TaxTMI 
TaxTMI 
2015 (10) TMI 290
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....petitioner in all the three writ petitions. We are treating Writ Petition (MS) No. 532 of 2013 as the leading case. 3. The appellant Company, which has manufacturing unit in the State of Uttarakhand, purchases raw material and packing material for manufacture of soaps, detergents, creams and tooth-pastes. Towards the manufacture of the aforesaid products, it purchases raw material and packing material in the State of Uttarakhand. The Uttarakhand Value Added Tax Act, 2005 (hereinafter referred to as the "Act") provides for Input Tax Credit (hereinafter referred to as "ITC"). The complaint in the writ petitions relate, essentially, to refusal to grant ITC in respect of packing materials purchased from within the State of Uttarakhand used in the manufacture of the products of the appellant, which products are, thereafter, transferred by way of stock transfer to outside the State of Uttarakhand. It is the case of the appellant that, after the Act came into force in 2005, assessments were completed for the years 2005-2006, 2006-2007 and 2007-2008, wherein returns were finalized, which countenanced grant of ITC in respect of packing materials of products, which were sent outside the S....
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....r and thus effectively makes the packing material manufactured in Uttarakhand suffer higher rate of tax as compared to other States be declared unconstitutional being violative of Article 301 and 304 of the Constitution. (d) to restrain the Respondents from recovering the differential tax on the basis that no input tax credit is available on packing materials used in the manufacture of final products which are depot transferred and sold in other States. (e) to declare and hold that in any event, the expression 'raw materials' would encompass within its ambit packing materials but for which goods cannot be brought into the market in marketable state. (f) to stay the operation of the Order dated 29th November, 2012 passed by Respondent No. 3 and the consequential demand issued by the 3rd Respondent as well as Circular dated 23rd January 2013 issued by the Second Respondent and allow the Petitioners to take benefit of input tax credit on packing materials used in the manufacture of depot transferred goods, pending disposal of the present petition." 4. The learned Single Judge, however, took the view that there is no merit in the writ petition....
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....uchsafed in respect of packing materials used in regard to finished goods, where the packing material is purchased from the State of Uttarakhand only when there is an intra-State sale in the State of Uttarakhand or there is a sale in the course of inter-State trade or commerce. The State only intended to extend the benefit of ITC in respect of stock transferred materials by confining the benefit to the raw materials involved in the production of such goods, as is clear from the proviso. He also drew our attention to Section 6(8) (f) & (g), to which we shall make reference later. He would further submit that a reading of the Circular issued in the year 2008, relied on by the appellant, would not yield the result, which the appellant is canvassing for. He would also submit that the later Circular issued in the year 2013 was issued to clarify the position. He would submit that the legislative competence of the State is not impugned and, therefore, the judgment of the learned Single Judge is only to be supported. 8. It is necessary to refer to the relevant provisions of the Act. Section 6 deals with ITC. We deem it necessary to refer to Section 6(1)(2)(3) & (4). They read as follows....
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....er than those specified in Schedule I or Schedule III) and containers or other packing materials used for packing of such manufactured goods, for sale or resale within the State or in the course of inter-State trade or commerce; (e) use as raw material and consumables in manufacturing or processing of any goods (other than those specified in Schedule III) and containers and other packing materials used for packing of such manufactured goods, for sale in the course of export of goods out of the territory of India: Provided that with reference to clause (d) above, in case such finished products are dispatched outside the state other than by way of sale, a partial amount of input tax credit shall be allowed in respect of tax paid in excess of 2 percent on the raw materials used directly in the manufacture of such finished products. Provided further that partial input tax credit shall be allowed in respect of tax paid in excess of 2 percent on petroleum products used as fuel (other than Petrol Aviation Turbine Fuel, Natural Gas and Diesel) and other fuels used in production of taxable goods or captive power, but excluding fuel when used as fuel in motor vehic....
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....ay from time to time issue such orders, instructions and directions as he may deem fit for the proper administration of the Act and for regulating the procedure to be followed in carrying out the provisions of the Act and these Rules: Provided that no such instructions or directions shall be given so as to interfere with the discretion of the Joint Commissioner (Appeals) in the exercise of his appellate functions. (3) The Commissioner shall have all the powers exercisable by his subordinate authorities other than the Appellate Authorities under Section 51." 11. It is the case of Mr. C.S. Lodha, learned counsel for the appellant, that, if the proviso to Section 6(3)(d) is, for a moment, treated as not having been inserted, the Court may contemplate the effect. It is his case that, all that the Legislature intended, was that, in respect of packing materials, there was no limit to the claim of ITC and, even when the finished goods are dispatched by way of stock transfer, by the proviso to clause (d), all that is intended is that the ITC in respect of raw materials was sought to be restricted to the amount in excess of 2 per cent as the State wanted to retain the t....
