M/S Amit Traders vs The Commissioner Commercial ...
2023 Latest Caselaw 1532 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

Reserved on 09.01.2023
 
Delivered on 16.01.2023
 
Court No. - 10
 

 
Case :- SALES/TRADE TAX REVISION No. - 432 of 2013
 

 
Revisionist :- M/S Amit Traders
 
Opposite Party :- The Commissioner Commercial Taxes
 
Counsel for Revisionist :- Piyush Agrawal,Aditya Pandey
 
Counsel for Opposite Party :- C.S.C.
 

 
Hon'ble Rohit Ranjan Agarwal,J.

1. Heard Sri Bipin Kumar Pandey, learned counsel for the revisionist and Sri A.C.Tripathi, learned Standing Counsel for the State.

2. This revision under Section 58 of the U.P. Value Added Tax Act, 2008 (hereinafter called as "Act of 2008") has been filed assailing the order of the Tribunal dated 12.3.2013 passed in Second Appeal No.43 of 2013.

3. The following questions of law arise in the present revision, which read as under :

"i. Whether admittedly on purchase of R.E.P. license which is goods, tax has been paid by the applicant, still the authorities were justified in reversing the Input Tax Credit as claimed by the applicant?

ii. Whether in view of the judgment of Hon'ble Apex Court in the case of Vikas Sales Corporation and others vs. CCT, reported in 1996 Vol. 102 SCC page 106 wherein R.E.P. license were termed to be goods and is liable to be taxed on its transaction, stil the benefit of ITC can legally be rejected?"

4. The brief glimpse of the facts are necessary for better appreciation of the case which are as under :

5. The assessee was registered under the Act of 2008 as well as Central Sales Tax Act and is a proprietorship firm engaged in the business of trading of chemicals. The dispute relates to the assessment year 2009-10. The assessee, in its normal course of business, purchases chemicals both within the State of U.P. and also from outside the State of U.P. It also imports chemicals from outside the country. For importing chemicals from outside the country, he was required to get the license from the Custom Authorities. The license is known as R.E.P. License.

6. After purchasing the license from open market for Rs.43,89,000/-, the assessee imported goods from outside the country. The Assessing Authority while framing the assessment order dated 28.4.2012, accepted the books of accounts as well as turnover disclosed by the assessee but rejected the claim of Input Tax Credit (hereinafter called as "I.T.C.") of Rs.2,01,427.89 on the purchase of R.E.P. License. Against the rejection of the claim of I.T.C., a first appeal was preferred before the Appellate Authority, which was dismissed vide order dated 15.01.2013. Aggrieved by the said order, a second appeal was preferred before the Commercial Tax Tribunal, which was also dismissed by the order impugned, hence, the present revision.

7. Learned counsel for the assessee submitted that the rejection of claim of I.T.C. was not correct by the Assessing Authority as well as by the Tribunal as the Apex Court in Vikas Sales Corporation and others vs. C.C.T. (1996) 4 SCC 433 held that import license, which are called as "replenishment licences" (R.E.P. Licenses), are goods which can be sold and purchased from the market and on the purchase and sale of such transaction, the liability of tax is there. He then contended that the assessee had purchased the goods i.e. R.E.P. license, which is liable to be taxed and admittedly the tax was paid by the assessee on its purchase therefore, refusal to grant I.T.C. was not correct. The R.E.P. licenses as per the notification dated 10.01.2008, are taxed at the rate of 4%. The denial of I.T.C. by the Taxing Authorities on the ground that assessee did not do business of purchase and sale of import license and through the license he has purchased the goods from outside India thus the benefit of I.T.C. cannot be extended as condition attached to Section 13(1)(a) of the Act of 2008 has not been complied with and no manufacturing activities has been done, the I.T.C. was refused.

