Excise And Taxation Commissioner, Haryana vs. M/S Mohinder Fules, Litani Road Uchana And Another

Held

The Court held in favour of the dealers, ruling that they are entitled to ITC on evaporation of petroleum products. The Court reasoned that the State's contention, which relied on circumstances mentioned against Entry 5 of Schedule E (disposal otherwise than by way of sale), was flawed. The Court emphasized that Entry 5 applies to goods other than those mentioned in Entries 1 and 2 of Schedule E. Furthermore, the Court noted that Section 8 of the Act, which deals with the exclusion of input tax, specifically refers to circumstances mentioned 'against such goods'. The Court found no condition in Entry 1 of Schedule E that would disallow ITC on evaporation. While acknowledging the Division Bench's observation in the All Haryana Petroleum Dealers Association’s case regarding nil ITC on evaporation, the High Court clarified that the Division Bench had not fully considered the language of Section 8 and Entry 1 of Schedule E. The Court found the statutory provisions clear and did not need to delve into the argument of whether evaporation constitutes disposal otherwise than by way of sale. The appeals filed by the State were dismissed.

Facts

These appeals by the Excise and Taxation Commissioner, Haryana, and the State of Haryana, involved multiple dealers of petroleum products. The core issue revolved around the eligibility of Input Tax Credit (ITC) for evaporation losses of petrol and High-Speed Diesel (HSD). The tax periods spanned from 2009-10 to 2014-15. The Excise and Taxation Commissioner challenged the decisions of lower authorities (not specified in detail but implied to have ruled in favour of the dealers) that allowed ITC on evaporation losses. The amount in dispute is not explicitly stated but pertains to the tax liability arising from these losses. The procedural history involves appeals filed by the revenue against orders that presumably allowed the dealers to claim ITC on evaporation.

Key Issues

1. Whether dealers are entitled to claim Input Tax Credit (ITC) on evaporation losses of petroleum products (petrol and HSD) under the Haryana Value Added Tax Act, 2003? Petitioner (State/Revenue) argued that ITC should be reversed on evaporation losses, citing conditions in Schedule E of the Act, particularly Entry 5, which deals with goods used or disposed of otherwise than by way of sale. They contended that evaporation, even if within prescribed limits, constitutes a disposal of goods and thus ITC should be disallowed. 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 touched upon evaporation losses and mentioned that ITC on evaporation shall be nil as per condition (ii) against Entry 5 of Schedule E. Petitioner (Dealers) argued that evaporation losses, being inherent to the nature of petroleum products and within prescribed limits (0.6% for motor spirit and 0.2% for HSD), should not be treated as a disposal of goods otherwise than by way of sale. They contended that the provisions of Section 8 and Entry 1 of Schedule E, which refer to circumstances 'against such goods', do not apply to petroleum products in a manner that disallows ITC on evaporation. They also argued that the Division Bench in the cited case did not fully consider the language of Section 8 and Entry 1 of Schedule E.