2011 (3) TMI 1422 - HC - VAT and Sales Tax

Writ-application - whether stores and spare parts for plant and machinery used for manufacturing taxable goods would fall within the meaning of consumable stores as used in Section 22(4) of the West Bengal Value Added Tax Act, 2003 ( Vat Act ) for the purpose of claiming Input Tax Credit - Tribunal has accepted the contention of the respondents that spare or spare parts or machine parts would be considered for ITC only if it can be established that those are required for the purpose of manufacturing and used or to be used in the operative machineries during the process of manufacture of the finished product Held that - stores including the goods or spare parts of the machinery used for the purpose of the manufacture of the taxed goods which are decayed and require replacement should come within the purview of the words consumable stores within the meaning of the Act and that it is not necessary that those stores must be mixed up with the ultimate taxed goods. At the same time, those stores which are not decayed or do not require replacement for such decay would not come within the purview of sub-rule (d) of section 22 (4) of the Act and the order of the Tribunal is modified only to that extent, writ-petitioners that the learned Tribunal below made wrong interpretation of the phrase consumable stores and wrongly granted benefit to the respondents, writ-application disposed of

Issues Involved:
1. Whether stores and spare parts for plant and machinery used for manufacturing taxable goods fall within the meaning of "consumable stores" under Section 22(4) of the West Bengal Value Added Tax Act, 2003, for the purpose of claiming Input Tax Credit (ITC).

Issue-wise Detailed Analysis:

1. Definition and Scope of "Consumable Stores":

The primary issue was whether stores and spare parts for plant and machinery used in manufacturing taxable goods qualify as "consumable stores" under Section 22(4) of the West Bengal Value Added Tax Act, 2003, for claiming ITC. The Tribunal had previously ruled that spare parts could be considered for ITC if they were necessary for manufacturing and used in operative machinery during the manufacturing process. Additionally, accessories must be intricately linked with the manufacturing process or productive machinery to qualify.

2. Arguments by the Petitioner:

The petitioner, represented by Mrs. Roy, argued that for items to qualify as "consumable stores" and thus be eligible for ITC, they must be transformed into the end product. She contended that spare parts of plant and machinery remain unchanged after the manufacturing process and therefore should not be considered "consumable stores." She emphasized the significance of the adjective "consumable" and argued that unless the spare parts are consumed in the manufacturing process, they should not qualify for ITC.

3. Arguments by the Respondents:

The respondents, represented by Mr. Gupta and Mr. Khaitan, argued that the term "consumption" has a broader meaning and does not necessarily imply that the commodity must be "used up" or "destroyed" and mixed in the taxed goods. They cited several cases to support their contention, including Reliance Industries Ltd. vs. Asst. Commissioner of Sales and Ors., Burmah-Shell Oil Storage and Distributing Co. of India Ltd. vs. Belgaum Borough Municipality, State of Karnataka vs. B. Raghurama Shetty, Indian Copper Corporation Ltd. vs. Commissioner of Commercial Taxes, and Ami Pigments Pvt. Ltd. vs. State of Gujarat.

4. Interpretation of Section 22(4):

The court examined Section 22(4) of the VAT Act, which allows ITC or input tax rebate to the extent of the tax paid or payable by the purchasing dealer on the purchase of taxable goods, excluding those specified in the negative list, when such goods are purchased for various purposes, including use as raw materials and consumable stores required for manufacturing taxable goods intended for sale.

5. Analysis of "Consumable Stores":

The court analyzed the phrase "consumable stores," noting that the adjective "consumable" implies that the items are capable of being consumed or subject to consumption. It emphasized that the legislature's use of the adjective "consumable" before the noun "stores" indicated a deliberate distinction between consumable and non-consumable stores. The court concluded that only those spare parts of machinery that get decayed or used up and require replacement should be considered "consumable stores."

6. Relevant Case Law:

The court discussed several relevant cases, including Members, Board of Revenue, West Bengal vs. Phelps, where the Supreme Court held that gloves used by workmen in the manufacturing process were considered "used in the course of manufacture." Similarly, in Indian Copper Corporation Ltd. vs. Commissioner of Commercial Taxes, the Supreme Court held that cane baskets used in mining or manufacturing processes were intended for use in the process of manufacturing or mining operations.

7. Distinction from Coastal Chemicals Ltd. Case:

The court distinguished the present case from Coastal Chemicals Ltd. vs. Commercial Tax Officer, Andhra Pradesh, where the Supreme Court held that "consumables" referred to materials utilized as inputs in the manufacturing process but not identifiable in the final product. The court noted that the West Bengal statute provided a separate benefit for "consumable stores" in addition to raw materials, unlike the Andhra Pradesh statute.

Conclusion:

The court concluded that spare parts of machinery that decay and require replacement should be considered "consumable stores" under Section 22(4) of the VAT Act, even if they do not lose their identity or mix with the final product. The court modified the Tribunal's order to this extent and found no substance in the petitioner's contention that the Tribunal had wrongly interpreted the phrase "consumable stores." The writ application was disposed of accordingly, with no order as to costs.

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