2016 (7) TMI 1306 - HC - VAT and Sales Tax

Input tax credit - Whether the Tribunal has rightly held that, coal used in the manufacture of sponge iron is raw material and therefore, input tax credit cannot be reduced by applying Section 11(3)(b)(iii) of the GVAT Act, 2003? - Held that - the issue is squarely covered by the decision in the case of The Addl. Commissioner of Sales Tax, VAT-I, Mumbai, Versus M/s. Gupta Metallics & Power Ltd., 2012 (8) TMI 818 - BOMBAY HIGH COURT , where it was held that the coal used in the process of manufacturing of sponge iron is used as a raw material and not as a fuel. The assessing officer as well as the appellate authority misread the text of the report and the Tribunal has rightly held that the coal used by the dealer was a raw material and not used as a fuel and allowed it to set off the entire tax paid on the purchase of coal - appeal dismissed - decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 11(3)(b)(iii) of the Gujarat Value Added Tax Act, 2003 regarding the eligibility for input tax credit on purchases of coal.
2. Determination of whether natural gas and coke used in manufacturing are considered fuel or raw material for input tax credit purposes.
3. Decision on the reduction of input tax credit under section 11(3)(b)(iii) on the purchase of furnace oil used as fuel.

Issue 1:
The High Court considered whether coal used in the manufacture of sponge iron qualifies as raw material, impacting the eligibility for input tax credit under Section 11(3)(b)(iii) of the Gujarat Value Added Tax Act, 2003. The Tribunal had ruled in favor of the respondents, stating that coal was used as raw material, not fuel, and thus the input tax credit should not be reduced. The Court upheld the Tribunal's decision, emphasizing that coal was an essential ingredient in the manufacturing process, maintaining its status as raw material.

Issue 2:
In another case, the Court examined whether natural gas and coke were to be classified as fuel or raw material for input tax credit purposes. The Tribunal had overturned the reduction of input tax credit on these purchases, asserting that they were raw materials, not fuel. The Court concurred with the Tribunal's decision, highlighting the importance of these substances in the manufacturing process and their contribution to the final product, thereby entitling the respondents to the full input tax credit.

Issue 3:
Regarding the reduction of input tax credit on the purchase of furnace oil used as fuel, the Court reviewed the Tribunal's decision to delete the reduction under section 11(3)(b)(iii). The Tribunal had ruled in favor of the respondents, stating that the furnace oil was not to be subjected to the reduction. The Court agreed with the Tribunal's reasoning, emphasizing the nature of the use of furnace oil as fuel and not as a raw material, thereby affirming the decision to delete the reduction.

The Court's analysis focused on the interpretation of relevant provisions of the Gujarat Value Added Tax Act, 2003 to determine the eligibility for input tax credit on various purchases used in manufacturing processes. The decisions highlighted the distinction between substances used as raw materials and those used as fuel, crucial in establishing the entitlement to input tax credit. The Court relied on precedents and expert opinions to support its findings, ultimately ruling in favor of the respondents based on the specific facts and circumstances of each case.