2018 (8) TMI 1562 - HC - VAT and Sales Tax

Input tax credit - purchase of wind mill - Section 19(3) of the TNVAT Act, 2006 - whether the power generated is utilised for the manufacturing process by the concerned dealer and if it is solely for the purpose of production of yarn in a textile mill, then it should be considered as capital goods? - Held that - The petitioner has claimed Input Tax Credit to the tune of ₹ 6, 26, 000/- in the year 2007-08 for the capital goods purchased and used by him during the year 2006-07. Since the capital goods, namely, wind mill was purchased and used for the manufacturing of cotton yarn, which is taxable goods, he is entitled to avail Input Tax Credit as per Section 19(3) of the TNVAT Act - The rejection of the claim on the ground that the wind mill does not form an integral part of the industrial premises, in which, the manufacturing is made and that the wind mill is situated at a far-off place, cannot be treated as capital goods in the manufacturing of cotton yarn, is not sustainable. Whether the power generated by the petitioner by erecting the wind mill was completely utilised for the manufacturing process, without there being any commercial exploitation, can be considered as capital goods or not? - Held that - By ample evidence, the petitioner had proved that he has entered into an agreement with the Power Grid Corporation for transmitting the power and getting supply and then, the relevant column proved that it is not distributed to anybody else on commercial basis. In that event, when the erection of wind mill for the purpose of generating power in the manufacturing process shall be construed as capital goods, Input Tax Credit shall be made available to the assessee as per Section 19(3) of the TNVAT Act. The petitioner is entitled to refund of the amount if paid pursuant to the rejection of his claim by the authorities - petition allowed.

Summary

Issues:
Claim of Input Tax Credit for wind mill purchase in manufacturing process.

Analysis:
The petitioner, a textile mill, purchased a wind mill for generating electrical energy for manufacturing cotton yarn. The petitioner claimed 50% of Input Tax Credit in 2007-08 as per TNVAT Act and Rules, but the claim was rejected by the authorities. The matter was remanded and rejected again in subsequent revisions. The main issue was whether the wind mill could be considered capital goods for the manufacturing process.

The respondents argued that the writ petition was not maintainable due to the availability of alternative remedies under the TNVAT Act. However, the Court considered the petitioner's case. It was established that the energy generated by the wind mill was solely used for the manufacturing process of cotton yarn by the petitioner. The power generated was not distributed commercially but transmitted to the Grid for supply back to the petitioner.

The Court referred to Section 19(3) of the TNVAT Act which allows Input Tax Credit for purchases of capital goods used in manufacturing taxable goods. The petitioner claimed Input Tax Credit for the wind mill purchased for manufacturing cotton yarn. The rejection of the claim based on the wind mill not being an integral part of the industrial premises was deemed unsustainable.

Citing a Supreme Court case, the Court emphasized that when electricity generation is part of a captive arrangement for manufacturing activity, it qualifies as an input in the manufacture of the final product. As the petitioner's wind mill was used solely for manufacturing, Input Tax Credit should be allowed. The petitioner proved that the power generated was not commercially exploited but used in the manufacturing process.

Consequently, the Court set aside the order rejecting the petitioner's claim and ruled in favor of the petitioner, allowing a refund of the amount paid due to the rejection. The writ petition was allowed without costs, and the related miscellaneous petition was closed, granting relief to the petitioner.