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2006 DIGILAW 753 (PAT)

Neo Carbon Pvt. Limited v. State Of Bihar

2006-08-24

AFTAB ALAM, S.K.KATRIAR

body2006
Judgment Aftab Alam, J. 1. The question that arises for consideration in these two cases is whether it is permissible to claim adjustment of Central Sales Tax (CST) payable on sales of goods in course of Inter State Trade against any Input Tax Credit accruing under sec. 16 of the Bihar Value Added Tax Act, 2005 . 2. The relevant facts in the two cases are very brief and simple. In C.W.J.C. No. 1114 of 2006 the petitioner company buys Raw Petroleum Coke, a waste product from Barauni Oil Refinery. On the purchase it pays tax as provided under Section 14 of the VAT Act @ 4%, as Raw Petroleum Coke falls under Schedule 3 of the Act. It manufactures Calcinite Petroleum Coke and sells its produce partly to buyers in Bihar but mainly to HINDALCO, a company situate at Renukut in Uttar Pradesh. The sale to HINDALCO constitutes inter State sale and on those sales the petitioner is liable to pay C.S.T. @ 4%. 3. In C.W.J.C. No. 5767 of 2006 the petitioner company purchases waste paper on payment of tax @ 4% as provided u/s. 14 read with Schedule 3 of the Act. It manufactures paper board for packing purposes and sells its produce partly within the State and partly to buyers outside the State. 4. Both the petitioners claim that instead of actual payment their C.S.T. liabilities (arising from sale to HINDALCO in case of petitioner in C.W.J.C. No. 1114 of 2006 and sale to different buyers outside the State in case of the petitioner in C.W.J.C. No. 5767 of 2006) should be adjusted against their Input Tax Credit accruing to them on the basis of taxes paid on purchase of raw materials as provided u/s. 16 of the VAT Act. The two writ petitions also seek to challenge a circular letter dated 2.12.2005 issued by the Commissioner cum Secretary, Commercial Taxes directing, that any C.S.T. liabilities cannot be adjusted against Input Tax Credit u/s. 16 of the Act. 5. Mr. S.D. Sanjay, counsel appearing for the petitioners in the two cases strongly urged that the main purpose of providing the facility of input tax credit was to allow set off of other tax liabilities, including C.S.T. to the extent of the credit held by the dealer. A contrary view, according to him, would frustrate the main spirit and object of the VAT Act. A contrary view, according to him, would frustrate the main spirit and object of the VAT Act. He further submitted that a reference to the different provisions of the Act would make it clear that the respondent authorities had taken an erroneous stand in the matter. 6. Mr. Ray Shivaji Nath, AAG 4 appearing on behalf of the State submitted that the liability for payment of C.S.T. arose under the Central Sales Tax Act, a legislation by the Union of India under entry 92A of list 1 under Schedule VII of the Constitution. On the other hand VAT Act was a State legislation under entry 54 of List 2 under Schedule VII of the Constitution. He submitted that a liability arising under the Central Act could not be adjusted against any credit arising under the State Act and hence, the claim of the petitioners was quite misconceived. 7. Much clarity and light on the question came from Mr. K.N. Jain who by a previous order was appointed amicus curiae and was requested to assist the court. He took a stand contrary to the petitioners and referred to the different provisions of the Act and the Rules to show that the petitioners claim was quite untenable. 8. For a proper examination of the question it would be appropriate to begin from the definition as given in sec. 2 of the VAT Act. sec. 2(q) defines Input as follows: 2(q) "input" means goods (excluding goods specified in Schedule IV) purchased in the course of business - (a ) for re-sale; (b) for use in manufacture of goods including packing materials; 9. It is thus clear that Raw Petroleum Coke and waste paper purchased by the two petitioners are Input within the meaning of the Act. 10. sec. 2(r) defines Input Tax thus: 2(r) "input tax" means the amount paid or payable by a registered dealer, by way of tax under this Act, in respect of purchase of any taxable goods. 11. sec. 2(v) defines Out put Tax as follows: 2(v) "output tax" means the tax charged or chargeable in respect of sale or supply of goods made by a registered dealer. 12. Mr. Sanjay submitted that Input Tax was defined as tax under the VAT Act but Out put Tax was not subject to this qualification and that would, therefore, include taxes arising under other Acts, e.g. central sales tax. 12. Mr. Sanjay submitted that Input Tax was defined as tax under the VAT Act but Out put Tax was not subject to this qualification and that would, therefore, include taxes arising under other Acts, e.g. central sales tax. The submission is quite misconceived since the expression tax itself is defined in Sub-sec. (ze) of sec. 2 in the following terms: 2(ze) "tax" means the tax leviable and payable under this Act. 13. The provision for credit of Input Tax is made in sec. 16 of the Act. It is a long section with a number of sub-sections each containing several sub clauses. In so far as relevant for the present it is reproduced below: Sec. 16 Input tax Credit - (1) subject to the provisions of this Act, an input tax credit as provided in this section shall be claimed by a registered dealer, subject to such conditions and restrictions as may be prescribed, on sales of goods in the following circumstances, namely: (a) xx xx xx xx xx xx xx (b) when a registered dealer - (i) purchases any input within the State from another registered dealer after paying him the tax u/s. 14, or (ii) purchases any input and pays tax on such purchase u/s. 4 of the Act. and consumes such goods in the manufacture of any goods mentioned in Clause (a), (b) and (d) of sec. 14, he shall claim credit of the said input tax in the manner prescribed, if the goods so manufactured are sold within the State of Bihar or in the course of inter-State trade and commerce. (c) xx xx xx xx