT Act cannot be restricted to only taxable goods . However, for the Assessment Year 2013-14, the Additional Commissioner proceeded to remand the matter to the Tax Fixation officer for passing the re-tax fixation order. 9. The revenue being dissatisfied with the view taken by the Additional Commissioner went in appeal before the Commercial Tax Tribunal, Bareilly Bench, Bareilly in so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the case of the assessee herein is squarely covered by the provisions of Section 13(1)(a) read with S. No. 2(ii) of the Table appended thereto and Section 13(3)(b) read with Explanation (iii) of the UP VAT Act. It was argued that the High Court erroneously held that Section 13(1)(f) of the UP VAT Act is applicable to the case on hand. 15. Mr. Datar further argued that the entire edifice of the impugned judgment of the High Court is based on incorrect application of the decision of this Court in case of M.K. Agro Tech (supra). He would argue that the statutory provisions under the Karnataka Value Added Tax Act, 2003 and UP VAT Act are distinct and different in all respects. He pointed out that the UP VAT Act specifically carves out an exception for the by-products and waste products respectively. Even if those are exempt goods or non-VAT Goods, the ITC is permissible. 16. Mr. Datar further argued that the definition of the word goods under Section 2(m) of the UP VAT Act does not differentiate between the exempted and taxable goods and equally the word goods under Section 13(1)(f) of the UP VAT Act cannot be said to be qualified by the word taxable . He pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with a non-obstante clause having an overriding effect on the provision of Section 13(1)(a) of the UP VAT Act. The words and expressions used in Section 13(1)(f) of the UP VAT Act require a textual interpretation matching with the contextual interpretation that Section 13(1)(f) of the UP VAT Act seeks to remedy the mischief, caused by the words used in the Table of Section 13(1)(a) of the UP VAT Act. Section 13(1)(f) UP VAT Act restricts the amount of ITC figuring in Table of Section 13(1)(a) UP VAT Act to the extent of tax payable on the sale value of goods or manufactured goods, in specific cases, i.e., costing of the manufactured taxable goods except the non- VAT goods being lower than the costing of the taxable inputs. 22. It was also argued that the High Court rightly placed reliance on the decision of this Court in the case of M. K. Agro Tech (supra). 23. In such circumstances referred to above, Mr. R.K. Raizada submitted that there being no merit in both the appeals those may be dismissed. ANALYSIS 24. Having heard the learned counsel appearing for the parties and having gone through the materials on record the following questions fall for our consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-vat goods means any of the goods mentioned or described in column (2) of Schedule-IV; Xxx xxx xxx (z) registered dealer means a dealer registered under Section 17 or Section 18; Xxx xxx xxx (ah) taxable dealer means a dealer who is liable to pay tax under this Act; (ai) taxable goods means any goods except goods mentioned or described in column (2) of Schedule I; Xxx xxx xxx 13. Input tax credit (1) Subject to provisions of this Act, dealers referred to in the following clauses and holding valid registration certificate under this Act, shall, in respect of taxable goods purchased from within the State and mentioned in such clauses, subject to conditions given therein and such other conditions and restrictions as may be prescribed, be allowed credit of an amount, as input tax credit, to the extent provided by or under the relevant clause: (a) Subject to conditions given in column (2), every dealer liable to pay tax, shall, in respect of all taxable goods except non-vat goods, capital goods and captive power plant, where such taxable goods are purchased on or after the date of commencement of this Act, be allowed cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput tax credit may be claimed and be allowed proportionate to the extent they are used or disposed of for the purposes specified in such clause, (b)Subject to the provisions of this section where during process of manufacture of vat goods, exempt goods and non vat goods except as by product or waste product are produced, the amount of input tax credit may be claimed and be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than non vat goods and exempt goods Explanation:- For the purpose of this subsection the exempt goods shall include taxable goods other than non vat goods, which are disposed of otherwise than by way of sale within the State or in the course of inter-State trade or commerce or sale in the course of export of goods out of the territory of India or sale out side the State. xxx xxx xxx Explanation:-For the purposes of this section, (i) goods for use in manufacture of any goods includes goods required for use, consumption or utilization in manufacture or processing of such goods or goods required for use in packing of such manufactured or processed goods; (ii) manufacture of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be limited to the tax payable on the sale value of the goods or manufactured goods. We are at one with Mr. Datar that this was the sole purpose of the 2010 Amendment. 