Summary
A sunflower-oil producer claimed full input-tax credit despite selling exempt de-oiled cake produced by the same extraction process. The Court held that the Karnataka VAT partial-rebate provisions turned on sales of taxable and exempt goods, without distinguishing principal products from by-products. It reversed the High Court’s full-credit ruling and upheld application of statutory apportionment.
Issues
- Whether sale of exempt de-oiled cake triggered partial input-tax rebate despite its by-product character.
- Whether purposive construction could displace the plain apportionment scheme.
Provisions considered
- Sections 2(15), 10, 11(a)(1) and 17, Karnataka Value Added Tax Act, 2003Credit was subject to restrictions and apportionment when taxable and exempt goods were sold; marketable by-products were goods. (¶¶ 9–13, 28–33)
- Rule 131(1)–(3), Karnataka Value Added Tax Rules, 2005Directly attributable tax was treated according to taxable or exempt sales; common input tax required the prescribed proportional calculation. (¶¶ 14, 29)
Held
- Sale, rather than manufacture, triggered Section 17. De-oiled cake was marketable, actually sold and exempt under Section 5. Its description as a by-product did not take it outside the definition of goods or the partial-rebate rule. (¶¶ 28, 32–33)
- Rule 131(3), overlooked by the High Court, provided apportionment where input tax related to both taxable and exempt sales and could not be directly segregated. The provisions governing directly attributable inputs did not eliminate that common-input formula. (¶ 29)
- Literal application produced no absurdity and advanced the statutory purpose: significant revenue arose from exempt cake sales without output tax. The extent and conditions of input-tax credit were legislative choices that courts could not enlarge by recasting the scheme. (¶ 30–32)
- Whether production of de-oiled cake independently amounted to manufacture was unnecessary to decide because its sale as exempt goods already attracted Section 17. (¶ 33)
Result
State appeals allowed with costs and High Court judgment set aside; statutory partial rebate applied instead of full input-tax deduction.