Judgment:
(Prayer: These STRPS Filed Under Sec.65(1) Of Karnataka Value Added Tax Act., Against The Judgment And Order Dated:06.04.2013 Passed In Sta.No.638 To 658/2011 On The File Of The Karnataka Appellate Tribunal At Bengaluru, Dismissing The Appeals.)
1. The assessee has preferred this revision petition against the order passed by the Karnataka Appellate Tribunal holding that the assessee is not entitled to full input tax credit, as the residue Sunflower De-oiled Cake is not liable for tax.
2. The assessee is a private limited company, which is engaged in extraction and sale of refined Sunflower Oil from Sunflower Oil Cake by employing solvent extraction process. It is also engaged in trading in edible oils to some extent. It has three units namely solvent extraction processing unit, refining unit and trading unit. It is registered as a dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the 'KVAT Act') and also under the provisions of the Central Sales Tax Act, 1956 ( hereinafter referred to as 'CST Act') and is borne on the files of the LVO-190, Mysore. The petitioner filed returns of turnover in Form VAT-100 in respect of all the 21 tax periods commencing from July 2005 to March 2006 and April 2006 to March 2007, and has paid taxes as admitted therein. On scrutiny of the returns, the Deputy Commissioner of Commercial Taxes was of the view that the assessee manufactured/extracted sunflower oil and also obtained de-oiled sunflower oil cake. While sunflower oil was liable to tax, de-oiled sunflower oil cake was exempted from tax under Government Notification No.FD 197 CSL 2005 (1) dated 30.04.2005. The assessee was therefore eligible only for partial input tax rebate as per Section 17 r/w. Rule 131(3) of the KVAT Act and Rules. Therefore, the Assessing Authority after issue of proposition notice, considering the objections filed by the assessee, rejected the same and proceeded to pass the order dated 23.04.2009. Aggrieved by the said order, the assessee filed appeal before the Joint Commissioner of Commercial Taxes (Appeals), Mysore, who dismissed the same by his order dated 12.01.2011. Aggrieved by the said order, the assessee preferred second appeal to the Karnataka Appellate Tribunal. The Tribunal by a considered order, held that, as the assessee has failed to maintain evidence to segregate non-deductible input tax relating to exempt transactions it has failed to establish the claim of deductible input tax on direct method as explained to segregate non-deductible input tax. The Tribunal held that the First Appellate Authority was justified in invoking Section 17 of the Act and denying partially the benefit of deduction of input tax. Aggrieved by the said order, the assessee is before this court.
3. Learned counsel for the assessee assailing the impugned order contends that the assessee is engaged in the manufacture of Sunflower Oil from the Sunflower Oil Cake. The Sunflower Oil is taxable goods. Incidentally, the de-oiled cake comes as a by-product which is sold by it which is an exempted goods. But that should not be the reason to deny the benefit of deduction of input tax relying on Section 11(a)(1) of the Act. The authorities have not properly appreciated the case of assessee and committed error in denying the said benefit.
4. Per contra, learned Addl. Government Advocate, supporting the impugned order, contends that it is not in dispute that the assessee is engaged in the business of extraction and selling of sunflower oil and also de-oiled cake which is an exempted product. Therefore, the assessee utilizing the Sunflower Oil Cake as an input and manufacturing both Sunflower Oil and Sunflower De-oiled Cake and sells them, therefore, Section 17 is attracted. Hence, the authorities are right in applying Section 17 of the Act and denying the relief to the extent of the exempted goods. Therefore, in the light of the aforesaid rival contentions, the point that arises for our consideration in this revision petition is,-
"Whether Section 17 of the Act is attracted to a case where by-product sold, falls within the category of 'exempted goods'."
5. Section 10 of the Act explains the meaning of 'Output tax, Input tax and Net tax', which reads as under:-
(1) Output tax in relation to any registered dealer means the tax payable under the KVAT Act in respect of any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue of a prescribed declaration by such agent.
