9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (3) TMI 940 - HC - VAT and Sales TaxReversal of Input Tax Credit (ITC) - manufacturing / invisible loss - Interpretation of statute - construction/interplay of Section 19(2)(ii) vis-a-vis Section 19 (9) of the Tamil Nadu Value Added Tax Act, 2006 - reversal of Input Tax Credit on account of manufacturing / invisible loss - validity of Circular dated 20.10.2011 by which instructions were issued stating that wastage at all levels must be considered taking into account the nature of commodity and that the credit was to be reversed in respect of manufacturing/invisible loss in terms of Section 19 (9) of the TNVAT Act. HELD THAT - Input Tax Credit is in the nature of a concession and is the pivot/axis around which the VAT Scheme revolves. The State legislature has under Section 19 (2) of the TNVAT Act identified circumstances under which the benefit of Input Tax Credit is granted. Importantly, Section 19(2) (ii) of the TNVAT Act provides that Input Tax Credit shall be allowed for purchase of goods made within the State from a registered dealer for use as input in manufacturing or processing of goods in the State - thus, any goods which qualifies as an input under Section 2(23) of the TNVAT Act and used in manufacture or processing of goods shall be entitled to Input Tax Credit. The object behind granting the benefit of Input Tax Credit in terms of Section 19 (2) (ii) of the TNVAT Act, is with a view to promote manufacturing activity within the State. The expressions damaged and destroyed in Section 19(9)(iii) of the TNVAT Act used to deny Input Tax Credit, must be understood to have been employed by the legislature in contradistinction to the expressions use in manufacturing or processing of goods employed in Section 19 (2) (ii) of TNVAT Act while allowing a dealer to claim Input Tax Credit. While the expression use in Section 19(2)(ii) of the TNVAT Act qualifies manufacturing or processing of goods , the expressions damaged and destroyed employed in Section 19(9) of the TNVAT Act are not used with reference to manufacture or processing of goods - the expressions use in manufacture or processing of goods , employed in Section 19 (2) (ii) of TNVAT Act is meant to convey a positive act or an act performed towards / in the direction of achieving the intended purpose/desired result viz., manufacture / emergence of a different commodity / end product. The expressions ''use'' in manufacture on the one hand and damaged and destroyed are antithetical and irreconcilable with each other. Test of quantitative requirement of inputs to manufacture desired quantity of end product - HELD THAT - In the case of M/s.Swadeshi Polytex Ltd., Vs Collector of Central Exercise 1989 (11) TMI 131 - SUPREME COURT , rejecting the contention of the revenue that ethylene glycol not contained in the end product viz., polyester fiber but in other waste/ by-product ought to be denied the benefit of credit, the Hon'ble Supreme Court proceeded to hold that as long as it is not possible to use a lesser quantum of ethylene glycol to produce desired quantity of polyster fabric the same is entitled to the benefit of credit as having been used in the manufacture. The Hon ble Supreme Court in the case of Union of India Vs. Indian Aluminium Company Ltd. 1995 (4) TMI 62 - SUPREME COURT had also applied the test of quantitative requirements of inputs for the purpose of manufacturing the desired quantity of output, to determine whether the inputs are used in the manufacture of other goods. It was held an exact mathematical equation between raw materials used and found in the finished products is irrelevant to determine whether the inputs are used in the manufacture/processing of desired end products. Test of indispensability - HELD THAT - The Hon'ble Supreme Court in the case of COLLECTOR OF C. EX. VERSUS BALLARPUR INDUSTRIES LTD. 1989 (9) TMI 102 - SUPREME COURT wherein while examining the question as to what would constitute raw material while rejecting the contention that to constitute raw material it is essential that the same must form part of the end product, held that the relevant test is not its absence in the end product, but the dependence of the end product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end product in the sense that without its absence the presence of the end product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus. Applying the test of indispensability if the inputs are indispensable for the emergence of desired end product it is not open to disallow the claim of input tax credit on the ground of manufacturing/invisible loss. Test of Technical/Practical/Commercial inexpediency - HELD THAT - Reliance made in the case of J.K.Cotton Spinning Weaving Mills Co.Ltd., Vs. The Sales Tax Officer, Kanpur and Another 1964 (10) TMI 2 - SUPREME COURT wherein the scope of the expression in the manufacture of goods employed in Section 8(3)(b) of the Central Sales Tax Act, while extending the benefit of concessional rate of tax was examined by Supreme Court. It was held that the expression in the manufacture of goods would encompass, the entire process carried on by the dealer for converting raw materials into finished goods. The Hon'ble Supreme Court applied the test of commercial inexpediency to determine whether a process would fall within the expression in the manufacture of goods, while making it clear that the expression in the manufacture of goods should not be curtailed by some theoretical possibility over looking/disregarding commercial inexpediency while examining the scope of the expressions in the manufacture of goods . If manufacturing/invisible loss is tested applying the test of technical/practical/commercial expediency and found that it is incapable of manufacturing the end product without the input of the requisite/utilised quantity then there cannot be a denial of input