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....sfers the goods or makes consignment sale or sells taxable goods as well as tax exempt goods then the benefit of ITC will be available under Section 6(4). Provisions relating to ITC are contained in Section 6." 13. He reminds that the assessments were completed for the year 2005-2006 till 2007-2008 by giving the benefit of ITC in respect of packing materials on stock transferred goods and it is, thereafter, that the Circular followed as aforesaid. The appellant, without any fault attributable to it, arranged its affairs on the strength of the understanding of the law, which was also, apparently, shared by the authorities themselves and, therefore, he would submit that, in such circumstances, the Circular must, at any rate, hold the field in regard to the years in question. He relied on the following judgments: i. State of Kerala & others vs. Kurian Abraham (P) Ltd. & another, reported in (2008) 3 SCC 582 ii. Commissioner of Customs, Calcutta vs. Indian Oil Corporation Ltd., reported in 2004 (165) ELT 257 (SC) iii. Union of India vs. Arviva Industries (I) Ltd., reported in 2007 (209) ELT 5 (SC) iv. Poulose and Mathen vs. Collector of Central Excise & another, reported....
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....ted in 1988 (2) SCC 568. iv. M/s Weston Electroniks & another vs. State of Maharashtra & another, reported in 1988 (3) SCC 16. v. State of U.P. & another vs. Laxmi Paper Mart & others, reported in 1997 (2) SCC 697. vi. Shree Mahavir Oil Mills & another vs. State of J&K & others, reported in 1996 (11) SCC 39. vii. State of Uttar Pradesh & others vs. Jaiprakash Associates Limited, reported in 2014 (4) SCC 720. 16. He would submit that the Hon'ble Apex Court has held that differential treatment, be it by the grant of an exemption or a tax rebate, besides of course the actual differential treatment in taxation, is frowned upon having regard to the clear mandate of Article 301 that there shall be freedom of trade and commerce throughout the territory of India. He would ask us to postulate whether, when it is not open to the State to treat goods brought from outside differently in the field of taxation from the goods which are produced within the State, would it be open to the State of Uttarakhand to attempt to attain the same by granting full credit for the ITC in respect of raw materials, when all the other States have, in fact, adopted a uniform practice of giving I....
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....e in the course of export out of the territory of India, the dealer concerned would be entitled to claim the benefit of ITC. The next provision is what is relevant for our purpose. Clause (d) of Section 6(3) deals with purchase of goods from the State of Uttarakhand by a registered dealer and from a registered dealer holding a valid certificate of registration under Section 15 or Section 16 for the purpose of using the said goods as raw materials and consumables in manufacturing or processing of goods or for use as containers or other packing materials of such manufactured goods. However, the last limb of clause (d) puts the matter beyond the pale of doubt that it is not the mere use of the goods as raw materials or consumables or containers or packing materials that alone is required. The purpose is further explained; in that, the manufactured goods must be for sale or for re-sale within the State, or, sale or re-sale in the course of inter-State trade or commerce. It is also to be noted that the goods specified by the manufactured goods must be other than those specified in Schedule I or Schedule III. It is to be noted that Schedule I of the Act deals with goods on which no tax i....
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....e proper function of a proviso. However, this is only true of a real proviso. The insertion of a proviso by the draftsman is not always strictly adhered to its legitimate use and at times a section worded as a proviso may wholly or partly be in substance a fresh enactment adding to and not merely excepting something out of or qualifying what goes before." 20. We would think, therefore, that the proper construction to be placed of Section 6(3)(d) in the context of the proviso, which refers to clause (d), is that the law-giver intended to include purchase of goods used as raw materials, consumables, containers and packing materials used for the packing of manufactured goods other than those following in Schedule I or Schedule III, when the manufactured goods are sold or re-sold in the State of Uttarakhand or in the course of inter-State trade or commerce. Dispatching of the goods by way of stock transfer is not to be confused with or treated as an inter-State sale. The Legislature has clearly not intended to given benefit of ITC in regard to packing materials used for packing of manufactured goods when they are dispatched outside the State by way of stock transfer. This effect is ....