29. We are also at one with Mr. Datar that the definition of goods under Section 2(m) of the UP VAT Act referred to above does not differentiate between exempt and taxable goods and equally, the word goods under Section 13(1)(f) of the UP VAT Act has also not been qualified by the word taxable . 30. Mr. Datar is right in his submission that the necessary corollary to the reading of the provision ought to be that the goods which are manufactured/produced by using or utilizing the purchased goods and whose sale price is being considered for applying Section 13(1)(f) of the UP VAT Act, ought to be taxable goods. 31. The aforesaid is further manifested from the fact that wherever the legislative intent was to qualify goods with the word taxable , it has been so done by the Legislature in Section 13 of the UP VAT Act itself. 32. Had the legislative intent of the 2010 Amendment been to limit the scope and ambit of goods under Section 13(1)(f) solely to taxable goods , there was nothing that cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Federation Ltd. v. CIT (2014) 11 SCC 672 , State Bank of Travancore v. CIT (1986) 2 SCC 11 : 1986 SCC (Tax) 289 and Cape Brandy Syndicate v. IRC (1921) 1 KB 64 , summed up the law in the following manner: A taxing statute is to be strictly construed. The wellestablished rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury Ed: Tennant v. Smith, 1892 AC 150 at p. 154 and Lord Simonds Ed. : St Aubyn v. Attorney General, 1952 AC 15 at p. 32 (HL) , means: The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words. 38. In a classic passage Lord Cairns stated the principle thus: If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e open to two interpretations benefit of interpretation is given to the subject [Central India Spg. and Wvg. Mfg. Co. Ltd. v. Municipal Committee, Wardha AIR 1958 SC 341 ]. If the legislature fails to express itself clearly and the taxpayer escapes by not being brought within the letter of the law, no question of unjustness as such arises [CIT v. Jalgaon Electric Supply Co. Ltd. AIR 1960 SC 1182 ]. But equitable considerations are not relevant in construing a taxing statute, [CIT v. Central India Industries Ltd. (1972) 3 SCC 311 : AIR 1972 SC 397 ], and similarly logic or reason cannot be of much avail in interpreting a taxing statute [Azam Jah Bahadur v. Expenditure Tax Officer (1971) 3 SCC 621 : AIR 1972 SC 2319 ]. It is well settled that in the field of taxation, hardship or equity has no role to play in determining eligibility to tax and it is for the legislature to determine the same [Kapil Mohan v. CIT (1999) 1 SCC 430 : AIR 1999 SC 573 ]. Similarly, hardship or equity is not relevant in interpreting provisions imposing stamp duty, which is a tax, and the court should not concern itself with the intention of the legislature when the language expressing such intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner Commercial Tax Uttar Pradesh To All Zonal Addl. Commissioner Grade-1 Commercial Tax Uttar Pradesh Lucknow dated 13 Jan. 2015 Sir, After examining the records of traders/ manufacturer of the rice bran oil, the Joint Commissioner (SIB) Commercial Tax Gonda vide his DO letter No. 47/ Jt. Comm. (SIB) Commercial Tax Gonda dated 16.7.2011 has submitted a detailed report. Copy of which is attached. In this context the Addi. Commissioner Grade-1 Commercial Tax Faizabad Zone, Faizabad has given the following report: The Joint Commissioner (SIB) Commercial Tax Gonda in the perspective of provisions of section 13(3) (B) read with section 13(1)(f) of the VAT Act has expressed this presumption that if the sale of any taxable goals is effected at the low price than the purchase cost of the raw material then the trader shall get the benefit of ITC only up to the extent of sale value of manufactured goods. The trader produce the rice bran oil by purchasing the rice bran in which de-oiled rice bran is received as a byproduct/waste product. In this way such produced is sold at much lower price in the perspective of cost of produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of tax paid on the purchases as ITC. 48. Furthermore, Section 13(3)(b) of the UP VAT Act, introduces the concept of proportionality in the scheme of the enactment and by means of a deeming fiction provides that where during the manufacture of VAT goods, exempt and non-VAT goods (except as by-product or waste product) are produced, the amount of ITC credit may be claimed and may be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than the non-VAT goods and exempt goods. 49. Section 13(3)(b), however, leaves a grey area with respect to cases where the process of manufacture (such as in the present case) results in the production of VAT goods and by-products or waste products. In such cases, the legislature has done well to take care of the grey area by providing for another legal fiction in the form of Explanation (iii) to Section 13 wherein it is provided that during the manufacture of any taxable goods, any exempt goods are produced as by-product or waste product, it shall be deemed that the purchased goods have been used in the manufacture of taxable goods. 