2022 (3) TMI 746 - HC - VAT and Sales Tax

Input Tax Credit - evaporation/handling losses of the petroleum products - HELD THAT - As per provisions of Act, the tax paid to the State by the oil companies on the goods sold, would be ITC available to the purchasing dealers. There would be no ITC for tax paid on the goods specified in Schedule E when used or disposed of in the circumstances mentioned against those goods. The circumstances mentioned in Schedule E against petroleum products and natural gas are that when used as fuel or exported out of the State. Entry 5 of schedule E is not dealing with the items mentioned at Entries 1 and 2. In other words, circumstances mentioned against Entry 5 are not applicable to petroleum products and natural gas. The vires of Explanation (v) to Section 2(1) (zg) of the Act was subject matter of challenge before the Division Bench of this Court in ALL HARYANA PETROLEUM DEALERS ASSOCIATION VERSUS STATE OF HARYANA AND OTHERS 2014 (11) TMI 966 - PUNJAB AND HARYANA HIGH COURT . The vires of provisions were upheld by the Division Bench. The issue with regard to reversal of input tax credit on evaporation was not subject matter before the Division Bench. However, a peripheral argument was raised by the petitioner that there would be an ever increasing gap between input tax available and the credit availed by dealers. The Division Bench rejected the argument considering that Ministry of Petroleum allowed evaporation losses to the extent of 0.6% for motor spirit and 0.2% for HSD - The Division Bench had not considered the language of Section 8 of the Act and Entry 1 of schedule E. Section 8 specifically provides that input tax shall not include tax paid on goods mentioned in schedule E when used or disposed of in circumstances mentioned against such goods. Against such goods is of importance. Even from the reading of Entry 5 of Schedule E, it is clear that entry applies to goods other than those mentioned in Entries 1 and 2 of Schedule E. The question is answered in favour of the dealer i.e. assessee shall be entitled to ITC on evaporation of the petroleum products - The appeals filed by the State are accordingly dismissed.

Summary

Issues Involved:
1. Entitlement to Input Tax Credit (ITC) on evaporation/handling losses of petroleum products.
2. Interpretation of relevant sections and entries of the Haryana Value Added Tax Act, 2003.
3. Applicability of Entry 5 of Schedule E to petroleum products.
4. Impact of Explanation (v) to Section 2(1)(zg) on ITC claims.

Detailed Analysis:

Issue 1: Entitlement to Input Tax Credit (ITC) on Evaporation/Handling Losses of Petroleum Products

The primary issue in these appeals is whether dealers are entitled to ITC on the evaporation losses of Petrol and High-Speed Diesel (HSD). The Tribunal had accepted the appeals and held that dealers were entitled to ITC on evaporation loss. The State argued that evaporated Petrol and HSD were disposed of otherwise than by sale and thus not eligible for ITC as per Entry 5 of Schedule E of the Haryana Value Added Tax Act, 2003.

Issue 2: Interpretation of Relevant Sections and Entries of the Haryana Value Added Tax Act, 2003

The relevant sections and entries of the Act were examined. Section 2(1)(w) defines "Input tax" as the amount of tax paid to the State in respect of goods sold to a VAT dealer. Section 2(1)(zg) defines "sale price" and includes the amount charged for anything done by the dealer in respect of the goods. Explanation (v) to Section 2(1)(zg) deems the sale price charged by retail outlets to customers as the amount received by oil companies for sales made to retail outlets. Section 8 outlines the computation of input tax, which excludes tax paid on goods specified in Schedule E when used or disposed of in specified circumstances.

Issue 3: Applicability of Entry 5 of Schedule E to Petroleum Products

Entry 1 of Schedule E specifies that petroleum products and natural gas are not eligible for ITC when used as fuel or exported out of the State. Entry 5 of Schedule E, which deals with goods disposed of otherwise than by sale, does not apply to petroleum products and natural gas. The Tribunal and the Court found that Entry 5's conditions could not be extended to Entry 1, meaning that the evaporation losses of petroleum products should not be treated as disposal otherwise than by sale.

Issue 4: Impact of Explanation (v) to Section 2(1)(zg) on ITC Claims

Explanation (v) to Section 2(1)(zg), inserted in 2011, created a deeming fiction that the sale price of retail outlets should be considered the amount received by oil companies for sales to retail outlets. The Division Bench in the All Haryana Petroleum Dealers Association case upheld the vires of this explanation but did not address the reversal of ITC on evaporation losses. The Court clarified that the explanation does not affect the entitlement to ITC for evaporation losses within prescribed limits.

Conclusion:

The Court concluded that the dealers are entitled to ITC on the evaporation losses of petroleum products. The appeals filed by the State were dismissed, and the Tribunal's decision was upheld. The Court emphasized that Entry 5 of Schedule E does not apply to petroleum products and natural gas, and the statutory provisions clearly support the dealers' entitlement to ITC on evaporation losses.

The appeals were dismissed on merits, and all pending applications, including those for condonation of delay, were disposed of accordingly.