TaxTMI 
TaxTMI 
2019 (5) TMI 1087
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....ils the judgment and order dated 4.5.2016, passed by the Commercial Tax Tribunal, Bareilly Bench, Bareilly. 4. The revision No.148 of 2018 was admitted on following question of law: "Whether under the facts and circumstances of the case, the Commercial Tax Tribunal was legally justified in granting the benefit of input tax credit of Rs. 19088763.00 which was rightly reversed by the assessing authority ?" 5. The fact of the case in nutshell is that respondent-assessee is a Company engaged in the business of manufacture and sale of rice bran oil and physical refined rice bran oil. The dispute relates to the Assessment Year 2013-14. The respondent-assessee is a registered dealer under the U.P. Value Added Tax Act (hereinafter referred to as the "VAT Act"). The respondent-assessee by processing the rice bran in his solvent extraction plant recovered 13.77% taxable goods, i.e., rice bran oil and 83.60% bye product, i.e., de-oiled rice bran (hereinafter called as "DORB"). Further, by refining of rice bran oil, physical refined rice bran oil is produced. 6. For the Assessment Year 2013-14, respondent-assessee purchased 8,21,935.71 Quintals rice bran for Rs. 93,69,53,404/....
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....ut tax", in relation to a registered dealer who has purchased any goods from within the State, means the aggregate of the amounts of tax, - (i) paid or payable by such registered dealer to the registered selling dealer of such goods in respect of purchase of such goods; and (ii) paid directly to the State Government by the purchasing dealer himself in respect of purchase of such goods where such purchasing dealer is liable to pay tax under this Act on the turnover of purchase of such goods; [Provided that tax paid or payable in respect of transfer of right to use any goods shall not form part of the input tax;] Section 2(u) defines "manufacturer" as under: (u) "manufacturer" in relation to any goods mentioned or described in column 2 of Schedule IV, means a dealer who, by application of any process of manufacture, after manufacture of a new commercial commodity inside the State, makes first sale of such new commercial commodity within the State, whether directly or otherwise; and includes a selling agent who makes sale of such new commodity on behalf of the person who has manufactured it; Section 2(v) deals with "non-vat goods" ....
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....Central Sales Tax Act, 1956 of the purchase price on which the dealer as paid tax either to the registered selling dealer or to the State Government (b) Input tax credit of full amount of input tax shall be allowed to every dealer, liable to pay tax, in respect of capital goods purchased on or after the date on which dealer becomes liable for payment of tax under this Act, if such goods are to be used in,- (i) manufacture of any taxable goods except non-vat goods and where such manufactured goods is, - A. sold within the State, in the course of inter-state trade or commerce or in the course of the export of the goods out of the territory of India; or B. transferred or consigned outside the State otherwise than as a result or a sale; or (ii) manufacture of any exempt goods except non-vat goods and where such manufactured goods are sold in the course of export of the goods out of the territory of India; (iii) generation of electrical energy, where such energy is used for the manufacture of any taxable goods other than non-vat goods and such manufactured goods is,- A. Sold within the State or in the course of inter-State t....
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....ng the date on which such dealer has become liable to pay tax and - (i) are held in opening stock, on the date on which the dealer has become liable to pay tax, in the same form and condition in which they were purchased; (ii) have been used in manufacture of semi-finished goods (in the process of manufacture of taxable goods except non-vat goods) or finished taxable goods, except non-vat goods and such semi-finished or finished goods as are held in opening stock on the date on which the dealer has become liable to pay tax; or (iii) have been purchased from a registered dealer after obtaining sale invoice bearing name and address of purchasing dealer, be allowed credit of partial or full, as provided in column 3 against relevant entry of the said table, amount of input tax as input tax credit and for this purpose amount of input tax shall be computed in the prescribed manner. [For prescribed manner see Rule 24] (e) Every dealer who is liable to pay tax and who opts for payment of tax or lump sum under provisions of section 6, shall, in respect of all taxable goods, except non-vat goods, capital goods and captive power plant, whi....
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....sed goods are to be used or disposed of partially for the purposes specified in clause (a) of sub-section (1), the input tax credit shall be claimed and allowed proportionate to the extent they are used or disposed of for the purposes specified in such clause. (b) Subject to the provisions of this section where during process of manufacture of vat goods, exempt and non-vat goods except as by product or waste product are produced, the amount of input tax credit may be claimed and be allowed in proportion to the extent they are used or consumed in manufacture or taxable goods other than non vat goods and exempt goods. Explanation: For the purpose of this sub-section the "exempt goods" shall include taxable goods other than non vat goods, which are disposed of otherwise than by way of sale within the State or in the course of inter State trade or commerce or sale in the course of export or goods out of the territory of India or sale out side the State."] (4) Except as provided otherwise in any provision of this Act or the rules framed thereunder, in respect of purchase of any goods in respect of which facility of input tax credit is admissible, input tax cre....
