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TMI Blog2015 (10) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... We are treating Writ Petition (MS) No. 532 of 2013 as the leading case. 3. The appellant Company, which has manufacturing unit in the State of Uttarakhand, purchases raw material and packing material for manufacture of soaps, detergents, creams and tooth-pastes. Towards the manufacture of the aforesaid products, it purchases raw material and packing material in the State of Uttarakhand. The Uttarakhand Value Added Tax Act, 2005 (hereinafter referred to as the "Act") provides for Input Tax Credit (hereinafter referred to as "ITC"). The complaint in the writ petitions relate, essentially, to refusal to grant ITC in respect of packing materials purchased from within the State of Uttarakhand used in the manufacture of the products of the appellant, which products are, thereafter, transferred by way of stock transfer to outside the State of Uttarakhand. It is the case of the appellant that, after the Act came into force in 2005, assessments were completed for the years 2005-2006, 2006-2007 and 2007-2008, wherein returns were finalized, which countenanced grant of ITC in respect of packing materials of products, which were sent outside the State by way of stock transfer. A Circular was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand suffer higher rate of tax as compared to other States be declared unconstitutional being violative of Article 301 and 304 of the Constitution. (d) to restrain the Respondents from recovering the differential tax on the basis that no input tax credit is available on packing materials used in the manufacture of final products which are depot transferred and sold in other States. (e) to declare and hold that in any event, the expression 'raw materials' would encompass within its ambit packing materials but for which goods cannot be brought into the market in marketable state. (f) to stay the operation of the Order dated 29th November, 2012 passed by Respondent No. 3 and the consequential demand issued by the 3rd Respondent as well as Circular dated 23rd January 2013 issued by the Second Respondent and allow the Petitioners to take benefit of input tax credit on packing materials used in the manufacture of depot transferred goods, pending disposal of the present petition." 4. The learned Single Judge, however, took the view that there is no merit in the writ petitions and declined relief. Accordingly, feeling aggrieved, the appellant is before us. 5. We have heard Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hased from the State of Uttarakhand only when there is an intra-State sale in the State of Uttarakhand or there is a sale in the course of inter-State trade or commerce. The State only intended to extend the benefit of ITC in respect of stock transferred materials by confining the benefit to the raw materials involved in the production of such goods, as is clear from the proviso. He also drew our attention to Section 6(8) (f) & (g), to which we shall make reference later. He would further submit that a reading of the Circular issued in the year 2008, relied on by the appellant, would not yield the result, which the appellant is canvassing for. He would also submit that the later Circular issued in the year 2013 was issued to clarify the position. He would submit that the legislative competence of the State is not impugned and, therefore, the judgment of the learned Single Judge is only to be supported. 8. It is necessary to refer to the relevant provisions of the Act. Section 6 deals with ITC. We deem it necessary to refer to Section 6(1)(2)(3) & (4). They read as follows: "Section 6: Input Tax Credit.- (1) Input Tax Credit shall be allowed only to a registered dealer, and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inter-State trade or commerce; (e) use as raw material and consumables in manufacturing or processing of any goods (other than those specified in Schedule III) and containers and other packing materials used for packing of such manufactured goods, for sale in the course of export of goods out of the territory of India: Provided that with reference to clause (d) above, in case such finished products are dispatched outside the state other than by way of sale, a partial amount of input tax credit shall be allowed in respect of tax paid in excess of 2 percent on the raw materials used directly in the manufacture of such finished products. Provided further that partial input tax credit shall be allowed in respect of tax paid in excess of 2 percent on petroleum products used as fuel (other than Petrol Aviation Turbine Fuel, Natural Gas and Diesel) and other fuels used in production of taxable goods or captive power, but excluding fuel when used as fuel in motor vehicles. (4)(a) Where during a tax period a registered person purchasing goods (other than capital goods) on which an input tax credit is admissible under the provisions of this section, and the purchases are used part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be given so as to interfere with the discretion of the Joint Commissioner (Appeals) in the exercise of his appellate functions. (3) The Commissioner shall have all the powers exercisable by his subordinate authorities other than the Appellate Authorities under Section 51." 