Andhra Pradesh HC Allows ITC Availment to Pepsi Manufacturers on Refrigerators, Coolers, Freezers [Read Order]

The Andhra Pradesh High Court has held that the soft drinks manufacturers under the brand name of Pepsi are eligible for Input Tax Credit (ITC) on refrigerators, coolers, and freezers.

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M/s. Pearl Beverages Limited, the revision petitioner, produces soft drinks under the Pepsi brand. The appellant frequently buys coolers and glass bottles to boost their company. The petitioner claimed an input tax credit equal to the APGST paid on the opening stock value as of April 1, 2005, for purchases of glass bottles, coolers, stores, and spare parts made during the 2004–05 fiscal year. This was done in light of transitional provisions that facilitate the change from one statutory regime to another and the transition from the AP General Sales Tax Act, 1957 to the Value Added Tax system under section 13(2) of the VAT Act.

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The petitioner's request for relief from the tax paid under the APGST for a claim of Rs. 12,65,333 on cooler purchases, Rs. 1,98,224 on stores and spare parts, and Rs. 9,75,085 on glass bottles is denied on the grounds that the coolers are not for resale, and the claim of Rs. 2,43,77,122 on glass bottles is verified and found to have breakages estimated at Rs. 1 crore this year; therefore, the claim of Rs. 4,00,000 is denied, and the other claim of Rs. 1,98,224, which is taxes paid on stores, spares, etc., is also denied because the Act makes no mention of it.

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The Input Tax Credit for glass bottles was also denied because they had an opening stock of Rs. 17.31 crores and then bought Rs. 2.30 crores worth of bottles in 2004–05; of this total stock of Rs. 19.61 crores, there were breakages of Rs. 1.02 crores. It was also noted that the FIFO principle should be followed, which means that only stocks bought before March 31, 2004, are eligible for breakages. Additionally, it was noted that a new bottle may break on the day of purchase or receipt, and that no one can guarantee or claim that the bottle is not over and therefore cannot be broken.

The assessee/petitioner argued that the First in First out (FIFO) technique would be appropriate. The value of any item leaving a stock account and those still in stock at any one time are typically ascertained using the FIFO approach. It suggests that the item that initially entered the account is the one that will be sold out first among the current holdings when applied to an account that contains dematerialized shares. The products that are still in stock and have been invoiced have no proof that they were transferred.

The division bench of Justice Ninala Jayasurya and Justice Tarlada Rajasekhar Rao has observed that when a manufacturer purchases a raw material and pays a specific amount of tax on those purchases, they are eligible to claim an input tax credit. When they sell their completed goods, they can deduct that tax amount from the tax they must pay. In the present case, the petitioner/assessee who bought glass bottles did not intend to utilize them to manufacture another product, and the petitioner is not the bottle's manufacturer.

The court ruled that the revision petitioner's payment was refundable up to the input tax credit amount for the refrigerators and coolers. The remainder of the claim is denied, but the revision petitioner is eligible for the input tax credit for the coolers and refrigerators.

To Read the full text of the Order CLICK HERE

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