The Supreme Court of India quashed the High Court order rejecting the benefit of Input Tax Credit (ITC) claimed as the Uttar Pradesh Value Added Tax Act, 2008 (‘the UP VAT Act’) has no provision to calculate apportionment of ITC.
Modi Naturals Ltd, the assessee is a company engaged in the business of manufacture and sale of Rice Bran Oil (‘RBO’) and Physical Refined RBO. The RBO manufactured by the assessee falls within the ambit of “taxable goods” under the UP VAT Act. To manufacture RBO, the assessee procures Rice Bran (‘inputs’/‘purchased goods’) and follows the Solvent Extraction Process. During the manufacturing process of RBO, a byproduct in the form of “De-Oiled Rice Bran” (‘DORB’) is also produced. DORB falls under the exempted goods category under S. No. 4 of Schedule – I of the UP VAT Act.
The assessee by processing Rice Bran in its solvent extraction plant produced 13.77% taxable goods i.e., RBO and 83.63% by-product i.e., DORB. By further refining the RBO, the physically refined RBO is also produced. The record revealed that for the Assessment Year 201314, the assessee purchased 8,21,935.71 quintals of Rice Bran for a sum of Rs. 93,69,53,404.00 and paid tax of Rs. 4,68,47,670.00.
The physically refined RBO and the balance quantity of RBO (19,939.40 quintals) were sold within the State of Uttar Pradesh for Rs. 45,91,66,611 and Rs. 9,60,11,540 respectively aggregating to a total of Rs. 55,51,78,151/-. The assessee’s tax liability on the said sales was calculated at Rs. 2,77,58,908/-.
Based on the statutory provisions of Section 13 of the UP VAT Act, the assessee claimed the full amount of tax paid as ITC, which came to be rejected vide the Order of the Deputy Commissioner, Tax Fixation, Div. – I, Pilibhit passed in terms of Section 28(2)(i) of the UP VAT Act.
The Deputy Commissioner took the view that in terms of Section 13(1)(f), the assessee could have availed the ITC on the inputs only vis-à-vis the taxable sales, as the sale price of the final goods was lesser than the manufacturing cost of the purchased goods. 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 High Court relied on the decision of the Court in the case of State of Karnataka v. M.K. Agro Tech Private Limited, where it held that a dealer has no vested right to seek the benefit of ITC as the same is just a concession by the provisions of the Act. The High Court relying on Section 13(1)(f) of the UP VAT Act took the view that the assessee is not entitled to claim full ITC on the inputs. The High Court accordingly allowed both the revision applications filed by the revenue.
Mr. Arvind Datar, the Senior Counsel appearing for the assessee vehemently submitted that the High Court committed a serious error in passing the impugned judgment. It was argued 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.
Mr. R.K. Raizada, the Additional Advocate General appearing for the State of UP on the other hand vehemently opposed both the appeals. It was submitted that no error, not to speak of any error of law could be said to have been committed by the High Court in passing the impugned judgment.
A three-judge bench of Chief Justice of India Dr Dhananjaya Y. Chandrachud, Justice B Pardiwala and Manoj Misra observed that the High Court committed an error in passing the impugned judgment relying on the decision of the Court rendered in M.K. Agro Tech.
Further, the impugned common judgment and order passed by the High Court of Allahabad was set aside and the orders passed by the Commercial Tax Tribunal were restored.
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