2023 (11) TMI 298 - SC - VAT and Sales Tax

Interpretation of statute - Section 13(1)(f) of the UP VAT Act - Claim of full ITC on inputs - amount of tax paid towards the purchase of raw Rice Bran - scope of the word goods as defined under Section 2(m) of the UP VAT Act as outlined in Section 13(1)(f) of the UP VAT Act should be limited to only taxable goods or not - applicability of decision of this Court in the case of M.K. Agro Tech 2017 (9) TMI 1308 - SUPREME COURT . HELD THAT - A bare perusal of the scheme under Section 13 of the UP VAT Act and specifically under Section 13(1)(a) makes it abundantly clear that in cases where the purchased goods (in the present case Rice Bran) are used in the manufacture of taxable goods (in the present case RBO and physically refined RBO) except the non-VAT goods, and where such manufactured goods are sold within the State or in the course of inter-state trade and commerce, the registered dealers (like the assessee herein) are entitled to claim input tax credit of the full amount. The charging section of the UP VAT Act, therefore, entitles the assessee to claim full amount of tax paid on the purchases as ITC - Furthermore, Section 13(3)(b) of the UP VAT Act, introduces the concept of proportionality in the scheme of the enactment and by means of a deeming fiction provides that where during the manufacture of VAT goods, exempt and non-VAT goods (except as by-product or waste product) are produced, the amount of ITC credit may be claimed and may be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than the non-VAT goods and exempt goods. Explanation (iii) to Section 13, therefore, forbids the Assessing Authority as well as the assessee from raising any dispute in regard to the allowability of the ITC in cases where exempted goods are being produced as a by-product or waste product during the process of manufacture. Whether the High Court was right in placing on the decision of this court in the case of M.K. Agro Tech? - HELD THAT - In the case of M.K. Agro Tech, the assessee was engaged in the manufacture of sunflower oil (taxable goods), which is extracted from sunflower cake, by employing solvent extraction process. Sunflower oil cake is the input/raw material on which VAT was payable. During the extraction process, a by-product in the form of de-oiled sunflower oil is produced. The said by-product was also exempted under the Karnataka VAT Act - This Court while examining Section 17 of the KVAT Act, read with Rule 131 of the KVAT Rules, held that ITC was admissible to the extent of inputs used in the sale of taxable goods. In the case of M.K. Agro Tech, this Court held that only partial ITC was permitted to the assessee as they were making taxable and exempted sales from the dutiable raw materials procured by them. In Para 28, this Court has elaborated on the scheme under the Karnataka VAT Act, to emphasise that the provision which allows partial rebate is made applicable on the sales of taxable goods and goods exempt under Section 5. It refers to sale of goods , taxable as well as exempt, and is not relatable to the manufacture of the goods. Further elaboration has been made to hold that upon the sale of goods exempted under Section 5 of the Karnataka VAT Act, partial rebate shall only be admissible - The High Court committed an error in passing the impugned judgment relying on the decision of this Court rendered in M.K. Agro Tech. The impugned common judgment and order passed by the High Court of Allahabad is hereby set aside and the orders passed by the Commercial Tax Tribunal dated 04.05.2016 and 05.07.2017 are hereby restored - appeal allowed.

Summary

Issues Involved:
1. Entitlement to full Input Tax Credit (ITC) under Section 13 of the UP VAT Act.
2. Scope of the term "goods" under Section 13(1)(f) of the UP VAT Act.
3. Applicability of the Supreme Court decision in M.K. Agro Tech Private Limited to the present case.

Summary:

1. Entitlement to Full Input Tax Credit (ITC):
The assessee, engaged in manufacturing Rice Bran Oil (RBO) and registered under the UP VAT Act, claimed full ITC on the tax paid for purchasing Rice Bran. The Deputy Commissioner initially rejected this claim, limiting ITC only to the extent of taxable sales, which was upheld by the Additional Commissioner for the year 2013-14 but reversed for 2015-16. The Commercial Tax Tribunal later allowed full ITC for both years, which was challenged by the revenue in the High Court.

2. Scope of the Term "Goods" under Section 13(1)(f):
The High Court ruled that the term "goods" in Section 13(1)(f) of the UP VAT Act should be limited to "taxable goods," thereby denying full ITC to the assessee. The Supreme Court, however, disagreed, noting that the legislative intent behind the 2010 amendment was to address cases where goods are sold below cost price, without limiting "goods" to "taxable goods." The Court emphasized that the term "goods" in Section 13(1)(f) is not qualified by "taxable," and the legislative intent did not restrict it to taxable goods alone.

3. Applicability of M.K. Agro Tech Private Limited:
The High Court relied on the Supreme Court's decision in M.K. Agro Tech, which dealt with partial ITC under the Karnataka VAT Act. The Supreme Court clarified that the provisions under the Karnataka VAT Act are distinct from those under the UP VAT Act. The Karnataka VAT Act focuses on the sale of goods, while the UP VAT Act, through Section 13(3)(b) and Explanation (iii), addresses the manufacture of goods, including by-products and waste products. Therefore, the decision in M.K. Agro Tech was deemed inapplicable to the present case.

Conclusion:
The Supreme Court set aside the High Court's judgment, restoring the Commercial Tax Tribunal's orders, thereby allowing the assessee to claim full ITC on the tax paid for purchasing Rice Bran. The Court ruled that the term "goods" in Section 13(1)(f) of the UP VAT Act includes both taxable and exempt goods, and the decision in M.K. Agro Tech does not apply to the present case.