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TMI Blog2018 (5) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... either within the State or by way of interState sale and prescribed duty at the prescribed rates was paid - clause(b) of subsection( 3) of section 11 did not apply so as to allow the department to reduce the assessee's tax credit by prescribed percentage. Subclause (iii) of clause(a) of subsection( 3) of section 11 is made specifically subject to the provision of subclause( b). Correspondingly subclause( b) starts with a nonobstante clause providing, that notwithstanding anything contained in the said section, the amount of tax credit would be reduced in the manner provided therein. However, this would not change our opinion on the correct interpretation of the said provision. The question is answered in favour of the assessees and against the department. - Tax Appeal No. 1334 of 2007 With R/Tax Appeal No. 730 of 2017 With R/Tax Appeal No. 731 of 2017 - - - Dated:- 9-3-2018 - MR. AKIL KURESHI AND MR. B.N. KARIA, JJ. For The petitioner : Ms Shruti Pathak For The Respondent : Ms. Sangeeta N Pahwa ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These three appeals present slightly different facts but common question of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and therefore, in terms of section 11(3)(b), the tax credit had to be reduced by 4%. In fact, the Tribunal went to the extent of stating that when the goods had been sent to other State for whatever reason or purpose, section 11(3)(b) would apply. Against this judgment, the assessee is in appeal. 3. Tax Appeal No.731/2017 is filed by the Government in case of M/s. Mohit Industries Ltd. challenging the judgment of the VAT Tribunal dated 13.8.2015. In this case, the respondent assessee is a registered dealer and is engaged in trading of yarn and is also engaged in the process of crimping and texturing. The assessee's place of business is situated at Olpad, Surat and also has a branch at Masat, Union Territory of Silvasa where the assessee's manufacturing unit is located. The appellant would purchase raw material which is POY yarn on which tax would be paid and credit would be available. The assessee would send such duty paid goods for the process of crimping and texturing at its unit at Silvasa. After completing such process, the goods would be transferred back to the assessee's principal place of business at Surat. In this case also, the Revenue objected to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted a serious error in not appreciating the entire process. The assessee sent raw material outside the State to its own branch for carrying out manufacturing activity, upon completion of which the finished goods would be sent back to Gujarat, from where it would be sold within the State as well as outside the State, upon which the duty at the prescribed rates would be paid. Accepting the viewpoint of the Revenue would bring about a situation where the assessee though would have purchased duty paid goods from registered dealers and also paid VAT to the State depending on whether the sale is local sale or interState sale, would be deprived of the benefit of tax credit which is not the intention of the legislature. 6. Learned counsel Ms. Pahwa appearing for M/s. Mohit Industries Ltd. submitted that the Tribunal has in her case considered the issue in proper perspective. In addition to adopting the interpretation canvased by the counsel Shri Soparkar in this regard, she also drew our attention to the rules of other States where under similar circumstances, 6 20 the facility of tax credit is made available to a dealer. For example, she drew out attention to rule 53 of Maharashtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this subsection shall be subject to the provision of subsections (2) to (12); and the tax credit shall be calculated in such manner as may be prescribed. ( 2) The registered dealer who intends to claim the tax credit shall maintain the register and the books of accounts in such manner as may be prescribed. ( 3)(a) Subject to the provisions of this section, tax credit to be claimed under subsection (1) shall be allowed to a purchasing dealer on his purchase of taxable goods which are intended for the purpose of ( i) sale or resale by him in the Sate; ( ii) sale in the course of interState trade and commerce, other than the sales in the course of export out of the territory of India; ( iii) branch transfer or consignment of taxable goods to other States (subject to the provision of subclause( b) below; ( iv) sales in the course of export out of the territory of India; ( v) sales to export oriented units or the units in Special Economic Zones for sale in the course of export out of the territory of India; ( vi) Use as raw material in the manufacture of taxable goods intended for (i) to (v) above or in the packing of the goods so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of interState trade and commerce; ( f) of the goods (not being taxable goods dispatched outside the State in the course of branch transfer or consignment) which are disposed of otherwise than in sale, resale or manufacture; ( g) of the goods specified in the Schedule I or the goods exempt from whole of tax by a notification under subsection (2) of section 5; ( h) of the goods which are used in manufacture of goods specified in Schedule I or the goods exempt from the whole of the tax by a notification under subsection (2) of section 5 or in the packing of