Orissa High Court
Petitioners vs State Of Orissa & Others .......... Opp. ... on 12 August, 2010
Author: I.Mahanty
Bench: V.Gopala Gowda, Indrajit Mahanty
THE HIGH COURT OF ORISSA: CUTTACK
W.P.(C) Nos. 15602, 9782, 13049, 14664, 15601, 15603,
15889, 17673, 17674, 20195, 17772, 15009, 11674, 11673,
13904, 15448, 18253, 19018, 19013, 17598, 10957, 15233,
15234, 15796, 19123, 11212, 15842, 15841, 18626, 18624,
13114, 12628, 12414, 12649, 20267, 18843, 16106, 15235,
18623, 18625, 18622, 18258, 13048, 13637 of 2009 & W.P.
(C) Nos. 102, 447, 449, 3013, 4692, 5931, 5932, 10037, 9307,
6055, 9439, 8737, 10564, 7141, 4495, 4496, 9201, 7142, 448
& 5019 of 2010
________________________________________________________
In the matter of applications under Articles 226 and 227 of the
Constitution of India.
--------------
(In W.P(C) Nos.15602, 15601, 15603, 19018, 10957, 15796 of 2009)
M/s Visa Steel Ltd. ... (In WPC No.15602/2009)
M/s Rana Spong Ltd. ... (In WPC No.15601/2009)
M/s SMC Power Generation ... (In WPC No.15603/2009)
M/s Deepak Steel ... (In WPC No.19018/2009)
M/s Bhusan Power ... (In WPC No.10957/2009)
M/s Vedanta Aluminium ... (In WPC No.15796/2009)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : Mr. N.Venkatraman, Sr. Adv.
M/s. Satyajit Mohanty
Satyajit Mohanty,
R.P.Swain & S.Patnaik,
R.P.Kar & D.K.Mohanty.
For Opp. Parties : Advocate General
(In W.P(C) Nos.9782, 13637 & 15841 of 2009)
M/s Tata Refractories ... (In WPC No.9782/2009)
M/s Bhusan Steel Ltd. ... (In WPC No.13637/2009)
M/s Arati Steel Ltd. ... (In WPC No.15841/2009)
....... Petitioners
-Versus-
2
State of Orissa & others ....... Opp. parties
For Petitioners : Mr. A.K.Ganguly, Sr. Adv.
M/s. A.K.Parija, B.C.Mohanty,
P.P.Mohanty, D.K.Das,
R.K.Dash, A.Patnaik,
B.P.Das & S.P.Patnaik.
For Opp. Parties : Advocate General
(In W.P(C) Nos.13049, 13048 of 2009)
M/s Viraja Steel. ... (In WPC No.13049/2009)
M/s Surya Spong Iron ... (In WPC No.13048/2009)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. M.R.Mohanty-2 &
G.K.Nayak.
For Opp. Parties : Advocate General
(In W.P(C) Nos.14664, 15889, 20195, 13904, 17598, 18843 of 2009)
M/s Sreehari Spong Iron Ltd. ... (In WPC No.14664/2009)
M/s Shiva Cement Ltd. ... (In WPC No.15889/2009)
M/s Maa Samaleswari ... (In WPC No.20195/2009)
M/s Jai Iron & Steel ... (In WPC No.13904/2009)
M/s Kusal Ferro Metals ... (In WPC No.17598/2009)
M/s Mahaveer Ferro Alloys ... (In WPC No.18843/2009)
....... Petitioners
-Versus-
State of Orissa & others ....... Opp. parties
For Petitioners : M/s. M.L.Agarwal & M.Agarwal
For Opp. Parties : Advocate General
(In W.P(C) Nos. 17673, 17674, 15448, 15233, 15234, 18626, 18624,
15235, 18623, 18625, 18622, 18258 of 2009 and 447, 449, 5019,
3013, 9307, 448 of 2010)
_______________________________________________________________________
M/s Jaijagannath Steel .... (In WPC No.17673/2009)
M/s Vikram Pvt. Ltd.. ... (In WPC No.17674/2009)
M/s Pawanjai Spong Iron ... (In WPC No.15448/2009)
M/s Sun Steel Ltd. ... (In WPC No.15223/2009)
M/s Maa Vaishnavi Spong ... (In WPC No.15234/2009)
M/s Balaji Metalics ... (In WPC No.18626/2009)
3
M/s B.R. Spong & Power .... (In WPC No.18624/2009)
M/s Reliable Sponge .... (In WPC No.15235/2009)
M/s Bhaskar Steel & Ferro .... (In WPC No.18623/2009)
M/s Maa Shakumbari Sponge .... (In WPC No.18625/2009)
M/s Swastik Ispat Pvt. Ltd. .... (In WPC No.18622/2009)
M/s Shiv Metalic Pvt. Ltd. .... (In WPC No.18258/2009)
M/s Time Steel & Power .... (In WPC No.447/2010)
M/s Meta Sponge Pvt. Ltd. .... (In WPC No.449/2010)
M/s Prabhu Sponge Pvt. Ltd. .... (In WPC No.5019/2010)
M/s Mahakali Ispat Pvt. Ltd. .... (In WPC No.3013/2010)
M/s Vinayak Agro Industry .... (In WPC No.9307/2010)
M/s Radhakrishna Ispat .... (In WPC No.448/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. D.Pati, S.K.Mishra,
P.Panigrahi, S.N.Sharma
& A.S.K.Agarwal.
