2013 (4) TMI 242 - HC - VAT and Sales Tax

Purchase tax credit - assessee, while manufacturing rice bran oil, was also producing de-oiled cake - Held that - De-oil cake is only a bye-product of the main product of the assessee, namely, rice bran oil. Assessee was not attempting to manufacture the de-oiled cake, but was attempting to manufacture rice bran oil. In the process of manufacturing rice bran oil, it was also manufacturing de-oiled cake. The product manufactured by the assessee was rice bran oil and, while selling the same, it was entitled to, under the Uttarakhand VAT Act, the purchase tax credit.

Summary

Issues:
1. Whether the assessee was required to keep separate the product manufactured using rice bran obtained from outside the State for claiming purchase tax credit.
2. Whether the production of de-oiled cake affects the entitlement of the assessee to purchase tax credit.

Analysis:
1. The primary issue in the revisions was whether the assessee had to segregate the product manufactured using rice bran from outside the State to claim purchase tax credit under the Uttarakhand VAT Act. The assessee procured rice bran both from within and outside the State, paying VAT on the purchases. The court clarified that the purchase tax credit was only applicable to goods purchased within the State for which VAT was paid to the State. Consequently, the assessee was entitled to purchase tax credit only for the rice bran purchased within the State, not for the one acquired from outside the State. Therefore, the requirement for the assessee to maintain a separation between the manufacturing processes and products from rice bran sourced externally became irrelevant for claiming purchase tax credit.

2. The second issue revolved around the production of de-oiled cake alongside rice bran oil by the assessee. It was argued that since de-oiled cake was exempt from VAT, the assessee should not be eligible for purchase tax credit. However, the court noted that the de-oiled cake was a by-product of the main product, rice bran oil, and not the primary focus of the manufacturing process. The assessee aimed to produce rice bran oil, with the de-oiled cake being a natural outcome of this process. As per the Uttarakhand VAT Act, the assessee was entitled to purchase tax credit while selling the main product, rice bran oil. The Tribunal had already concluded on this matter, finding no grounds for interference. Consequently, the revisions were dismissed, affirming the entitlement of the assessee to purchase tax credit despite the production of de-oiled cake.

In conclusion, the High Court of Uttarakhand clarified the issues surrounding the entitlement of the assessee to purchase tax credit under the VAT Act concerning the procurement and manufacturing processes involving rice bran sourced from both within and outside the State. The judgment emphasized the distinction between the primary product, rice bran oil, and the by-product, de-oiled cake, ensuring that the assessee's right to purchase tax credit was upheld based on the relevant provisions of the law.