Summary
The Supreme Court restored full input-tax credit on rice bran used to manufacture taxable rice-bran oil, notwithstanding production of exempt de-oiled rice bran as a by-product. The Uttar Pradesh VAT Act expressly deemed the purchased goods used in taxable manufacture. The revenue could not defeat that scheme by restricting the unqualified word goods in Section 13(1)(f) to taxable output alone. The Karnataka decision in M.K. Agro Tech arose under materially different provisions.
Issues
- Whether the exempt manufacturing by-product required reduction of input-tax credit.
- Whether goods in Section 13(1)(f) meant only taxable goods.
- Whether M.K. Agro Tech governed the Uttar Pradesh statutory scheme.
Provisions considered
- Sections 2(m), 2(ai) and 13(1)(f), Uttar Pradesh Value Added Tax Act, 2008The unqualified term goods was not confined to taxable goods for the sale-price/cost comparison. The provision could not be applied to circumvent the express by-product scheme. (¶¶ 25–35, 44)
- Section 13(1)(a), Table item 2(ii); Section 13(3)(b) and Explanation (iii), Uttar Pradesh Value Added Tax Act, 2008Inputs used in taxable manufacture were deemed so used even where exempt goods emerged as by-products, supporting full credit on these facts. (¶¶ 25, 44–50, 62–66)
- Schedule I, item 4, Uttar Pradesh Value Added Tax Act, 2008De-oiled rice bran was exempt, but its undisputed character as a by-product brought the case within the statutory deeming provision. (¶ 45–50)
- Rule 23(6), Uttar Pradesh Value Added Tax RulesIts reference to any manufactured or processed goods supported the reading that the relevant goods were not limited to taxable output. (¶ 34)
Held
- Section 13(1)(f) addresses sales below the relevant purchase or cost price. Its word goods is not qualified by taxable, and the statutory definition does not distinguish taxable from exempt goods. (¶ 27–35)
- Section 13(3)(b) and Explanation (iii) expressly deal with exempt by-products or waste arising during taxable manufacture. Purchased inputs are deemed used in manufacturing taxable goods; that fiction governed the rice-bran-oil process here. (¶¶ 44–50, 62–66)
- The revenue’s construction would indirectly defeat the express exception for by-products. Tax legislation must be applied according to its language without importing a restriction omitted by the legislature. (¶ 36–44)
- M.K. Agro Tech applied Karnataka provisions directed at taxable and exempt sales and their apportionment. The distinct Uttar Pradesh manufacture-based deeming provision made that decision inapplicable. (¶ 51–68)
- The assessee was entitled to the full credit allowed by the Tribunal; the High Court erred in applying the different Karnataka scheme to deny it. (¶¶ 47–50, 64–71)
Result
Both appeals allowed. Common High Court judgment set aside and Commercial Tax Tribunal orders of 4 May 2016 and 5 July 2017 restored; pending applications disposed of.