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....s indicated would show that the Legislature intended to give the benefit of ITC in respect of stock transfer also. We would think that the interpretation placed by Mr. C.S. Lodha, learned counsel for the appellant, is misplaced. Section 6(4)(a) is intended to provide for a contingency when a registered dealer purchases goods (other than capital goods) on which he is entitled to ITC under the provisions of this Section and the purchases are used partially for various purposes as provided in sub-section (3) and he also uses it for other purposes [meaning the purposes which are not provided in Section 6(3)], then ITC is not to be denied totally. On the other hand, the Legislature intended that the dealer would be entitled to ITC in proportion to the extent that the goods are used for the purposes which are covered by Section 6(3) and, thereafter, the provision contains the words "and such different purposes include". It must be, at once, noticed that the Legislature has used two words, namely, "various purposes" and "different purposes". The words "various purposes" have been used in connection with sub-section (3) as that is made clear expressly in Section 6(4)(a) itself. The use of ....
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.... Circulars of 2008 and 2013 23. In the context of the above interpretation, let us now examine the Circular of the year 2008, which is relied on by the appellant. The two portions of the Circular, which are relied on by the learned counsel for the appellant, are as follows: "If the dealer is a manufacturer, then the benefit of ITC for raw materials and packing materials purchased for the manufactured goods will be available as per provisions of Section 6, beyond the CST rate effective from 1st April, 2008." 24. The further portion, which refers to Section 6(4), is contained in the following sentence: "If the dealer, in addition to sale of finished goods, stock transfers the goods or makes consignment sale or sells taxable goods as well as tax exempt goods, then the benefit of ITC will be available under Section 6(4)." 25. Taking the last sentence first, we are of the clear view that all that flows from the aforesaid portion of the circular is in keeping with the interpretation which we have placed. The author of the Circular intended to clarify that if 'different' or hybrid transactions falling under Section 6(3) and outside of Section 6(3) take place....
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.... 6(3)(d) and in the proviso and only raw materials are referred to; the author is stating that, even in respect of packing materials, it will be available as per the provisions of Section 6 having regard to the words "beyond the CST rate effective from 1st April, 2008". "Beyond the CST rate effective from 1st April, 2008" is relevant and discernible only with reference to the proviso. There is no such restriction in Section 6(3)(d). But, we should also notice that, in the very same Circular, it is also provided in clause (11) as follows: "11. After the purchase of raw materials, the finished goods stock transfer or sale of the consignment the ITC benefit shall be given more than 4% up to 31.3.2008 and after 31.3.2008 more than the rate of CST." 28. We also are conscious of the form under the Rules as hereunder: "(d) Tax paid in excess of 4% on purchase of raw material used in manufacturing or packing of such manufactured taxable goods in respect of Goods which are dispatched outside the State other than by way of sale." 29. It may be true that it may give an impression that ITC is available even in respect of packing materials in regard to stock transferred ....
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....ls on which according to the above mentioned section the trader shall be entitled to I.T.C benefit on stock transfer/consignment. With regard to above all the Tax Assessment Officers are directed that:- If on the packing material used in Stock transfer/consignment the benefit is given under the above provisions, then in that case the same should be marked and listed and in these cases the I.T.C be again calculated and ensure the further proceedings. With regard to above action the information be forwarded to the headquarter that in how many cases and on which amount the ITC benefit is given the trader. In addition to that in which cases the tax assessment is still to be taken, at the time of tax assessment the above points be taken into cognizance and according to direction the action be ensured. The most periodic statement was filed and in the aforesaid matter the packing material also 2% more benefit is given on stock transfer/consignment, its annual tax assessment/temporary tax assessment as the case may be, priority should be ensured. The above directions be strictly complied. Sd/- (Saujanya) Tax Commissioner Uttrakhand" 31. It....
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.... which they were but only in 2002. For the period in question the circulars were operative. The appeals are, accordingly, dismissed albeit for reasons which are different from those expressed by the Tribunal. We make it clear that this decision will not operate to reopen any assessment order nor will any duty already paid become refundable by reason of this judgment. There will be no order as to costs." No doubt, this is a judgment rendered prior to the judgments in CCE vs. Ratan Melting & Wire Industries, reported in (2008) 13 SCC 1, and also in State of Tamil Nadu & another vs. India Cements Limited & another, reported in (2011) 13 SCC 247. 33. In the case of Collector of Central Excise, Patna vs. Usha Martin Industries, reported in (1997) 7 SCC 47, the Hon'ble Apex Court, no doubt, inter alia, held as follows: "22. We may observe particularly that a special aspect highlighted by the Bench in Poulose and Mathen vs. Collector of Central Excise [1997(90) ELT 264] is apposite for fastening the revenue with binding force as regards the instructions issued, while constructing a notification which was not free from doubt, Learned judges in that decision have observed....
