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

Held

The High Court held in favour of the dealers, ruling that they are entitled to ITC on evaporation losses of petroleum products. The Court reasoned that Section 8 of the Haryana Value Added Tax Act, 2003, read with Entry 1 of Schedule E, specifically 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 found that the circumstances mentioned against Entry 5 of Schedule E, which the State relied upon, are not applicable to petroleum products and natural gas, which are covered under Entry 1. The Court clarified that the phrase 'against such goods' in Section 8 is of importance, and the conditions in Entry 5 do not apply to petroleum products. The Court distinguished the present issue from the vires of Explanation (v) to Section 2(1)(zg) of the Act, which was upheld in a previous case, noting that the issue of reversal of ITC on evaporation was not directly decided by the Division Bench in that case. The Court concluded that evaporation losses, being within the prescribed limits, are not a disqualifying circumstance for claiming ITC under the relevant provisions. Therefore, 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 span from 2009-10 to 2014-15. The Excise and Taxation Commissioner challenged orders that allowed dealers to claim ITC on evaporation losses, which were within the prescribed limits set by the Ministry of Petroleum (0.6% for motor spirit and 0.2% for HSD). The dealers contended that evaporation losses, being inherent to the nature of the goods and within statutory limits, should not disentitle them from ITC. The appeals were filed against orders that presumably allowed this ITC claim.

Key Issues

1. Whether, under the Haryana Value Added Tax Act, 2003, dealers are entitled to claim Input Tax Credit (ITC) on evaporation losses of petroleum products (petrol and HSD) when such losses are within the prescribed limits set by the Ministry of Petroleum. Petitioner's arguments: The State/appellant argued that ITC is not available for goods mentioned in Schedule E when used or disposed of in the circumstances mentioned against those goods. They contended that evaporation losses fall under the circumstances mentioned in Schedule E, specifically referencing Entry 5 and condition (ii) which states ITC on evaporation shall be nil. They relied on the Division Bench's observation in the All Haryana Petroleum Dealers Association's case that the Ministry of Petroleum allowed evaporation losses, implying this should be factored into ITC calculations, and that the gap between input tax and credit availed should be considered. Respondent's arguments (dealers): The dealers argued that evaporation losses, being inherent to the nature of petroleum products and within the prescribed limits, do not constitute a disposal of goods otherwise than by way of sale. They emphasized that Section 8 of the Act and Entry 1 of Schedule E, read together, do not disallow ITC for such inherent losses. They also pointed out that Entry 5 of Schedule E applies to goods other than those in Entries 1 and 2, and the circumstances mentioned in Entry 5 are not applicable to petroleum products.