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2019 (5) TMI 1087 - HC - VAT and Sales TaxInput tax credit - scope of amendments made to restrict the credit - benefit of credit which was rightly reversed by the assessing authority - Assessment Year 2013-14 - whether grant of input tax credit (ITC), according to Section 13(1)(f) of the Act or the benefit to be extended as granted by the Tribunal applying the provisions of Section 13(3)(b) read with Explanation (iii)of Section 13 of the Act - HELD THAT - As the Apex Court in the case of Jayam Co. 2016 (9) TMI 408 - SUPREME COURT has categorically held that the claim of ITC is not the right of a dealer but is a concession granted under the provisions of the Act. Similarly in Section 13 of the U.P.VAT Act, input tax credit has been provided as a concession to a dealer who in respect of taxable goods purchased within the State subject to conditions given therein, and such other conditions and restrictions as may be prescribed, is allowed credit of an amount as input tax credit, to the extent provided by, or under the relevant clause, meaning thereby that it is not a vested right but it is a concession which is given on the fulfillment of certain conditions as enumerated under the given clause. In the present case Section 13(1)(f) was inserted on 20.8.2010 and the reason and object of the Amending Act was to protect the revenue of the State, which was being misused by the dealers and the said provision was provided as a safeguard. In the present case, it is rice bran which is purchased, and rice bran oil and physical refined rice bran oil is manufactured from the raw material. Further, only 13.77 % of taxable goods, i.e., rice bran oil is produced and rest of 83.60 % bye product i.e. DORB is produced, which is exempted from tax under Schedule-I of the VAT Act. Thus, the case of the dealer is covered under this provision as sale price is lower than the cost price. While the benefit granted by the Tribunal would amount to loss to the revenue if the argument of the counsel for the assessee is accepted that cumulative sale price of the taxable product and exempted bye product have to be considered. Present case specifically falls under Section 13(1)(f) of the Act. Supreme Court in the case of Jayam Co. have held that it is not a right of a dealer to get the benefit of ITC but it is a concession by virtue of the provisions of the Act. Further, it is a trite law that whenever concession is given by statute or notification etc., the condition thereof are to be strictly complied with in order to avail such concession. Further, the observation of the Apex Court that how much tax credit is to be given and under what circumstances, is the domain of the Legislature and the Courts are not to tinker with the same - Thus, in the present case by Amending Act of 2010, the Legislature had made specific provision in regard to those cases where the sale price of the manufactured goods was lower than the cost price. Revision allowed.
Issues Involved:
1. Legality of the Commercial Tax Tribunal's decision to grant input tax credit (ITC) of ?1,90,88,763 to the respondent-assessee. 2. Interpretation and application of Section 13(1)(f) of the U.P. Value Added Tax Act (VAT Act). 3. Applicability of Section 13(3)(b) and Explanation (iii) of Section 13 of the VAT Act. Detailed Analysis: 1. Legality of the Commercial Tax Tribunal's Decision: The primary issue is whether the Commercial Tax Tribunal was legally justified in granting the benefit of ITC of ?1,90,88,763 to the respondent-assessee, which was reversed by the assessing authority. The Tribunal's decision was challenged on the grounds that it misinterpreted the provisions of the VAT Act, particularly Section 13(1)(f) and Section 13(3)(b) read with Explanation (iii). 2. Interpretation and Application of Section 13(1)(f): Section 13(1)(f) of the VAT Act, introduced by an amendment in 2010, states that if the goods manufactured by using purchased goods are sold at a price lower than the cost price, the ITC shall be claimed and allowed only to the extent of tax payable on the sale value of the manufactured goods. The State argued that this provision was applicable in the present case because the sale price of rice bran oil (taxable goods) was lower than its cost price. The Tribunal's decision to allow full ITC was contested on the grounds that it ignored the non-obstante clause of Section 13(1)(f), which has an overriding effect over other provisions of Section 13(1). The court upheld the State's argument, emphasizing that the claim of ITC is not a right but a concession granted by the statute. The court noted that Section 13(1)(f) was specifically inserted to protect the State's revenue from losses due to the sale of manufactured goods at prices lower than the cost price. The court referenced the Supreme Court's judgment in Jayam & Co., which held that conditions specified for availing ITC must be strictly complied with, as ITC is a concession and not a right. 3. Applicability of Section 13(3)(b) and Explanation (iii): The respondent-assessee argued that the cumulative sale price of both the taxable product (rice bran oil) and the exempted by-product (DORB) should be considered, and since this cumulative sale price was higher than the cost price, the provisions of Section 13(1)(f) should not apply. Instead, they argued that Section 13(3)(b) and Explanation (iii) should govern the case, which allow ITC in proportion to the extent the purchased goods are used in the manufacture of taxable goods. The court rejected this argument, stating that Section 13(1)(f) clearly applies to situations where the sale price of the manufactured goods is lower than the cost price. The court noted that Section 13(3)(b) and Explanation (iii) are applicable in cases where exempted goods or non-VAT goods are produced as by-products or waste products during the manufacture of taxable goods. However, these provisions do not override the specific condition laid out in Section 13(1)(f). The court also referenced the Supreme Court's judgment in M.K. Agro Tech Pvt. Ltd., which upheld the restriction of ITC in similar circumstances under the Karnataka VAT Act. The court concluded that the Tribunal erred in applying Section 13(3)(b) and Explanation (iii) to grant full ITC to the respondent-assessee. Conclusion: The court set aside the judgments and orders of the Commercial Tax Tribunal, Bareilly Bench, Bareilly, dated 5.7.2017 and 4.5.2016. It held that the Tribunal was not legally justified in granting the benefit of ITC of ?1,90,88,763, which was rightly reversed by the assessing authority. The court allowed both revisions in favor of the revenue and against the assessee, emphasizing that ITC is a concession subject to strict compliance with the conditions laid out in the VAT Act.
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