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TMI Blog2016 (8) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... r of assessee. - TAX APPEAL NO. 216 of 2015 - - - Dated:- 28-7-2016 - MR. AKIL KURESHI, MR. A.J. SHASTRI, JJ. FOR THE APELLANT : UCHIT N SHETH, ADVOCATE FOR THE OPPONENT : MR PRANAV TRIVEDI, AGP ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The appellant assessee has challenged the judgement of the Value Added Tax Tribunal dated 12.12.2014 in the following background. 2. Facts which are not in dispute are that the assessee company purchased timber which are taxable goods, for the purpose of manufacturing and selling logs or sawn timber of specified size. On such raw material, the assessee carries on the process of sawing during which process, in addition to the main product of sawn timber, sawn dust which is used as firewood, would come into existence by way of byproduct. The assessee sales the sawn timber which is also a taxable commodity. The assessee also sales the firewood which is by virtue of entry 23(i) in the First schedule to the Gujarat Value Added Tax Act, 2003 ( VAT Act for short), exempt from payment of tax. The proportion of firewood is about 1% of the raw material. 3. In this background, the question of assessee takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that in terms of section 11(8)(a) of the VAT Act, the assessee was entitled to tax credit on purchase of the goods since the entire quantity was used as raw material in manufacture of taxable goods. He submitted that proviso to subsection (3)(a) of section 11 in such a situation would not apply. Merely because a small portion of the timber by way of waste was sold as firewood, would not mean that the entire quantity purchased by the assessee was not used for manufacturing of taxable goods. He highlighted that the scrap generated during such process was barely about 1% of the entire quantity of timber. Counsel relied on the following decisions in support of his contentions : (1) In case of State of Gujarat v. Jayant Agro Organics Ltd, order dated 10,11,8.2015 passed in Tax Appeal No.1129/2013. (2) In case of Commissioner of C. Ex. Customs, Vadodara1 v. Sterling Gelatin reported in 2011(270) ELT 200 (Guj). (3) On decision of Madhya Pradesh High Court in case of Ruchi Soya Industries Ltd. v. State of MP and others reported in (2014) 70 VST 40 (MP). (4) In case of Swadeshi Polytex Ltd. v. Collector of C. Ex. reported in 1989(44) ELT 794(SC). (5) On decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king of goods so manufactured; 10. Subsection (8) of section 11 reads as under : 8(a) If the goods purchased were intended for the purposes specified under subsection (3) and are subsequently used fully or partly for purposes other than those specified under the said subsection or are used fully or partly in the circumstances described in subsection (5), the tax credit, if availed of, shall be reduced on account of such use, from the tax credit being claimed for the tax period during which such use has taken place and such reduction shall be done in the manner as may be prescribed. (b) Where the capital goods referred to in subclause( vii) of clause (a) of subsection( 3) are not used continuously for a full period of five years in the State, the amount of tax credit shall be reduced proportionately having regard to the period falling short of the period of five years. 11. From the above statutory provisions, it can be seen that as per clause (a) of subsection( 3) of section 11, tax credit under subsection( 1) would be allowed to a purchasing dealer for his purchase of taxable goods which are intended for the purposes mentioned in clauses (i) to (vii). Clause (vi) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Clause (h) of subsection( 5) merely clarifies and declares that notwithstanding anything contained in the Act, tax credit shall not be allowed for purchases of goods which are used in manufacture of goods specified in ScheduleI i.e. goods which are exempt from payment of tax. Likewise, subsection (8)(a) of section 11 applies where the goods are purchased with intention for use of specified purposes under subsection( 3) but are subsequently used or partially for other purposes. On the same logic adopted by us for holding that proviso to subsection (3) (a) would not apply, neither clause(h) of subsection( 5) nor subsection (8)(a) of section 11 would apply. 15. Division Bench of this Court in case of State of Gujarat v. Jayant Agro Organics Ltd, (supra) was considering a situation where the assessee had purchased castor seeds for production of castor oil. After two cycles of extraction of oil from the castor seeds, what was left was a residue known as deoiled cake which was used by the assessee for home consumption as fuel. The department contended that the tax credit, to the extent the castor seeds were used for production of deoiled cake, would not be available in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also has a value. He cannot keep that deoiled cake in his premises as it could occupy a large space and no purpose would be served by keeping the same. Merely because the said deoiled cake also has a value and he sells the same, there is no justification to deny the benefit of deduction to the assessee, because there is no direct nexus between the sunflower oil cake and the deoiled cake. Sunflower oil cake was purchased for the purpose of extracting oil from the said cake and for the sale of the deoiled cake, the assessee has not putup a separate unit. Therefore, it is not the case that assessee has putup a separate industry for the purpose of manufacture of deoiled cake and merely because the deoiled cake has some value and it is sold, that would not take away the benefit conferred on the assessee by the statute. A harmonious interpretation of Sections 10, 11(a) (1) and 17 of KVAT Act and Rule 131 of the Karnataka Value Added Tax Rules, 2005, makes it very clear that it is only when there is direct relationship to the taxable sales, the assessee is entitled to the benefit. The assessee cannot be denied the benefit, taking into consideration the sale of deoiled cake which is an e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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