2023 (11) TMI 298 - SC - VAT / Sales Tax

Full input tax credit allowed when purchased rice bran used to manufacture taxable RBO; Section 13(3)(b) and Explanation (iii) clarified

SC allowed the appeal, set aside the High Court's judgment, and restored the Commercial Tax Tribunal orders. The Court held that where purchased goods ... Input Tax Credit (ITC) entitlement - deeming fiction in Explanation (iii) to Section 13 - interpretation of 'goods' in taxation statutes - proportional apportionment of ITC under Section 13(3)(b) - non-obstante clause and limiting provision in Section 13(1)(f) - distinction between manufacture-based and sale-based ITC schemesInput Tax Credit (ITC) entitlement - proportional apportionment of ITC under Section 13(3)(b) - deeming fiction in Explanation (iii) to Section 13 - Assessee entitled to claim full amount of ITC under Section 13(1)(a) read with S. No. 2(ii) of the Table and Section 13(3)(b) read with Explanation (iii) of the UP VAT Act for the assessment years in question. - HELD THAT: - The Court held that the UP VAT Act entitles a registered dealer to full ITC where purchased goods are used in manufacture of taxable goods as provided by Section 13(1)(a) and the Table. Section 13(3)(b) introduces proportionality where exempt or non-VAT goods (except as by-product or waste product) are produced, but Explanation (iii) creates a deeming fiction: when exempt goods are produced as by-product or waste product during manufacture of taxable goods, the purchased goods are deemed to have been used in manufacture of taxable goods. De-oiled rice bran (DORB) produced in the solvent extraction process is a by-product and is listed as exempt in Schedule I; therefore the deeming fiction applies and forbids disallowance of ITC on that basis. Applying these provisions to the facts, the Tribunal's allowance of full ITC was correct and the High Court erred in disallowing it. [Paras 47, 48, 49, 50, 71]Full ITC claim allowed; Tribunal orders restored.Interpretation of 'goods' in taxation statutes - non-obstante clause and limiting provision in Section 13(1)(f) - distinction between manufacture-based and sale-based ITC schemes - The word 'goods' in Section 13(1)(f) is not to be interpreted as limited to 'taxable goods' and the 2010 amendment did not intend to circumscribe 'goods' to taxable goods only. - HELD THAT: - The Court analysed the statutory text, the 2010 Amendment's Statement of Objects and Reasons, and related rules. It observed that Section 2(m) defines 'goods' without distinguishing taxable and exempt goods and that Section 13(1)(f) likewise does not qualify 'goods' as 'taxable goods'. The legislative history and Rule 23(6) (which uses 'any goods') reinforce that the amendment sought to limit ITC where goods (including by-products or exempt goods) are sold below cost, not to narrow the meaning of 'goods' to taxable goods. Consequently, the High Court's restrictive reading of 'goods' in Section 13(1)(f) was incorrect. [Paras 31, 32, 33, 69, 70]'Goods' not to be confined to 'taxable goods' in Section 13(1)(f); restrictive reading rejected.Distinction between manufacture-based and sale-based ITC schemes - M.K. Agro Tech applicability - Decision in M.K. Agro Tech (Karnataka VAT) is not applicable to the present case under the UP VAT Act. - HELD THAT: - The Court explained that the Karnataka VAT scheme (Section 17 and Rule 131) operates on a sale-based apportionment model and prescribes a formula for partial rebate when a dealer makes taxable and exempt sales; accordingly M.K. Agro Tech was decided in that statutory context. By contrast, the UP VAT Act's scheme centres on manufacture and contains Explanation (iii) to Section 13, which creates a deeming fiction for by-products produced during manufacture of taxable goods. Because the statutory frameworks differ materially, reliance on M.K. Agro Tech by the High Court was misplaced and the decision does not control the present case. [Paras 62, 64, 65, 66, 69]M.K. Agro Tech distinguished and held inapplicable to the UP VAT Act facts.Final Conclusion: Both appeals allowed; the High Court judgment is set aside and the orders of the Commercial Tax Tribunal dated 04.05.2016 and 05.07.2017 are restored. Issues Involved:1. Entitlement to full Input Tax Credit (ITC) under Section 13 of the UP VAT Act.2. Scope of the term 'goods' under Section 13(1)(f) of the UP VAT Act.3. Applicability of the Supreme Court decision in M.K. Agro Tech Private Limited to the present case.Summary:1. Entitlement to Full Input Tax Credit (ITC):The assessee, engaged in manufacturing Rice Bran Oil (RBO) and registered under the UP VAT Act, claimed full ITC on the tax paid for purchasing Rice Bran. The Deputy Commissioner initially rejected this claim, limiting ITC only to the extent of taxable sales, which was upheld by the Additional Commissioner for the year 2013-14 but reversed for 2015-16. The Commercial Tax Tribunal later allowed full ITC for both years, which was challenged by the revenue in the High Court.2. Scope of the Term 'Goods' under Section 13(1)(f):The High Court ruled that the term 'goods' in Section 13(1)(f) of the UP VAT Act should be limited to 'taxable goods,' thereby denying full ITC to the assessee. The Supreme Court, however, disagreed, noting that the legislative intent behind the 2010 amendment was to address cases where goods are sold below cost price, without limiting 'goods' to 'taxable goods.' The Court emphasized that the term 'goods' in Section 13(1)(f) is not qualified by 'taxable,' and the legislative intent did not restrict it to taxable goods alone.3. Applicability of M.K. Agro Tech Private Limited:The High Court relied on the Supreme Court's decision in M.K. Agro Tech, which dealt with partial ITC under the Karnataka VAT Act. The Supreme Court clarified that the provisions under the Karnataka VAT Act are distinct from those under the UP VAT Act. The Karnataka VAT Act focuses on the sale of goods, while the UP VAT Act, through Section 13(3)(b) and Explanation (iii), addresses the manufacture of goods, including by-products and waste products. Therefore, the decision in M.K. Agro Tech was deemed inapplicable to the present case.Conclusion:The Supreme Court set aside the High Court's judgment, restoring the Commercial Tax Tribunal's orders, thereby allowing the assessee to claim full ITC on the tax paid for purchasing Rice Bran. The Court ruled that the term 'goods' in Section 13(1)(f) of the UP VAT Act includes both taxable and exempt goods, and the decision in M.K. Agro Tech does not apply to the present case.