Manufacturer entitled to full set-off on total tax paid for raw material, court quashes liability order

The High Court held that a manufacturer is entitled to claim the benefit of set-off on the total tax paid on the purchase of raw material without any apportionment, even if a by-product is produced during the manufacturing process. The court emphasized that the principle of proportionate liability is unsustainable in such cases. Consequently, the court allowed the appeal, quashed the impugned order imposing liability, and directed the refund of the tax paid and refundable amount to the appellant within six months. This decision reaffirmed the manufacturer's right to the full set-off on tax paid on raw material.

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Issues:

1. Whether input credit of taxes paid on the purchase of cotton seed used in the manufacture of cotton seed oil can be denied proportionately due to the production of a by-product, cotton seed cakeRs.

Analysis:

The High Court, in this judgment, considered the issue of whether input credit of taxes paid on the purchase of raw material can be denied proportionately because a by-product is also produced during the manufacturing process. The court referred to a previous case where the principle of apportionment was discussed in the context of taxable and tax-free goods being simultaneously manufactured. The Division Bench of the court concluded that the manufacturer is entitled to the benefit of set-off on the entire amount of tax paid on the purchase of raw material. The court emphasized that the principle of proportionate liability is unsustainable in such cases.

The court relied on the legal principles established by the Supreme Court and clarified that the manufacturer should receive the benefit of set-off on the total tax paid on the raw material without any apportionment. Therefore, the court allowed the appeal, holding that the manufacturer is entitled to the set-off on the entire amount of tax paid on the purchase of raw material, and the principle of apportionment cannot be applied in this scenario.

As a result of the judgment, the impugned order imposing liability was quashed, and the appeal was allowed. The court directed that the tax paid and the refundable amount should be refunded to the appellant within six months in accordance with the law. The decision reaffirmed the entitlement of the manufacturer to claim the benefit of set-off on the total tax paid on the purchase of raw material, rejecting the notion of proportionate denial of input credit based on the production of a by-product.

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