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

Held

The Court held in favour of the dealers, allowing ITC on evaporation losses of petroleum products. The Court reasoned that the State's contention, which sought to disallow ITC based on evaporation losses being a disposal otherwise than by sale, was flawed. The Court found that the relevant provisions, specifically Section 8 and Entry 1 of Schedule E, did not support the State's interpretation. The Court noted that Entry 5 of Schedule E, which the State appeared to rely on, was not applicable to petroleum products and natural gas as mentioned in Entries 1 and 2 of the same Schedule. The Court clarified that the phrase "against such goods" in Section 8 is of importance, implying that the conditions for disallowing ITC must be specifically applicable to the goods in question. The Court concluded that evaporation losses, when within the prescribed limits, are an inherent characteristic of petroleum products and not a disposal otherwise than by way of sale. Therefore, dealers are entitled to ITC on these evaporation losses. The appeals filed by the State were dismissed.

Facts

These appeals by the Excise and Taxation Commissioner, Haryana, and the State of Haryana challenge various orders concerning input tax credit (ITC) on evaporation losses of petroleum products. The cases involve multiple dealers and tax periods, primarily relating to the sale of petrol and High-Speed Diesel (HSD). The core issue revolves around whether ITC is admissible for the tax paid on goods that are lost due to evaporation within prescribed limits, as allowed by the Ministry of Petroleum. The State's contention is that such evaporation constitutes a disposal of goods otherwise than by way of sale, thereby disallowing ITC under Schedule E of the Act. The dealers, conversely, argue for the admissibility of ITC on these losses.

Key Issues

1. Whether input tax credit (ITC) is admissible on evaporation losses of petroleum products within the prescribed limits, considering the provisions of the Haryana Value Added Tax Act, 2003, specifically Section 8 and Schedule E, and the nature of petroleum products as goods. The State argued that evaporation losses, being a reduction in the quantity of goods, constitute a disposal of goods otherwise than by way of sale. They contended that this situation falls under the conditions for disallowing ITC as stipulated in Schedule E, particularly referencing Entry 5 and its associated conditions. The State relied on the principle that ITC is only available for goods used in the course of business for making taxable sales and that any loss or disposal outside of sale should lead to reversal of ITC. The dealers argued that evaporation losses, occurring within the limits prescribed by the Ministry of Petroleum, are an inherent characteristic of the goods and not a disposal otherwise than by way of sale. They contended that the statutory provisions, particularly Entry 1 of Schedule E, do not apply to petroleum products in the context of evaporation losses. They emphasized that the intent of the law is to allow ITC on goods that form part of the taxable output and that evaporation within prescribed limits should not be treated as a taxable event or a reason for ITC reversal.