(2) Subject to input tax restrictions specified in Sections 11, 12, 14, 17 and 18, input tax in relation to any registered dealer means, the tax collected for payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases.
(3) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductable by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of this Act.
(4) For the purpose of calculating the amount of net tax to be paid or refunded, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 or Section 30 and is with the registered dealer taking the deduction at the time any return in respect of the sale is furnished, except such tax paid under sub-section (2) of Section-3.
(5) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, whereunder sub-section (3), the input tax deductable by a dealer exceeds the output tax payable by him, the excess amount shall be adjusted or refunded together with interest, as may be prescribed.
However, Section 11 prescribes the restrictions of input tax. The relevant provision for consideration in this case is 11(a)(1), which reads as under:
11(a)(1) Tax paid on purchases attributable to sale or manufacture or process or packing or storage of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India.
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6. It is to be noticed that at the inception, the words 'Manufacture or Processing or package or storage' were not conspicuously mentioned in the said provision.
Those words were inserted by way of amendment by Act No.5/2008 and it has been given retrospective effect from the inception i.e., 01.04.2005.
7. Section 17, on which reliance is placed by the Revenue and which deals with partial rebate, reads as under:-
"17. Partial Rebate Where a registered dealer deducting input tax -
1) makes sales of taxable goods and goods exempt under Section 5, or
2) in addition to sale of taxable goods or the sales referred to in clause (1) dispatches taxable goods or goods exempted under Section 5 outside the State not as a direct result of sale or purchase in the course of inter-State trade, or
3) puts to use the inputs purchased in any other purpose other than sale, manufacturing, processing, packing or storing of goods, in addition to use in the course of his business, or
4) falls under any of the above clauses and also purchases any petroleum product for use as fuel in production of any goods or captive power.
apportionment and attribution of input tax deductible between such sales and despatches of goods or such purpose, shall be made in accordance with Rules or by special methods to be approved by the Commissioner or ay other authorized person and any input tax deducted in excess shall become repayable forthwith.
8. Rule 131 of the KVAT Act, 2005 deals with partial exemption, capital goods and special accounting schemes. Section 131(1) and (2) reads as under:-
"131. Apportionment- Apportionment of input tax in the case of a dealer falling under Section 17 shall be calculated as follows-
1) All input tax directly relating to sale of goods exempt under Section 5 other than such goods sold in the course of export out of the territory of India, is non-deductible.
2) All input tax directly relating to taxable sales may be deducted, subject to the provisions of Section - 11.
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9. From a reading of the aforesaid provisions, it is clear that the input tax in relation to any registered dealer means tax collected or payable under this Act on the sale by him on any goods for use in the course of his business.
Out-put tax in relation to any registered dealer means, the tax payable under this Act in respect of any taxable sale of goods made by the dealer in the course of his business. Sub-Rule (3) makes it clear that subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, net tax payable by the registered dealer in respect of each tax period shall be the amount of output tax payable by him for that period less input tax deductible by him, as prescribed in that period. Section-11 prescribes restrictions on input tax. Section 11 (a)(1) specifies that tax paid on purchases attributable to sale or manufacture of exempted goods exempted under Section 5 are not deductible in calculating the net tax payable by such assessee. In other words, the condition precedent for having the benefit of input tax deduction is that the goods sold or manufactured by the assessee should be liable to tax under the Act. If no output tax is payable, then the question of deducting input tax in order to calculate the net tax would not arise.