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....ve been used in manufacture of any goods held by the dealer, (whether in semi-manufactured or manufactured state); (iii) goods which have been used or consumed in packing of any goods held by the dealer, in closing stock on the day on which he has discontinued business, shall, before end of the tax period prescribed for submission of the tax return for the tax period in which business is discontinued, shall be debited by the dealer into the account of input tax credit maintained by him. (7) Except where- (a) purchased goods; or (b) manufactured goods which are manufactured by using purchased goods; or (c) packed goods which are packed by using or consuming purchased goods are to be sold in the course of the export of the goods out of the territory of India, no credit of any amount of input tax shall be claimed by a dealer under sub section (4) and no facility of input tax credit shall be allowed to a dealer in respect of purchase of any goods where - (i) sale of such goods by the dealer is exempt from payment of tax under clause (c) of section 7; or (ii) such goods are to be used or consumed in manufac....
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....processing of such goods and packing of such manufactured or processed goods; and (iii) where during the process of manufacture of any taxable goods any exempt goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of taxable goods. Conversely, where during the process of manufacture of any exempt goods any taxable goods are produced as by-product or waste-product; it shall be deemed that purchased goods have been used in the manufacture of exempt goods. [(iv) where during the process of manufacture of any vat goods and non-vat goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of vat goods. Similarly, where during the process of manufacture of any non-vat goods any vat-goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of non-vat goods.] 11. Sri Manish Goyal learned Additional Advocate General submitted that under the VAT Act every taxable turnover of a dealer is liable to tax at each and every stage but Section 13 has been incorporated to grant ....
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.... Act are applicable and hence the amount of input tax credit was to be allowed only to the extent of tax payable on the sale value of manufactured goods (rice bran oil). 15. He further relied upon Rule 23(6) of the VAT Rules, which deals with reversal of input tax credit. He further argued that Section 13(1)(f) of the VAT Act begins with non-obstante clause as such it has an overriding affect over the other provisions of Section 13(1)of the Act and Tribunal had wrongly noted only one part of the Section that is "the goods manufactured or processed by using or utilizing such purchased goods or sold at a price which is lower than". 16. It was also contended that the Tribunal had wrongly come to the conclusion that value of DORB has to be added for holding that the goods have been sold at a higher price than the purchase price. According to Sri Goyal, Section 13(1)(f) of the Act mandates that input tax credit shall be claimed and be allowed to the extent of tax payable on sale value of manufactured goods, it prescribes only in relation to taxable goods produced and not the turnover as the bye product which is exempted from tax. 17. According to him provisions of Section 13....
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....f the taxable product and the exempted by product have to be considered, since in the case in hand the cumulative sale price of taxable rice bran oil and the exempted "DORB" was more than the cost price of manufacture, thus provisions of Section 13(1)(f) was not applicable and the Tribunal rightly granted the full benefit of ITC. 20. Sri Agarwal further submits that Section 13(1)(f) was inserted in the year 2010, and the same beginning with non-obstante clause, is limited to Sub-section (1) of Section 13 and not to entire Section 13, in other words, Section 13(1)(f) would prevail over Section 13(1)(a)-(e), but not over Section 13(2)-(12). According to him Section 13(1)(f) is a provision which restricts the allowability of ITC to an assessee and narrows the scope of benefit so available. 21. He further contended that the word "goods" used in Section 13(1) (f) is not qualified by the word "taxable", thus there is no indication in the said provision that the goods which are manufactured by using or utilizing such purchased goods and whose sale price is being considered for applying Section 13(1)(f) ought to be taxable goods. 22. Sri Agarwal further submits that argument of th....
