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2008 (5) TMI 620 - HC - VAT and Sales TaxWhether furnace oil qualifies to be an input for the purpose of availing input tax credit? Held that - What is required is that consumables should be directly used in the manufacturing process for production of finished product. The expressions directly go into composition of finished product and directly used in manufacturing or processing of finished product are not one and the same thing. There is a clear distinction. In the former, while the goods directly go into composition of finished product, in the latter, the consumable is directly used in the manufacturing process of finished products. It has already been held that furnace oil is consumable which is directly used in the manufacturing process for production of finished product. Certainly it does not directly go into composition of finished product. In spite of the same, since input as defined under section 2(25) of the OVAT Act includes consumables which are directly used in manufacturing of finished products, furnace oil is nothing but an input and tax paid on purchase of such input shall qualify for set off against the output tax. In that view of the matter furnace oil which is used in the process of manufacture of PSF is to be treated as an input as defined in section 2(25) of the OVAT Act and the input tax which has been paid on purchase of furnace oil can be claimed as input tax credit under section 2(27) of the OVAT Act against the tax payable on finished product, i.e., PSF. Accordingly, the impugned order dated June 28, 2006 (annexure 6) is quashed. W.P. allowed. In the result, the writ petition is allowed. There will be no order as to costs.
Issues Involved:
1. Exhaustion of statutory remedy. 2. Jurisdiction of the ACST under section 30 of the OVAT Act. 3. Definition and applicability of "input" under section 2(25) of the OVAT Act. Issue-wise Detailed Analysis: 1. Exhaustion of Statutory Remedy: The court addressed whether the petitioner could bypass the statutory remedy of revision under section 79 of the OVAT Act and directly file a writ petition under Article 226 of the Constitution. The court held that the existence of an alternative remedy does not bar jurisdiction under Article 226, especially when the issue involves the interpretation of law. Citing several Supreme Court rulings, including Collector of Customs and Excise, Cochin v. A.S. Bava and Calcutta Discount Co. Ltd. v. Income-tax Officer, the court concluded that the writ petition is maintainable even without exhausting the statutory remedy. 2. Jurisdiction of the ACST under Section 30 of the OVAT Act: The court examined whether the ACST overstepped its jurisdiction by making an assessment while exercising power under section 30 of the OVAT Act. The court found that section 30 only authorizes the suspension of a registration certificate and does not empower the ACST to demand payment or make assessments. The court noted that the OVAT Act has distinct provisions for assessment under sections 39 to 45. Therefore, the ACST acted beyond its jurisdiction by raising a tax demand in the impugned order. 3. Definition and Applicability of "Input" under Section 2(25) of the OVAT Act: The core issue was whether furnace oil used in the manufacturing process of PSF qualifies as an "input" under section 2(25) of the OVAT Act. The court analyzed the definitions of "input," "input tax," and "input tax credit" under sections 2(25), 2(26), and 2(27) respectively. The court clarified that "input" includes consumables directly used in the manufacturing process, even if they do not directly go into the composition of the finished product. The court referred to several judicial precedents, including Collector of Central Excise v. Ballarpur Industries Ltd. and J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, to support the interpretation that consumables used in the manufacturing process qualify as inputs. The court also distinguished the case from Thomas Stephen & Co. Ltd. v. Deputy Commissioner of Sales Tax, stating that the context and statutory provisions in that case were different. The court concluded that furnace oil, being essential and directly used in the manufacturing process of PSF, qualifies as a consumable under section 2(25) of the OVAT Act. Consequently, the input tax paid on furnace oil is eligible for input tax credit under section 2(27) of the OVAT Act. Conclusion: The court quashed the impugned order dated June 28, 2006, and allowed the writ petition, ruling that furnace oil qualifies as an "input" for the purpose of availing input tax credit under the OVAT Act. There was no order as to costs. A.K. Ganguly C.J. concurred with the judgment.
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