goods so manufactured; ( i) of capital goods used in the manufacture of goods specified in Schedule I or the goods exempt from the whole of the tax by a notification under subsection (2) of section 5 or in generation of electrical energy including captive power; ( j) of vehicles of any type and its equipment, accessories or spare parts (expect when purchasing dealer is engaged in the business of sales of such goods) ( k) of the property or goods not connected with the business of the dealer; ( l) of the goods which are used as fuel in generation of electrical energy meant for ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ( b) is cancelled on request by such dealer, and becomes liable to pay tax under section 7, shall be allowed to claim tax credit for the taxable goods held in stock which are purchased after 1st April, 2008 and during the period of one year ending on the date of liability to pay tax under section 7. ( 6) The State Government may, by notification in the Official Gazette, specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit. ( 7) Where a registered dealer without entering into a transaction of sale, issues to another registered dealer tax invoice, retail invoice, bill or cash memorandum with the intention to defraud the Government revenue or with the intention that the Government may be defrauded of its revenue, the Commissioner may, after making such inquiry as he thinks fit and giving a reasonable opportunity of being heard, deny the benefit of tax credit, in respect of such transaction, to such registered dealers issuing or accepting such tax invoice, retail invoice, bill cash memorandum either prospectively or retrospectively from such date as the Commissioner may, having regard to the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 11) A registered dealer shall apply fair and reasonable method to determine, for the purpose of this section, the extent to which the goods are sold, used, consumed or supplied, or intended to be sold, used, consumed or supplied. The Commissioner may, after giving the dealer am opportunity of being heard and for the reasons to be recorded in writing, reject the method adopted by the dealer and calculate the amount of tax credit as he deems fit. ( 12) Subject to the exceptions as may be prescribed by the rules, any dealer including the Commission agent shall not be permitted to transfer his tax credit to any other dealer or as the case may be, the principal. Explanation.For the purpose of this section, the amount of tax credit on any purchase of goods shall not exceed the amount of tax actually paid or payable under this Act in respect of the same goods. 9. A quick glance at this section would show that under subsection( 1) of section 11, a registered dealer who has purchased the taxable goods is entitled to claim tax credit of the amount specified therein. Such tax credit will be subject to the provisions of subsections( 2) to (12) therein. Clause(a) of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer to consignment agents outside the State have special connotation. 10. In case of Hyderabad Engineering Industries v. State of Andhra Pradesh reported in (2011) 4 Supreme Court Cases 705, the Supreme Court in the context of collecting VAT on interState sales, observed as under : 23. It is an accepted position in law that a mere transfer of goods from a head office to a branch office or an interbranch transfer of goods, which are broadly brought under the phrase branch transfers cannot be regarded as sales in the course of interState trade, for the simple reason that a head office or branch cannot be treated as having traded with itself or sold articles to itself by means of these stock transfers. 11. The present is not a case either of branch transfer or transfer to a consignment agent. Undoubtedly, the raw material was transported to the assessee's branch situated outside the State but it can still not be treated as a branch transfer. It was transfer of the goods for manufacturing activity and the goods were returned back to the assessee's principal place of business in the form of finished product. It is this finished product which was eventuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit on purchase of raw material including the fuel would be restricted by virtue of applicability of clause(b) of subsection( 3) of section 11. The assessee was willing to suffer such reduction only once. However, the Revenue argued that being fuel, the same would fall within subclause( iii) of clause(b) of subsection( 3) of section 11 as well and that therefore, the reduction should be applied twice. The High Court had held that reduction under clause(b) of subsection( 3) can be applied only once. Even if the goods were covered in more situations than one, the reduction cannot be applied more than once. The Supreme Court reversed the judgment of the High Court and accepted the viewpoint of the Revenue. 14. In view of discussion above, the question is answered in favour of the assessees and against the department. Tax appeal No. 1334/2007 is allowed. Judgment of the Tribunal is reversed. Tax Appeal No.731/2017 is dismissed. Judgment of the Tribunal is upheld. In Tax Appeal No.730/2017, as noted at the outset, appeal before the Tribunal was filed by the assessee challenging the judgment of the appellate Commissioner who had dismissed the appeal for want of satisfying the predepos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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