xx xx (d) xx xx xx xx xx xx (e) xx xx xx xx xx xx Provided xx xx xx xx xx Provided xx xx xx xx xx Provided xx xx xx xx xx (2) Notwithstanding anything contained in Sub-sec. (1), where a registered daaler purchases any input in the circumstances mentioned in Clause (a) or Clause (b) or Clause (c) or Clause (d) of the said Sub-sec. (1), where a registered daaler purchases any input in the circumstances mentioned in Clause (a) or Clause (b) or Clause (c) or Clause (d) of the said Sub-sec. and - (a) he despatches such goods or the goods manufactured by consuming such goods, to a commission agent registered under this Act or transfers such goods to its branch or head office within the State of Bihar for sale, as the case may be; (b) he supplies such goods in the course of execution of a works contract to another registered dealer to whom he has let out a sub-contract, for use in the execution thereof. The input tax credit on the sale or supply, as the case may be, of such goods shall be claimed by the registered dealer selling the goods on commission or using the goods supplied in the execution of sub-contract, as the case may be, in accordance with the provisions of Sub-sec. (i), in such manner as may be prescribed. (3) xx xx xx xx xx xx xx (4) xx xx xx xx xx xx xx (5) xx xx xx xx xx xx xx 14. Mr. S.D. Sanjay greatly stressed that u/s. 16(1)(b) it was expressly provided that the dealer would claim credit of the Input tax (paid on purchase of raw materials) if the manufactured goods were sold in course of inter State trade or commerce. He submitted that the petitioners were fully justified in seeking adjustment of their respective C.S.T. liabilities against their Input Tax Credit. According to him the stand of the revenue authorities was quite incomprehensible as it was contrary to the plain language of the Act. 15. Mr. Jain on the other hand pointed out that the sale of the manufactured goods within the State of Bihar or in course of Inter State trade or commerce was the condition precedent for accrual of Input tax Credit. He submitted that Mr. Sanjay missed the basic difference between the accrual of Input Tax Credit and the liabilities/tax (es) that can be adjusted against that credit. He submitted that sec. 16(1) dealt with the accrual of the credit and it was confused by the petitioners to mean that the credit so accrued could be used for non-payment of its C.S.T. liability and the adjustment of that liability against Input tax credit. 16. Mr. He submitted that sec. 16(1) dealt with the accrual of the credit and it was confused by the petitioners to mean that the credit so accrued could be used for non-payment of its C.S.T. liability and the adjustment of that liability against Input tax credit. 16. Mr. Jain pointed out that there may be eventualities in which Input Tax Credit may not arise at all or it may accrue not to the credit of the purchaser of the Input but to someone else. For instance, if the Input purchased by the dealer was not sold to other dealer or it was not used for manufacturing goods that in turn were sold to other buyers but the input was consumed by the dealer who purchased it then no input tax credit would arise at all. Similarly, with refefence to Sub-sec. 2 of sec. 16 Mr. Jain pointed out that though there was accrual of Input Tax Credit it was not in favour of the buyer of the input/manufacturer but in favour of his commission agent. Mr. Jain submitted that it was thus clear that sale of manufactured goods in course of inter State trade was only a condition for accrual of input tax credit and it did not envisage any adjustment of C.S.T. against that credit. 17. Mr. Jain further submitted that Sub-sec. (1) of sec. 16 made any claim of input tax credit expressly subject to such conditions and restrictions as may be prescribed. He then referred to Rule 12 of the Bihar Value Added Tax Rules, 2005. Sub-rule (1) of Rule 12 provides that claims for input tax credit would be made by a registered dealer in his return u/s. 24. Returns under Sec. 24 are to be made in the prescribed form RT 1. Part D of the form deals with Input-tax credit and tax payable. A perusal of the different columns of part-D of the form leaves no room for doubt that there is no provision for any adjustment of C.S.T. payable by the dealer against input tax credit. 18. I find substance in Mr. Jains submissions and I have no doubt in my mind that in their present form the Bihar VAT Act and the Rules do not permit the adjustment of C.S.T. against input tax credit. 19. The position is slightly different under the Jharkhand Act and the Acts of some other States. 18. I find substance in Mr. Jains submissions and I have no doubt in my mind that in their present form the Bihar VAT Act and the Rules do not permit the adjustment of C.S.T. against input tax credit. 19. The position is slightly different under the Jharkhand Act and the Acts of some other States. In other relevant provisions the Jharkhand Act is quite similar to the Act framed by this State. But under the Jharkhand Rules a specific provision has been inserted as Rule 19(ii) that expressly permits the adjustment of C.S.T. against input tax credit. We are told that similar provisions are made in the Rules framed by a number of other States. 20. Though the Bihar Act and the Rules in their present form do not permit the adjustment as claimed by the petitioner, I wish to observe that the State of Bihar too, like a number of other States, will be well advised to incorporate provisions for adjustment of C.S.T. against input tax credit. This would be in conformity with the principles and the main object and purpose of the Value Added tax law i.e. to avoid double taxation and to save the dealer from the harassment of first making payment and then to run around for getting its refund. 21. In the result, this writ petition is dismissed subject to the above observation. 22. Let a copy of this judgment be brought to the notice of the Finance Minister/the Chief Secretary and the Finance Secretary, Government of Bihar. S.K.Katriar, J. 23 I agree.