State Of Haryana Through Excise And Taxation Officer Cum Assessing Authority vs. M/S Mudrakshi Hytech INDIA PVT LTD And Another

Held

The High Court held in favour of the dealers, ruling that they are entitled to ITC on the evaporation of petroleum products within the prescribed limits. The Court reasoned that the statutory provisions, specifically Section 8 of the Act and Entry 1 of Schedule E, are crucial. Section 8 states that 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 emphasized the phrase 'against such goods'. It found that Entry 1 of Schedule E, which pertains to petroleum products, does not contain a condition that ITC would be nil for evaporation. The Court also noted that Entry 5 of Schedule E, which the revenue relied on, applies to goods other than those mentioned in Entries 1 and 2. Therefore, the circumstances mentioned against Entry 5 were not applicable to petroleum products. The Court concluded that evaporation within the prescribed limits is an inherent characteristic of petroleum products and not a disposal otherwise than by way of sale, thus allowing ITC. The appeals filed by the State were dismissed.

Facts

These appeals by the Excise and Taxation Commissioner, Haryana, challenge High Court orders concerning the eligibility of Input Tax Credit (ITC) for petroleum dealers on account of evaporation losses. The tax periods under dispute span several years, from 2009-10 to 2014-15. The core issue revolves around whether the tax paid on petroleum products, which subsequently evaporate within prescribed limits (0.6% for motor spirit and 0.2% for HSD), should be eligible for ITC. The revenue authorities contended that such evaporation constitutes a disposal of goods otherwise than by way of sale, thereby disallowing ITC. The dealers, conversely, argued for the eligibility of ITC on these losses, considering the inherent nature of the goods.

Key Issues

1. Whether, under the Haryana Value Added Tax Act, 2003, input tax credit (ITC) is admissible on the evaporation of petroleum products within the prescribed limits (0.6% for motor spirit and 0.2% for HSD) when such goods are used or disposed of in the circumstances mentioned against them in Schedule E, specifically Entry 1. The petitioner (Excise and Taxation Commissioner) argued that evaporation losses, being a form of disposal otherwise than by way of sale, would lead to the reversal of ITC as per the conditions stipulated in Schedule E, particularly referencing Entry 5. They relied on departmental instructions and the interpretation that evaporation falls under the circumstances where ITC is not available. The respondents (dealers) contended that evaporation within prescribed limits is an inherent characteristic of the goods and not a disposal otherwise than by sale. They argued that Entry 1 of Schedule E, which deals with petroleum products, does not have a condition that ITC would be nil for evaporation. They also pointed out that Entry 5 of Schedule E, which the revenue relied upon, applies to goods other than those mentioned in Entries 1 and 2.