Input tax set-off for consumables used in works contract upheld where output tax liability exists in the same business.

Input tax on consumables used in dyeing and printing under a works contract was treated as allowable set-off against output tax where the assessee also carried on taxable manufacturing and sale of fabrics within the State. The applicable principle was that input tax credit is available when there is corresponding output tax liability in the same taxable business, and the claim cannot be rejected merely because part of the activity is performed as job work. On that basis, the tax-credit claim was upheld in favour of the assessee, while the revenue challenge on the principal issue failed.

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Issues: (i) Whether input tax paid on consumables used in dyeing and printing of textiles under works contracts was allowable as set-off against output tax payable by the assessee.

Analysis: The assessee carried on both taxable manufacturing/sale of fabrics and dyeing/printing on works contract. The tax paid on consumables used for the works contract could be adjusted against output tax payable in the assessee's taxable business. The rule applied was that input tax is available where the assessee has output tax liability within the State, and the claim could not be disallowed merely because part of the activity was executed as job work.

Conclusion: The claim for input tax on consumables was upheld in favour of the assessee.

Final Conclusion: The challenge by the Revenue failed on the principal tax-credit question, and the revisions were dismissed, while the depreciation-related issue was left to be considered in the light of the pending decision of the Supreme Court.

Ratio Decidendi: Input tax on consumables used in a taxable works contract may be set off where the assessee also has output tax liability in the same taxable business.

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