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TMI Blog2017 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka). 2. The question of law which arises from the order of the Tribunal for our consideration is as under: "Whether the tax paid by the assessee, a manufacture of cement, is entitled to claim input tax credit in respect of the tax paid by it on the purchase of cement prior to its commencement of commercial production and such cement being used for laying the foundation and erection of cement manufacturing plant and machinery, in view of Sections 11 and 12 of the KVAT Act? " 3. The learned Tribunal below has decided the issue against the petitioner assessee while giving the following reasons in paragraphs 11 and 12 of its order, while on other points for the claim of the assessee of input tax credit on consumables like oxygen gas, welding rods, lubricants and grease, etc. since the matter was remanded back by the Tribunal to the lower authority, therefore, we are not concerned with such other issues, except the issue of allowability of input tax credit in respect of the tax paid on the cement purchased by the assessee and such cement being used for civil work of foundations and other civil erection works for establishment of plant and machinery by the petitioner-assessee. Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KVAT Act 2003. Secondly, factory building and silos as well as foundation, even though immoveable property, as goods in the nature of plant, by no stretch of imagination, the cement which is one of the raw materials used for the construction of factory building or silos or foundation cannot be considered as capital goods. The very expression capital goods imply assets which are having longer life and such assets are of in the nature of depreciation value. The case laws relied by the appellant are all related to plant in different contexts and the same are not applicable in the instant appeals as they have direct bearing on the interpretation of the expression plant and not on the the raw materials or inputs which are used to construct such plant. Secondly, the decisions rendered by the CESTAT under the Central Excise Law is with reference to Rule 2(k) and Rule 57Q where the specific meaning has been assigned for the expression input and in fact the said rules provides for input tax credit on inputs purchased and used to manufacture capital goods. Hence, these two decisions of CESTAT do not apply in the present case as neither Section 12 or any other Section under the Act or any rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Section 11(a)(2) and Section 12 of the KVAT Act, as such, the petitioner assessee would be entitled to claim the input tax credit in respect of tax paid by it on purchase of such cement against the output tax later on payable by it on the sale of cement manufactured by it, as the authorities below, including the Tribunal, have failed to appreciate the correct position of law in this regard and the provisions of the Act and therefore, the question of law deserves to be answered in favour of the petitioner assessee and the orders by the authority below deserve to be quashed and set aside to this extent. They relied upon several case laws in support of their this principal contention which would also be briefly discussed hereinafter. 5. On the other hand, Mr.M. Kumar, learned Additional Government Advocate appearing for the State, vehemently submitted that cement cannot form part of the "plant" by any stretch of imagination and being a specified commodity in Fifth Schedule prescribed under Section 11(a)(3) of the KVAT Act, which specifies the restricted goods for denying the input tax credit, Item No.5 therein specifically includes cement and other construction materials including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods or captive power, input tax shall be deducted as provided in Section 14. (7) tax paid under sub-section (2) of Section 3 on the purchase of fuel; (8) tax paid under sub-section (2) of Section 3 on the purchase of goods excluding fuel, until output tax is payable on such goods or other goods in which such goods are put to use except when the said goods are exported out of the territory of India; (9) tax paid on goods purchased by a dealer who is required to be registered under the Act, but has failed to register. (b) Input tax shall not be deducted by an agent purchasing or selling goods on behalf of any other person other than a non-resident principal. (c) Input tax shall not be deducted by any dealer executing a works contract, (i) in respect of the amount paid or payable to any sub-contractor as the consideration for execution of part or whole of such works contract for him, that is claimed as deduction; and (ii) in respect of the amount actually expended towards labour and other like charges not involving any transfer of property in goods in connection with the execution of works contract, that is claimed as deduction. (d) Notwithstanding anything containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for input tax restrictions stipulates that tax paid on goods as specified in the Fifth Schedule, shall not be deducted in calculating the net tax payable if such Fifth Schedule goods are purchased and put to use for the purpose other than for (i) resale; (ii) manufacture or any other process of other goods for sale. Therefore, if the Fifth Schedule goods are purchased and put to use for manufacturing of other goods, restriction of claiming input tax credit in respect of such Fifth Schedule goods will not apply to the assessee and the assessee would be entitled to claim input tax credit even in respect of Fifth Schedule goods against the output tax payable by him. 10. In the present case, though the cement is specified in item No.5 of Fifth Schedule, since the cement in the present case was admittedly utilised for laying down of foundation and civil works for erection of cement manufacturing plant and machinery itself, such cement, along with the plant and machinery itself, should be deemed to be used for the purpose of manufacturing