LI Network
Published on: November 13, 2023 at 12:05 IST
The Supreme Court clarified the entitlement of an assessee to claim full Input Tax Credit (ITC) under the Uttar Pradesh Value Added Tax Act, 2008 (UP VAT Act) concerning exempted goods produced as by-products or waste during the manufacturing of taxable goods.
The court, relying on Explanation (iii) to Section 13 of the UP VAT Act, held that if tax-exempt goods are generated as by-products or waste during the manufacturing of taxable goods, the purchased goods for such manufacturing would be deemed used solely in the production of taxable goods. Consequently, the assessee is entitled to claim the full benefit of ITC for taxable goods purchased within the state.
The case involved M/s Modi Naturals Ltd., a registered dealer under the UP VAT Act, engaged in the production of Rice Bran Oil (RBO). The manufacturing process resulted in the production of De-Oiled Rice Bran (DORB), classified as VAT-exempt goods.
The assessee claimed full ITC on the taxable goods (RBO) purchased for manufacturing, based on Section 13 of the UP VAT Act.
The Supreme Court bench, comprising Chief Justice Dr. Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, clarified that Section 13(3)(b) introduces a legal fiction to handle cases where the manufacture produces both VAT goods and exempt goods.
The court emphasized the importance of Explanation (iii) to Section 13, stating that if during the manufacture of taxable goods, exempt goods are produced as by-products or waste, it is deemed that the purchased goods were used in the manufacture of taxable goods.
The court rejected the argument that goods in Section 13(1)(f) meant only taxable goods, affirming that the assessee is entitled to full ITC for purchases used in manufacturing taxable goods, including cases where exempt goods are produced as by-products or waste.
The decision set aside the High Court order and upheld the Commercial Tax Tribunal’s decision in favor of the assessee.
Case Title: M/S Modi Naturals Ltd v The Commissioner of Commercial Tax UP
