TaxTMI 
TaxTMI 
2017 (9) TMI 1308
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....hase of sunflower oil cake (input) VAT is payable under the KVAT Act. After the extraction of sunflower oil, on its sale again VAT is payable under the said Act. For this reason, provisions of KVAT Act provides for tax credit paid on the input. To this extent there is no issue. However, when the sunflower oil is extracted, by-product in the form of de-oiled sunflower oil cake (hereinafter referred to as the 'de-oiled cake') also becomes available. This by-product is sold by the respondent (hereinafter referred to as the 'assessee) but on the sale of this by-product, no VAT is payable as it is exempted item under the KVAT Act. Section 17 of the KVAT Act takes care of those contingencies where the final products are more than one and output tax is payable on the sale of one such final product but other final product is exempted from payment of the said output tax. Since, no output tax is payable on the sale of exempted goods, the input tax credit in such cases is partially admissible. The manner in which partial exemption is given is provided in Rule 131 of KVAT Rules, 2005. 3) Keeping in view this provision, the appellant - State has taken the view that the assessee would b....
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.... the KVAT Act read with Rule 131(3) of the KVAT Rules, 2005. It was observed by the prescribed authority that the assessee, while manufacturing/extracting sunflower oil from the sunflower cake, has also obtained de-oiled cake. Sunflower oil being liable to tax and de-oiled cake being exempted from tax under Section 5 of the Act vide Government Notification No. FD 197 CSL 2005(1) dated 30.04.2005, partial input tax rebate was allowed. 7) The assessee being aggrieved by the said order, filed appeals before the First Appellate Authority who dismissed the same confirming the order passed by the prescribed Authority. Undeterred by the said order, the assessee preferred second appeals before the Karnataka Appellate Tribunal, Bangalore. The Tribunal confirmed the order passed by the First Appellate Authority. Without losing patience, the respondent preferred revision petitions before the High Court of Karnataka. This effort yielded favourable results for the assessee. The High Court interpreted the provisions of Section 11(a)(1) and Section 17(1) of the Act read with Rule 131 of the KVAT Rules, 2005 applying the principle of purposive construction has allowed the revision petitio....
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....nput tax restrictions specified in Sections 11,12,14, 1 [17 and 18], input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases. 1. Substituted by Act 6 of 2005 w.e.f. 19.3.2005. (3) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of Chapter V. (4) For the purpose of calculating the amount of net tax to be paid or refunded, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 or Section 30 and is with 2004: KAR. ACT 32] Value Added Tax 229 the registered dealer taking the deduc....
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....rtial rebate under Section 17 of the KVAT Act, 2003. This Rules is as under : "Rule 131. Apportionment.- Apportionment of input tax in the case of a dealer falling under section 17 shall be calculated as follows.- (1) All input tax directly relating to sale of goods exempt under section 5 other than such goods sold in the course of export out of the territory of India, is non-deductible. (2) All input tax directly relating to taxable sales may be deducted, subject to the provisions of section 11. (3) Any input tax relating to both sale of taxable goods and exempt goods, including inputs used for non-taxable transactions, that is, the non-deductible input tax, may be calculated on the basis of the following formula: (Sales of exempt goods + non-taxable transactions) X Total input tax. (i) Non-deductible input tax = ------------------------------- Total sales (including non-taxable transactions) (4) For the purpose of clause (3).- (a) "Sale of taxable goods" would be the aggregate of the amounts specified in clauses (b), (c), (d), (e) and (f) of sub-rule (1) of Rule 3 relating to sale of goods other than those....
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....f levy. Thus, needless to say, what is relevant under the Act in whether a 'sale of goods' is taking place irrespective of the fact whether the goods are manufactured by the seller or not. Manufacture becomes an important point in excise law and not for the purpose of sales tax. However, manufacture does become important for this act for the limited purpose because a good will be called input if it is used for manufacturing or processing or packaging of any goods. 18) Section 10 defines "input tax", "output tax" and "net tax". Net tax with respect to a particular sale; output tax received on sale as such goods and input tax used for manufacturing/processing/ packaging such goods. 19) Section 11(a)(1) stipulates that where a sale of exempted goods is taking place, i.e., there is no output tax received on such sale, the input tax paid for manufacturing/processing etc such exempt goods cannot be credited while calculating net tax. The rationale behind such provision is simple, where the dealer has not received any output tax on sale, there does not arise any question of deducting input tax. If input tax is allowed to be deducted, it would necessarily lead to a situation where th....
