Excise And Taxation Commissioner Haryana vs. M/S Kularia Krishi Kendra And Another

Held

The Court held that dealers are entitled to ITC on evaporation losses of petroleum products. The reasoning was based on a strict interpretation of Section 8 and Entry 1 of Schedule E of the Haryana Value Added Tax Act, 2003. 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 found that Entry 1 of Schedule E, which pertains to petroleum products, does not specify any circumstances that would lead to the denial of ITC for evaporation. The Court clarified that Entry 5 of Schedule E, which deals with disposal of goods otherwise than by way of sale, is not applicable to petroleum products as they are covered by Entries 1 and 2. The previous Division Bench judgment in *All Haryana Petroleum Dealers Association’s case* was distinguished as it did not specifically address the issue of reversal of ITC on evaporation losses. The Court found no necessity to delve into the argument that evaporation is not disposal otherwise than by sale, given the clear statutory provisions. The appeals filed by the State were dismissed.

Facts

These appeals by the Excise and Taxation Commissioner, Haryana, and the State of Haryana concern multiple dealers, primarily petrol stations, for various tax periods. The core issue revolves around the eligibility of Input Tax Credit (ITC) for evaporation losses of petroleum products. The revenue authorities sought to deny ITC on these losses, leading to disputes. The cases were consolidated and heard by the High Court. The assessment years span from 2009-10 to 2014-15. The appeals challenge orders or actions by tax authorities that allowed ITC for evaporation losses.

Key Issues

1. Whether dealers are entitled to Input Tax Credit (ITC) on evaporation losses of petroleum products, considering the provisions of the Haryana Value Added Tax Act, 2003, and specifically Schedule E, Entry 1 and Section 8 of the Act. Petitioner (Revenue/State) argued that ITC should be denied on evaporation losses. Their contention was based on the interpretation of Schedule E, particularly Entry 5, which they believed implicitly applied to petroleum products, leading to the reversal of ITC. They relied on departmental instructions and a previous Division Bench judgment in *All Haryana Petroleum Dealers Association’s case* to support their stance, suggesting that the Ministry of Petroleum's allowance for evaporation losses implied a reversal of ITC. Petitioner (Dealers) contended that evaporation losses, being inherent to the nature of petroleum products, should not be treated as a disposal of goods otherwise than by way of sale. They argued that the specific wording of Section 8 and Entry 1 of Schedule E did not mandate the reversal of ITC for such inherent losses. They also argued that Entry 5 of Schedule E was not applicable to petroleum products as they were covered under Entries 1 and 2.