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...., it shall be deemed that the purchased goods had been used in the process of manufacture of taxable goods. Similarly, during manufacture of exempted goods, any taxable product are being produced as a waste product/byproduct, it is deemed that purchased goods have been used in the manufacture of exempted goods. Explanation (iii) to Section 13 forbids the assessing authority as well as the assessee from raising any dispute as to the allowability of ITC in case, exempted goods/taxable goods are being produced as a waste product/byproduct during manufacture. 25. According to Sri Agarwal if the argument of the State is accepted it would permit the assessing authority to do indirectly what it cannot do directly i.e. permitting the assessing authority to get around the exception in Section 13(3)(b) by invoking Section Section 13(1)(f). He further relied upon the judgments of Apex Court in case of M/s Polestar Electronic (Pvt.) Ltd Vs. Additional Commissioner Sales Tax and another, 1978 1 SCC 636 (paras 6, 7 and 8), Assessing Authority-cum- Excise and Taxation Officer, Gurgaon Vs. East India Cotton Manufacturing Co. Ltd. (1981) 3 SCC 531 (para 6), Mathuram Agarawal Vs. State of Madh....
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.... statute or notification, etc., the conditions thereof are to be strictly complied with in order to avail of such concession. Thus, it is not the right of the "dealers" to get the benefit of ITC but its a concession granted by virtue of section 19. As a fortiorari, conditions specified in section 10 must be fulfilled. In that hue, we find that section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT Act, it is not permissible for the dealers to argue that the price as indicated in the tax invoice should not have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect dehors the issue of ITC as per section 19 of the VAT Act, possibly the arguments of Mr. Bagaria would have assumed some relevance. But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act as referred to above." 31. From perusal of the aforesaid judgment of the Supreme Court one thing emerges, is that claim of ITC is not a right but concession granted ....
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....rt and effect of sub-rule (3) of Rule 131 of the KVAT Rules. We have already reproduced Rule 131, including sub-rule (3) thereof. After perusing Rule 131 in its entirety, it becomes clear that sub-rule (1) pertains to input tax directly relatable to sales of exempt goods which is nondeductible. Likewise, sub-rule (2) mandates that input tax directly relating to sale of goods shall be deductible. On the other hand, sub-rule (3) covers those cases where input tax is not directly relatable to exempt goods and taxable goods. It is therefore, applied in those cases where input tax relating to both sale and taxable goods and exempt goods is known. In that situation, formula is given under this sub-rule to work out the partial deduction. The High Court has neither take note of nor discussed sub-rule (3). 32) Fourthly, the entire scheme of the KVAT Act is to be kept in mind and Section 17 is to be applied in that context. Sunflowr 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 be....
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....y by virtue of the said Rules - which, as stated above, are 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 dispatched 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 ....
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....the Act and re-sale within the meaning of section 5 (2) (a) (ii) and the Second Proviso could not, therefore, possibly include resale outside Delhi. The last argument was that the words 'by him following upon the word 're-sale' in section 5(2) (a) (ii) and the Second Proviso clearly indicated that the resale contemplated under these provisions was re-sale by the purchasing dealer as registered dealer and since the concept of registered dealer has relation only to sale inside Delhi, the resale must be within the territory of Delhi. We do not think there is any substance or validity in these arguments and we see no cogent or compelling reasons to add the words "inside the Union Territory of Delhi" to qualify 're-sale' in section 5(2) (a) (ii) and the Second Proviso. 7. Now, if there is one principle of interpretation more well settled than any other, it is that a statutory enactment must ordinarily be construed according to the plain natural meaning of its language and that no words should be added, altered or modified unless it is plainly necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or tot....
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........', but 'courts 'may depart from this rule to avoid a patent absurdity.' Here, the word used in section 5 (2) (a) (ii) and the Second Proviso is 'resale' simpliciter without any geographical limitation and according to its plain natural meaning it would mean re-sale any where and not necessarily inside Delhi. Even where the purchasing dealer resells the goods outside Delhi, he would satisfy the requirement of the statutory provision according to its plain grammatical meaning. There are no words such as 'inside the Union Territory of Delhi' qualifying 're-sale' so as to limit it to re-sale within the territory of Delhi. The argument urged on behalf of the Revenue requires us to read such limitative words in section 5 (2) (a) (ii) and the Second Proviso. The question is whether there is any necessity or justification for doing so? If 're-sale is construed as not confined to the territory of Delhi, but it may take place any where, does section 5(2) (a) (ii) or the Second Proviso lead to a result manifestly unintelligible, absurd, unreasonable, unworkable or irreconcilable with the rest of the Act ? Is there any compulsiv....
