2025 (5) TMI 1360 - HC - VAT / Sales Tax

Madras HC denies input tax credit on capital goods for job work using supplied materials under Section 19(2)(iv) TNVAT Act 2006

M/s. Shri Natraj Ceramic & Chenical Industries Ltd. Versus The State of Tamil Nadu represented by The Joint Commissioner (CT), Trichy.

The Madras HC dismissed the appellant's claim for input tax credit on capital goods under Section 19(2)(iv) of the TNVAT Act, 2006. The appellant ... Entitlement to claim input tax credit on the purchase of capital goods as per Section 19(2)(iv) of the TNVAT Act, 2006 - job work of manufacture for others - failed to consider the clause(e) in sub rule (4) of Rule 10 of the TNVAT Rules, 2007 - HELD THAT:- As per the job work agreement entered by the appellant with DCL, they only manufactured the refractory products by using the material supplied by DCL. The said components are further used in the manufacturing of final product of DCL. Thereafter, DCL would produce the final products by using the said components. Therefore, job work entrusted with the appellant by DCL can not be treated as manufactuing of capital goods in order to claim themselves as a dealer. They were only doing a job work by using the materials supplied by DCL. In the said circumstances, both the authorities correctly rejected the appellant's claim that they are not entitled to claim the benefit of the input tax credit. It is well settled principle as per Section 17 of the TNVAT Act, the burden of proving claim of input tax credit would always lie on the dealer. In view of the above discussion, the appellant has not discharged the same. The further plea of the respondent is that manufacturing of some of the additional material by the appellant would not make any difference in the above said reasoning. The Hon'ble Supreme Court in the case of Prestige Engineering (India) Ltd., and Others Vs. Collector of Central Excise, Meerut and Others (1994 (9) TMI 66 - SUPREME COURT), has made an elaborate discussion on this aspect and the ratio laid down by the Hon'ble Supreme Court is applicable to the present case. Another submission of the learned counsel for the assessee on the basis of the Clause (e) in Sub Rule (4) of Rule 10 of the TNVAT, 2007, is misconceived one for the reason that the same was incorporated in the Rule on 03.12.2008 i.e., much after the assessment made in this case. In the result, all the questions of law framed by this Court were answered against the appellant/assessee and answered in favour of the respondent/Revenue. In light of the abovesaid detailed discussion and the overwhelming reasons for the conclusion arrived at by the Courts in the judgment cited and discussed, the impugned order is perfectly valid in the eye of law and the present Appeal fails and the same is dismissed. The substantial questions raised are answered against the appellant/assessee and answered in favour of the respondent/Revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:i) Whether the Appellate Tribunal was correct in holding that the purchase and use of goods as capital goods in the manufacture of taxable goods must be done by the same registered dealer who effects taxable sales of the manufactured goods;ii) Whether only registered dealers who effect taxable sales of manufactured goods are eligible to avail input tax credit on the purchase of goods used as capital goods in such manufacture;iii) Whether a plain reading of Section 19(2)(iv) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) supports the proposition that the purchase and use of capital goods for manufacture must be by the same registered dealer who effects taxable sales of the manufactured goods.2. ISSUE-WISE DETAILED ANALYSISIssue i, ii and iii (Interrelated): Eligibility to claim input tax credit on capital goods used in manufacture when job work is involvedRelevant legal framework and precedents:The principal statutory provisions considered were Section 19(2)(iv) of the TNVAT Act, 2006, which governs the entitlement to input tax credit on capital goods, and Rule 10(4)(e) of the TNVAT Rules, 2007. The latter was noted but held to be inapplicable as it was introduced after the relevant assessment year. The definition of 'job work' was referenced from Rule 2(n) of the Cenvat Credit Rules, 2004, which defines job work as processing or working upon raw or semi-finished goods supplied to the job worker to complete part or whole of the manufacturing process.Judicial precedent relied upon by the respondent was the Supreme Court judgment in Prestige Engineering (India) Ltd. and Others v. Collector of Central Excise, Meerut and Others (1994 6 SCC 465), which elaborated on the conditions for claiming input tax credit and the distinction between manufacturing and job work.Court's interpretation and reasoning:The Court examined the nature of the appellant's business activity and contractual arrangement. The appellant was engaged in job work for manufacturing refractory products using raw materials supplied by Dalmia Cement (Bharat) Limited (DCL). The appellant did not manufacture or sell the finished goods but only processed the supplied raw materials to produce components used by DCL in their final products.The Court emphasized that the appellant was not the registered dealer effecting taxable sales of the manufactured goods but was merely performing job work. Therefore, the appellant could not be considered as the manufacturer or dealer for the purpose of claiming input tax credit on capital goods.The Court held that Section 19(2)(iv) of the TNVAT Act requires that the purchase and use of capital goods in manufacture must be by the same registered dealer who effects taxable sales of the manufactured goods. Since the appellant did not effect taxable sales, they were not eligible to claim input tax credit on capital goods.The Court rejected the appellant's contention that Rule 10(4)(e) of the TNVAT Rules, 2007 entitled them to claim input tax credit, noting that this provision came into effect only after the assessment year in question (2006-07) and therefore could not be applied retrospectively.Key evidence and findings:The job work agreement between the appellant and DCL was critical. It established that DCL supplied all raw materials and fuel required for manufacture, and the appellant's role was limited to processing these materials at their plant. The final products were manufactured and sold by DCL, not the appellant.The original and revised assessment orders, as well as the appellate tribunal's decision, consistently found that the appellant was not entitled to input tax credit on capital goods since they were not the dealer effecting taxable sales.Application of law to facts:The Court applied the statutory provisions and judicial precedent to the facts, concluding that the appellant's job work did not amount to manufacture for the purpose of claiming input tax credit. The appellant's failure to prove entitlement to input tax credit as required under Section 17 of the TNVAT Act was decisive.Treatment of competing arguments:The appellant argued entitlement to input tax credit under Section 19(2)(iv) and Rule 10(4)(e), asserting that capital goods used in job work should qualify. The Court rejected this, emphasizing the timing of the rule's introduction and the statutory language requiring the dealer who purchases and uses capital goods to be the same dealer effecting taxable sales.The respondent argued that job work does not fall under the purview of the Act for input tax credit purposes and relied on the Supreme Court's ruling in Prestige Engineering to support this position. The Court agreed with the respondent's interpretation.Conclusions:The Court concluded that the appellant was not entitled to input tax credit on capital goods used in job work since they were not the registered dealer effecting taxable sales of the manufactured goods. The appellant's claim was legally untenable and rightly rejected by the authorities below.3. SIGNIFICANT HOLDINGSThe Court held:'A plain reading of Section 19(2)(iv) of the TNVAT Act, 2006 clearly reveals that the purchase of goods and use of these goods as capital goods in the manufacture of taxable goods should be done by the same registered dealer who effects taxable sales of the manufactured goods.''The job work entrusted with the appellant by DCL cannot be treated as manufacturing of capital goods in order to claim input tax credit as a dealer.''The burden of proving claim of input tax credit lies on the dealer and in the present case, the appellant has not discharged the same.''Rule 10(4)(e) of the TNVAT Rules, 2007 is not applicable to the assessment year in question as it was introduced only on 03.12.2008, after the relevant assessment year.''The impugned order passed by the Tamil Nadu Sales Tax Appellate Tribunal is perfectly valid in the eye of law and the appeal is dismissed.'