2014 (6) TMI 869 - HC - VAT and Sales Tax

Denial of input tax on consumables used in Dyeing and Printing of textiles - Tribunal set aside orders passed by the authorities below with a direction to the Assessing Authority to correctly workout the input tax on consumables used in the process of works contract of Dyeing and Printing of Textiles and to allow input tax - Held that - assessee is engaged in the business of Printing and Dyeing of fabrics manufactured by them as also Printing and Dyeing of fabrics on works contract for others. No output tax is payable in respect of the works contract. However the assessee has paid the input tax for the consumables which it has purchased to execute the works contract. The assessee is also carrying on the business of Printing and Dyeing of fabrics manufactured by them in respect of which they are liable to pay output tax. Therefore no output tax is payable for job works. As the assessee is carrying on business of manufacturing and sale of fabrics in respect of which it is liable to pay output tax the input tax paid in respect of job works could be set off against the output tax payable in respect of his business and therefore the authorities below were justified in allowing the claim of the assessee and it cannot be found fault with. - Decided against Revenue.

Summary

Issues involved:
Challenge to order allowing input tax credit on consumables used in Dyeing and Printing of textiles, challenge to granting deduction on depreciation claimed in respect of capital goods.

Analysis:

Issue 1: Input tax credit on consumables
The Revenue challenged the order allowing input tax credit on consumables used in Dyeing and Printing of textiles by the assessee. The Tribunal set aside the orders of the authorities below and directed the Assessing Authority to correctly calculate the input tax on consumables. The High Court referred to a previous case and highlighted that if tax is paid on goods used as inputs in manufacturing or processing goods despatched outside the state, the assessee is not entitled to deduction on input tax. However, in the present case, the assessee was engaged in both manufacturing fabrics and job works, with no output tax payable for job works. As the input tax paid for job works could be set off against the output tax payable for manufacturing and sale of fabrics, the claim of the assessee was deemed justified.

Issue 2: Deduction on depreciation of capital assets
The second issue revolved around the disallowance of depreciation of capital assets as a deduction by the Assessing Authority, which was upheld by the First Appellate Authority. Citing a previous judgment, the High Court noted that deductions on depreciation are permissible. The Revenue had appealed this decision to the Apex Court, where leave had been granted. The High Court directed the Assessing Authority to await the judgment of the Supreme Court in the mentioned case to decide whether tax is payable on claimed depreciation. Consequently, the High Court dismissed the appeals.

In conclusion, the High Court upheld the order allowing input tax credit on consumables used in Dyeing and Printing of textiles by the assessee, and directed the Assessing Authority to await the Supreme Court's judgment regarding the deduction on depreciation claimed on capital assets.