M/S Saravgi Roller Floor Mills vs. C.T.O.A/E Sriganganagar

Held

The Court held that the controversy was squarely covered by its previous decision in M/s. Durgeshwari Food Ltd.'s case. The reasoning was that Section 18 of the Rajasthan Value Added Tax Act, 2003, specifically governs such situations. The Court found that the provisions of Section 3 of the Gujarat Value Added Tax Act, 2003, and Section 18 of the Rajasthan VAT Act were not pari materia. Therefore, having already decided the issue with reference to Section 18 of the Rajasthan VAT Act, the Court was not inclined to reopen the issue or take a different view. The Court noted that the raw material used and the product manufactured in the present cases were not different from those involved in the Durgeshwari Food Ltd. case. The ratio decidendi is that input tax credit on raw materials used for manufacturing both taxable and exempted goods is to be proportionately denied to the extent of exempted goods, as per Section 18 of the Rajasthan VAT Act, 2003.

Facts

The petitioner, M/s Saravgi Roller Floor Mills Pvt. Ltd., challenged orders dated August 14, 2012, and September 14, 2012, passed by the Rajasthan Tax Board, Ajmer. These orders allowed revisions preferred by the Assessing Authority against an appellate order from the Deputy Commissioner (Appeals), Jodhpur. Consequently, the petitioner was denied input tax credit proportionately for tax paid on raw material partly used for manufacturing goods exempted under the Rajasthan Value Added Tax Act, 2003. The dispute concerns the tax period(s) leading up to these orders and the denial of input tax credit.

Key Issues

1. Whether input tax credit can be proportionately denied in respect of tax paid on raw material partly used for manufacturing exempted goods, under Section 18 of the Rajasthan Value Added Tax Act, 2003? The petitioner argued that the raw material was not intended for manufacturing exempted goods, and the production of a by-product like wheat bran (chaff/chokar) during the manufacturing of taxable goods (Aata, Maida) should not lead to a proportionate denial of input tax credit. They relied on the Gujarat High Court decision in Arya Lumbers Pvt. Ltd. vs. State of Gujarat. The respondent (Revenue) contended that input tax credit was rightly reduced and allowed only proportionately to the extent of manufacturing and sale of taxable goods, citing a coordinate bench decision in CTO (A-E), Sriganganagar vs. M/s. Durgeshwari Food Ltd.