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TMI Blog2014 (7) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to deny the benefit of deduction to the assessee, because there is no direct nexus between the sunflower oil cake and the de-oiled cake. Sunflower oil cake was purchased for the purpose of extracting oil from the said cake and for the sale of the de-oiled cake, the assessee has not put-up a separate unit. Therefore, it is not the case that assessee has put-up a separate industry for the purpose of manufacture of de-oiled cake and merely because the de-oiled 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 is entitled to the benefit of 'Full Input Tax Deduction' - appeal allowed - decided in favor of appellant. - Sales Tax Revision Petition Nos. 774 to 794 of 2013 - - - Dated:- 17-7-2014 - N. Kumar and B. Manohar, JJ. For the Appellant: T.N. Keshava Murthy, Advocate For the Respondent: S. Sujatha, Government Advocate O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions it has failed to establish the claim of deductible input tax on direct method as explained to segregate non-deductible input tax. The Tribunal held that the First Appellate Authority was justified in invoking Section 17 of the Act and denying partially the benefit of deduction of input tax. Aggrieved by the said order, the assessee is before this Court. 2. Learned Counsel for the assessee assailing the impugned order contends that the assessee is engaged in the manufacture of sunflower oil from the sunflower oil cake. The sunflower oil is taxable goods. Incidentally, the de-oiled cake comes as a by-product which is sold by it which is an exempted goods. But that should not be the reason to deny the benefit of deduction of input tax relying on Section 11(a)(1) of the Act. The authorities have not properly appreciated the case of assessee and committed error in denying the said benefit. 3. Per contra, learned Additional Government Advocate, supporting the impugned order, contends that it is not in dispute that the assessee is engaged in the business of extraction and selling of sunflower oil and also de-oiled cake which is an exempted product. Therefore, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t tax deductible by a dealer exceeds the output tax payable by him, the excess amount shall be adjusted or refunded together with interest, as may be prescribed . However, Section 11 prescribes the restrictions of input tax. The relevant provision for consideration in this case is Section 11(a)(1), which reads as under: 11. (a)(1) tax paid on purchases attributable to sale or manufacture or processing or packing or storage of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India. ................ 5. It is to be noticed that at the inception, the words 'Manufacture or processing or package or storage' were not conspicuously mentioned in the said provision. Those words were inserted by way of amendment by Act No. 5 of 2008 and it has been given retrospective effect from the inception i.e., 1-4-2005. 6. Section 17, on which reliance is placed by the Revenue and which deals with partial rebate, reads as under: 17. Partial rebate.--Where a registered dealer deducting input tax.-- (1) makes sales of taxable goods and goods exempt under Section 5; or (2) in addition to sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 5 are not deductible in calculating the net tax payable by such assessee. In other words, the condition precedent for having the benefit of input tax deduction is that the goods sold or manufactured by the assessee should be liable to tax under the Act. If no output tax is payable, then the question of deducting input tax in order to calculate the net tax would not arise. 9. Section 17 deals with the partial rebate. If a cealer/assessee makes sales of taxable goods and goods exempted under Section 5, then, the apportionment and attribution of input tax deductible between such sales and despatches of goods shall be made in accordance with rules. Rule 131 provides for apportionment. Sub-rule (1) of Rule 131 categorically states that all input tax directly relating to sale of goods exempt under Section 5 is non-deductible. However, sub-rule (2) makes it clear that all input tax directly relating to taxable sales may be deducted subject to the provisions of Section 11. Therefore, the words 'Direct Relation' are used between the goods in respect of which input tax is paid and goods in respect of which output tax is payable. There should be a direct nexus. As is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the rule that object of the Legislature has to be kept in view and a construction consistent with the object has to be placed on the words used if there be ambiguity, is also applicable, in construing a taxing enactment. An exemption granted under a fiscal statute is a concession granted by the Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay. Therefore, in the instant case, if a literal construction is adopted, it leads to absurdity and it would defeat the object of the Act and the benefit conferred on the assessee by the Legislature is denied. On the contrary, purposive construction would achieve the object sought to be achieved. 10. In this case it is not in dispute that the assessee is in the business of sale and manufacture of sunflower oil from sunflower oil cake had applied solvent extraction process. He did not set up any industrial unit for the purpose of manufacturing de-oiled cake. The entire raw material named as sunflower cake purchased is for the manufacture of sunflower oil. But, in the process, after the entire sunflower oil is extracted, de-oiled cake remains. The said de-oiled ..... X X X X Extracts X X X X X X X X Extracts X X X X
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