50. Explanation (iii) to Section 13, therefore, forbids the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted, subject to the provisions of section 11. (3) Any input tax relating to both sale of taxable goods and exempt goods, including inputs used for non-taxable transactions, that is, the non-deductible input tax, may be calculated on the basis of the following formula: (Emphasis supplied) 56. This Court while examining Section 17 of the KVAT Act, read with Rule 131 of the KVAT Rules, held that ITC was admissible to the extent of inputs used in the sale of taxable goods. The relevant observations of this Court are reproduced below: 28. The first mistake which is committed by the High Court is to ignore the plain language of sub-section (1) of Section 17. This provision which allows partial rebate makes the said provision applicable on the sales of taxable goods and goods exempt under Section 5. Thus, this sub-section refers to sale of the goods , taxable as well as exempt, and is not relatable to the manufacture of the goods. The High Court has been swayed by the fact that while extracting oil from sunflower, cake emerges only as a by-product. Relevant event is not the manufacture of an item from which the said by-product is emerging. On the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-oiled cake which in itself is a marketable good having market value. (Emphasis supplied) 57. In the case of M.K. Agro Tech (supra), this Court held that only partial ITC was permitted to the assessee as they were making taxable and exempted sales from the dutiable raw materials procured by them. In Para 28, this Court has elaborated on the scheme under the Karnataka VAT Act, to emphasise that the provision which allows partial rebate is made applicable on the sales of taxable goods and goods exempt under Section 5. It refers to sale of goods , taxable as well as exempt, and is not relatable to the manufacture of the goods. Further elaboration has been made to hold that upon the sale of goods exempted under Section 5 of the Karnataka VAT Act, partial rebate shall only be admissible. 58. This Court in the said case, permitted only partial ITC as the wordings of the provision relates only with sale and not manufacture. This distinction has also been acknowledged. 59. In such circumstances as aforesaid, we are of the view that the decision of M.K. Agro Tech (supra), is not applicable to the case on hand as the provisions under the Karnataka VAT Act are q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, and could not have been relied upon to deny the full ITC to the assessee. 65. Under Section 13(1)(a) read with S. No. 2 (ii) of the table appended and Section 13(3)(b) read with Explanation (iii) of Section 13, the scheme of ITC is concerned with the manufacture of goods and not sale as dealt with in M.K. Agro Tech (supra). 66. Further, the deeming fiction as provided by the Explanation (iii) to Section 13 makes all the difference. It says that where during the manufacture of any taxable goods, any exempt goods are produced as by-products or waste product, it shall be deemed that the purchased goods have been used in the manufacture of taxable goods, creating a wholly distinct scheme to the one envisaged under the Karnataka VAT Act. 67. The following illustration highlights the difference between the ITC scheme envisaged under the Karnataka VAT Act and the scheme under the UP VAT Act: I. Karnataka VAT Act, 2003 Total Sales = Rs. 1,000/- Taxable goods = Rs. 250/- Exempt goods/By-product = Rs. 700 Non-tax goods = Rs. 50 Total ITC on purchases = Rs. 100 In terms of the formula prescribed in Rule 131(3), the nondedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than sale, manufacturing, processing, packing or storing of goods), in addition to use in the course of his business, apportionment and attribution of input tax deductible between such sales and dispatches of goods or such purpose, shall be made in accordance with Rules or by special methods to be approved by the Commissioner or any other authorised person and any input tax deducted in excess shall become repayable forthwith. Rule 131. Apportionment.- Apportionment of input tax in the case of a dealer falling under Section 17 shall be calculated as follows (1) All input tax directly relating to sale of goods exempt under Section 5 other than such goods sold in the course of export out of the territory of India, is non-deductible. (2) All input tax directly relating to taxable sales may be deducted, subject to the provisions of Section 11. (3) Any input tax relating to both sale of taxable goods and exempt goods including inputs used for nontaxable transactions, that is, the nondeductible input tax, may be calculated on the basis of the following formula: (Sales of exempt goods + nont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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