Input tax credit concession limited by specific anti-loss restriction when manufactured goods are sold below cost price.

Input tax credit under the VAT scheme is a concession, and Section 13(1)(f) operates as a specific restriction where manufactured goods are sold below the cost of the raw material. The HC held that this provision required reversal of excess credit because the assessee's taxable output was sold at a value lower than the purchase cost of rice bran. The assessee's reliance on Section 13(3)(b) and Explanation (iii) was rejected, as those provisions apply to proportionate credit for by-products or waste products and do not override the specific restriction in Section 13(1)(f).

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Issues: Whether the assessee was entitled to full input tax credit on the purchase of rice bran when the sale value of the taxable manufactured goods was lower than the cost price, or whether the restriction in Section 13(1)(f) applied and required reversal of excess credit.

Analysis: Input tax credit under the VAT scheme is a concession and not an absolute right. Section 13(1)(f) was inserted to protect revenue in cases where manufactured or processed goods are sold below cost price, and it operates as a specific restriction on the quantum of credit allowable. The Court held that the assessee's case squarely fell within that provision because the taxable output was sold at a value lower than the cost of the purchased raw material. The assessee's reliance on Section 13(3)(b) and Explanation (iii) was rejected because those provisions govern proportionate credit in cases of by-products or waste products and do not override the specific rule in Section 13(1)(f) where the sale price of the manufactured goods is below cost price.

Conclusion: The restriction under Section 13(1)(f) applied and the Tribunal erred in allowing full input tax credit. The question was answered in favour of the Revenue and against the assessee.

Final Conclusion: The revisions were allowed and the Tribunal's orders were set aside.

Ratio Decidendi: Where a fiscal statute grants input tax credit as a concession, the specific restrictive provision governing sales below cost price prevails over general credit provisions, and the court will not enlarge the concession beyond the plain statutory language.

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