Excise And Taxation Commissioner vs. M/S Haryana Filling Station And Another

Held

The Court held that dealers are entitled to Input Tax Credit (ITC) on evaporation losses of petroleum products. The reasoning was based on a careful interpretation of Section 8 of the Haryana Value Added Tax Act, 2003, and Entry 1 of Schedule E. The Court emphasized that Section 8 states input tax shall not include tax paid on goods mentioned in Schedule E when used or disposed of in circumstances mentioned *against such goods*. The Court found that the circumstances mentioned against Entry 1 of Schedule E, which pertains to petroleum products, do not disallow ITC on evaporation. Furthermore, Entry 5 of Schedule E, which the State relied upon, was found to apply to goods other than those mentioned in Entries 1 and 2, and therefore, its conditions were not applicable to petroleum products. The Court distinguished the present issue from the peripheral discussion on evaporation in *All Haryana Petroleum Dealers Association's case*, noting that the Division Bench had not specifically considered the language of Section 8 and Entry 1 of Schedule E in that context. The Court concluded that evaporation, being an inherent characteristic of petroleum products, does not constitute a disposal of goods otherwise than by way of sale in a manner that would disentitle the dealer to ITC. The appeals filed by the State were dismissed.

Facts

These appeals by the Excise and Taxation Commissioner, Haryana, and the State of Haryana, involve multiple dealers of petroleum products. The core issue revolves around the eligibility of Input Tax Credit (ITC) for evaporation losses of petrol and High-Speed Diesel (HSD). The tax periods under consideration span several years, primarily from 2009-10 to 2014-15. The Excise and Taxation Commissioner challenged the decisions of lower authorities that allowed ITC on evaporation losses. The dealers, on the other hand, contended that evaporation losses, being inherent to the nature of the goods, should not lead to the denial of ITC. The procedural history involves appeals filed by the Revenue against orders that favored the dealers regarding the admissibility of ITC on these losses.

Key Issues

1. Whether input tax credit (ITC) is admissible on evaporation losses of petroleum products (petrol and HSD) under the Haryana Value Added Tax Act, 2003, specifically concerning Section 8 and Schedule E, Entry 1, read with the circumstances mentioned against the goods. Petitioner's Arguments (Revenue/State): The State argued that evaporation losses fall under the circumstances where ITC is not admissible as per Schedule E, particularly referencing Entry 5, which deals with goods used as fuel or exported out of the State, and a condition (ii) against Entry 5 stating ITC on evaporation shall be nil. They relied on departmental instructions and a previous Division Bench judgment in *All Haryana Petroleum Dealers Association's case* which, while upholding the vires of Explanation (v) to Section 2(1)(zg), peripherally mentioned evaporation losses and a nil ITC for evaporation. Petitioner's Arguments (Dealers/Assessees): The dealers contended that evaporation is an inherent characteristic of petroleum products and not a disposal of goods otherwise than by way of sale. They argued that the specific circumstances mentioned against Entry 1 of Schedule E, which are relevant to petroleum products, do not preclude ITC on evaporation. They also pointed out that Entry 5 of Schedule E, which mentions conditions for non-admissibility of ITC, is not applicable to petroleum products mentioned in Entries 1 and 2.