2007 (8) TMI 658 - HC - VAT and Sales Tax

Input tax credit on Low Sulphur Heavy Stock (LSHS) and Liquefied Petroleum Gas (LPG) - whether LSHS and LPG are the products falling under section 13(1) of the Andhra Pradesh Value Added Tax Act 2005 read with rule 20(1) of the Andhra Pradesh Value Added Tax Rules 2005? Held that - We have been told that LSHS and LPG are obtained from refineries at the last stages of fractional desalination and is therefore called residual petroleum product also. If all the petroleum products were sought to be included in Schedule VI then in our view there was no need to have four items. Only one item would suffice to say all petroleum products. Therefore we are satisfied that the impugned order of the assessing authority cannot be sustained as LSHS and LPG are not covered by Schedule VI of the Act. W.P. allowed.

Summary

Issues:

1. Interpretation of the Andhra Pradesh Value Added Tax Act, 2005 and Rules regarding input tax credit on specific products.
2. Application of Schedule VI of the Act to determine eligibility for input tax credit.
3. Assessment of fuels like Low Sulphur Heavy Stock (LSHS) and Liquefied Petroleum Gas (LPG) under relevant tax provisions.

Issue 1: Interpretation of the Andhra Pradesh Value Added Tax Act, 2005 and Rules regarding input tax credit on specific products:

The judgment addressed the controversy surrounding the eligibility of input tax credit on LSHS and LPG under the Andhra Pradesh Value Added Tax Act, 2005. The assessing authority and the Advance Ruling Committee had linked these products to fuels used for automobiles or power generation, thereby disallowing the credit. However, the court analyzed Rule 20(2) of the Rules, emphasizing that the fuels covered under this rule were specifically related to automobiles and power generation, excluding products like LSHS and LPG. The court highlighted Section 13 of the Act, which allows input tax credit for purchases of taxable goods used in the dealer's business, clarifying that LSHS and LPG did not fall under the restricted categories mentioned in the rule. The judgment concluded that the authorities erred in categorizing LSHS and LPG as fuels under the Act, thus ruling in favor of the assessee.

Issue 2: Application of Schedule VI of the Act to determine eligibility for input tax credit:

The court examined the argument presented by the Special Standing Counsel for Commercial Taxes, asserting that LSHS and LPG should be considered under item 2 of Schedule VI, which lists "petrol." However, the court scrutinized the legislative intent behind the separate listing of various petroleum products in Schedule VI. By analyzing the distinct categorization of items like aviation motor spirit, aviation turbine fuel, and diesel oil, the court inferred that if all petroleum products were intended to be included, a single item would have sufficed. The judgment highlighted that LSHS and LPG, being residual petroleum products, were not explicitly covered under Schedule VI, leading to the conclusion that the assessing authority's order was unsustainable.

Issue 3: Assessment of fuels like Low Sulphur Heavy Stock (LSHS) and Liquefied Petroleum Gas (LPG) under relevant tax provisions:

The court scrutinized the nature of LSHS and LPG usage by the assessee, emphasizing their direct application in the melting process of raw materials in a furnace. By delving into the specifics of Rule 20(2) and Section 13 of the Act, the judgment clarified that the purpose of using LSHS and LPG in the manufacturing process did not align with the restricted categories of fuels under the tax provisions. The court highlighted the error in equating these products with fuels meant for automobiles or power generation, ultimately setting aside the orders of the assessing authority and the Advance Ruling Committee. Consequently, the writ petitions were allowed, and the refund denied in a related petition was ordered to be granted, as the basis for denial no longer existed post the court's decision in the primary petitions.