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TMI Blog2023 (11) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... hereinafter be referred to as the assessee and the respondent shall hereinafter be referred to as the revenue. 3. These appeals are at the instance of an assessee, duly registered under Section 17 of the Uttar Pradesh Value Added Tax Act, 2008 (for short, 'the UP VAT Act') and are directed against the common judgment and order dated 03.05.2019 passed by the High Court of Judicature at Allahabad in the Commercial Tax Revisions Nos. 315 of 2017 and 148 of 2018 respectively, by which the High Court allowed both the Commercial Tax Revisions filed by the revenue against the Orders dated 04.05.2016 and 05.07.2017 respectively passed by the Commercial Tax Tribunal, Bareilly Bench, Bareilly and thereby took the view that the assessee is not entitled to the full benefit of Input Tax Credit (for short, 'ITC') claimed on the goods purchased by it for manufacturing its final product. FACTUAL MATRIX 4. The assessee is a company engaged in the business of manufacture and sale of Rice Bran Oil (for short, 'RBO') and Physical Refined RBO. The assessee as stated above is a registered dealer under the UP VAT Act and the RBO manufactured by the assessee falls within the ambit of "taxable goods" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble sales, as the sale price of the final goods was lesser than the manufacturing cost of the purchased goods. In other words, according to the Deputy Commissioner the term "goods" in Section 13(1)(f) of the UP VAT Act means only the taxable goods. The matter ultimately reached before the Additional Commissioner Grade II, (Appeals), 2nd Commercial Tax, Bareilly. The Incharge Additional Commissioner for the Assessment Year 2015-16 took the view that the assessee was entitled to claim full ITC and accordingly allowed the appeal of the assessee. The Incharge Additional Commissioner accepted the case put up by the assessee that the word "goods" in Section 13(1)(f) of the UP VAT Act cannot be restricted to only "taxable goods". However, for the Assessment Year 2013-14, the Additional Commissioner proceeded to remand the matter to the Tax Fixation officer for passing the re-tax fixation order. 9. The revenue being dissatisfied with the view taken by the Additional Commissioner went in appeal before the Commercial Tax Tribunal, Bareilly Bench, Bareilly in so far as the Assessment Year 2015-16 is concerned. We may clarify that so far as the Assessment Year 2013-14 is concerned, it was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Section 13(3)(b) read with Explanation (iii) of the UP VAT Act. It was argued that the High Court erroneously held that Section 13(1)(f) of the UP VAT Act is applicable to the case on hand. 15. Mr. Datar further argued that the entire edifice of the impugned judgment of the High Court is based on incorrect application of the decision of this Court in case of M.K. Agro Tech (supra). He would argue that the statutory provisions under the Karnataka Value Added Tax Act, 2003 and UP VAT Act are distinct and different in all respects. He pointed out that the UP VAT Act specifically carves out an exception for the by-products and waste products respectively. Even if those are exempt goods or non-VAT Goods, the ITC is permissible. 16. Mr. Datar further argued that the definition of the word "goods" under Section 2(m) of the UP VAT Act does not differentiate between the exempted and taxable goods and equally the word "goods" under Section 13(1)(f) of the UP VAT Act cannot be said to be qualified by the word "taxable". He pointed out that, if the legislative intent was to qualify "goods" with the word "taxable", it could have been said so by the Legislature in Section 13 of the UP VAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the UP VAT Act require a textual interpretation matching with the contextual interpretation that Section 13(1)(f) of the UP VAT Act seeks to remedy the mischief, caused by the words used in the Table of Section 13(1)(a) of the UP VAT Act. Section 13(1)(f) UP VAT Act restricts the amount of ITC figuring in Table of Section 13(1)(a) UP VAT Act to the extent of tax payable on the sale value of goods or manufactured goods, in specific cases, i.e., costing of the manufactured taxable goods except the non- VAT goods being lower than the costing of the taxable inputs. 22. It was also argued that the High Court rightly placed reliance on the decision of this Court in the case of M. K. Agro Tech (supra). 23. In such circumstances referred to above, Mr. R.K. Raizada submitted that there being no merit in both the appeals those may be dismissed. ANALYSIS 24. Having heard the learned counsel appearing for the parties and having gone through the materials on record the following questions fall for our consideration: a. Whether the assessee is entitled to claim full amount of tax paid towards the purchase of raw Rice Bran as ITC on the basis of the provisions of Section 13(1)(a) read wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le dealer" means a dealer who is liable to pay tax under this Act; (ai) "taxable goods" means any goods except goods mentioned or described in column (2) of Schedule I; Xxx xxx xxx "13. Input tax credit (1) Subject to provisions of this Act, dealers referred to in the following clauses and holding valid registration certificate under this Act, shall, in respect of taxable goods purchased from within the State and mentioned in such