2015 (11) TMI 1321 - SC - VAT and Sales Tax

Disallowance of the claim of Input Tax Credit (ITC) - pre-requisite for denying ITC under Section 18 - Exemption of tax - Rajasthan Value Added Tax Act, 2003 - charging of interest under Sections 18, 22 and 55(4) - Held that - There is difference between exempted goods, i.e., goods on which no Value Added Tax is payable and are, therefore, not taxable and other cases where a particular transaction when it satisfies specific condition is not taxable. In this regard reference to the authority in State of Tamil Nadu v. M.K. Kandaswami others 1975 (7) TMI 123 - SUPREME COURT OF INDIA , would be seemly, for this Court had adverted to three distinct concepts; taxable persons, taxable goods and taxable events and how they were distinguished. - When the goods are exempt, there would be no taxable transactions or exemption to a taxable person. In other cases, goods might be taxable, but exemption could be given in respect of a taxable event, i.e., exemption to specified transactions from liability of tax or exemption to a taxable person, though the goods are taxable. Such exemptions operate in circumscribed boundaries and not as expansive as in the case of taxable goods. Exemptions with reference to taxable events or taxable persons would not exempt the goods as such, for a subsequent transaction or when the goods are sold or purchased by a non-specified person, the subsequent transaction or the taxable person would be liable to pay tax. It is, in this context, it has been highlighted by the respondent and, in our opinion, absolutely correctly that Section 4 of the Act provides for levy of tax in a situation where the goods, which were not exempted but could otherwise not be subjected to tax on account of exemption granted to a person or to a transaction. The goods remain taxable goods through exemption stands granted to a particular individual or a specified transaction. Appellant though exempted from payment of tax, subsequent transactions of sale of asbestos cement sheets would be taxable. The transaction of sale by the manufacturer/dealer covered by the exemption notifications issued under Section 8(3) of the Act would be protected or an exempted transaction, but the goods not being exempted goods would be taxable and could be taxed on the happening of a taxable or charging event. It is simply because the goods are not exempt from tax or exempted goods, but are taxable. As a logical corollary it follows that the Value Added Tax would have to be paid on the taxable goods in a subsequent transaction by the purchasing dealer. As a sequitur, we are obliged to observe that if the contention of the appellant is to be accepted, the respondent though covered by exemption notification under Section 8(3) of the Act could be at a disadvantage because finally when the subsequent sale is made by a non-exempted dealer or tax stands paid on the non-exempted transfer, the goods, i.e., asbestos cement sheet, would suffer the tax on the entire sale consideration. This would place an exempted manufacturer-dealer at a disadvantageous position and make his products uncompetitive inspite of the exemption notifications under Section 8(3) of the Act. Credit allowed - Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of Input Tax Credit (ITC) on purchase of raw materials.
2. Interpretation of exemption notifications under the Rajasthan Value Added Tax Act, 2003.
3. Distinction between exempted goods and exempted transactions.
4. Applicability of ITC to manufacturers of asbestos cement sheets.

Detailed Analysis:

1. Disallowance of Input Tax Credit (ITC) on Purchase of Raw Materials:
The assessee-company, engaged in manufacturing Asbestos Cement Pressure Pipe and Asbestos Cement Sheets, availed ITC on the purchase of raw materials. The assessing authority issued notices disallowing ITC and charging interest under Sections 18, 22, and 55(4) of the Rajasthan Value Added Tax Act, 2003. The orders were upheld by the Deputy Commissioner (Appeals) and the Rajasthan Tax Board, leading to revision petitions filed by the assessee before the High Court.

2. Interpretation of Exemption Notifications under the Rajasthan Value Added Tax Act, 2003:
The High Court analyzed various notifications, including those issued on 01.06.2006, 05.07.2006, and 09.03.2007, to determine the nature of exemptions applicable to A.C. Sheets and Bricks. The Court distinguished between exemptions granted to goods and those granted to manufacturers or transactions. It was noted that the notifications under Section 8(3A) and 8(3) of the Act exempted manufacturers of A.C. Sheets and Bricks, not the goods themselves.

3. Distinction between Exempted Goods and Exempted Transactions:
The High Court emphasized the distinction between exempted goods (goods on which no VAT is payable) and exempted transactions (specific transactions or persons exempted from tax). The Court referred to the definition of "exempted goods" under Section 2(13) and "goods" under Section 2(15) of the Act. The Court concluded that the intention of the legislature was to exempt manufacturers of A.C. Sheets and Bricks, not the goods themselves, thus allowing ITC for the assessee.

4. Applicability of ITC to Manufacturers of Asbestos Cement Sheets:
The High Court held that the assessee, as a manufacturer of A.C. Sheets, was entitled to avail ITC. The Court reasoned that the notifications and the provisions of the Act indicated that the exemption was granted to the manufacturers and not to the goods. Consequently, the orders denying ITC to the assessee were set aside.

Conclusion:
The Supreme Court upheld the High Court's judgment, emphasizing the distinction between exempted goods and exempted transactions. The Court concluded that the assessee, being a manufacturer of A.C. Sheets, was entitled to ITC, and the orders denying ITC were unjustified. The appeals were dismissed, affirming the High Court's interpretation of the exemption notifications and the provisions of the Rajasthan Value Added Tax Act, 2003.