2016 (8) TMI 249 - HC - VAT and Sales Tax

Paper Manufacturer Entitled to Full Input Tax Credit on Pet Coke for Power Generation

The High Court held that the appellant, a paper manufacturer, is entitled to full input tax credit on pet coke purchases for captive power generation ... Input tax credit - captive generation of electrical energy - negative list in Section 13(5) - limitation of credit to specified goods under Section 13(4) - harmonious construction of statutory provisionsInput tax credit - captive generation of electrical energy - limitation of credit to specified goods under Section 13(4) - negative list in Section 13(5) - Entitlement to input tax credit on tax paid on purchase of pet coke used for generation of electrical energy for captive consumption. - HELD THAT: - Section 13(1) grants input tax credit subject to specified conditions. Clause (i) of Section 13(5) excludes input tax credit on goods used in generation, distribution and transmission of electrical energy but expressly saves credit where such generation is for captive consumption, making that benefit subject to Section 13(4). Section 13(4) however specifies only certain goods (furnace oil, transformer oil, mineral turpentine oil, water methanol mixture, naphtha and lubricants) for which the credit is limited to the extent tax exceeds five percent when used in production or captive generation of power. A purposive and harmonious construction of sub-sections (4) and (5) shows that the limited treatment in sub-section (4) applies only to the enumerated goods; clause (i) of sub-section (5) affords captive generators input tax credit on goods used for captive generation except where those goods are either specifically limited by sub-section (4) or specifically excluded by clause (b) of sub-section (5). Pet coke is neither one of the goods enumerated in Section 13(4) nor excluded by Section 13(5)(b). The Commissioner's earlier clarification in Avon Ispat and Power Ltd. treating heavy petroleum stock (not covered by Section 13(4) or 13(5)(b)) as eligible for full input tax credit is consistent with this construction. The decision in Malwa Cotton & Spinning Mills Ltd. concerned diesel, which is specifically excluded by Section 13(5)(b), and is therefore distinguishable.The appellant is entitled to full input tax credit on tax paid on purchase of pet coke where it is used for generation of electrical energy for captive consumption.Final Conclusion: The appeal is allowed and the substantial question of law is answered in favour of the appellant: full input tax credit is available on pet coke used for captive generation of power, since pet coke is neither covered by the limited-credit goods in Section 13(4) nor excluded by Section 13(5)(b). Issues Involved:1. Entitlement to input tax credit on purchases of pet coke for generation of electrical energy for captive consumption under Punjab VAT Act 2005.Analysis:The appellant filed an appeal challenging the order of the Value Added Tax Tribunal, Punjab, seeking input tax credit on pet coke purchases for power generation. The Tribunal dismissed the appeal based on a previous judgment. The main issue before the High Court was whether the appellant is entitled to input tax credit on pet coke purchases for captive power generation. The appellant, a paper manufacturer, argued that Section 13 of the Act allows input tax credit on goods used for captive power generation. They cited a clarification by the Excise & Taxation Commissioner in a similar case supporting full input tax credit. The State contended that specific provisions in Section 13(4) and 13(5)(b) override general provisions, denying input tax credit on pet coke for captive power generation. The High Court analyzed Section 13 of the Act, highlighting restrictions on input tax credit for specific goods and exceptions for captive power generation.The Court noted that Section 13(1) allows input tax credit on taxable goods purchased within the State if used for manufacturing or sale. Section 13(4) restricts input tax credit on certain goods to 5% if used for production or captive power generation. Section 13(5) lists goods where input tax credit is not available, including petrol and diesel. However, Section 13(5)(i) allows input tax credit on goods used for captive power generation, subject to Section 13(4). The Court emphasized the importance of harmoniously interpreting both provisions to allow input tax credit on goods used for captive power generation not specified in Section 13(4) or 13(5)(b). The Court cited a previous clarification by the Excise & Taxation Commissioner supporting full input tax credit on goods not listed in Section 13(4) or 13(5)(b).Regarding a previous judgment on diesel, the Court distinguished it as diesel is specifically mentioned in Section 13(5)(b) for restricting input tax credit. In contrast, pet coke was not listed in Section 13(5)(b), allowing the appellant to claim full input tax credit. Therefore, the Court allowed the appeal, holding that the appellant is entitled to full input tax credit on pet coke purchases for captive power generation.