tax credit alleging manufacture/invisible loss. The above judgments leave no room for any doubt that quantitative tally between the raw material used and the end product manufactured is foreign to the concept of manufacture. The above requirement is contrary to technical/practical/commercial expediency involved in the activity of manufacture. It is clear that once input is used in the manufacture the mere fact that it is not contained in the end product may have no bearing on the dealers entitlement to input tax credit in terms of Section 19 (2) (ii) of the TNVAT Act. Thus applying any of the above tests viz., test of indispensability, quantitative requirement, commercial expediency the irresistible conclusion is that manufacturing/invisible loss which is inevitable/unavoidable/inherent part of manufacturing process cannot be denied the benefit of Input Tax Credit in terms of Section 19(2)(ii) of the TNVAT Act invoking Section 19(9) of the TNVAT ACT. On analysis of the scope and interplay between Sections 19(2)(ii) and 19(9) of the TNVAT Act, precedents dealing with manufacturing/invisible loss and the rules of construction referred above, it is found that Section 19(9) of the TNVAT Act would not get attracted to manufacturing/invisible loss which is inevitable and inherent part of manufacture and thus covered by Section 19(2)(ii) of the TNVAT Act. The impugned Circular dated 20.10.2011 insofar as it is contrary to the law declared by this Court with regard to manufacturing/invisible loss is set-aside. Wherever the challenge is to the notice it is open to the appellants/petitioners to submit their objections which shall be decided in accordance with the law declared by this Court after affording the appellants/ petitioners reasonable opportunity of being heard - Petition disposed off.
Issues Involved:
1. Validity of Circular No.22/2011 dated 20.10.2011. 2. Scope and interpretation of Section 18 and Section 19, particularly Section 19(2)(ii) and Section 19(9) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). 3. Assessment of input tax credit (ITC) in relation to manufacturing/invisible loss. 4. Adoption of uniform percentage for invisible loss by assessing authorities. 5. Machinery for reversing refunds under the TNVAT Act. Detailed Analysis: 1. Validity of Circular No.22/2011 dated 20.10.2011: The court examined the validity of the impugned circular, which instructed assessing authorities to reverse input tax credit (ITC) on raw materials to the extent of wastage treated as manufacturing/invisible loss. The court noted that the circular, though non-statutory, would influence the quasi-judicial function of assessment by subordinate authorities. The court emphasized that the correctness of the circular needs to be examined to ensure that assessment functions are not reduced to a mere ritual. The impugned circular was ultimately set aside to the extent it contradicted the law declared by the court. 2. Scope and Interpretation of Section 18 and Section 19 of the TNVAT Act: The court analyzed the relationship between Section 18 and Section 19 of the TNVAT Act. It was held that Section 18 is not an independent provision but subject to other provisions of the Act, including Section 19. The court clarified that Section 19(2)(ii) allows ITC for goods used as inputs in manufacturing or processing of goods in the state. The court rejected the revenue's interpretation that manufacturing/invisible loss falls under Section 19(9), which deals with goods not sold due to theft, loss, or destruction, and inputs destroyed before use in manufacture. The court held that manufacturing/invisible loss, being an inevitable part of the manufacturing process, does not attract Section 19(9). 3. Assessment of Input Tax Credit in Relation to Manufacturing/Invisible Loss: The court emphasized that the term "use in manufacturing" should be understood in a practical, commercial sense. Inputs used in manufacturing that result in some loss during the process should still qualify for ITC. The court referred to various precedents to support the view that manufacturing loss forms part of raw material and should not be excluded from ITC. The court reiterated that the absence of input in the end product is irrelevant for determining ITC entitlement. 4. Adoption of Uniform Percentage for Invisible Loss by Assessing Authorities: The court found that the assessing authorities were not justified in adopting a uniform percentage for invisible loss and calling upon dealers to reverse ITC to that extent. The court set aside all notices and orders that adopted a fixed percentage for invisible loss, granting liberty to the assessing officers to issue appropriate show cause notices and proceed in accordance with the law after inviting objections from the dealers. 5. Machinery for Reversing Refunds under the TNVAT Act: The court addressed the issue of whether there is machinery under the TNVAT Act to reverse refunds granted pursuant to an order passed on an application filed by the dealer. The court held that the undertaking given by the dealer in Form W is for the purpose of verification by the assessing officer and that the Act provides a remedy in the event of a wrong or erroneous refund sanctioned. Section 18 cannot be treated as an independent provision but is subject to restrictions and conditions under Section 19. Conclusion: The court concluded that Section 19(9) of the TNVAT Act does not apply to manufacturing/invisible loss, which is an inevitable part of the manufacturing process. The impugned circular dated 20.10.2011 was set aside to the extent it contradicted this interpretation. The court directed that assessments be redone in accordance with the law declared, after affording the appellants/petitioners a reasonable opportunity of being heard. The batch of writ appeals and petitions was disposed of with these directions, and no costs were awarded.
|