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....ides that input tax directly relating to sale of taxable goods shall be deductible. Sub-rule (3) covers a situation where input tax is not directly relatable to exempt goods and taxable goods. It is for this reason that the term 'directly' is missing in sub-rule (3). It speaks of a situation where input tax relating to both sale of taxable goods and exempt goods is known. But it provides that such input tax may be deducted only after applying a formulae prescribed therein. The purpose of formulae is simply to attribute and apportion the quantum of input tax relating to exempt goods so that it may be excluded from the total input tax. The expression 'non-identifiable input tax' clearly shows legislatures intention to cover even those situations where it is difficult to identify as to how much of input tax is attributable/apportioned for taxable goods and for exempt goods so that the extent of rebate/credit a dealer is entitled to may be calculated. 23) Attacking the judgment of the High Court, Mr. Patil submitted that the High Court has given emphasis on the aspect of "manufacture" in holding that insofar as sunflower cake is concerned it is used for the manufacture of sunflower ....
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....bsp; xxx 21. Ingots and Billets are thus two different commercial commodities. They have separate, distinct and identifiable marketability and saleability. The assessee, no doubt, used Aluminium Billets captively but is also selling in open market. We are, therefore, of the view that the Commissioner was right in holding that the assessee was liable to pay Excise Duty and CEGAT was wrong in interfering with the order-in-original. The order of the CEGAT, therefore, is liable to be set aside." 24) According to Mr. Patil, de-oiled cake and oiled cake are separate and distinct products having different marketability and commercial uses. The distinction between the two products had also been held by this Court in Ravi Prakash Refineries Private Ltd. v. State of Karnataka (2016) 12 SCC 193 in which it was held that they are two different commercial commodities. 25) He also referred to the case of State of Gujarat v. Raipur Manufacturing Co. Ltd. (1967) 19 STC 1; AIR 1967 SC 1066 holding that where a subsidiary product is turned out regularly and continuously in the course of a manufacturing business an....
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....t to accept the aforesaid approach of the High Court. 28) The first mistake which is committed by the High Court is to ignore the plain language of sub-section (1) of Section 17. This provision which allows partial rebate makes the said provision applicable on the 'sales' of taxable goods and goods exempt under Section 5. Thus, this sub-section refers to 'sale' of the 'goods', taxable as well as exempt, and is not relatable to the 'manufacture' of the goods. The High Court has been swayed by the fact that while extracting oil from sunflower, cake emerges only as a by-product. Relevant event is not the manufacture of an item from which the said by-product is emerging. On the contrary, it is the sale of goods which triggers the provisions of Section 17 of KVAT Act. Whether it is by-product or manufactured product is immaterial and irrelevant. Fact remains that de-oiled cake is a saleable commodity which is actually sold by the respondent assessee. Therefore, de-oiled cake fits into the definition of "goods" and this commodity is exempt from payment of any VAT under Section 5 of the KVAT Act. Thus, provisions of Section 17 clearly get attracted when 'sale' of these goods takes plac....
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....utput tax is paid on the sale of this item since this item is exempted from payment of VAT under Section 5 of the KVAT Act. Section 17 is meant to take care of these situations, which is the purpose behind that provision. Approach of the High Court, in fact, defeats the said purpose. Therefore, there was no reason for departing from the principle of literal construction in a taxing statute. It is settled proposition of law that taxing statutes are to be interpreted literally {See Commissioner of Income Tax-III v. Calcutta Knitwears, Ludhiana (2014) 6 SCC 444, State of Madhya Pradesh v. Rakesh Kohli & Anr. (2012) 6 SCC 312 and V.V.S. Sugars v. Government of Andhra Pradesh & Ors. (1999) 4 SCC 192}. 31) Fourthly, the entire scheme of the KVAT Act is to be kept in mind and Section 17 is to be applied in that context. Sunflower oil cake is subject to input tax. The Legislature, however, has incorporated the provision, in the form of Section 10, to give tax credit in respect of such goods which are used as inputs/ raw material for manufacturing other goods. Rationale behind the same is simple. When the finished product, after manufacture, is sold, VAT would be again payable thereon. T....
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....re conceived mainly in the interest of public - that he is entitled to such set-off. It is really a concession and an indulgence. More particularly, where the manufactured goods are not sold within the State of Maharashtra but are despatched to out-State branches and agents and sold there, no sales tax can be or is levied by the State of Maharashtra. The State of Maharashtra gets nothing in respect of such sales effected outside the State. In respect of such sales, the rule-making authority could well have denied the benefit of set-off. But it chose to be generous and has extended the said benefit to such out-State sales as well, subject, however to deduction of one per cent of the sale price of such goods sent out of the State and sold there. We fail to understand how a valid grievance can be made in respect of such deduction when the very extension of the benefit of set-off is itself a boon or a concession. It was open to the rule-making authority to provide for a small abridgement or curtailment while extending a concession. Viewed from this angle, the argument that providing for such deduction amounts to levy of tax either on purchases of raw material effected outside ....