2018 (12) TMI 350

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....tricity is included as an exempted item under Schedule I of the Kerala Value Added Tax Act and Section 11(5) prohibits such input tax credit with respect to purchase of raw material for manufacture of exempted goods ? 2. The brief facts to be noticed are that the assessee is engaged in manufacture of newsprint which is taxable under the Kerala Value Added Tax Act, 2003 (for short 'the KVAT Act'). For the purpose of manufacture, the assessee requires electricity which was obtained through self generation. The assessee generated 0.56 lakh kwh of electricity through diesel generators and 1,137.82 lakhs kwh through steam turbine generators. The electricity so generated is used in the production activities as also for illuminating fact....

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....fically provided for credit of the duties paid on any inputs used in the manufacture of intermediary products in relation to the manufacture of final products. No such provision is available in the KVAT Act and there could be no reliance placed on the decisions as proffered by the assessee before the authorities. 5. We have to notice that the Tribunal while referring to the decisions cited by the assessee did not at all rely on the dictum laid down with respect to CENVAT Credit Rules. The reliance was more on the concept of electricity generation being an integral part of the manufacturing activity. Useful reference can be made to paragraphs 29 & 31 of the decision in Maruti Suzuki Limited v. Commissioner of Central Excise, Delhi III [(200....

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....m part of the process in which "inputs" are transformed into separate identifiable commodity, though it may stand connected to such processes. It may not have any concern with the manufacture of the finished product. However, it is an ancillary activity. It is an activity which is anterior to the process of manufacture of the final product. It is on account of the use of the above expression "used in relation to manufacture" that such an activity of electricity generation comes within the ambit of the definition because it is integrally connected with the manufacture of the final product." 6. Adopting the principle that electricity generation is a process having its own economics, the Tribunal found that in the assessee's case the ele....

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....ion(5) of Section 11 is also to ensure that the State does not loose tax on a commodity(raw material), which is used in the manufacture of exempted goods, by virtue only of a claim of input tax credit. 8. In the present case, the said prohibition would have been applicable, if the manufactured electricity was sold by the assessee, on which there is no levy of tax. As far as the assessee is concerned, the entire electricity generated is captively consumed for manufacturing purposes and for electrifying the factory premises. Hence the proportion of the raw material employed in the production of electricity, used in the manufacturing process of newsprint, is an input used in the manufacture of the final product of the assessee being newsprint....