2022 (3) TMI 746 - HC - VAT and Sales Tax

Court affirms dealers' entitlement to Input Tax Credit (ITC) on petroleum product losses

The Court concluded that dealers are entitled to Input Tax Credit (ITC) on the evaporation losses of petroleum products. The State's appeals were ... Input Tax Credit on evaporation/handling losses of petroleum products - Interpretation of Schedule E - petroleum products excluded from Entry 5 circumstances - Section 8 - exclusion of input tax for goods used or disposed of in the circumstances mentioned in Schedule E - Explanation (v) to Section 2(1)(zg) - deeming of sale price of retail outlets as amount received by oil companiesInput Tax Credit on evaporation/handling losses of petroleum products - Section 8 - exclusion of input tax for goods used or disposed of in the circumstances mentioned in Schedule E - Interpretation of Schedule E - petroleum products excluded from Entry 5 circumstances - Explanation (v) to Section 2(1)(zg) - deeming of sale price of retail outlets as amount received by oil companies - Dealers are entitled to Input Tax Credit on approved evaporation/handling losses of petrol and HSD. - HELD THAT: - Section 8 treats input tax as the tax paid to the State on goods sold to a VAT dealer but expressly excludes tax paid on goods specified in Schedule E when used or disposed of in the circumstances mentioned against those goods. Entry No.1 of Schedule E specifically deals with petroleum products and natural gas and negates ITC only when such products are 'used as fuel' or 'exported out of State'. Entry No.5, which contains the circumstance 'disposed of otherwise than by sale', applies to goods other than those mentioned at Entries 1 and 2 and therefore cannot be read into Entry No.1. Explanation (v) to Section 2(1)(zg) merely deems the retail outlet sale price to be the amount received by oil companies and was not decisive of reversal of ITC on evaporation. The Division Bench decision in All Haryana Petroleum Dealers Association's case did not adjudicate the specific language of Entry No.1 and Section 8 on this point; consequently, the Court here followed the statutory text and concluded that authorised/allowed evaporation/handling losses (within prescribed limits) do not fall within the circumstances specified against petroleum products in Schedule E and therefore do not attract reversal of input tax. For these reasons the Tribunal was correct in allowing ITC on evaporation losses. [Paras 16, 17, 18, 19, 20]Answered in favour of the dealer; ITC is available on evaporation/handling losses of petrol and HSD within the prescribed limits.Final Conclusion: State appeals dismissed on merits; dealers entitled to Input Tax Credit on authorised evaporation losses of petroleum products for the assessment(s) in question and pending applications (including condonation) disposed of. Issues Involved:1. Entitlement to Input Tax Credit (ITC) on evaporation/handling losses of petroleum products.2. Interpretation of relevant sections and entries of the Haryana Value Added Tax Act, 2003.3. Applicability of Entry 5 of Schedule E to petroleum products.4. Impact of Explanation (v) to Section 2(1)(zg) on ITC claims.Detailed Analysis:Issue 1: Entitlement to Input Tax Credit (ITC) on Evaporation/Handling Losses of Petroleum ProductsThe primary issue in these appeals is whether dealers are entitled to ITC on the evaporation losses of Petrol and High-Speed Diesel (HSD). The Tribunal had accepted the appeals and held that dealers were entitled to ITC on evaporation loss. The State argued that evaporated Petrol and HSD were disposed of otherwise than by sale and thus not eligible for ITC as per Entry 5 of Schedule E of the Haryana Value Added Tax Act, 2003.Issue 2: Interpretation of Relevant Sections and Entries of the Haryana Value Added Tax Act, 2003The relevant sections and entries of the Act were examined. Section 2(1)(w) defines 'Input tax' as the amount of tax paid to the State in respect of goods sold to a VAT dealer. Section 2(1)(zg) defines 'sale price' and includes the amount charged for anything done by the dealer in respect of the goods. Explanation (v) to Section 2(1)(zg) deems the sale price charged by retail outlets to customers as the amount received by oil companies for sales made to retail outlets. Section 8 outlines the computation of input tax, which excludes tax paid on goods specified in Schedule E when used or disposed of in specified circumstances.Issue 3: Applicability of Entry 5 of Schedule E to Petroleum ProductsEntry 1 of Schedule E specifies that petroleum products and natural gas are not eligible for ITC when used as fuel or exported out of the State. Entry 5 of Schedule E, which deals with goods disposed of otherwise than by sale, does not apply to petroleum products and natural gas. The Tribunal and the Court found that Entry 5's conditions could not be extended to Entry 1, meaning that the evaporation losses of petroleum products should not be treated as disposal otherwise than by sale.Issue 4: Impact of Explanation (v) to Section 2(1)(zg) on ITC ClaimsExplanation (v) to Section 2(1)(zg), inserted in 2011, created a deeming fiction that the sale price of retail outlets should be considered the amount received by oil companies for sales to retail outlets. The Division Bench in the All Haryana Petroleum Dealers Association case upheld the vires of this explanation but did not address the reversal of ITC on evaporation losses. The Court clarified that the explanation does not affect the entitlement to ITC for evaporation losses within prescribed limits.Conclusion:The Court concluded that the dealers are entitled to ITC on the evaporation losses of petroleum products. The appeals filed by the State were dismissed, and the Tribunal's decision was upheld. The Court emphasized that Entry 5 of Schedule E does not apply to petroleum products and natural gas, and the statutory provisions clearly support the dealers' entitlement to ITC on evaporation losses.The appeals were dismissed on merits, and all pending applications, including those for condonation of delay, were disposed of accordingly.