11. It is the case of Mr. C.S. Lodha, learned counsel for the appellant, that, if the proviso to Section 6(3)(d) is, for a moment, treated as not having been inserted, the Court may contemplate the effect. It is his case that, all that the Legislature intended, was that, in respect of packing materials, there was no limit to the claim of ITC and, even when the finished goods are dispatched by way of stock transfer, by the proviso to clause (d), all that is intended is that the ITC in respect of raw materials was sought to be restricted to the amount in excess of 2 per cent as the State wanted to retain the tax accordingly in respect thereof. He would submit that Section 6, which provides for ITC, on being read as a whole, provides in sub-section (1) and first sentence that ITC is to be determined as per the provisions of the Act in respect of taxable sales and it provides, inter alia, that it shall be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of ITC in respect of packing materials on stock transferred goods and it is, thereafter, that the Circular followed as aforesaid. The appellant, without any fault attributable to it, arranged its affairs on the strength of the understanding of the law, which was also, apparently, shared by the authorities themselves and, therefore, he would submit that, in such circumstances, the Circular must, at any rate, hold the field in regard to the years in question. He relied on the following judgments: i. State of Kerala & others vs. Kurian Abraham (P) Ltd. & another, reported in (2008) 3 SCC 582 ii. Commissioner of Customs, Calcutta vs. Indian Oil Corporation Ltd., reported in 2004 (165) ELT 257 (SC) iii. Union of India vs. Arviva Industries (I) Ltd., reported in 2007 (209) ELT 5 (SC) iv. Poulose and Mathen vs. Collector of Central Excise & another, reported in (1997) 3 SCC 50. v. Collector of Central Excise, Patna vs. Usha Martin Industries, reported in (1997) 7 SCC 47 vi. Ranadey Micronutrients vs. Collector of Central Excise, reported in (1996) 10 SCC 387 vii. Paper Products Ltd. vs. Commissioner of Central Excise, reported in 1999 (112) ELT 765 (SC) viii. H.M. Bags Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kash Associates Limited, reported in 2014 (4) SCC 720. 16. He would submit that the Hon'ble Apex Court has held that differential treatment, be it by the grant of an exemption or a tax rebate, besides of course the actual differential treatment in taxation, is frowned upon having regard to the clear mandate of Article 301 that there shall be freedom of trade and commerce throughout the territory of India. He would ask us to postulate whether, when it is not open to the State to treat goods brought from outside differently in the field of taxation from the goods which are produced within the State, would it be open to the State of Uttarakhand to attempt to attain the same by granting full credit for the ITC in respect of raw materials, when all the other States have, in fact, adopted a uniform practice of giving ITC in excess of 2 per cent in respect of stock transferred goods. Even that would be impermissible, he contends. Equally, he would submit, afflicted with the vice of unconstitutionality as it would fall foul of Article 301 would be the Act if it were not read down to mean that ITC is also available to a manufacturer within the State of Uttarakhand, who purchases packin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 15 or Section 16 for the purpose of using the said goods as raw materials and consumables in manufacturing or processing of goods or for use as containers or other packing materials of such manufactured goods. However, the last limb of clause (d) puts the matter beyond the pale of doubt that it is not the mere use of the goods as raw materials or consumables or containers or packing materials that alone is required. The purpose is further explained; in that, the manufactured goods must be for sale or for re-sale within the State, or, sale or re-sale in the course of inter-State trade or commerce. It is also to be noted that the goods specified by the manufactured goods must be other than those specified in Schedule I or Schedule III. It is to be noted that Schedule I of the Act deals with goods on which no tax is payable either on the sale or purchase. In other words, they are exempted goods within the meaning of Section 4(2)(a) of the Act. Schedule III of the Act deals with goods, which are treated as special category goods, and, in respect of which, the point of taxation is the point, which is specified in Column (C) and at the rate which is provided therein. It is relatable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that the proper construction to be placed of Section 6(3)(d) in the context of the proviso, which refers to clause (d), is that the law-giver intended to include purchase of goods used as raw materials, consumables, containers and packing materials used for the packing of manufactured goods other than those following in Schedule I or Schedule III, when the manufactured goods are sold or re-sold in the State of Uttarakhand or in the course of inter-State trade or commerce. Dispatching of the goods by way of stock transfer is not to be confused with or treated as an inter-State sale. The Legislature has clearly not intended to given benefit of ITC in regard to packing materials used for packing of manufactured goods when they are dispatched outside the State by way of stock transfer. This effect is undeniable and flows clearly from the language used in Section 6(3)(d) of the Act. On the other hand, only if there is a intra-State sale or inter-State sale of the finished goods, will ITC be available on the tax paid on the packing materials used for packing of those manufactured goods covered by Section 6(3)(d). The proviso, in our view, is intended only to give a benefit not covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of this Section and the purchases are used partially for various purposes as provided in sub-section (3) and he also uses it for other purposes [meaning the purposes which are not provided in Section 6(3)], then ITC is not to be denied totally. On the other hand, the