2022 (4) TMI 1101 - HC - VAT and Sales Tax

Input Tax Credit - Reserved Input Tax Credit (RITC) - purchase of plastic chairs which were not sold but used as scrap/raw material for manufacturing of new chairs - whether Input Tax Credit is available only when the purchase goods have been sold in the same form and condition either within the State of U.P. or outside the State of U.P.? - HELD THAT - Admittedly, the revisionist is a registered dealer under the VAT Act. It is not in dispute that for manufacturing of plastic chairs, raw materials were used. Admittedly, the chair purchased by the revisionist were used as raw material after making the said chairs as scrap on which the tax were already paid. The authorities have made RITC on the ground that the purchased chair have not been sold in the same form and condition. The authoritie have lost sight of the fact that the revisionist is manufacturer of plastic chair as well as trader also. It is not in dispute that the plastic chairs which were purchased after payment of tax have been used for manufacturing of plastic chair. Once this fact has not been disputed, the authorities were not justified in reversing the ITC of the revisionist. Section 13 (1) (A) of VAT Act specifically provides that if the purchased goods are used in manufacturing of any taxable goods except non VAT goods and thereafter if, such manufactured goods are sold either inside the State or in the course of interstate trade or commerce, the full amount of input tax has to be given - Admittedly, respondents dealer after purchase of chair used the same in manufacturing of new chair, then as per the above mentioned provisions/serial no. 2 of the table entitles full input tax credit to it. The said claim of ITC has wrongly been denied. Learned Standing Counsel could not show any such restrictions provided under the Act that on the activity of the revisionist there is such prohibition for reversal of input tax credit. In absence of such a provision being pointed out by learned Standing Counsel, the revisionist is entitled for claim of its input tax credit on the purchase of its use in the manufacturing of new chairs. The revisions are allowed.

Summary

Issues:
1. Claim of input tax credit on purchase of defective/damaged plastic chairs used for manufacturing new chairs.
2. Legality of denying input tax credit on purchased goods used in manufacturing new goods.
3. Interpretation of Section 13 of the Value Added Tax Act regarding input tax credit.

Analysis:
1. The revisions were filed against the Commercial Tax Tribunal's order regarding the claim of input tax credit on the purchase of plastic chairs used for manufacturing new chairs. The first revision raised the question of whether the assessee could avail input tax credit on the purchase of defective/damaged chairs against the sale of manufactured chairs. The second revision questioned the Tribunal's decision to deny input tax credit on purchased goods used in manufacturing new chairs.

2. The revisionist argued that they operated in a dual capacity as both a purchaser and seller of plastic chairs and as a manufacturer. The dispute centered on the input tax credit claim for purchased chairs used as raw material for manufacturing new chairs. The authorities rejected the claim stating that the purchased chairs were not sold in the same form and condition but converted into scrap. The revisionist contended that Section 13 of the Act did not prohibit such a claim and sought the revisions to be allowed.

3. The Court noted that the revisionist was a registered dealer under the VAT Act and used the purchased chairs as raw material for manufacturing plastic chairs. The authorities had reversed the input tax credit based on the chairs not being sold in the same form and condition. However, since the revisionist was both a manufacturer and trader, and the purchased chairs were used for manufacturing new chairs, the denial of input tax credit was unjustified.

4. Section 13(1)(A) of the Act was referenced, which allowed input tax credit for purchased goods used in manufacturing taxable goods that are later sold either within the state or in interstate trade. The Court found that the revisionist, by using the purchased chairs in manufacturing new chairs, was entitled to full input tax credit under this provision. The denial of the input tax credit was deemed incorrect.

5. The Court concluded that there was no legal provision restricting the revisionist from claiming input tax credit on the purchase of goods used in manufacturing new chairs. As such, the revisions were allowed, the Tribunal's order was set aside, and the revisionist was held entitled to claim input tax credit on the purchased chairs used in manufacturing new chairs.