8. According to Sri Pandey, the findings recorded by the Tribunal to the effect that no manufacturing activity was done by the assessee when the goods were imported from outside India and was sold in the same form is patently wrong. The act of dealer in selling the goods as per suitable use is covered under the word ''manufacture'. According to him, the definition of "manufacturer" has been provided in Section 2(t) of the Act, which reads as under :

"(t) "manufacturer" means producing, making, mining, collecting, extracting, mixing, blending, altering, ornamenting, finishing, or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be be prescribed."

9. He then submitted that by importing chemical from outside the country, the dealer has used the license and adapted as per his requirement and sold it to different dealers in different quantify. Thus, the adaption of the goods have been done which amounts to manufacture.

10. Reliance has been placed upon decision of Division Bench of Delhi High Court in case of Jagriti Plastics Limited vs. Commissioner of Trade & Taxes (ST.Appl 5/2015) connected with N.F. Impex Pvt. Ltd. vs. Commissioner of Trade & Taxes (ST.Appl 23/2015) decided on 1st October, 2015 wherein similar controversy came before the Delhi High Court and the Court granted benefit of I.T.C. to the assessee therein, who had used the import license and sold the commodity, so imported. Relevant paras 24 and 25 of the judgment are extracted hereas under :

"24. The Court finds no reason why in respect of the input tax credit provided under Section 9(1) read with Section 9(4) of the DVAT Act a similar approach should not be adopted. The usage by the Assessees, who are registered dealers, of the DEPB scrips purchased by them from another registered dealer after paying the input tax for reducing the incidence of customs duty should be held to constitute use of such DEPB scrip for the purposes of sale of the imported commodity. The DEPB scrip has contributed, if not directly then indirectly, to the price of the imported commodity sold by the Assessees in the market. There could be any number of intangibles that have an impact on the value of the final product like advertisement costs in respect of which input service tax credit may have been availed of, as was in the case of Coca Cola India Pvt. Ltd. (supra). All that is to be shown is that such input tax paid goods have contributed to the sale of the final product in some way directly or indirectly.

25. The Court also rejects the other contention of the DTT that input tax credit cannot be availed of unless the Assessees are themselves dealing in DEPB scrips. In other words, in order to avail of the input tax credit in the present case it is not necessary that the Assessees have to be dealers in the same commodity, i.e. the DEPB scrips which were used in payment of customs duty on the imported goods in which they were dealing. Such an interpretation will negate the object of introducing the system of value added taxes, i.e. to reduce the cascading effect of multiple taxes at various stages. As long as it is shown that use of the DEPB scrip has impacted the cost of the product that is sold, either directly or indirectly, the credit of the input tax paid on the DEPB scrip cannot be denied to the Assessees."

11. Reliance has also been placed upon a decision of Apex Court in Sonebhadra Fuels vs. Commissioner of Trade Tax, U.P. 2007 UPTC 628. Through the said judgment, the counsel has tried to clarify the word "adaptation", as used in the definition of "manufacturer", which the Apex Court had interpreted in manufacturing of Coal Briquettes.

12. Per contra, Sri A.C.Tripathi, learned Standing Counsel appearing for the State submitted that the Tribunal had rightly rejected the claim of I.T.C., as the assessee had not carried out any manufacturing activity after importing the goods inside the country and the second condition to Section 13(1)(a) of Act of 2008 does not stand fulfilled. He submitted that Section 13 of the Act of 2008 is very specific wherein I.T.C. was to be given after fulfilling the conditions provided therein. According to him, if the purchased goods are resold inside the State or in the course of inter State trade or commerce or in the course of export of goods outside the territory of India, full amount of I.T.C. can be availed.

13. In the present case, it was not a case where the license, which was purchased by the assessee was resold. He then contended that according to second condition when purchased goods are used in manufacture of any taxable goods and such manufactured goods are sold either inside the State or in the course of inter-State trade or commerce then I.T.C. of full amount can be claimed, but, the case of the assessee did not fall in either of the cases and the Tribunal was correct in repelling the argument and not extending the benefit. He then contended that the case of the assessee is not of adapting goods, as mentioned in the definition of word "manufacturer".