clauses, subject to conditions given therein and such other conditions and restrictions as may be prescribed, be allowed credit of an amount, as input tax credit, to the extent provided by or under the relevant clause: (a) Subject to conditions given in column (2), every dealer liable to pay tax, shall, in respect of all taxable goods except non-vat goods, capital goods and captive power plant, where such taxable goods are purchased on or after the date of commencement of this Act, be allowed credit of the amount, as input tax credit, to the extent provided in column 3 of the table below: TABLE Serial No. Conditions Extent of amount of input tax credit (1) (2) (3) 1. If purchased goods are re-sold- (i) inside the State, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he "exempt goods" shall include taxable goods other than non vat goods, which are disposed of otherwise than by way of sale within the State or in the course of inter-State trade or commerce or sale in the course of export of goods out of the territory of India or sale out side the State." xxx xxx xxx Explanation:-For the purposes of this section, - (i) goods for use in manufacture of any goods includes goods required for use, consumption or utilization in manufacture or processing of such goods or goods required for use in packing of such manufactured or processed goods; (ii) manufacture of any goods includes processing of such goods and packing of such manufactured or processed goods; and (iii) where during the process of manufacture of any taxable goods any exempt goods are produced as by product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of taxable goods. Conversely, where during the process of manufacture of any exempt goods any taxable goods are produced as by-product or waste product; it shall be deemed that purchased goods have been used in the manufacture of exempt goods. (iv) where during the process of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are manufactured/produced by using or utilizing the purchased goods and whose sale price is being considered for applying Section 13(1)(f) of the UP VAT Act, ought to be taxable goods. 31. The aforesaid is further manifested from the fact that wherever the legislative intent was to qualify "goods" with the word "taxable", it has been so done by the Legislature in Section 13 of the UP VAT Act itself. 32. Had the legislative intent of the 2010 Amendment been to limit the scope and ambit of "goods" under Section 13(1)(f) solely to "taxable goods", there was nothing that could have prevented the Legislature from expressly using the phrase "taxable goods" in Section 13(1)(f) of the UP VAT Act. 33. Mr. Datar is right in his submission that the said omission in Section 13(1)(f) is all the more glaring considering that the said amendment was inserted in the year 2010. 34. In the aforesaid context, our attention was also drawn by Mr. Datar to the provisions of Rule 23(6) of the Uttar Pradesh Value Added Tax Rules, 2006 (for short, "the UP VAT Rules") (which provides for the computation of reverse ITC in cases of a dealer other than a trader), wherein the word "goods" has not been quali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38. In a classic passage Lord Cairns stated the principle thus: "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute." 39. Viscount Simon quoted Ed. : Canadian Eagle Oil Co. Ltd. v. Selection Trust Ltd., 1946 AC 119 at p. 140 (HL) with approval a passage Cape Brandy Syndicate v. IRC, (1921) 1 KB 64 from Rowlatt, J. expressing the principle in the following words: (Cape Brandy case Ibid. , KB p. 71) '... in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 2319]. It is well settled that in the field of taxation, hardship or equity has no role to play in determining eligibility to tax and it is for the legislature to determine the same [Kapil Mohan v. CIT (1999) 1 SCC 430 : AIR 1999 SC 573]. Similarly, hardship or equity is not relevant in interpreting provisions imposing stamp duty, which is a tax, and the court should not concern itself with the intention of the legislature when the language expressing such intention is plain and unambiguous [State of M.P. v. Rakesh Kohli (2012) 6 SCC 312 : (2012) 3 SCC (Civ) 481]. But just as reliance upon equity does not avail an assessee, so it does not avail the Revenue." 43. The passages extracted above, were quoted with approval by this Court in at least two decisions being CIT v. Kasturi and Sons Ltd. (1999) 3 SCC 346 and State of W.B. v. Kesoram Industries Ltd. (2004) 10 SCC 201 (hereinafter referred to as "Kesoram Industries case", for brevity). In the later decision, a Bench of five Judges, after citing the above passage from Justice G.P. Singh's treatise, summed up the following principles applicable to the interpretation of a taxing statute: "(i) In interpreting a taxing stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable goals is effected at the low price than the purchase cost of the raw material then the trader shall get the benefit of ITC only up to the extent of sale value of manufactured goods. The trader produce the rice bran oil by purchasing the rice bran in which de-oiled rice bran is received as a byproduct/waste product. In this way such produced is sold at much lower price in the perspective of cost of production whereas ITC is being claimed on the entire amount of utilized rice bran which is in contra to Section 13(1)(f). In this manner the trader shall get the benefit of ITC on the utilized rice bran up to the limit of sale of produced rice bran. Hence in relation to above please examine the records manufacturing units of your zone involved in the extraction of rice bran and oil cake. The details of action taken in this regard be please made available within a period of one week. Encl: as above Yours faithfully, Sd/- Sadhna Tripathi Addl. Commissioner (Legal) Comm. Tax HQ, UP" (Emphasis supplied) 46. It is to be noted that the DORB falls within exempted goods under S. No. 4 of Schedule I of the UP VAT Act. The relevant Entry is reproduced below for ease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it shall be deemed that the purchased goods have been used in the manufacture of taxable goods. 