M/S Karur K.C. Packkagings LTD vs. The Assistant Commissioner

Held

The Court held that renewable energy devices and spare parts, boilers, boiler components, and materials for boiler erection are integral parts of the manufacturing process of kraft paper and therefore qualify as 'capital goods' under Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006. The Court reasoned that the definition of capital goods encompasses plant, machinery, equipment, apparatus, tools, appliances, electrical installations, and their components and spare parts used for producing, making, extracting, or processing any goods for the manufacture of final products. The Court found that the Biomass Gasifier Unit, used for saving energy, and the boilers, used for generating steam to dry paper and run machinery, were essential apparatus and accessories utilized in the manufacturing process. The Court cited the precedent in *Thiagarajar Mills (P) Ltd. vs. Additional Commissioner (CT)*, where a windmill used for energy generation in manufacturing was held to be capital goods. The Court found the respondent's reasoning that these items lacked direct or indirect involvement in production unacceptable. Regarding the maintainability of the writ petition, the Court noted that a clarification had been issued by the Commissioner of Commercial Taxes against the petitioner's stance, rendering an appeal before him an empty formality, thus justifying the entertainment of the writ petitions, referencing *Pizzeria Fast Foods Restaurant (Madras) Pvt. Ltd. vs. Commissioner of Commercial Taxes*.

Facts

The petitioner, M/s. Karur K.C.P. Packagings Limited, a manufacturer of kraft paper, challenged orders dated February 27, 2015, and March 2, 2015, passed by the Assistant Commissioner (CT), Karur South Assessment Circle. These orders sought to reverse Input Tax Credit (ITC) amounting to Rs. 14,31,750/- for the period 2013-14 and Rs. 44,15,340/- for the period 2014-15. The respondent disallowed the ITC on the purchase of renewable energy devices and spare parts, boilers, boiler components, and materials for boiler erection, deeming them not to be capital goods involved in the manufacturing process. The petitioner contended that these items were integral to their kraft paper manufacturing process and filed objections with a technical report. The respondent, however, confirmed the reversal, stating that power generated for machinery and steam used for drying paper did not directly or indirectly involve in the production of kraft paper.

Key Issues

1. Whether renewable energy devices and spare parts, boilers, boiler components, and materials for boiler erection qualify as 'capital goods' under Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006, for the purpose of claiming Input Tax Credit under Section 19(3) of the Act, when used in the manufacturing process of kraft paper? Petitioner's arguments: The petitioner argued that these items were integral to the manufacturing process of kraft paper, as evidenced by a technical report and a diagram. They contended that the definition of capital goods under Section 2(11) includes apparatus and spare parts used in manufacturing. They also relied on the High Court's decision in *Thiagarajar Mills (P) Ltd. vs. Additional Commissioner (CT)*, which held that a windmill used for energy generation in manufacturing is capital goods. Revenue's arguments: The respondent argued that the machinery used for producing kraft paper alone falls under capital goods, not the power produced for functioning the machinery. They contended that boilers, boiler components, and related materials did not have a direct or indirect involvement in the production of kraft paper and were merely capital assets. The respondent also raised the issue of the maintainability of the writ petition, suggesting the petitioner should have availed the alternative remedy of appeal.