Both taxable and exempted goods fall within the definition of "Goods" under Sections 2(m) and 13(1)(f) of the UP VAT Act : Supreme Court
The Hon’ble Supreme Court in the matter of M/S Modi Naturals Ltd v The Commissioner of Commercial Tax UP, clarified that under Section 2(m) of the Uttar Pradesh Value Added Tax Act, 2008, the term "Goods" encompasses both taxable and exempted items. Additionally, Section 13(1)(f) of the same Act does not limit the definition of "goods" by the qualifier "taxable."
The court emphasized that the 2010 amendment to the UP VAT Act aimed to address a specific issue: the selling of manufactured goods (including taxable, exempt, by-products, or waste products) at a price below the cost price. The amendment's sole purpose was to restrict Input Tax Credit (ITC) to the tax payable on the sale value of the goods or manufactured items.
In the case of M/s Modi Naturals Ltd., a manufacturer of Rice Bran Oil (RBO), the Assessee processed Rice Bran to produce RBO (taxable goods) and De-Oiled Rice Bran (DORB, an exempted by-product). The Assessee claimed full ITC for the tax paid on the purchased Rice Bran, but the claim was initially rejected.
During the Assessment Year 2013-2014, the Assessee purchased Rice Bran, paid tax, and claimed the entire amount as ITC. The claim was rejected, arguing that ITC could only be availed for taxable sales under Section 13(1)(f). The dispute progressed through various levels, with the High Court eventually deciding against the Assessee.
The Supreme Court, addressing the key issue, ruled that the scope of the term "goods" in Section 13(1)(f) is not limited to "taxable goods" alone. The court noted that the legislative intent behind the 2010 amendment was not to restrict the definition of "goods" under Section 13(1)(f) to taxable items. The focus was on preventing the sale of goods below cost price.
The court highlighted that Section 2(m) of the UP VAT Act does not distinguish between exempt and taxable goods, and Section 13(1)(f) is not qualified by the term "taxable." The ruling emphasized that if the legislature intended to limit the scope to "taxable goods," it could have expressly used the phrase "taxable goods" in Section 13(1)(f).
The Hon’ble Supreme Court set aside the previous court order and affirmed the decision of the Commercial Tax Tribunal, upholding the Assessee's entitlement to claim full ITC for the purchased goods used in the manufacturing process, irrespective of whether they resulted in taxable or exempted products.