14. I have heard the respective counsels for the parties and perused the material on record.

15. The small issue before the Court for consideration is :

Whether the benefit of Input Tax Credit, as provided under Section 13(1)(a) of the Act of 2008, can be extended to a dealer who has purchased import license after paying the requisite tax under the Act and has imported the goods and sold the same is entitled for the claim or not?

16. The issue as regards R.E.P. license has already attained finality and the matter is no more res integra and the Apex court in Vikas Sales Corporation and others (supra) has already held the license to be ''goods'. Once the license have been held to be goods and are liable to be taxed on the sale and purchase, the benefit as extended under Section 13 of the Act of 2008 cannot be denied to a dealer who is in the said business.

17. As far as the question of purchasing and selling the license itself is concerned, there is no controversy and the assessee is entitled to get the benefit of Section 13(1)(a) of Act of 2008 and can claim I.T.C. on the tax paid by him on the purchase of import license.

18. The question before the Court is when a dealer after purchasing any import license from open market and after paying tax at the rate of 4% as per the notification and having used the license for import of chemical and thereafter selling the goods so imported by him in furtherance of his business is entitled for the benefit of I.T.C. or not.

19. Section 13 of the Act of 2008 is charging section which deals for grant of Input Tax Credit to a dealer liable to pay tax subject to conditions given in Column (2), in respect of all taxable goods, where such taxable goods are purchased on or after date of commencement of the Act, are allowed credit of the amount, as Input Tax Credit, to the extent provided in Column (3) of the table. Section 13(1)(a) along with table is extracted hereas under :

Section 13. Input tax credit.-

(1) Subject to provisions of this Act, dealers referred to in the following clauses and holding valid registration certificate under this Act, shall, in respect of taxable goods purchased from within the State and mentioned in such clauses, subject to conditions given therein and such other conditions and restrictions as may be prescribed, be allowed credit of an amount, as input tax credit, to the extent provided by or under the relevant clause: [For condition prescribed see Rule 24]

(a) Subject to conditions given in column (2), every dealer liable to pay tax shall, in respect of all taxable goods except non-vat goods, capital goods and captive power plant, where such taxable goods are purchased on or after the date of commencement of this Act, be allowed credit of the amount, as input tax credit, to the extent provided in column (3) of the table below:

TABLE

Sl.

No.

Conditions

Extent of amount of input tax credit

1.

If purchased goods are re-sold-

(i) inside the State, or

(ii) in the course of inter-State Trade or Commerce; or

(iii) in the course of the export of the goods out of the territory of India.

Full amount of input tax

2.

If purchased goods are used in manufacture of-

(i) any goods except non-vat goods and where such manufactured goods are sold in the course of the export of the goods out of the territory of India: or

(ii) any taxable goods except non-vat goods and where such manufactured goods are sold either inside the State or in the course of inter-State trade or commerce.

Full amount of input tax

3.

If purchased goods are,-

(i) transferred or consigned outside the State otherwise than as a result of a sale; or

(ii) used in manufacture of any taxable goods except non-vat goods and such manufactured goods are transferred or consigned outside the State otherwise than as a result of a sale.

Partial amount of input tax, which is in excess of rate prescribed under sub-section (1) of Section 8 of the Central Sales Tax Act, 1956 of the purchase price on which the dealer has paid tax either to the registered selling dealer or to the State Government.

20. From the reading of Column (2) of the table, it is clear that if the purchased goods are resold inside the State or in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India, full amount of input tax credit is available to a dealer.

21. Similarly, if goods purchased are used in manufacture of any goods and where such manufactured goods are sold in the course of export of goods outside the territory of India or any taxable goods manufactured are sold either inside the State or in the course of inter-State trade or commerce, a dealer is entitled to full amount of I.T.C.

22. In the instant case, the claim of assessee-dealer was solely rejected on the ground that he had not dealt with the sale and purchase of license which he had purchased from open market and was thus not entitled to claim I.T.C. The authorities as well as the Tribunal recorded a finding that no manufacturing activity was carried out by the assessee after importing the goods from outside the country using the import license.