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....aid Act are binding on the Department and the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. These judgments have also held that the position may be different with regard to an assessee who can contest the validity or legality of such instructions but so far as the Department is concerned, such right is not available. [See Collector of Central Excise, Patna v. Usha Martin Industries (1997 7 SCC 47)]. In the case of Ranadey Micronutrients v. Collector of Central Excise (1996 (87) ELT 19), this Court held that the whole objective of such Circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of excise duty. The Court also held that it does not lie in the mouth of the Revenue to repudiate a Circular issued by the Board on the basis that it is inconsistent with a statutory provision. (emphasis supplied). Consistency and discipline are, according to this Court, of far greater importance than the winning or losing of court proceedings. In the case of Collector of Central Excise, Bombay v. Jayant Dalal Pvt. Ltd. (1997 10 SCC 402), this Court has held that it is not o....
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....vide Circular No. 16/98 if the Board in its expertise was of the opinion that treatment of field latex and centrifuged latex as separate and distinct items could result in double taxation. Therefore, the Board was entitled to give administrative relief to the business. In fact, what we have stated is borne out by Notification dated 13.11.2007 issued by the State Government. We are informed that in November, 2007, the Board of Revenue (Taxes) did not exist. However, the point to be noted that even the Notification dated 13.11.2007 indicates that there was a possibility of double taxation on centrifuged latex produced from field latex and, therefore, ultimately the Government had to step in and grant exemption under Section 10 of the 1963 Act. In this case, we are not concerned with the exemption. Power to grant exemption is certainly with the State Government. The point to be noted is that such exemption was not there during the assessment years 1997-98 and 1998-99. Therefore, the Board consisting of senior officers were aware about the propensity of double taxation. In such circumstances, it was not open to the State to contend before the High Court that the said circular No. 16/98....
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....ar, which has been issued in the year 2013, propounds the correct position in law and no case is made out for grant of relief against the same. Is Section 6(3)(d) violative of Article 301, read with Article 304? 40. The further remaining question relates to the effect of Articles 301 and 304 of the Constitution of India. We have already referred to the case law. They all related to cases, where the State made attempts to practice hostile discrimination against the goods, which were manufactured or procured from outside its boundaries. In other words, the State concerned sought to put the goods manufactured or brought from outside the State at a disadvantage. We may refer to the judgment in the case of Firm ATB Mehtab Majid and Co. vs. State of Madras and another, reported in AIR 1963 SC 928. Therein, the Hon'ble Apex Court referred to the majority view in Atiabari Tea Co. Ltd. vs State of Assam, reported in (1961) 1 SCR 809 and also Automobile Transport (Rajasthan) Ltd. etc. vs. State of Rajasthan, reported in AIR 1962 SC 1406, and held as follows: "9. The majority view in the Atiabari Tea Co. Case which has been accepted in the Automobile Transport Case (2) is, ....
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....y way of barriers, inter-State or, intrastate, or other impediments operating as such barriers. (2) The said freedom is not impeded, but, on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provision for services, maintenance of roads, provision for aerodromes, wharfs etc., with or without compensation." 10. It is therefore now well settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Art. 301 and will be valid only if it comes within the terms of Art. 304(a)." It is relevant to note paragraphs 15 & 16 also. They read as follows: "15. The fact that the impugned rule was made in order to prescribe the single point ....
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....oods, if the interpretation is placed that it would not include right to ITC on packing materials, the result would be that the manufacturer would procure raw materials from other States. Likewise, when the manufacturer, after stock transfer, sells the product in the teeth of competition which he would face on account of higher prices, which it would have to demand on account of denial of ITC, it would suffer. Mr. C.S. Lodha would, in fact, submit that the complaint of the State would appear to have been that, when packing material is procured and the finished goods are stock transferred and sold in another part of the country, insofar as there is no inter-State sale, the State is not getting any revenue in the absence of an inter-State sale and the State, therefore, cannot forgo its revenue by way of ITC being given on the packing material. He would point out that, in fact, the Court may bear in mind the legislative device, which has been adopted in regard to raw materials in the proviso to Section 6(3)(d), as, even in respect of raw materials, when the finished goods are stock transferred though there is no inter-State sale and there could be a complaint of loss of revenue, the L....