50. Explanation (iii) to Section 13, therefore, forbids the Assessing Authority as well as the assessee from raising any dispute in regard to the allowability of the ITC in cases where exempted goods are being produced as a by-product or waste product during the process of manufacture. WHETHER THE HIGH COURT WAS RIGHT IN PLACING RELIANCE ON THE DECISION OF THIS COURT IN THE CASE OF M.K. AGRO TECH PRIVATE LIMITED (SUPRA) 51. The revenue has relied upon the decision of this Court in M.K. Agro Tech (supra), as the basis for denying ITC to the assessee. 52. The decision in the case of M.K. Agro Tech (supra), was rendered by this Court, examining the claim of ITC by an assessee on the goods purchased under the Karnataka Value Added Tax Act, 2003 (for short "Karnataka VAT Act"). 53. In the case of M.K. Agro Tech (supra), the assessee was engaged in the manufacture of sunflower oil (taxable goods), which is extracted from sunflower cake, by employing solvent extraction process. Sunflower oil cake is the input/raw material on which VAT was payable. During the extraction process, a 'by-prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product. Relevant event is not the manufacture of an item from which the said by-product is emerging. On the contrary, it is the sale of goods which triggers the provisions of Section 17 of KVAT Act. Whether it is byproduct or manufactured product is immaterial and irrelevant. Fact remains that de-oiled cake is a saleable commodity which is actually sold by the respondent assessee. Therefore, de-oiled cake fits into the definition of "goods" and this commodity is exempt from payment of any VAT under Section 5 of the KVAT Act. Thus, provisions of Section 17 clearly get attracted when 'sale' of these goods takes place. 29. Secondly, as rightly pointed out by the learned counsel for the appellant, the High Court has not considered the import and effect of sub-rule (3) of Rule 131 of the KVAT Rules. We have already reproduced Rule 131, including sub-rule (3) thereof. After perusing Rule 131 in its entirety, it becomes clear that subrule (1) pertains to input tax directly relatable to sales of exempt goods which is non-deductible. Likewise, sub-rule (2) mandates that input tax directly relating to sale of goods shall be deductible. On the other hand, sub-rule (3) covers those cases w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), is not applicable to the case on hand as the provisions under the Karnataka VAT Act are quite different compared to that of the UP VAT Act in regard to the scheme of ITC. 60. Section 11 of the Karnataka VAT Act reads thus: "11. Input tax restrictions. - (a) Input tax shall not be deducted in calculating the net tax payable in respect of - tax paid on purchases attributable to sale of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India;" 61. Section 11(a)(1) of the Karanataka VAT Act as above specifically stipulates that where a sale of exempt goods takes place i.e., there is no output tax received on such sale, the input tax paid for manufacturing/processing such exempt goods cannot be credited while calculating the net tax. It is beyond any pale of doubt that the UP VAT Act does not provide for any such scheme or provision that aims at achieving the same. 62. Au contraire, Explanation (iii) to Section 13 read with Section 13(3)(b) UP VAT Act, as outlined above, seeks to create a deeming fiction where during the manufacture of any taxable goods any exempt goods are produced as by-product o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formula prescribed in Rule 131(3), the nondeductible ITC shall be as follows: 700 + 50/1000 * 100 = Rs. 75 Only Rs. 25/- will be allowed as ITC and Rs. 75 will be disallowed under Section 17 of the Karnataka VAT Act, read with Rule 131 of the KVAT Rules. II. Uttar Pradesh VAT Act, 2008 Total Sales = Rs. 1,000/- Taxable goods (RBO) = Rs. 250 Exempt goods (DORB) = Rs. 700 Non-VAT goods = Rs. 50 Total ITC on purchases = Rs. 100/- In terms of Explanation (iii) to Section 13 of the UP VAT Act, both the taxable goods and the by-product will be eligible to claim ITC. The disallowance will be limited to non-VAT goods which is Rs. 50/-, thus the disallowance of ITC will be Rs. 5/- only." 68. The aforesaid discussion as regards the salient features of the two enactments can be outlined briefly as under: Provisions of the U.P. VAT Act and U.P. VAT Rules Provisions of the Karnataka VAT Act and Karnataka VAT Rules 13. Input tax credit (1) ... (f) Notwithstanding anything to the contrary contained in this subsection where goods purchased are resold or goods manufactured or processed by using or utilizing such purchased goods are sold, at the price which in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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