No Manufacturing Activity Within State , ITC Cannot Be Denied Under JVAT Act: Jharkhand High Court

The Bench, consisting of Justices Aparesh Kumar Singh and Deepak Roshan, has held that in a taxing statue there is no room for intendment and therefore Section 18(8)(ix) cannot be stretched to cover persons who are not manufacturers so as to deny them Input Tax Credit under the Act.

The Petitioner/Assessee Exide Industries was assessed under the Jharkhand Value Added Tax (JVAT) Act, 2005. The Deputy Commissioner of Commercial Taxes passed an assessment order disallowing the Input Tax Credit to the Assessee on the basis of Section 18(8)(ix) of the JVAT Act. The Joint Commissioner of Commercial Taxes (Appeal) confirmed the assessment order of the Deputy Commissioner. Against the order of the Joint Commissioner (Appeal) the Assessee filed a revision application before the Commercial Taxes Tribunal who dismissed the Assessee's appeal by confirming that Section 18(8)(ix) of the JVAT Act was applicable to it and therefore the Input Tax Credit was disallowed to it. Exide Industries filed a writ petition before the Jharkhand High Court against the order of the Commercial Taxes Tribunal.

The Counsel for the Assessee Exide Industries submitted before the High Court that the Assessee claimed Input Tax Credit on the Intra-State purchase of scrap batteries made by it during the relevant period, which was disallowed by the Revenue Department under Section 18(8)(ix) of the JVAT Act. The Counsel averred that in order for Section 18(8)(ix) to apply the revenue department had the onus to show that the said scrap batteries were consumed by Exide Industries for manufacturing goods in the State of Jharkhand and that such manufactured goods were meant for Inter State transfer of stock or for sale outside the State of Jharkhand. The Counsel contended that the revenue department had failed to show the same and therefore Input Tax Credit was wrongly disallowed to Exide Industries for the relevant period. The departmental representative submitted that the Assessee Exide Industries did not produce any document before the Assessing Officer as well as the Appellate Authority to show that the goods on which it was claiming Input Tax Credit were sold in the same form as it was purchased, and that only in course of hearing of the revision petition the Assessee filed a supplementary affidavit in support of its claim.

Section 18(8) (ix) of the Jharkhand Value Added Tax (JVAT) Act, 2005 provides that no input tax credit shall be claimed or be allowed to a registered dealer in respect of goods consumed for manufacture of goods for Inter-State transfer of stock or for sale outside the State.

The High Court observed that the Assessee had made local purchases of scrap batteries for sale outside the State of Jharkhand on which it had claimed Input Tax Credit. However, the Assessing Officer, after applying Section 18(8)(ix), had disallowed a portion of the ITC claimed which was confirmed by the Appellate Authority and the Commercial Taxes Tribunal. The High Court ruled that neither the order of the Assessing Officer nor of the Appellate Authority had mention of the allegation that the Assessee was carrying out manufacturing activity within the State of Jharkhand. The High Court noted that the fact that the Assessee was not a manufacturer was admitted in the assessment order, appellate order as well as the revisional order.

The High Court held that Section 18(8)(ix) of the JVAT Act is only applicable when some manufacturing activity is undertaken by the assessee. It ruled that since the Assessee was only a trader and no manufacturing activity was carried out by it in the State of Jharkhand, therefore Section 18(8)(ix) could not be applied to it.

Additionally, the High Court ruled that for Section 18(8)(ix) to apply, the burden of proof was on the revenue authorities to show that the Assessee was engaged in manufacturing activity in the State of Jharkhand, which was not discharged by them.

"For the Respondent authorities, to apply Section 18(8)(ix) of the JVAT Act in the case of the petitioner; the burden was on them to establish that the Petitioner was engaged in manufacturing activity in the State of Jharkhand. However, such burden was not discharged by them. Moreover, it has not been alleged that the Petitioner is a manufacturer in the State of Jharkhand".

The Court added that in a taxing statue there is no room for intendment and therefore the finding of the Tribunal that goods that are likely to be used in manufacture are not eligible for ITC under Section 18(8)(ix) is contrary to the express mandate of Section 18(8)(ix) of the JVAT Act.

"The said section, in unequivocal terms, stipulates that goods purchased should be consumed for manufacture. The finding of the Ld. Tribunal that it seems to be the "intent" of the legislature that even goods that are "likely to be used" in manufacture (and hence the said section will apply even if a person is not a manufacturer), is contrary to the mandate of Section 18(8)(ix) of the Act."

The High Court ruled that the language of Section 18(8)(ix) of the JVAT Act could not be stretched to deduce a non-existent intention that the said section would apply even if the dealer was not a manufacturer.

The High Court held that in order to apply Section 18 (8) (ix), the first mandatory condition is that there has to be a manufacturing activity undertaken by the assessee within the State of Jharkhand. The Court added that it was only when there was a manufacturing activity that the second condition of Inter-State transfer of stock came into play.

The High Court thus allowed the writ petition of the Assessee and set aside the order of the lower authorities.

Case Title: Exide Industries Limited Versus The State Of Jharkhand And Others.

Citation: 2022 LiveLaw (Jha) 29

Dated: 23.03.2022 (Jharkhand High Court)

Counsel For The Petitioner: Mr. M.S. Mittal, Sr. Advocate And Mr. Rahul Lamba, Advocate.

Counsel For The Respondent: Mr. P.A.S. Pati, G.A.-II

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