2014 (5) TMI 98 - HC - VAT and Sales Tax

Disallowance of Input Tax Credit - charging of interest u/s 22, 18 and 55(4) of the Rajasthan Value Added Tax, 2003 Held that - U/s 18 of the Act ITC is allowed for purchase of any taxable goods made within the State from a registered dealer for the purpose of being used as raw material except those as may be notified by the State Government in the manufacture of goods, for sale within the State or in the course of inter-state trade or commerce u/s 18(1)(e) only the exempted goods , have been taken out of the purview of ITC and not person or class of persons or sale or purchases for promoting Special Economic Zones or exports u/s 8(3), (3A) or (4), the use of words other than exempted goods , therefore, necessarily means the goods specified in the Schedule-I under Section 8(1) of the Act. The intention of the legislature in incorporating Section 18 (1)(e) of the Act is apparently clear, which takes away the exempted goods from the purview of ITC and not the person or class of persons exempt u/s 8(3) as nothing prevented the legislature from including besides exempted goods, exempted persons also under Section 18(1)(e) of the Act - goods and dealers are treated separately u/s 5 of the Act - in view of express language of Section 18(1)(e) of the Act, Notifications S.O.371, S.O.372 and S.O.377, the petitioner is entitled to avail ITC and the authorities below were not justified in denying Input Tax Credit to the petitioner -Revision petitions are allowed - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Input Tax Credit (ITC)
2. Interpretation of exemption notifications under the Rajasthan Value Added Tax Act, 2003
3. Charging of interest under Sections 22, 18, and 55(4) of the Rajasthan Value Added Tax, 2003

Issue-wise Detailed Analysis:

1. Disallowance of Input Tax Credit (ITC):
The petitioner, engaged in manufacturing Asbestos Cement Pressure Pipe and Asbestos Cement Sheets (A.C. Sheets), claimed ITC on raw materials used in manufacturing A.C. Sheets. The Assessing Authority disallowed this claim, which was upheld by the Deputy Commissioner (Appeals) and the Rajasthan Tax Board. The Board, relying on a previous judgment (ACTO v. Suncity Trade Agency), concluded that since the sales of A.C. Sheets were exempt from tax, the goods were considered exempted, thereby disqualifying the petitioner from availing ITC.

2. Interpretation of Exemption Notifications under the Rajasthan Value Added Tax Act, 2003:
The petitioner argued that the Board misinterpreted the provisions of the Act and the relevant notifications. It was contended that the exemption notification dated 09.03.2007 under Section 8(3A) of the Act exempted the manufacturers of A.C. Sheets, not the goods themselves. The petitioner cited various notifications and judgments to support the claim that exemption to a unit is distinct from exemption to the sale of the commodity. The respondent, however, argued that the goods were indeed exempted, referencing the definition of 'exempted goods' and 'goods' in the Act, and the specific provision of Section 18(1)(e) that disallowed ITC for exempted goods.

3. Charging of Interest under Sections 22, 18, and 55(4) of the Rajasthan Value Added Tax, 2003:
The Assessing Authority charged interest on the disallowed ITC under the aforementioned sections of the Act. The petitioner contested this, arguing that the interest charges were based on an incorrect interpretation of the exemption notifications and the Act.

Judgment Analysis:

The Court examined the provisions of the Act and the relevant notifications. It noted that Section 8 of the Act provides for three types of exemptions: goods specified in Schedule-I, persons or classes of persons in Schedule-II, and sales or purchases for promoting Special Economic Zones or exports. Section 18(1)(e) disallows ITC for 'exempted goods' but does not mention exempted persons or classes of persons.

The Court analyzed the sequence of notifications:
- Notifications under the Act of 1994 and early notifications under the RVAT Act, 2003, exempted A.C. Sheets and Bricks as goods.
- Notifications dated 09.03.2007 (S.O.371, S.O.372, S.O.377) shifted the exemption from goods to manufacturers, indicating a legislative intent to exempt manufacturers rather than the goods themselves.

The Court found that the Tax Board's reliance on the Suncity Trade Agency judgment was misplaced as it dealt with a different context. The Court emphasized that the intention of Section 18(1)(e) was to exclude only 'exempted goods' from ITC, not exempted persons or classes of persons.

The Court also considered contemporaneous documents and communications, which supported the petitioner's interpretation that the exemption applied to manufacturers, not the goods. The lack of a specific stipulation in the exemption notification for manufacturers regarding ITC further supported the petitioner's case.

Conclusion:

The Court concluded that the petitioner, as a manufacturer of A.C. Sheets, was entitled to ITC. The authorities below had erred in denying ITC based on an incorrect interpretation of the Act and the notifications. Consequently, the revision petitions were allowed, the impugned judgments and orders were quashed, and the petitioner was granted relief without costs.