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....ss of judicial construction, for to do 'so would be to attribute to the legislature an intention which it has chosen not to express and to usurp the legislative function. 34. Further reliance has been placed on the judgment of the Supreme Court in the case of Assessing Authority-cum- Excise and Taxation Officer (supra). Relevant paragraph no.6 of the said judgment is extracted hereunder: "The question which therefore arises for consideration is as to what is the scope and meaning of the expression "for use.......in the manufacture..........of goods for sale" occurring in section 8 (3) (b) and in the declaration in Form C and Rule 13. Does it mean that the goods manufactured by a registered dealer by using the goods purchased against his Certificate of Registration and the declaration in Form C must be intended for sale by him or does it also include a case where goods are manufactured by a registered dealer for the third party under a job contract and the manufactured goods are intended for sale by such third party ? Now it is a well-settled rule of interpretation that a statute must be construed according to its plain language and neither should anything be added n....
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....that by the registered dealer manufacturing the goods. The Court must construe the language of section 8 (3) (b) according to its plain words and it cannot write in the section words which are not there. To read the words "by him" after the words "for sale" in section 8 (3) (b) would not be construction but judicial paraphrase which is impermissible to the Court. It is also important to note that the word 'use' is followed by the words "by him" clearly indicating that the use of the goods purchased in the manufacture of goods for sale must be by the registered dealer himself but these words are significantly absent after the words "for sale", On a plain grammatical construction, these words govern and qualify only "use" and cannot be projected into the words "for sale". The goods purchased by the registered dealer must be used by him in the manufacture of goods which are intended for sale but such sale need not be by the registered dealer himself: it may be by any one." 35. Further, Sri Rahul Agarwal emphasizd that intention of the legislature in a taxation statute is to be gathered from the language of the provisions, where the language is plain and unambiguous....
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.... a product from wheat that they purchase from Food Corporation of India and secondly, if it effects the sale of such product. 11. This Court has reiterated in numerous decisions that if the language of the notification or an executive order is clear and unambiguous, the courts need not presume anything on the issuance of such notification or order need or delve into the intention behind issuance of such notification or order. When the language is clear and plain, the courts cannot enlarge their scope by interpretative purposes. [H.H.Sri Rama Verma vs. CIT and Maharashtra State Financial Corpn. vs. Jaycee Drug and Pharmaceuticals (P) Ltd.]. 12. It was said more thand seven decades ago by Lord Mersey in Thompson vs. Goold and Co.:(AC p.420) ".... It is a strong thing to read into an Act of Parliament words which are not there, and in the absence of clear necessity it is a wrong thing to do" 13. Lord Loreburn, L.C. Also observed in Vickers, Sons and Maxim Ltd. vs. Evans; (AC p. 445) "..... we are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself." ....
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....ction 13 of the U.P.VAT Act, input tax credit has been provided as a concession to a dealer who in respect of taxable goods purchased within the State subject to conditions given therein, and such other conditions and restrictions as may be prescribed, is allowed credit of an amount as input tax credit, to the extent provided by, or under the relevant clause, meaning thereby that it is not a vested right but it is a concession which is given on the fulfillment of certain conditions as enumerated under the given clause. Here in the present case Section 13(1)(f) was inserted on 20.8.2010 and the reason and object of the Amending Act was to protect the revenue of the State, which was being misused by the dealers and the said provision was provided as a safeguard. 39. This provision was applicable in those cases where the goods purchased was either resold or goods manufactured or processed by using or utilizing such purchased goods at the price which is lower than the cost price in the case of manufacturer. 40. In the present case, it is rice bran which is purchased, and rice bran oil and physical refined rice bran oil is manufactured from the raw material. Further, only 13.77....
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.... cake which was an exempted item itself is a marketable goods having market value. Thus the benefit restricted by Karnataka VAT Act was upheld by the Apex Court. Para 34 of the said judgment is reproduced below: "34. On literal interpretation of Section 17 it can be gathered that it does not distinguish between by-product, ancillary product, intermediary product or final product. The expressions used are 'goods' and 'sale' of such goods is covered under Section 17. Both these ingredients stand satisfied as de-oiled cakes are goods and the respondent assessee had sold those goods for valuable consideration. We may point out there that the assessing authorities recorded a clear finding, which was accepted by the Tribunal as well, that records and statement of accounts of the respondent assessee clearly stipulates that after solvent extraction is completed, 88% of de-oiled cake remains and only 12% remains is the oil which is further refined in the refinery. This clearly shows that major outcome (88%) of the solvent extraction plant is de-oiled cake which in itself is a marketable good having market value." 45. Further argument of Sri Agarwal as to the provisions of Sec....