2024 (6) TMI 384 - HC - VAT and Sales Tax

Rejection of claim of proportional Input tax credit - normal loss/material loss due to spillage, ground loss, and during transportation - Section 19 of the KVAT Act - HELD THAT - On plain reading of Section 19, it is clear that when a registered dealer has deducted input tax on any goods, and those goods are not used in the course of his business or lost or destroyed, input tax deducted is repayable. Section 19 (1) of the KVAT Act does not provide for any exception from repayment of input tax credit when the goods are not used in the course of business or lost or destroyed, with reference to any nature of business, circumstances or situation. It is settled position of law, while interpreting the fiscal statute, the provision has to be read on its plain text without reading in or reading out words. In the facts of the present case, it is undisputed that the Iron ore valued at Rs. 85,08,160/- is not used in the course of business. Hence, the authorities have rightly held that proportionate input tax credit is to be repayable by the petitioner. The Co-ordinate Bench of this Court in the case of State of Karnataka vs. Deccan Mining Syndicate Private Limited, Race Course Road, Bangalore 2021 (3) TMI 525 - KARNATAKA HIGH COURT was dealing a different factual situation. The dealer therein was transporting Iron ore by rail to the ports for onward exports. On stock verification, the authorities found that there was shortage of few metric tons of Iron ore. The prescribed authority issued proposition notice, treating the difference as suppressed taxable turnover on the basis of the report of Central Bureau of Investigation (CBI). This Court held that merely because there is a shortage of stock, the difference cannot be held to be suppression that too on the basis of the report of the CBI. There is a possibility of transit / handling loss. The other judgments of the Madras High Court deals with Section 19 (9) of the TNVAT Act wherein the goods were used in the course of business and the quantity of goods lost was considered as invisible loss in the process of manufacture. The nature of loss claimed in the present case i.e. due to transportation, handling, processing, ground loss etc., are not the nature of losses as considered by the Madras High Court. In fact, Section 19 (9) of the TNVAT Act specifically disentitles the input tax credit to the goods lost in transit or for any other reason. In view of the above distinction, the judgments relied upon by learned counsel for the petitioner are of no assistance. The finding recorded by the authorities and the Tribunal does not call for interference and question of law is to be answered in the affirmative - Petition dismissed.

Summary

Issues Involved:
1. Whether the Tribunal was right in not allowing ITC on normal loss/material loss due to spillage, ground loss, and during transportation?
2. Whether the Tribunal was right in disallowing ITC as per Section 19 (1) of the KVAT Act?
3. Whether Section 19 is applicable in the petitioner's case?
4. Whether the Tribunal was right in confirming the order of the audit authority and appellate authority?
5. Whether the words used in Section 19 (1) "lost or destroyed" are applicable to normal loss, material loss due to spillage, grounds loss, etc.?
6. Whether the Tribunal was right in extending the provisions of Section 19 (1) to normal loss, material loss due to spillage, grounds loss, etc.?
7. Whether the Tribunal was right in not following the judgment rendered under the Central Excise Act?
8. Whether the Tribunal was right in dissolving the ITC at 0.65% on wastage/loss due to spillage, handling, ground loss, etc.?
9. Whether the Tribunal was right in partly allowing the appeal?

Detailed Analysis:

1. ITC on Normal Loss/Material Loss:
The court examined whether the Tribunal was correct in denying Input Tax Credit (ITC) on losses due to spillage, ground loss, and during transportation. The Tribunal had upheld the view that such losses do not qualify for ITC under Section 19 (1) of the KVAT Act. The court supported this interpretation, stating that the losses in question do not fall under exceptions provided by the statute.

2. Disallowance of ITC under Section 19 (1):
The court confirmed that Section 19 (1) mandates repayment of ITC if the goods are not used in the course of business or are lost or destroyed. The petitioner's argument that the losses were part of normal business operations was rejected. The court emphasized the need to interpret fiscal statutes strictly, without adding exceptions not explicitly provided by the law.

3. Applicability of Section 19:
Section 19 was deemed applicable to the petitioner's case because the iron ore losses occurred due to transportation, handling, processing, and ground loss. The court noted that these losses meant the goods were not used in the course of business, thus triggering the repayment of ITC as per Section 19 (1).

4. Confirmation of Audit and Appellate Authority Orders:
The Tribunal's decision to confirm the orders of the audit authority and the appellate authority was upheld. The authorities had correctly applied Section 19 (1) of the KVAT Act, and the petitioner was required to repay the proportionate ITC for the lost iron ore.

5. Interpretation of "Lost or Destroyed":
The court clarified that the terms "lost or destroyed" in Section 19 (1) include normal losses such as those due to spillage, transportation, and ground loss. The petitioner's interpretation that these losses should not be considered as "lost or destroyed" was rejected.

6. Extension of Provisions to Normal Loss:
The Tribunal's extension of Section 19 (1) provisions to normal losses was affirmed. The court found no basis for excluding such losses from the scope of the statute, reinforcing the need for strict interpretation of fiscal laws.

7. Non-Application of Central Excise Act Judgments:
The court noted that the judgments under the Central Excise Act cited by the petitioner were not relevant to the interpretation of Section 19 of the KVAT Act. The specific context and statutory framework of the KVAT Act required a distinct interpretation.

8. ITC Dissolution at 0.65%:
The Tribunal's decision to dissolve ITC at 0.65% on wastage/loss was upheld. The court found that the Tribunal had correctly applied the law in determining the proportionate ITC to be repaid based on the documented losses.

9. Partial Allowance of Appeal:
The Tribunal's partial allowance of the appeal was affirmed. The court found that the Tribunal had appropriately balanced the application of the law with the facts of the case, leading to a fair and just outcome.

Conclusion:
The court dismissed the petition, affirming the Tribunal's findings and the application of Section 19 (1) of the KVAT Act. The question of law was answered in the affirmative, supporting the respondent authorities and requiring the petitioner to repay the proportionate ITC for the lost iron ore. No costs were awarded.