2009 (10) TMI 870 - HC - VAT and Sales Tax

Tax levied on sale of used beer and liquor bottles - Validity of the assessment orders - Held that - While input tax credit is to be allowed to a dealer for the tax charged in respect of purchase of taxable goods, if such goods are used in his business, no input tax credit can either be allowed on purchase of goods specified in the Sixth Schedule or with respect to the goods detailed in rule 20(2). As a result, liquor, bottled and packed under the provisions of the A.P. Excise Act is not entitled for input tax credit. Such goods are, however, not liable to tax on its second and subsequent sale within the State of Andhra Pradesh. These limitations/exemptions apply as long as liquor continues to remain packed in bottles as specified under the provisions of the A.P. Excise Act. Once liquor is removed from its container, i.e., bottles, neither liquor nor empty bottles constitute goods falling under item 1 of the Sixth Schedule to the Act. No provision has been brought to our notice whereby a VAT dealer is disentitled from availing of the benefit of input tax credit on sale of packing material, including empty bottles, even when he fulfils the conditions prescribed under the Act and the Rules made thereunder. Levy of tax on sale of empty bottles at four per cent, under section 4(3) read with item 90 of the Fourth Schedule, is, therefore, valid. The writ petitions are, accordingly, dismissed.

Issues Involved:
1. Validity of assessment orders levying tax on the sale of empty bottles.
2. Applicability of tax rates for empty bottles under the Andhra Pradesh Value Added Tax Act, 2005.
3. Interpretation of "goods" under Section 2(16) of the Act.
4. Applicability of Section 4(3) and Section 4(5) of the Act.
5. Impact of Section 6 on the taxability of packing materials.
6. Eligibility for input tax credit under Section 13 of the Act.

Issue-Wise Detailed Analysis:

1. Validity of Assessment Orders:
The court examined the validity of assessment orders levying tax on the sale of empty bottles. The petitioners contended that these bottles, having already suffered tax at the point of first sale, should not be taxed again. However, the court upheld the assessment orders, confirming the tax levied under Section 4(3) read with item 90 of the Fourth Schedule.

2. Applicability of Tax Rates for Empty Bottles:
The petitioners argued that empty bottles should be taxed at the same rate as liquor, i.e., 70%, under Section 4(5) read with item 1 of the Sixth Schedule. The court clarified that empty bottles are considered packing material and are liable to be taxed at 4% under Section 4(3) read with item 90 of the Fourth Schedule. The court emphasized that the sale of empty bottles to breweries/distilleries before being filled with liquor constitutes a taxable event distinct from the sale of bottled liquor.

3. Interpretation of "Goods" under Section 2(16):
The court reaffirmed that empty bottles are "goods" within the meaning of Section 2(16) of the Act, which defines "goods" as all kinds of movable property. This classification justified the imposition of tax on the sale of empty bottles.

4. Applicability of Section 4(3) and Section 4(5):
Section 4(3) mandates that VAT dealers pay tax on the sale of goods at rates specified in the Schedules. The Fourth Schedule lists goods taxable at 4%, including packing materials like empty bottles. Conversely, Section 4(5) applies to goods in the Sixth Schedule, such as bottled liquor, taxed at 70% at the point of first sale. The court distinguished between these provisions, noting that empty bottles sold separately are not covered under Section 4(5).

5. Impact of Section 6 on Taxability of Packing Materials:
Section 6 stipulates that the tax rate for containers or packing materials should match the rate for the goods they contain. However, the court clarified that once liquor is removed from its bottles, the bottles no longer qualify as "liquor, bottled and packed" under the Sixth Schedule. Thus, empty bottles are taxable under Section 4(3) at 4%, not 70%.

6. Eligibility for Input Tax Credit under Section 13:
Section 13 allows VAT dealers to claim input tax credit for purchases of taxable goods used in their business, excluding goods in the Sixth Schedule. The court noted that while liquor in bottles is not eligible for input tax credit, empty bottles sold separately are. Therefore, dealers can claim input tax credit for empty bottles if they meet the prescribed conditions.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the tax levied on the sale of empty bottles at 4% under Section 4(3) read with item 90 of the Fourth Schedule. The court emphasized that empty bottles, once separated from liquor, do not fall under the Sixth Schedule and are taxable as packing material. The court also clarified the eligibility for input tax credit, confirming that dealers can claim it for empty bottles if they comply with the Act and Rules.

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