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TMI Blog2018 (2) TMI 1827X X X X Extracts X X X X X X X X Extracts X X X X ..... le Tribunal was right in law holding that "capital goods" are not "inputs" under the clauses of Notification No.(GHN14) VAT2010S.11(6)(2)/TH dated 29.06.2010?" 2. The respondent dealer is a company engaged in the manufacture and sale of pesticides and chemicals and is registered under the GVAT Act as well as under the Central Sales Tax Act, 1956 (hereinafter referred to as the "CST Act"). The dealer affected local sales within the State of Gujarat as well as sales in the course of inter-State trade and commerce and duly discharged output tax liability under the GVAT Act and the CST Act and claimed input tax credit of tax paid on purchases of "raw materials" as well as "capital goods. The dealer also reduced the claim of tax credit at the rate of 2% of the purchase value of "raw material" used in manufacture of goods sold in the course of inter-State trade and commerce as required in terms of Entry No.2 of the Notification No.(GHN14)VAT2010S.11(6) (2)/TH dated 29.06.2010 (hereinafter referred to as the "Notification dated 29.06.2010") for assessment year 2012-13. The assessing officer issued a notice for audit assessment for the year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified in holding that "capital goods" are not covered by the said notification. It was submitted that "input including raw materials" contributes to manufacturing and "capital goods" contribute in manufacturing of final products and, therefore, are covered under the notification dated 29.06.2010. It was submitted that "capital goods" are considered as "input" and are used for manufacturing of goods that are sold during the course of inter-State trade and commerce in respect of which the State Government does not get tax, therefore, the assessing officer as well as the first appellate authority were wholly justified in reducing the input tax credit on "capital goods" and the Tribunal was not justified in setting aside the same. 6.1 The learned Assistant Government Pleader submitted that the term used in the notification is "input including raw materials" which means there is something in addition to "raw materials" and since the GVAT Act has provided tax credit on "capital goods" and "raw material", "capital goods" can be said to be included within the ambit of the expression "input including raw materials". It was, accordingly, urged that the Tribunal has not properly corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion "capital goods" cannot be by any stretch of imagination covered under the term "input". It was submitted that the term "capital goods" means plant and machinery meant for use in manufacture of taxable goods and such plant and machinery are not "input", and hence, the notification dated 29.06.2010 does not cover "capital goods." 7.2 In support of his submissions Mr. Sheth placed reliance upon the decision of the Supreme Court in the case of TATA Engineering & Locomotive Company Ltd. v. State of Bihar, [1995] 96 S.T.C. 211, wherein the court has held that "raw material" has been explained by using the word "inputs" which dictionarily means "what is put in", "enter", "enter system.". The use of the word "input" was indicative that the benefit was intended for every item which was raw material in the widest sense made wider by using the expression "input". It was submitted that the above decision would be squarely applicable to the facts of the present case and that it is only those raw materials or other consumable items which are consumed in the manufacturing process that can be termed as inputs and that the capital assets which are in the nature of plant and machinery can in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y;14) VAT2010S.11(6)(2)/TH dated 29.06.2010. Entry No.2 thereof, which is relevant for the present purpose reads as under: Entry No. Description of goods Non-entitlement of tax credit whether whole or partial Restrictions and conditions if any "2 All goods excluding the goods specified in ScheduleII of the Act, in entries at serial numbers, (i) 13, (ii) 24, (iii) 48(i) namely Isabgul, Jira, variali, Methi, Suva, Ajma, Asalia, Kalingda seeds, Khas khas, Dhana, Dhana dal and Pepper, (iv) 54 and (v) 76 To the extent of two percent on the taxable turnover of purchases within the State for which tax credit is admissible (1) This entry shall come into force with effect from 1st October, 2010. (2) The input tax credit shall be reduced when; (i) the goods are sold/resold in the course of inter state trade and commerce, or (ii) the goods are used as input including raw material in the manufacture of goods which are sold in the course of inter state trade and commerce." 9. Thus, in terms of sub-clause (ii) of clause (2) of the Column bearing the heading "Restrictions and conditions if any" of the above notification, input tax credit was required to be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icles." 12. Thus, in essence and substance "input" is what is put in the final product. Anything which goes into the manufacture of the final product is an "input" but not everything that is used for manufacturing the final product can be termed as "input", as is sought to be canvassed on behalf of the appellant. In terms of sub-section (5) of section 2 of the GVAT Act, the expression "capital goods" is defined as plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable goods and accounted as capital goods in the books of accounts. Insofar as the expression "raw materials" is concerned, the same is defined under sub-section (19) of section 2 of the Act, to mean goods used as ingredient in the manufacture of other goods and includes process materials, consumable stores and material used in the packing of the goods so manufactured but does not include fuels for the purpose of generation of electricity. The basic distinction between "capital goods" and "raw materials" is that the "capital goods" are durable in nature and the same goods would be used again and again for the manufacture of goods over a considerable period of tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither"raw material"nor "inputs". As observed earlier, the GVAT Act provides separately for grant of input tax credit for "raw material"as well as "capital goods". Therefore, the "capital goods"are neither covered in the term 'raw material'nor the term 'input'used in Notification dated 29.06.2010. Hence, the authorities below committed error in interpretation of Notification dated 29.06.2010 and in holding that the term "input"used in the said Notification includes "capital goods"and so input tax credit is required to be reduced in respect of "capital goods"used in manufacture of taxable goods that were sold in the course of inter-State trade and commerce. Therefore, impugned orders are required to be set aside." For the reasons recorded hereinabove, this court is in complete agreement with the view adopted by the Tribunal. 14. Examining the matter from another angle, it is difficult to comprehend as to how the capital goods component would be worked out qua the goods which are sold in the inter-State trade and commerce. In terms of the notification dated 29.06.2010, the input tax credit is required to be reduced when the goods are used as input including raw material ..... X X X X Extracts X X X X X X X X Extracts X X X X
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