10. Section-17 deals with the Partial Rebate. If a dealer/assessee makes sales of taxable goods and goods exempted under Section 5, then, the apportionment and attribution of input tax deductible between such sales and despatches of goods shall be made in accordance with rules. Rule 131 provides for apportionment. Sub-Rule(1) of Rule 131 categorically states that all input tax directly relating to sale of goods exempt under Section 5 is non-deductible. However, sub-rule (2) makes it clear that all input tax directly relating to taxable sales may be deducted subject to the provisions of Section-11. Therefore, the words 'Direct Relation' are used between the goods in respect of which input tax is paid and goods in respect of which output tax is payable. There should be a direct nexus. As is clear from the wordings of Section 11(a)(1), tax paid on purchases, attributable to sale or manufacture of exempted goods are non-deductible. Therefore, an assessee, if in the business of sale or manufacture of a particular goods, if that goods is liable for output tax, then he would be eligible for input tax deduction. Having regard to the language employed in Section 11(a)(1) 'Attributable to sale or manufacture' coupled with the words used in the rules 'directly relating' to taxable sales or to sell the goods exempted under Section 5, there should be a direct nexus between the goods purchased and the goods sold or manufactured. If there is a direct nexus, the assessee is entitled to the benefit of input tax deduction. Section-17, which deals with partial rebate, applies to the goods when the tax paid on purchases is attributable to sale or manufacture of more than one product and out of that, one product is taxable and another product/goods is non-taxable or exempt from tax. Then applying the Rule 131, proportionate input tax deduction is to be valued. But, when the assessee is in the business of sale or manufacture of only one product and that is taxable one, merely because in the process of manufacture or in the process of sale, certain ancillary or by-product arises and that is sold for a certain price, which is exempted from payment of output tax, that would not attract Section-17 of the Act. It is not the case of the court interpreting exemption notification, where it is a settled law that a strict literal interpretation is to be applied. Here, we are interpreting the statutory provision where the Legislature has extended the benefit of deduction to assessee. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. If strict literal construction leads to an absurd result i.e., result not intended to be sub-served by the object of the legislation, then if other construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. So the principle of purposive construction will have to be applied when the literal construction leads to absurdity. The context, scheme of the relevant Act as a whole and its purpose are as relevant in construing a taxing Act as in construing any other Act. Therefore, the rule that object of the legislature has to be kept in view and a construction consistent with the object has to be placed on the words used if there be ambiguity, is also applicable, in construing a taxing enactment. An exemption granted under a fiscal statute is a concession granted by the Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay. Therefore, in the instant case, if a literal construction is adopted, it leads to absurdity and it would defeat the object of the Act and the benefit conferred on the assessee by the Legislature is denied. On the contrary, purposive construction would achieve the object sought to be achieved.
11. In this case it is not in dispute that the assessee is in the business of sale and manufacture of Sunflower Oil from Sunflower Oil Cake had applied solvent extraction process. He did not set up any industrial unit for the purpose of manufacturing de-oiled cake. The entire raw- material named as Sunflower Cake purchased is for the manufacture of Sunflower Oil. But, in the process, after the entire Sunflower Oil is extracted, de-oiled cake remains. The said de-oiled cake also has a value. He cannot keep that de-oiled cake in his premises as it could occupy a large space and no purpose would be served by keeping the same. Merely because the said de-oiled cake also has a value and he sells the same, there is no justification to deny the benefit of deduction to the assessee, because there is no direct nexus between the sunflower oil cake and the de-oiled cake. Sunflower oil cake was purchased for the purpose of extracting oil from the said cake and for the sale of the de- oiled cake, the assessee has not put-up a separate unit. Therefore, it is not the case that assessee has put-up a separate industry for the purpose of manufacture of de-oiled cake and merely because the de-oiled cake has some value and it is sold, that would not take away the benefit conferred on the assessee by the statute. A harmonious interpretation of Sections- 10, 11(a)(1), 17 and Rule 131 of the KVAT Act, makes it very clear that it is only when there is direct relationship to the taxable sales, the assessee is entitled to the benefit. The assessee cannot be denied the benefit, taking into consideration the sale of de-oiled cake which is an exempted goods. In that view of the matter, the authorities have not properly appreciated the said statutory provisions. The Legislative intent is defeated in denying the benefit of input tax deduction relying on Sections- 11(a)(1) r/w. Section-17 of the Act. The impugned order is unsustainable. Hence, we pass the following order:
12. The Revision Petition is allowed. The impugned order is hereby set aside. It is held that the assessee is entitled to the benefit of 'Full Input Tax Deduction'. Ordered accordingly.