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2016 (12) TMI 696 - HC - VAT and Sales TaxITC - Product Information Literature - Laboratory Stores - Whether on the facts and in the circumstances of the case, Gujarat Value Added Tax Tribunal was justified in law in holding that Product Information Literature and Laboratory Stores purchased by the appellant was not eligible for Inputs Tax Credit under the provisions of Section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003? - Held that - the laboratory stores used in the laboratory unit for testing at pre -manufacturing and post -manufacturing stage are required to be held as consumable stores and therefore, are required to be held as raw materials used in the manufacture , as the requirement of testing is mandatory under Rule 22.4 of the Rules, 1945 and unless and until such a test is conducted and/or carried out the final product is not commercially saleable/marketable. Under the circumstances, the assessee shall be entitled to the Input Tax Credit under Section 11(3)(a)(vi) of the VAT Act on the laboratory stores such as glassware/glass tube, raw material, chemical etc. used in the laboratory for testing at pre- manufacturing and post- manufacturing stage. The question is, therefore, answered in favour of the assessee and against the Revenue. Product Information Literature - Held that - The Product Information Literature which is mandatorily required under the provisions of the Drugs and Cosmetics Act, 1945 and unless and until such information mentioned in the Production Information Literature is provided, the final product/drug cannot be sold. For the reasons stated above, it is to be held consumable stores and therefore, raw material as defined under Section 2(19) of the VAT Act and therefore, being the raw material used in manufacture of taxable goods i.e. in the present case the drugs, the assessee shall be entitled to the Input Tax Credit on such Product Information Literature . It is answered in favour of the assessee and against the Revenue and it is held that on such Product Information Literature giving the information as required under the provisions of the Drugs and Cosmetics Act, 1945 and to be pasted on the box containing the drug, the assessee is entitled to the Input Tax Credit. Appeal allowed - decided in favor of appellant-assessee.
Issues Involved:
1. Eligibility for Input Tax Credit (ITC) on "Product Information Literature" under the Gujarat Value Added Tax Act, 2003. 2. Eligibility for ITC on laboratory stores used for testing raw and finished materials under the Gujarat Value Added Tax Act, 2003. Issue-wise Detailed Analysis: 1. Eligibility for ITC on "Product Information Literature": Facts and Arguments: The assessee, engaged in the manufacture and sale of drugs, included "Product Information Literature" with its products, claiming it as packing material eligible for ITC under Section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003. The literature was argued to be a statutory requirement under the Drugs and Cosmetics Rules, 1945, and thus integral to the product's marketability. Tribunal's Decision: The Tribunal held that the literature did not qualify as packing material or raw material, and thus was not eligible for ITC. It reasoned that the literature was not consumed as input and did not lose its identity, and was not a requirement under the VAT Act. High Court's Analysis: The High Court considered the statutory requirement under the Drugs and Cosmetics Act, 1945, which mandates detailed information about drugs. The Court noted that the literature, though not a traditional packing material, was essential for the product's marketability and compliance with statutory requirements. The Court referenced several precedents, including J.K. Cotton Spinning and Weaving Mills vs. Sales Tax Officer, which emphasized that processes integral to the manufacture and marketability of goods should be included within the scope of manufacturing activities. Judgment: The High Court concluded that the "Product Information Literature" should be considered as "consumable stores" and thus falls within the definition of "raw material" under Section 2(19) of the VAT Act. Consequently, the assessee was entitled to ITC on the literature, answering the question in favor of the assessee and against the Revenue. 2. Eligibility for ITC on Laboratory Stores: Facts and Arguments: The assessee claimed ITC on laboratory stores (e.g., glassware, chemicals) used for testing raw and finished materials, arguing that testing is a mandatory part of the manufacturing process under the Drugs and Cosmetics Rules, 1945. The assessee contended that these items were integral to ensuring the product's marketability and compliance with statutory requirements. Tribunal's Decision: The Tribunal denied ITC, stating that the laboratory stores were not used as consumable goods or stores in the manufacturing process. High Court's Analysis: The High Court examined the statutory requirement for testing under Rule 22.4 of the Drugs and Cosmetics Rules, 1945, and considered whether the laboratory stores could be classified as "consumable stores" under Section 2(19) of the VAT Act. The Court referenced multiple precedents, including J.K. Cotton Spinning and Weaving Mills vs. Sales Tax Officer, which supported a broad interpretation of manufacturing processes to include activities integral to the final product's marketability. Judgment: The High Court held that laboratory stores used for mandatory testing at pre-manufacturing and post-manufacturing stages qualify as "consumable stores" and thus "raw materials" under Section 2(19) of the VAT Act. Therefore, the assessee was entitled to ITC on these items, answering the question in favor of the assessee and against the Revenue. Conclusion: The High Court ruled in favor of the assessee on both issues, granting ITC on "Product Information Literature" and laboratory stores used for testing, and disposed of both tax appeals accordingly.
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