Legislature intended that the dealer would be entitled to ITC in proportion to the extent that the goods are used for the purposes which are covered by Section 6(3) and, thereafter, the provision contains the words "and such different purposes include". It must be, at once, noticed that the Legislature has used two words, namely, "various purposes" and "different purposes". The words "various purposes" have been used in connection with sub-section (3) as that is made clear expressly in Section 6(4)(a) itself. The use of the purchases, which have been made, may be made by a dealer partially for the different purposes; but the ITC is to be confined to the extent that they are used for those purposes, which are mentioned in Section 6(3) only and it is, thereafter, that Section 6(4)(a) provides that such different purposes include the various categories of transactions mentioned in clauses (i), (ii) & (iii). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able as per provisions of Section 6, beyond the CST rate effective from 1st April, 2008." 24. The further portion, which refers to Section 6(4), is contained in the following sentence: "If the dealer, in addition to sale of finished goods, stock transfers the goods or makes consignment sale or sells taxable goods as well as tax exempt goods, then the benefit of ITC will be available under Section 6(4)." 25. Taking the last sentence first, we are of the clear view that all that flows from the aforesaid portion of the circular is in keeping with the interpretation which we have placed. The author of the Circular intended to clarify that if 'different' or hybrid transactions falling under Section 6(3) and outside of Section 6(3) take place, the benefit would be available as provided in Section 6(4), namely, apparently, in tune with the proportion of the use for the sanctioned purposes. We see nothing in it, which could have created an impression in the mind of a dealer that could have led him to arrange his affairs on the basis of an understanding, which would be in the teeth of the clear provisions of Section 6(3)(d) or the proviso thereto. 26. No doubt, in the earlier porti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also notice that, in the very same Circular, it is also provided in clause (11) as follows: "11. After the purchase of raw materials, the finished goods stock transfer or sale of the consignment the ITC benefit shall be given more than 4% up to 31.3.2008 and after 31.3.2008 more than the rate of CST." 28. We also are conscious of the form under the Rules as hereunder: "(d) Tax paid in excess of 4% on purchase of raw material used in manufacturing or packing of such manufactured taxable goods in respect of Goods which are dispatched outside the State other than by way of sale." 29. It may be true that it may give an impression that ITC is available even in respect of packing materials in regard to stock transferred goods. To our minds, the provision of Section 6(3)(d) and the cognate provisions contained in the proviso thereto, leave us in no doubt that the Legislature never intended to give the benefit of ITC in regard 'packing materials' in connection with stock transfer of finished products. As we have noted, the Circular also cannot be clearly understood in the manner as it is suggested. At any rate, the Circular is not free from ambiguity for the reasons we have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which amount the ITC benefit is given the trader. In addition to that in which cases the tax assessment is still to be taken, at the time of tax assessment the above points be taken into cognizance and according to direction the action be ensured. The most periodic statement was filed and in the aforesaid matter the packing material also 2% more benefit is given on stock transfer/consignment, its annual tax assessment/temporary tax assessment as the case may be, priority should be ensured. The above directions be strictly complied. Sd/- (Saujanya) Tax Commissioner Uttrakhand" 31. It is, now, ripe for us to consider the further arguments based on the effect of the Circulars. Circulars issued under Section 119 of the Income Tax Act and Section 37-B of the Central Excise Act have been in the forefront of provisions receiving judicial attention. In regard to Circulars issued under Section 37-B, we would think they fall in a special category. This is for the reason that Circulars have been issued in regard to the attainment of uniformity in classification of goods when the authorities themselves, on a conspectus of various entries, seek to guide the world by issuing Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d & another, reported in (2011) 13 SCC 247. 33. In the case of Collector of Central Excise, Patna vs. Usha Martin Industries, reported in (1997) 7 SCC 47, the Hon'ble Apex Court, no doubt, inter alia, held as follows: "22. We may observe particularly that a special aspect highlighted by the Bench in Poulose and Mathen vs. Collector of Central Excise [1997(90) ELT 264] is apposite for fastening the revenue with binding force as regards the instructions issued, while constructing a notification which was not free from doubt, Learned judges in that decision have observed thus: (SCC p. 58, para 15) "15. One aspect deserves to be noticed in this context. The earlier tariff advice no. 83/81 on the basis of which trade notice No. 222/81 was issued by the Collector of Central Excise and Customs is binding on the department. It should be given effect to. There is no material on record to show that this has been rescinded or departed from, and even so, to what extent. Even assuming that the later tariff advice No.6/85 has taken a different view about which there is no positive material the facts point out