of other goods for sale, namely cement itself, after the commencement of commercial production. Therefore, it falls in exception of negative clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Hindustan Uniliver Limited Vs. State of Karnataka [2016] 90 VST 236 (Karn), wherein the Division Bench of this Court, relying upon the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki Limited Vs. Commissioner of Central Excise, [2010] 1 GSTR 200 (SC) : [2009] 240 ELT 641 (SC) : [2009] 9 SCC 193, held that installation of electrical and electronic goods which have nexus to the manufacturing process like the Speeder System used in that case to provide backup electricity in the manufacturing process, the Court allowed the input tax credit in respect of the tax paid on such Speeder System under the provisions of KVAT Act dealing with Section 11(a)(2) and Fifth Schedule of the KVAT Act in the following manner: "If the goods specified in the Fifth Schedule to the Act are purchased and put to use for the purpose of resale or for manufacture or for the process of other goods for sale, the input-tax credit would be available. Once the goods are purchased in furtherance to or for aiding the manufacturing process, the same will have a direct nexus to the manufacturing activity and there is no reason why they could be treated as an independent capital goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing the finished product and he has paid input tax on such consumables. But, this business of job work is in the course of his business. Therefore, by virtue of sub-section (2) of Section 10, if he has paid input tax on consumables which is used in the course of his business, though in the course of job work he is not liable to pay any output tax, still in the taxable turnover of the said business, he is entitled to claim deduction of this input tax, however, subject to the restriction specified in Sections 11, 12, 13, 14, 17 and 18 of the Act. Therefore, the argument that as no output tax is payable on this turnover of the job work, the assessee is not entitled to the benefit of input tax rebate cannot be accepted. When the consumables are used in the job work in respect of which no output tax is payable by the assessee or used in the manufacturing activity and used in the manufacturing activity undertaken by the assessee on his own and when the said manufactured goods are sold there is liability to pay output tax by the assessee. The assessee is entitled to the benefit of input tax rebate on the total taxable turnover of his business. Therefore, the approach of the lower auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipment are eligible to capital goods credit under Rule 57Q. " 17. Now, we may refer to some cases under the Income Tax laws dealing with the definition of 'Plant' which have a bearing on the present controversy before us as well. 18. In the case of M/s. Jayadev Oil Mill, Hubli, Vs. The Additional Commissioner of Commercial Taxes, Belgagum, a Division Bench of this Court in STA No.23 of 1994 decided on 20th February 1996, heavily relying upon the decision of the Hon'ble Supreme Court in the case of Scientific Engineering House Private Limited Vs. Commissioner of Income Tax, Andhra Pradesh, (1986) 157 ITR 0086 (SC), held as under: " 10. In deciding whether a 'building' or a structure is a plant, the functional test has to be applied as indicated in the said decisions. If the 'building' is an apparatus or tool used by the Assessee for carrying on the business or manufacturing activity, then it would be part of the 'plant'. If on the other hand, if a building or a part of a building has no connection with the business or manufacturing activity that is being carried on, then obviously such a building or portion of the building will not be part of the plant. These aspects of the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able, live or dead, which he keeps for permanent employment in his business." In other words, plant would include any article or object fixed or movable, live or dead, used by businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant the article must have some degree of durability, as for instance, in Hinton v. Maden & Ireland Ltd., 39 I.T.R. 357, knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In C.I.T. Andhra Pradesh v. Taj Mahal Hotel, 82 I.T.R. 44, the respondent, which ran a hotel, installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipe-line fittings installed fell within the definition of plant given in Sec.10(5) of the 1922 Act which was similar to the definition given in Sec. 43(3) of the 1961 Act and this Court after approving the definition of plant given by Lindley L.J. in Yarmouth v. France as expounded in Jarrold v. John Good and sons Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question was whether the silos is part of the setting in which such trade was carried on. It was found that considering the function of the silos in relation to the assessee's trade, the silos served as an essential part of the overall trading activity. Their function was to hold the grain in a position from which it could be conveniently discharged in varying quantities. Hence, it was held that the silos would rank for capital allowance. In CIT v. Kanodia Cold Storage, the question was whether the building with insulated walls used as a freezing chamber, though it is not machinery or part thereof, is part of the air- conditioning plant of the cold storage of the assessee, entitled to special depreciation on its written down value. In the specific facts of the case, the whole freezing chamber including walls and structure was held to be a plant with which the assessee was carrying on his business activity. On the analogy of the above cases, Sri Prasad, learned counsel for the assessee, contended that the whole theatre should be treated as plant with which the assessee carries on his show business. The other decision to which specific reference may be made here is Benson v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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