23. The word ''manufacturer' has been defined in Section 2(t) of the Act wherein the term ''manufacturer' not only means producing, making, mining, collecting, extracting, mixing, blending, altering, ornamenting, finishing, or otherwise processing and treating but also uses the words "adapting any goods".

24. It is the case of the assessee that once the chemical was imported using the license, the goods were adapted as per the use of the assessee and was sold in small quantity, thus he falls under the definition of ''manufacturer' and entitled for claim of I.T.C.

25. The word ''adapted' has been defined in Wharton's Law Lexicon, 16th Edition, as "suitable for use". Similarly, Concise Oxford English Dictionary defines ''adaptation', means, the action of process of adapting or being adapted.

26. In Bolani Ores Ltd. vs. State of Orissa and Dalmia Cement Bharat Ltd. vs. The Regional Transport Officer, Ballery (Mysore)(1974) 2 777, the Apex Court while dealing with a matter of Motor Vehicles Act had the occasion to consider the word ''adapted', and held that the words "adapted for use" must be construed as "suitable for use". In other words, adapted is same as "suitable" or "fit for use". Relevant para 23 of the judgment is extracted hereas under :

"The meaning of the word "adapted" in Section 2(18) of the Act is itself indicated in entry 57 of List II of the Seventh Schedule to the Constitution, which confers a power on the State to tax vehicles whether propelled mechanically or not and uses the word "suitable" in relation to its use on the roads. The words "adapted for use" must therefore be construed as "suitable for use". At any rate, words "adapted for use" cannot be larger in their import by including vehicles which are not "suitable for use" on roads. In this sense, the words "is adapted" for use have the same connotation as "is suitable " or "is fit" for use on the roads."

27. From reading of definition and the decision of the Apex Court, it is clear that the word ''adapted' or ''adapting' means suitable for use in a given situation. The chemical, which was imported by the assessee from outside country using import license in bulk was sold as per the requirement in small quantity, adapting it to the requirement and situation.

28. Thus, the action of the assessee in adapting for use of the chemical brought in for the purpose of business would be encompassed under the definition ''manufacturer'.

29. In Vikas Sales Corporation (supra), the Apex Court had already held that grant of license by Licensing Authority to the registered exporter is not a sale. The sale is when the registered exporter or purchaser sells it to another person for consideration.

30. In the instant case, the assessee-dealer had purchased import license from another person after paying the taxes as was applicable and the licence, which was in a intangible form was converted into a tangible form by the assessee importing chemical from outside the country.

31. The Delhi High Court in Jagriti Plastics Limited (supra), while allowing the benefit of I.T.C. had held that it was not necessary that assessee has to be dealer in same commodity i.e. selling the license as held by the Tribunal. The Court held that such an interpretation will negate the object of introducing the system of value added taxes, i.e. to reduce the cascading effect of multiple taxes at various stages.

32. Thus, as long as the assessee demonstrates that the use of import licence impacted the cost of the product i.e. sale either directly or indirectly, credit of input tax paid on the import license cannot be denied to the assessee-dealer.

33. Considering the facts and circumstances of the case, I find that the findings recorded by the Tribunal to the extent that I.T.C. can only be availed in case the assessee-dealer selling the licence itself and not importing the goods using the said import license and reselling the same in the market is not correct.

34. The analogy of the Tax Department cannot be accepted in light of the judgment of Delhi High Court which would frustrate purpose of introduction of value added tax system and will not help in reducing the cascading effect of multiple taxes at various stage. Once it has been held that import license is a goods though in intangible form, and the same has been purchased from open market after paying the tax, using it for importing goods and selling in the market, the assessee is entitled for claiming ITC.

35. In view of the above, the order passed by Tribunal dated 12.03.2013 is unsustainable in the eyes of law and the same is hereby set-aside.

36. The revision stands allowed.

37. The question of law framed above, stands answered in favour of assessee and against the Revenue.

Order Date :- 16.1.2023

Kushal