2019 (9) TMI 521 - HC - VAT and Sales Tax

Input tax credit - Inconsistent Rule with statutory provision - tax paid on purchase of coal which is used by it for generation of electricity in its captive power plant and in turn, electricity so generated - absence of production of statutory declaration form JVAT 404 - Jharkhand Value Added Tax Act, 2005 - Jharkhand Value Added Tax Rules, 2006. HELD THAT - From the reading of the provisions of the JVAT Act, 2005 it would transpire that said provisions are in consonance with the scheme of Value Added Tax Regime introduced in the Country. From the scheme of JVAT, 2005 it would be thus evident that output tax liability of a dealer was required to be determined after subtracting therein the input tax paid by the dealer - Section 18 of the JVAT Act, 2005 provides for determination of the Input Tax Credit which is available to a dealer in respect of input tax paid by it on the goods. Whether the petitioner is entitled to ITC u/s 18(4)(iii) of the JVAT Act, 2005 on input tax paid by it on coal which was utilized for generation of electricity, which in turn, was exclusively used for manufacturing and processing of finished product of the petitioner for sale? - HELD THAT - The Hon ble Supreme Court in its decision in the case of JK. COTTON SPG. WVG. MILLS CO. LTD. VERSUS SALES TAX OFFICER, KANPUR 1964 (10) TMI 2 - SUPREME COURT was considering the provision of Section- 8(1) and 8(3)(b) of the Central Sales Tax Act, 1956 which is almost parametria to the provisions of Section 18(4)(iii) of the JVAT Act, 2005 and has held, in substance, that if a process or activity is so integrally related to the ultimate production of goods so that without that process or activity manufacture would be commercially inexpedient, goods required in that process would fall within the expression in the manufacture of goods . Thus, it would be evidently clear that use of coal by the petitioner-Company for generation of electricity, which in turn, was used for manufacturing of finished product, was integrally connected with the ultimate finished goods. Under the said circumstances, coal used for generation of electricity is to be categorized as raw material for ultimate production of the finished goods of the petitioner i.e. Sponge Iron and M.S. Billet - it can be concluded that the petitioner has fulfilled requisite conditions of availing benefit of ITC on coal utilized by it for generation of electricity. Availability of benefit of ITC to the petitioner in absence of production of Statutory JVAT 404 Forms - HELD THAT - It appears that from bare reading of Section 18(6) of the JVAT Act, 2005 would reveal that ITC can be claimed by a dealer on production of tax invoices in original containing the prescribed particulars of sale evidencing the amount of tax paid. Further, said section contemplates that even for good and sufficient reasons to be recorded in writing where a dealer is prevented from furnishing tax invoices in original the prescribed authority may even then allow ITC by recording its reason. Thus, Section 18(6) of the JVAT Act, 2005 does not contemplate production of JVAT -404 Forms as a mandatory condition for availing benefit of ITC. However, Rule 35(2) of the JVAT Rules, 2006 stipulates further condition of production of JVAT 404 Form as requirement for claiming benefit of ITC. To this extent, Rule 35(2) of the JVAT Rules, 2006 is inconsistent with the provision of Section 18(6) of the JVAT Act, 2005 and is required to be held directory in nature and not mandatory. It is always open for the State Tax Authorities on the strength of tax invoices produced before it by a dealer to verify the genuineness of said invoices and to ascertain that said dealer has in fact discharged liability of input tax on such invoices in respect of which ITC is being claimed. Thus, the production of JVAT- 404 Form for the purpose of claiming ITC is merely directory in nature and not mandatory. Application allowed.

Summary

Issues Involved:
1. Entitlement to Input Tax Credit (ITC) on coal used for electricity generation in a captive power plant.
2. Denial of ITC due to non-production of statutory declaration form JVAT 404 despite substantial evidence of tax payment.

Detailed Analysis:

Issue 1: Entitlement to ITC on Coal Used for Electricity Generation
- Background: The petitioner, a company engaged in manufacturing Sponge Iron and M.S. Billet, uses coal to generate electricity in its captive power plant. This electricity is essential for its manufacturing process.
- Legal Provision: Section 18(4)(iii) of the Jharkhand Value Added Tax Act, 2005 (JVAT Act, 2005) allows ITC for goods purchased within Jharkhand from a registered dealer, intended for use as raw material for direct use in manufacturing goods for sale.
- Petitioner’s Argument: The petitioner argued that coal used to generate electricity, which in turn is used in manufacturing, qualifies as raw material under Section 18(4)(iii). They cited Supreme Court judgments, including "M/s J.K. Cotton Spinning & Weaving Mills Co. Ltd Vs. Sales Tax Officer, Kanpur" and "Commercial Taxation Officer, Udaipur Vs. Rajasthan Taxchem Ltd," which held that goods integrally related to the manufacturing process qualify as raw materials.
- Respondent’s Argument: The State contended that ITC is a concession and must meet specific conditions. They argued that coal used for generating electricity, which does not directly generate output tax liability, does not qualify for ITC. They also pointed out that electricity is not considered "goods" under Section 2(xxii) of the JVAT Act, 2005.
- Court’s Analysis: The court referred to multiple Supreme Court judgments, affirming that goods used in an integral process of manufacturing qualify as raw materials. It rejected the State’s argument that ITC is only available for goods generating output tax liability, noting that Section 18(4)(iii) does not impose such a condition. The court held that coal used for generating electricity, which is essential for manufacturing the final product, qualifies for ITC.
- Conclusion: The court directed the State to extend ITC to the petitioner for coal used in generating electricity for manufacturing finished goods.

Issue 2: Denial of ITC Due to Non-Production of JVAT 404 Forms
- Background: The petitioner claimed ITC for VAT paid on purchases but could not produce JVAT 404 forms for a portion of the claimed amount. They provided original tax invoices instead.
- Legal Provision: Section 18(6) of the JVAT Act, 2005 requires production of original tax invoices to claim ITC. Rule 35(2) of the Jharkhand Value Added Tax Rules, 2006 (JVAT Rules, 2006) additionally requires JVAT 404 forms.
- Petitioner’s Argument: The petitioner argued that Rule 35(2) should be considered directory, not mandatory, as Section 18(6) does not mandate JVAT 404 forms. They cited Supreme Court and Patna High Court judgments supporting the directory nature of similar provisions.
- Respondent’s Argument: The State maintained that production of JVAT 404 forms is mandatory under Rule 35(2) and justified the denial of ITC for the amount without these forms.
- Court’s Analysis: The court held that Rule 35(2) is directory, not mandatory, as it is inconsistent with Section 18(6). It emphasized that ITC should be granted based on original tax invoices, and the State can verify the genuineness of these invoices.
- Conclusion: The court directed the State to re-examine the petitioner’s claim for ITC based on original tax invoices and extend the benefit if the invoices are verified.

Final Judgment:
The court quashed the orders of the Commercial Taxes Tribunal, the Appellate Authority, and the Assistant Commissioner of Commercial Taxes. It directed the State to extend ITC for coal used in electricity generation and re-examine ITC claims based on original tax invoices within eight weeks. The writ application was allowed with these directions.