Modi Naturals Ltd Vs Commissioner Of Commercial Tax Up (Supreme Court of India)
The Hon’ble Supreme Court in the case of M/s. Modi Naturals Ltd. v. The Commissioner of Commercial Tax UP [Civil Appels No. 5822-5823 of 2023 dated November 6, 2023] allowed the appeal filed and held that, the Assessee can claim the full amount of Input Tax Credit (“ITC”) on Rice Bran procured for manufacturing of Rice Bran Oil and exempted products under the provisions of the Uttar Pradesh Value Added Tax Act, 2008 (“the UP VAT Act”), thereby holding that Explanation (iii) to Section 13 of the UP VAT Act, forbids the Assessing Authority from raising any dispute with respect to allowing ITC in cases where the exempted goods are produced as by-product or waste product during the process of manufacturing.
Facts:
M/s Modi Naturals Ltd. (“the Appellant”) is engaged in the business of manufacture and sale of Rice Bran Oil (“RBO”) and Physical Refined RBO, and is a registered dealer under the UP VAT Act and the Rice Bran Oil manufactured by the Appellant falls within the purview of ‘taxable goods’ under the UP VAT Act. The Appellant for manufacturing Rice Bran Oil, the Appellant procures Rice Bran and follows the Solvent Extraction Process during which the by- product in the form of De-Oiled Rice Bran is also produced, which falls within the category of
exempted goods under S. No. 4 of Schedule – I of the UP VAT Act.
The Appellant by way of processing Rice Bran produced 13.77 percent taxable goods i.e., Rice Bran Oil, and 83.63 percent by-product i.e., De Oiled Rice Bran was produced. The Physical Refined Rice Bran Oil is produced by further refining the Rice Bran Oil. As per Section 13(1)(a) read with S. No. 2(ii) of Table appended thereto, and Section 13(3)(b) read with Explanation (iii) to Section 13 of the UP VAT Act, the Appellant claimed the full amount of tax paid as ITC. However, the claim of the Appellant was rejected vide separate Orders of Deputy Commissioner, Tax Fixation, Div.-1, Pilbhit, for the Assessment Years (“AY”) 2013-2014 and 2015-2016 on the ground that as per Section 13(1)(f) of the UP VAT Act, the Appellant was competent to avail ITC only with respect to taxable sales, as the sale price of final goods were less than the manufacturing cost of the purchased goods, and only taxable goods would be
considered as goods under the UP VAT Act.
Aggrieved by the Orders passed by Deputy Commissioner, Pilbhit, the Appellant filed an appeal before the Additional Commissioner (Appeals), 2nd Commercial Tax, Bareilly. The Additional Commissioner, for AY 2015-2016, allowed the appeal of the Assessee, and held that the Appellant was entitled to claim the ITC on the ground the word “goods” in Section 13(1)(f) of the UP VAT Act cannot be restricted to only taxable goods. However, the Additional Commissioner, for AY 2013-2014 proceeded to remand the matter to the Tax Fixation Officer for passing the re-tax fixation order.
Aggrieved by the order passed by the Additional Commissioner, the Revenue Department (“the Respondent”) filed an appeal for AY 2015-2016 and the Appellant filed an appeal for AY 2013-2014 before the Commercial Tax Tribunal wherein vide Orders dated May 04, 2016, and July 5, 2017, it was held that, the Appellant is entitled to benefit of ITC.
Aggrieved by the order passed by the Commercial Tax Tribunal, the Respondent filed a Sales Tax Revision Application No. 148 of 2018 and 315 of 2017 respectively before the Hon’ble Allahabad High Court.
The High Court formulated the following substantial question of law for consideration “Whether under the facts and circumstances of the case, the Commercial Tax Tribunal was legally justified in granting the benefit of ITC of Rs. 1,90,88,763.00 which was reversed by the Assessing Authority?”
The High Court relying upon the decision of State of Karnataka v. M.K. Agro Tech Private Limited [Civil Appeal No. 15049-15069 of 2017 dated September 22, 2017] took the view that a dealer has no vested right to seek the benefit of ITC as ITC is just a concession by virtue of provisions of the Act. The High Court further held that the case of the Appellant falls within the purview of Section 13(1)(f) of the UP VAT Act, not within the purview of Section 13(1)(a) read with S. No.(ii) of the Table appended and Section 13(3)(b) read with explanation (iii) of the UP VAT Act. Therefore, the High Court vide order dated May 3, 2019, (“the Impugned Orders”) allowed the revision applications filed by the Respondent and held that the Appellant is not entitled to claim full ITC on input
Aggrieved by the Impugned Order, the Appellant filed two Civil Appeals before the Hon’ble Supreme Court of India.
Issue:
Whether Assessee can claim the full amount of ITC on Rice Bran procured under the
provisions of the UP VAT Act?
Held:
The Hon’ble Supreme Court in the case of Civil Appeal No. 5822 and 5823 of 2023 held as under:
