14 Nov 2023 5:50 AM GMT
The Supreme Court has held that the definition of “Goods” under Section 2(m) of Uttar Pradesh Value Added Tax Act, 2008 (“UP VAT Act”) includes both taxable as well as exempted goods. Similarly, the word “goods” under Section 13(1)(f) of the UP VAT Act cannot be said to be qualified by the word “taxable”.
The Bench comprising the Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra, has held that the legislative intent behind the 2010 amendment to the UP VAT Act was not to limit the scope of “goods” as outlined in Section 13(1)(f) to only “taxable goods”. The mischief that was sought to be addressed was one where the goods manufactured (including taxable, exempt goods, by-products or waste products) were being sold at a price lower than the cost price. The sole purpose of amendment was to ensure that the extent of permissible ITC would be limited to the tax payable on the sale value of the goods or manufactured goods.
BACKGROUND FACTS
The Section 2(m) of UP VAT Act defines “goods”. Section 13(1) of UP VAT Act states that the dealers holding valid registration under the said Act shall be allowed credit of an amount as Input Tax Credit (“ITC”) in respect of taxable goods purchased from within the State. Section 13(1)(a) states that every dealer liable to pay tax, shall, in respect of all taxable goods except non-vat goods be allowed credit of the amount as ITC to the extent provided by the Act.
The Explanation (iii) to Section 13(1)(a) provides that when during the manufacturing process of any taxable goods any exempt goods are produced as byproduct or waste-product, it shall be deemed that purchased goods have been used in the manufacture of taxable goods.
Section 13(1)(f) states that where goods manufactured by using purchased goods are sold at a price which is lower than cost price, then the amount of ITC shall be claimed and be allowed to the extent of tax payable on the sale value of goods or manufactured goods.
M/s Modi Naturals Ltd. (“Assessee”) is a manufacturer of Rice Bran Oil (“RBO”) and Physical Refined RBO. The Assessee is a registered dealer under the UP VAT Act. The RBO so manufactured falls under “taxable goods” under the UP VAT Act.
For manufacturing of RBO, the Assessee procures Rice Bran (“Inputs/Purchased Goods”) and follows the Solvent Extraction Process. During manufacturing process, De-Oiled Rice Bran (“DORB”) is produced as a by-product, which is categorized as VAT exempted goods 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.
During the Assessment Year 2013-2014, the Assessee purchased 8,21,935.71 quintals of Rice Bran for a sum of Rs. 93.6 Crores and paid tax of Rs. 4.6 Crores. Relying on Section 13, the Assessee claimed full amount of tax paid as ITC i.e., Rs. 4.6 Crores.
The Assessee’s claim was rejected by Deputy Commissioner, Tax Fixation, Div. – I, Pilibhit. It was held that in terms of Section 13(1)(f), the Assessee could have availed the ITC on the inputs only regarding taxable sales, as the sale price of the final goods was lesser than the manufacturing cost of the purchased goods. It was further held that “goods” in Section 13(1)(f) of UP VAT Act means only the taxable goods. In appeal, the Additional Commissioner, Bareilly held that the Assessee was entitled to claim full ITC.
The Revenue unsuccessfully contested the matter before the Commercial Tax Tribunal, Bareilly and ultimately filed Commercial Tax Revision before the High Court of Allahabad.
The High Court held that that the case stood covered by Section 13(1)(f) of the UP VAT Act and the Assessee is not entitled full benefit of ITC claimed on the goods purchased by it for manufacturing its final product.
The Assessee filed an appeal before the Supreme Court.
ISSUE
Whether the scope of the word “goods” as defined under Section 2(m) of UP VAT Act as outlined in Section 13(1)(f) of the UP VAT Act should be limited to only “taxable goods”?
SUPREME COURT VERDICT
The Bench observed that UP VAT Act was amended in 2010 and Section 13(1)(f) was inserted with the following Statement of Object and Reasons:
“(d) limiting the input tax credit to the extent of tax payable on the sale value of goods or manufactured goods in cases where goods purchased are resold or goods manufactured or processed by using or utilizing such purchased goods are sold at a price lower than purchase price or cost price;”
The Bench noted that the legislative intent behind such amendment was not to limit the scope of “goods” as outlined in Section 13(1)(f) to only “taxable goods”. The mischief that was sought to be addressed was one where the goods manufactured (including taxable, exempt goods, by-products or waste products) were being sold at a price lower than the cost price. The sole purpose of amendment was to ensure that the extent of permissible ITC would be limited to the tax payable on the sale value of the goods or manufactured goods.
It was held that the definition of ‘goods’ given under Section 2(m) of UP VAT Act does not differentiate between exempt and taxable goods. Further, “taxable goods” has been separately defined under Section 2(ai) of the UP VAT Act separately.
“We are also at one with Mr. Datar that the definition of “goods” under Section 2(m) of the UP VAT Act referred to above does not differentiate between exempt and taxable goods and equally, the word “goods” under Section 13(1)(f) of the UP VAT Act has also not been qualified by the word “taxable”.”
Further, the necessary corollary to the reading of the provision ought to be that the goods which 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.
It was observed that wherever the legislature intended to qualify “goods” with the word “taxable”, the same has been done by the Legislature in Section 13. If the intent behind 2010 amendment was to limit the scope of “goods” under Section 13(1)(f) solely to “taxable goods”, then nothing prevented the Legislature from expressly using the phrase “taxable goods” in Section 13(1)(f) of the UP VAT Act.
The Bench has set aside the High Court order and affirmed the decision of Commercial Tax Tribunal.
Case details: M/S Modi Naturals Ltd v The Commissioner of Commercial Tax Up
Case No.: Civil Appeal Nos.5822-5823/2023
Counsel for Appellant: Mr. Arvind P. Datar (Sr. Adv.), Saubhagya Agarwal, Mr. Arjun Sharma, Mr. Shreyas Maheshwari, Ms. Sukanya Das, M/s. Karanjawala & Co.
Counsel for Respondent: Mr. R.K. Raizada (Sr. Adv.), Mr. Bhakti Vardhan Singh (AOR). Mr. Kavin Gulati (Sr. Adv.), Mr. Avi Tandon, Mr. Santosh Kumar Gupta, Ms. Meghna Tandon, Mr. Anish Agarwal (AOR), Ms. Vanshika Gupta, Mr. Ami Tandon, Mr. Mohit Shivakumar, Mr. Dushyant Sharma.
Click Here To Read/Download Judgment