2018 (9) TMI 241 - HC - VAT and Sales Tax

Input Tax Credit Allowed for Electrical Goods Purchases under KVAT Act

The Division Bench of the Court allowed the appeal filed by M/s. Bando (India) Private Limited, holding that the Assessee was entitled to Input Tax Credit ... Input Tax Credit - Whether the Assessee was entitled to Input Tax Credit on the purchases of Electrical Goods like 3150 KVA Transformer, High Tension Cable supply and erection, Low Tension cable supply and erection, UPS and UPS Electrical, Civil and Erection under Schedule 5 to the Act r/w Section 11 of the Act? Held that:- Division Bench of this Court in the case of Hindustan Unilever Limited, Bangalore vs. State of Karnataka [2016 (6) TMI 859 - KARNATAKA HIGH COURT], has held that even the electrical and electronic goods or in puts used for generation of electricity or steam, provided such electricity or steam is used within the factory for manufacturing activity of the final product, the same would be covered and the Assessee would be entitled to Input Tax Credit with regard to tax paid on such electrical and electronic goods also. - The learned Advance Rulings Authority did not have the benefit of the aforesaid judgment of Division Bench of this Court which was delivered on 26.02.2016 just three days after the impugned order dated 23.02.2016 was passed by the aforesaid Authority. The said aforesaid view of the Division Bench is obviously binding on the said Authority and covers the controversy in hand. The equipments and items purchased by the Assessee namely Electrical Goods in question would be eligible for Input Tax Credit against the output tax liability of the Assessee - appeal allowed - decided in favor of appellant. Issues:- Entitlement to Input Tax Credit on purchases of Electrical Goods under KVAT Act, 2003.Analysis:The appeal under Section 66(1) of the KVAT Act, 2003 was filed by M/s. Bando (India) Private Limited against the order of the Authority for Clarification and Advance Rulings. The main issue revolved around the eligibility of the Assessee to claim Input Tax Credit on purchases of Electrical Goods like a 3150 KVA Transformer, High Tension Cable supply and erection, Low Tension cable supply and erection, UPS, and related civil and erection work under Schedule 5 to the Act read with Section 11 of the Act. The Authority initially held that the Assessee was not entitled to Input Tax Credit on these items as they were not directly used for the manufacture or sale of goods.In a significant turn of events, the Division Bench of the Court, in a previous judgment, clarified that even electrical and electronic goods used for the generation of electricity or steam, if used within the factory for manufacturing activities of the final product, would be eligible for Input Tax Credit. This judgment highlighted the importance of the nexus between the goods purchased and the manufacturing process. The Court emphasized that if the goods specified in the Fifth Schedule are purchased and utilized for resale or manufacturing purposes, Input Tax Credit would be available. The principles laid down by the Apex Court in a relevant case were also referred to, indicating that inputs used for the generation of electricity or steam within the factory for manufacturing activities would qualify for Input Tax Credit.Considering the binding nature of the Division Bench's judgment, delivered just three days after the impugned order, the Court allowed the appeal of the Assessee. The Court set aside the Authority's order and held that the Electrical Goods purchased by the Assessee would indeed be eligible for Input Tax Credit against the output tax liability. The judgment emphasized the importance of the specific end-use of the goods in the manufacturing process, ultimately allowing the Assessee to benefit from the Input Tax Credit on the disputed items.