Excise And Taxation Commissioner vs. M/S H.P. Shri Bankey Bihari Filling Station And Another

Held

The Court held in favour of the dealers, allowing ITC on evaporation of petroleum products. The Court reasoned that 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 found that the circumstances mentioned in Entry 5 of Schedule E, which the revenue relied upon, apply to goods other than those mentioned in Entries 1 and 2 (which include petroleum products). Therefore, the revenue's reliance on Entry 5 was misplaced. The Court clarified that the Division Bench in the All Haryana Petroleum Dealers Association's case had not considered the specific language of Section 8 and Entry 1 of Schedule E, and the mention of ITC on evaporation being nil was in the context of condition (ii) against Entry 5, which was not applicable here. The Court found no necessity to dwell on the argument that evaporation is not disposal otherwise than by way of sale due to the clear statutory provisions. The ratio decidendi is that ITC is admissible on evaporation losses of petroleum products as the conditions for denial under Schedule E are not met for these specific goods.

Facts

These appeals by the Excise and Taxation Commissioner, Haryana, and the State of Haryana, involve multiple petitioners (dealers) and concern the tax periods spanning from 2009-10 to 2014-15. The core issue revolves around the eligibility of Input Tax Credit (ITC) for evaporation losses of petroleum products. The revenue authorities sought to deny this ITC, leading to the present appeals challenging the orders that presumably allowed the ITC to the dealers. The judgment discusses the provisions related to output tax, purchase tax, and input tax, and specifically refers to Schedule E of the Act, which lists circumstances where ITC is not available. The Ministry of Petroleum allows for evaporation losses of 0.6% for motor spirit and 0.2% for HSD. The revenue's contention was that evaporation losses fall under circumstances where ITC should be reversed, particularly referencing Entry 5 of Schedule E.

Key Issues

1. Whether Input Tax Credit (ITC) is admissible on evaporation losses of petroleum products, considering the provisions of the Act and Schedule E, and the admitted evaporation limits allowed by the Ministry of Petroleum. The Petitioner/Appellant (Revenue) argued that ITC should be denied on evaporation losses. Their contention was based on the circumstances mentioned in Entry 5 of Schedule E, which deals with goods disposed of otherwise than by way of sale, implying that evaporation should be treated as such a disposal. They relied on departmental instructions and a previous Division Bench judgment in the 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 as per condition (ii) against Entry 5 of Schedule E, the ITC on evaporation shall be nil. The Respondent (Dealer) argued that evaporation losses, within the prescribed limits, are an inherent characteristic of the goods and not a disposal otherwise than by way of sale. They contended that the circumstances mentioned in Schedule E, particularly Entry 5, are not applicable to petroleum products and natural gas as per the specific wording of Section 8 and Entry 1 of Schedule E, which refer to circumstances 'against such goods'.