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2023 (11) TMI 298

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..... o claim input tax credit of the full amount. The charging section of the UP VAT Act, therefore, entitles the assessee to claim full amount of tax paid on the purchases as ITC - Furthermore, Section 13(3)(b) of the UP VAT Act, introduces the concept of proportionality in the scheme of the enactment and by means of a deeming fiction provides that where during the manufacture of VAT goods, exempt and non-VAT goods (except as by-product or waste product) are produced, the amount of ITC credit may be claimed and may be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than the non-VAT goods and exempt goods. 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 on the decision of this court in the case of M.K. Agro Tech? - HELD THAT:- In the case of M.K. Agro Tech, the assessee was engaged in the manufacture of sunflower oil (taxable goods), which is extracted from sunf .....

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..... . For the sake of convenience, the appellant shall 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 .....

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..... nly vis- -vis the taxable 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 conce .....

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..... hereto 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 Act .....

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..... 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 with S. No. 2(ii) of the Table appe .....

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..... s 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 (ii) in the course of inter-state trade or commence; or (iii) in the course of the export of the goods out of the territory of India. F .....

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..... he 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 manufacture of any vat goods any non-vat goods are produced as by-product or waste-product, it shall be deemed that purchased goods have been used in the manufacture of vat goods. Similarly, where during the process of manufac .....

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..... e 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 qualified by taxable and rather has used the word any to expressly convey the unequivocal legislative mandate. Rule 23(6) of the UP VAT Rules is reproduced hereunder: 23. Computation of reverse input tax credit in cases of a dealer other than trader: (1) In case of a dealer, .....

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..... he 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 fairly at the language used. 40. It was further observed: In all tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities is given a benefit which is specifically stated in the Act, does not mean that the benefit can be extended to legal entities not referred to in the Act as t .....

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..... 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 statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before t .....

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..... ve 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 of reference: SCHEDULE I [See clause (b) of Section 7 of Uttar Pradesh Value Added Tax Act, 2008] LIST OF EXMEPTED GOODS SI. NO. Name and description of goods (1) (2) I [1.] xxx xxx xxx xxx xxx xxx xxx 4. Aquatic feed; poultry feed including balanced poultry feed; cattle feed including balanced cattle feed; and cattle fodder including green fodder, chuni, bhusi, chhilka, choker, javi, gower, de-oiled rice polish, de .....

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..... SION 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-product in the form of de-oiled sunflower oil is produced. The said by-product was also exempted under the Karnataka VAT Act. 54. Section 17 of the Karnataka VAT Act relates to partial rebate and deals with contingencies where the final products are more than one and the output tax is payable only on some products with the other remaining products being exempted from the payment of tax. In the said case as no tax was payable on the by-product , the ITC wa .....

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..... nder 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 where input tax is not directly relatable to exempt goods and taxable goods. It is therefore, applied in those cases where input tax relating to both sale and taxable goods and exempt goods is known. In that situation, formula is given under this sub-rule to work out the partial deduction. The High Court has neither take note of nor discussed sub-rule (3). xxx xxx xxx 32. On literal interpretation of Section 17 it can be gathered that it does not distinguish between by-product, ancillary product, inte .....

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..... 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 or waste product, it shall be deemed that the purchased goods have been used in the manufacture of taxable goods. The scheme under the UP VAT Act therefore, is wholly distinct from the one provided in the Karnataka VAT Act. 63. The Karnataka VAT Act with the aid of Section 17 read with Rule 131 of the Karnataka VAT Rules seeks to provide a statutory mechanism for grant of partial rebate where a registered dealer deducting input tax makes sale of taxable goods as well as exempt goods. The apportionment and attribution of input tax deductible between .....

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..... ce 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 lower than (a) purchase price of such goods in case of resale; or (b) cost price in case of manufacture, the amount of input tax credit shall be claimed and be allowed to the extent of tax payable on the sale value of goods or manufactured goods. Section 11. Input tax restrictions. (a) Input tax shall not be deducted in calculating the net tax payable in respect of- (1) 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; Section 17. Partial rebate. Where a registered dealer deducting input tax- .....

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