Shreeram Agro Ltd. vs Commissioner of Commercial Tax

Heard the learned counsel for the parties on I.A. No. 3599 of 2014, an application filed seeking disposal of the matter in the light of the judgments rendered by a coordinate Bench of this court. This appeal has been admitted for considering the following substantial question of law:

Whether input credit of taxes paid on the purchase of cotton seed used in the manufacture of cotton seed oil can be denied proportionately merely because during the process of manufacture a by-product in the form of cotton seed cake is also produced, so when taxable and tax-free goods are simultaneously manufactured, the appellant dealer would be entitled to input-tax credit of total tax paid on purchase and the same cannot be reduced on pro rata basis?

The question of imposing liability on proportionate basis and denying the entire set-off with regard to the credit available on the purchase of raw material has been considered by this court in the case of Ruchi Soya Industries Ltd. Vs. State of M.P. and Others, and the Division Bench of this court after considering various judgments of the Supreme Court in para 13 has crystallized the legal principles in the following manner (pages 46 and 47 in 70 VST):

From the aforesaid finding of the honourable Supreme Court, it is clear that manufacturer is eligible to the benefit of set-off on the entire amount of tax paid on purchase of raw material and principle of apportionment could not be invoked. In the facts and circumstances of the present case, the judgment of the honourable Supreme Court is applicable because the DOC a by-product is tax-free and another by product sludge and main product oil are taxable. Hence, the authority cannot apportion the tax liability after deducting the percentage of proportionate manufacture of DOC, which has been done in the present case.

From the aforesaid analysis of law, it is clear that the manufacturer is eligible for the benefit of set-off on the entire amount of tax paid on purchase of raw material and the principle of proportionate liability has been found to be unsustainable.

In view of the above, this appeal is allowed. The question raised is answered by holding that on the purchase made by the manufacturer with regard to raw material, he is entitled to the benefit of set-off on the entire amount of tax and the principle of apportionment cannot be invoked.

In view of the above, the appeal is allowed. The impugned order imposing liability is quashed and the appeal stands disposed of with the aforesaid.

Tax paid and amount refundable be refunded to the appellant in accordance with law within a period of six months. C.C. as per rules.