Input tax rebate on raw material cannot be reduced by proportionate liability merely because a by-product is sold.

Input tax rebate on raw material cannot be curtailed by applying proportionate liability merely because a by-product is also generated and sold. In the context of cotton seeds used to manufacture cotton seed oil, the Court stated that the assessee was entitled to set-off/input tax credit on the entire tax paid on purchase of the raw material, and that proportionate disallowance was not justified. The disallowance under Section 14 of the Madhya Pradesh Value Added Tax Act, 2002 was therefore unsustainable, and relief followed with refund to be granted in accordance with law.

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Issues: Whether the disallowance of input tax rebate under Section 14 of the Madhya Pradesh Value Added Tax Act, 2002 on the purchase of cotton seeds used for manufacture of cotton seed oil, on the basis of proportionate generation and sale of oil cake, was justified.

Analysis: The question raised in the appeal had already been answered in favour of the assessee by the Division Bench decisions referred to in the order. The Court held that the assessee was entitled to set-off/input tax credit on the entire tax paid on purchase of raw material. It further held that the principle of proportionate liability could not be applied to curtail that benefit.

Conclusion: The disallowance of input tax rebate was not sustainable, and the assessee was entitled to the benefit of set-off on the full input tax paid.

Final Conclusion: The appeal succeeded and the assessee was granted relief including refund of tax in accordance with law.

Ratio Decidendi: Where the statutory scheme grants input tax rebate on raw material, the benefit cannot be reduced by invoking proportionate liability merely because a by-product is also generated and sold.

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