Case Title: M/S Modi Naturals Ltd v. The Commissioner Of Commercial Tax Up
Case No.: CIVIL APPEAL NO(S). 5822-5823 OF 2023
Decided On: 06.11.2023
Coram: Hon’ble Mr. Justice Dr. Dhananjaya Y. Chandrachud, Hon’ble Mr. Justice Manoj Misra and Hon’ble Mr. Justice J.B. Pardiwala
Facts of the Case:
Registered dealers are entitled to ITC for taxable items acquired inside the State under Section 13(1) of the UP VAT Act. But the key is in Explanation (iii) and Section 13(1)(a), which deal with the situation in which exempt items become byproducts of manufacture.
A problem arose with the Input Tax Credit on De-Oiled Rice Bran (DORB), an exempt by-product, for Modi Naturals, a registered dealer that produces Rice Bran Oil (RBO). The business argued that it should be able to receive the entire Input Tax Credit (ITC) for the taxable products it bought in accordance with Section 13.
Legal Provisions
The Uttar Pradesh Value Added Tax Act, 2008 (the “UP VAT Act”) and the eligibility for Input Tax Credit (ITC) in relation to the manufacture of exempted items as byproducts during the manufacturing of taxable goods have been clarified by the Supreme Court. The M/S Modi Naturals Ltd. case reveals the complexities of Section 13 and its justifications.
Issues
Whether the Assessee is entitled to the full input tax credit (ITC) on by-products (DORB) generated during the production of taxable goods (RBO) was the main question put before the court.
Courts analysis and decision
The legislative aim was made clear by the Supreme Court when it examined Sections 13(1)(a) and 13(3)(b) with Explanation (iii). ITC is allowed for acquired commodities utilised in the production of taxable products under Section 13(1)(a). However, proportionality is introduced in the ITC with regard to the manufacturing of exempt items during the manufacture of VAT products by Section 13(3)(b). Explanation (iii) to Section 13, is the crucial point. It states that acquired goods are regarded as employed in the making of taxable goods if exempted goods are formed as byproducts during the manufacturing of taxable goods. The court made clear that when exempt items are generated as byproducts, this explanation precludes any disagreement regarding ITC.
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Written by- Aastha Ganesh Tiwari
