2021 (4) TMI 133 - HC - VAT and Sales Tax

Restriction on Input tax credit - job-work - purchase of capital goods which are wholly or partially used in the business of the taxable goods - non-differentiation of difference between the trading goods and capital goods in case of utilizing them for other purposes other than trade - Rule 131 of the KVAT Rules - HELD THAT - From Sections 12 and 17 of the KVAT Act, it is crystal clear that when the goods are partly used in their business of taxable goods and partly used for any other purpose (other than sale, manufacturing, processing, packing or storing of goods), then the apportionment has to be done keeping in view the formula prescribed under Rule 131 of the KVAT Rules. In the present case, the petitioner has purchased capital goods from local Registered Dealers and claimed the benefit of input tax credit on such purchase. It is an admitted fact that the petitioner has not only used the capital goods for the purpose of manufacturing or processing the taxable goods but also for non taxable transactions, like job work - The procedure to claim the benefit of input tax rebate in respect of local Registered Dealer purchases of capital goods is laid down under Rule 133 of the KVAT Rules. The amended Rule 133 came into force w.e.f., 1.4.2006 and provides that where a registered dealer carries on the business in taxable as well as exempted goods or exempted transactions and taxable transactions, the input tax deduction on capital goods be allowed proportionately, keeping in view the formula laid down under Rule 131 of the KVAT Rules. Rule 133(c) of the KVAT Rules clearly specifies that where the use of capital goods relates, to both the sale of goods in the course of export out of the territory of India or sale of taxable and exempt goods and also to taxable goods that are disposed otherwise than by way of sale or non taxable transactions, the non deductiable element of input tax shall be calculated on the basis of the formula specified under Rule 131 of the KVAT Rules. The orders passed by the authorities and the Tribunal do not warrant any interference as apportionment was rightly done keeping in view the formula provided under Rule 131 of the KVAT Rules - substantial questions of law are answered against the petitioner and in favour of the Revenue - Petition dismissed.

Summary

Issues:
1. Interpretation of Section 12 of the KVAT Act regarding input tax credit on capital goods
2. Application of Section 17 of the KVAT Act to input tax credit on capital goods
3. Differentiation between trading goods and capital goods for input tax credit purposes

Analysis:

Issue 1: Interpretation of Section 12 of the KVAT Act regarding input tax credit on capital goods
The petitioner, a partnership firm engaged in manufacturing, filed returns under the KVAT Act, claiming input tax credit on purchases of capital goods. The assessing officer restricted the credit, leading to appeals and subsequent orders. The petitioner argued that input tax credit should be allowed for job work as well. The Court examined Section 12 of the KVAT Act, which allows input tax credit on capital goods subject to certain conditions. The Court noted that the apportionment of input tax deduction should be done as per Rule 131 of the KVAT Rules when capital goods are used for multiple purposes, including job work.

Issue 2: Application of Section 17 of the KVAT Act to input tax credit on capital goods
The Court analyzed Section 17 of the KVAT Act, which deals with the partial rebate and deduction of input tax in various scenarios. It was observed that when capital goods are used for both taxable and non-taxable transactions, the input tax deduction should be calculated based on the formula specified under Rule 131 of the KVAT Rules. The Court upheld the assessing officer's decision to apportion the input tax credit in accordance with Rule 131.

Issue 3: Differentiation between trading goods and capital goods for input tax credit purposes
The petitioner contended that job work should not fall under the purview of Section 17 of the KVAT Act, and hence Rule 131 should not apply. However, the Court found that as per Sections 12 and 17 of the KVAT Act, apportionment of input tax credit is necessary when goods are used for both taxable and non-taxable purposes. The Court emphasized that Rule 133 of the KVAT Rules specifies the calculation of non-deductible input tax on capital goods based on the formula under Rule 131.

In conclusion, the Court dismissed the petition, ruling in favor of the Revenue, as the apportionment of input tax credit on capital goods was correctly done in accordance with the provisions of the KVAT Act and Rules. The judgment highlighted the importance of following the prescribed formulas and rules for claiming input tax credit on capital goods used for various purposes.