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2017 (6) TMI 90 - HC - VAT and Sales TaxInput Tax credit - capital investment made by the Dealer in respect of Dry Dock and Fit Out Berth more particularly on purchase of cement, steel, greet etc. used in construction of Dry Dock and Fit Out Berth, which were used as capital goods - the main issue of this appeal is Whether the Hon ble Tribunal has erred in holding that Input Tax Credit u/s.11(3)(a)(vii) of the Gujarat Value Added Tax Act, 2003 is available for purchase of cement, sand, steel, greet, concrete etc. that are used for manufacture of capital goods? Whether in the present case Dry Dock and Fit Out Berth shall be categorized as capital goods under the VAT Act or not? - Held that - relying in the case of Scientific Engineering House (P) Ltd. 1985 (11) TMI 1 - SUPREME Court it is held that the definition of the Capital Goods contained in section 2(5) of the VAT Act, Dry Dock and Fit Out Berth which are necessary for the purpose of business of the Dealer, the same are to be treated and held as plant - the issue is held in favor of the Dealer and against the Revenue and it is held that Dry Dock and Fit Out Berth are plant / capital goods. Whether on the purchase of cement, sand, steel, greet, concrete etc. that are used for manufacturing of capital goods viz. Dry Dock and Fit Out Berth, the Dealer is entitled to Input Tax Credit or not? - Held that - as cement, sand, steel, greet, concrete etc. are required to be used in manufacturing of Capital Goods viz. Dry Dock and Fit Out Berth, which is an integral part of the final product of the Dealer are without the Dry Dock and Fit Out Berth, it is not possible for the Dealer to carry on his business which is of ship building / manufacture and repairs of ship and that the Dry Dock and Fit Out Berth are specialized in nature which are required to be constructed specially and specifically for the purpose of business of the Dealer i.e. ship building / manufacture and repairs of ship, applying the User Test it is to be held that on purchase of cement, sand, steel, greet, concrete etc. which are used in Dry Dock and Fit Out Berth (Capital Goods), Dealer shall be entitled to Input Tax Credit - answered in favor of assessee. Appeal dismissed - decided in favor of assessee.
Issues Involved:
1. Eligibility for Input Tax Credit (ITC) under Section 11(3)(a)(vii) of the Gujarat Value Added Tax Act, 2003 for materials used in the manufacture of capital goods. 2. Classification of immovable structures as capital goods under the Gujarat Value Added Tax Act, 2003. 3. Classification of LPG and Acetylene gas as fuel under Section 11(3)(b)(iii) of the Gujarat Value Added Tax Act, 2003. Detailed Analysis: Issue 1: Eligibility for ITC on Materials Used in Manufacture of Capital Goods The court examined whether the dealer is entitled to ITC on the purchase of materials such as cement, sand, steel, greet, and concrete used in the construction of Dry Dock and Fit Out Berth, which are considered capital goods. The court applied the "User Theory" from the Supreme Court decisions in *Jawahar Mills Ltd.* and *Rajasthan Spinning and Weaving Mills Ltd.*, which state that the eligibility for ITC depends on the use of the materials in the manufacturing process. The court concluded that since these materials are integral to the construction of Dry Dock and Fit Out Berth, which are necessary for the dealer's business of shipbuilding and repair, the dealer is entitled to ITC under Section 11(3)(a)(vii) of the VAT Act. Issue 2: Classification of Immovable Structures as Capital Goods The court considered whether immovable structures like Dry Dock and Fit Out Berth qualify as capital goods under the VAT Act. The definition of "capital goods" in Section 2(5) of the VAT Act includes "plant and machinery" meant for use in the manufacture of taxable goods. The court referred to the House of Lords decision in *Barclay, Curle & Co. Ltd.*, which held that a dry dock fulfills the function of a plant and thus qualifies as a plant. The Supreme Court's decision in *Scientific Engineering House (P) Ltd.* was also considered, which supports the view that items fulfilling the function of a plant are to be considered as such. Consequently, the court held that Dry Dock and Fit Out Berth are capital goods under the VAT Act. Issue 3: Classification of LPG and Acetylene Gas as Fuel The court addressed whether LPG and Acetylene gas are classified as fuel under Section 11(3)(b)(iii) of the VAT Act. The court referred to the Division Bench decisions in *SAL Steel Limited* and *Balram Cement Ltd.*, which held that materials like coal and petroleum coke used in the manufacturing process are considered raw materials and not fuel, thus eligible for ITC. Applying this reasoning, the court concluded that LPG and Acetylene gas are not fuel under the VAT Act, and the dealer is entitled to ITC on these materials. Conclusion: The court dismissed the tax appeals and held that: 1. The dealer is entitled to ITC on the purchase of materials used in the construction of Dry Dock and Fit Out Berth. 2. Dry Dock and Fit Out Berth are classified as capital goods under the VAT Act. 3. LPG and Acetylene gas are not classified as fuel under Section 11(3)(b)(iii) of the VAT Act, and the dealer is entitled to ITC on these materials. The judgments were delivered in favor of the dealer, and the appeals were dismissed with no costs.
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