that the concerned department itself was having considerable doubts about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade as to how a particular product will be treated for the purposes of excise duty. The Court also held that it does not lie in the mouth of the Revenue to repudiate a Circular issued by the Board on the basis that it is inconsistent with a statutory provision. (emphasis supplied). Consistency and discipline are, according to this Court, of far greater importance than the winning or losing of court proceedings. In the case of Collector of Central Excise, Bombay v. Jayant Dalal Pvt. Ltd. (1997 10 SCC 402), this Court has held that it is not open to the Revenue to advance an argument or even file an appeal against the correctness of the binding nature of the Circulars issued by the Board. Similar is the view taken by this Court in the case of Collector of Central Excise, Bombay v. Kores [India] Ltd. (1997 10 SCC 338)." 36. We may also notice that in State of Kerala & others vs. Kurian Abraham (P) Ltd. & another, reported in (2008) 3 SCC 582, the Court inter alia was dealing with the question arising out of a Circular issued by the Board of Revenue under Section 3 of the Kerala Sales Tax Act. The Hon'ble Apex Court inter alia held as follows: "23. Tax administration is a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government had to step in and grant exemption under Section 10 of the 1963 Act. In this case, we are not concerned with the exemption. Power to grant exemption is certainly with the State Government. The point to be noted is that such exemption was not there during the assessment years 1997-98 and 1998-99. Therefore, the Board consisting of senior officers were aware about the propensity of double taxation. In such circumstances, it was not open to the State to contend before the High Court that the said circular No. 16/98 was not legal." Therein, the Circular issued traced the history of the litigation, relating to taxation of latex and centrifuged latex and the entries inserted and clearly provided its view in the matter. 37. We may, however, notice the judgment of the Hon'ble Apex Court in State of Tamil Nadu & another vs. India Cements Limited & another, reported in (2011) 13 SCC 247. Therein, a Bench of two Judges inter alia held as follows: "29. In Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Industries, a Constitution Bench of this Court has clarified the confusion created on account of the view expressed in para 11 of Dhiren Chemical Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Firm ATB Mehtab Majid and Co. vs. State of Madras and another, reported in AIR 1963 SC 928. Therein, the Hon'ble Apex Court referred to the majority view in Atiabari Tea Co. Ltd. vs State of Assam, reported in (1961) 1 SCR 809 and also Automobile Transport (Rajasthan) Ltd. etc. vs. State of Rajasthan, reported in AIR 1962 SC 1406, and held as follows: "9. The majority view in the Atiabari Tea Co. Case which has been accepted in the Automobile Transport Case (2) is, as expressed by Gajendragadkar, J., at p. 860 : "Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Art. 301......... We arc therefore satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Art. 301 a rational and workable test to apply would be : Does the impugned restriction operate directly or immediately on trade or its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Art. 301 and will be valid only if it comes within the terms of Art. 304(a)." It is relevant to note paragraphs 15 & 16 also. They read as follows: "15. The fact that the impugned rule was made in order to prescribe the single point in the series of sales by successive dealers at which the tax on sale of hides or skins was to be levied, in view of ss. 3 and 5 of the Act, does not justify the making of such a rule which discriminates between the tax imposed on goods imported from outside the State and the goods produced or manufactured in the State. 16. Now, the only question that remains for consideration is whether this rule discriminates between hides or skins imported from outside the State and those manufactured or produced in the State." 41. This was sought to be done by taxing the 'outside goods' at a higher rate, which objective was achieved by many devices. The tax was levied expressly on a discriminatory basis. Subtle innovations at discrimination found expression in the form of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go its revenue by way of ITC being given on the packing material. He would point out that, in fact, the Court may bear in mind the legislative device, which has been adopted in regard to raw materials in the proviso to Section 6(3)(d), as, even in respect of raw materials, when the finished goods are stock transferred though there is no inter-State sale and there could be a complaint of loss of revenue, the Legislature has adopted the practice of retaining the tax to the extent of the rate under the Central Sales Tax Act. He poses a question as to how the State could not have the same policy / practice in respect of packing materials. 43. We are not impressed at all by the said arguments. We would think that to allege lack of wisdom is beyond the province of the court to probe. The Court is concerned only with constitutionality of the statute. It is not concerned with the policy behind the law. All goods, which are manufactured, which otherwise fall within Section 6(3)(d), are treated equally. The State only wished to provide the benefit of ITC in a limited manner even in respect of raw materials used for production of finished goods, which are stock transferred. We cannot deny th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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