The main legal point established in the judgment is that the reduction of tax credit on raw materials used in manufacturing goods under Section 11(3)(b) of the Gujarat Value Added Tax Act, 2003, should be applied whenever a case gets covered by sub-clause (ii) and again when sub-clause (iii) is attracted. However, the reduction cannot exceed the tax credit given.

JUDGMENT :

A.K. Sikri, J.

In all these appeals, question of law that needs to be decided is identical, which was the reason for clubbing these appeals and hearing them analogously. However, for the sake of convenience, we would be taking note of facts from Civil Appeal Nos. 13047-13048 of 2017, as that would serve the purpose.

2. The respondent (hereinafter referred to as the ‘assessee’) is engaged in the business of manufacturing and selling polymers and chemicals. These goods are manufactured by the respondent in its factory situated in the State of Gujarat (hereinafter referred to as the ‘appellant State’). After the manufacture of these goods, same are transferred by the assessee to its various branches located in different parts of the country from where those goods are sold. Obviously, in respect of goods transferred to places outside the appellant State, the Value Added Tax (VAT) is paid at the time of sale of those goods in those States, as per the local laws of the said States. The goods are sold in the appellant State as well and in respect of these goods VAT is paid as per the Gujarat Value Added Tax Act, 2003 (for short, the ‘VAT Act’). For the purpose of manufacturing the aforesaid goods, namely, polymers and chemicals, the assessee purchases furnace oil, natural gas and light diesel oil (hereinafter referred to as the ‘raw material or inputs’) from its registered dealers. These fuels are used for the aforesaid manufacturing activities. On purchase of the raw material, VAT is paid at varying rates. On furnace oil, 4% VAT is payable as per the VAT Act, whereas on natural gas and light diesel oil rate of VAT prescribed and payable is 12.5%. Since these inputs are used for manufacturing of the final products, there is a provision in the VAT Act for giving credit on the VAT which is paid at the time of purchase of these inputs. The manner in which this credit is to be given is prescribed under Section 11 of the VAT Act. Section 11 reads as under:

“11. Tax Credit.:

(1) (a) A registered dealer who has purchased the taxable goods (hereinafter referred to as the “purchasing dealer”) shall be entitled to claim tax credit equal to the amount of,-

(i) tax collected from the dealer by a registered dealer from who he has purchased such goods or the tax payable by the purchasing dealer to a registered dealer who has sold such goods to him during the tax period, or

(ii) tax paid by him during the tax period under sub-section (1), (2)(5) or (6) of section 9 or;

(iii) Tax paid by the purchasing dealer under the Gujarat Tax on Entry of Specified Goods into Local Area Act, 2001 (Gun. 22 of 2001);

(b) The tax credit to be so claimed under this sub-section shall be subject to the provisions of sub-sections (2) to (12); and the tax credit shall be calculated in such manner as may be prescribed.

(2) The registered dealer who intends to claim the tax credit shall maintain the register and the books of accounts in such manner as may be prescribed.

(3) (a) Subject to the provisions of this section, tax credit to be claimed under sub-section (1) shall be allowed to a purchasing dealer on his purchase of taxable goods which are intended for the purpose of –

(i) Sale or re-sale by him in the State;

(ii) sale in the course of inter-State and commerce;

(iii) branch transfer of consignment of taxable goods to other states (subject to the provision of sub-clause (b) below);

(iv) sales in the course of export out of the territory of India;

(v) sales to export oriented units or the units in Special Economic Zones for sale in the course of export out of the territory of India;

(vi) use as raw material in the manufacture of taxable goods intended for (i) to (v) above or in the packing of the goods so manufactured:

(vii) use as capital goods meant for use in manufacture of taxable goods intended for (i) to (vi) above subject to the condition that such capital goods are purchased after the appointed day;

Provided that if purchases are used partially for the purposes spec