For Opp. Parties : Advocate General
(In W.P(C) Nos. 19123 of 2009 and 102 of 2010)
M/s ACC Ltd. .... (In WPC No.19123/2009)
M/s Rexon Strips Ltd.. .... (In WPC No.102/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Sidharth Ray, S.Dey &
S.C.Rath.
For Opp. Parties : Advocate General
(In W.P(C) Nos. 20267 of 2009 and 4692 of 2010)
M/s MSP Sponge Iron Ltd. .... (In WPC No.20267/2009)
M/s MSP Metalics Ltd. .... (In WPC No.4692/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : Mr. Deepak Kumar Dey
For Opp. Parties : Advocate General
4
(In W.P(C) Nos. 5931, 5932, 6055 of 2010)
M/s Shri Mahavir Ferro .... (In WPC No.5931/2010)
M/s Perfect Steel Corpn. .... (In WPC No.5932/2010)
M/s Bajrang Steel. .... (In WPC No.6055/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Biplab Mohanty,
T.K.Pattnaik, S.Pattnaik,
A.Pattnaik, R.P.Ray,
B.S.Rajguru, M.S.Rizvi.
For Opp. Parties : Advocate General
(In W.P(C) No.17772 of 2009)
M/s Shri Ganesh Metalic .... (In WPC No.17772/2009)
.......... Petitioner
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Jagabandhu Sahoo,
P.Mohapatra, N.K.Rout &
P.K.Pattnaik.
For Opp. Parties : Advocate General
(In W.P(C) Nos. 15009, 19013 of 2009 and 9439 of 2010)
M/s Agrasen Sponge P. Ltd. .... (In WPC No.15009/2009)
M/s Suraj Products Ltd... .... (In WPC No.19013/2009)
M/s J.K.Paper Ltd. .... (In WPC No.9439/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Prasant Kumar Jena,
D.P.Mohapatra.
For Opp. Parties : Advocate General
(In W.P(C) Nos. 11674, 11673, 11212 of 2009 and 8737 of 2010)
M/s K.J.Ispat Ltd. .... (In WPC No.11674/2009)
5
M/s Maithan Ispat Ltd. .... (In WPC No.11673/2009)
M/s Imami Paper Mills .... (In WPC No.11212/2009)
M/s Beekay Steels & Power .... (In WPC No.8737/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Subash Ch. Lal,
Sumit Lal & Sujit Lal.
For Opp. Parties : Advocate General
(In W.P.(C) No10037 of 2010)
M/s Shyam Metalics & Energy .... (In WPC No.10037/2010)
.......... Petitioner
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Bhupesh Ch. Mohanty,
A.Kanungo, A.Patnaik.
For Opp. Parties : Advocate General
(In W.P(C) No. 18253 of 2009)
M/s Crackers India (Alloy). .... (In WPC No.18253/2009)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. U.C.Pattnaik,
A.J.Mohanty, S.D.Mishra
& S.Pati.
For Opp. Parties : Advocate General
(In W.P(C) No. 10564 of 2010)
M/s Bindal Songe Ltd. .... (In WPC No.10564/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Ashok Ku. Mohanty
& B.Mohapatra.
6
For Opp. Parties : Advocate General
(In W.P(C) Nos. 15842, 13114, 12628, 12414, 16106 of 2009)
M/s Indian Farmers .... (In WPC No.15842/2009)
M/s OCL India Ltd. .... (In WPC No.13114/2009)
M/s Balasore Alloyes Ltd. .... (In WPC No.12628/2009)
M/s Tata Sponge Iron Ltd. .... (In WPC No.12414/2009)
M/s Ganesh Sponge Pvt. Ltd. .... (In WPC No.16106/2009)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Sarada Pr. Sarangi,
P.P.Mohanty, D.K.Dash,
P.K.Dash, A.Patnaik &
A.K.Parija
For Opp. Parties : Advocate General
(In W.P(C) Nos. 7141, 4495, 4496, 9201, 7142 of 2010)
M/s Surendra Mining Industries .... (In WPC No.7141/2010)
M/s. Govindam Projects .... (In WPC No.4495/2010)
M/s Maa Tarini Industries. .... (In WPC No.4496/2010)
M/s Samaleswari Ferro M. .... (In WPC No.9201/2010)
M/s Vishal Metalics . .... (In WPC No.7142/2010)
.......... Petitioners
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Kartik Kurmy, N.K.Rout,
S.B.Sharma & A.Jaluka.
For Opp. Parties : Advocate General
(In W.P(C) Nos. 12649 of 2009)
M/s Bhagawati Steels .... (In WPC No.12649/2009)
.......... Petitioner
-Versus-
State of Orissa & others .......... Opp. parties
For Petitioners : M/s. Nachiketa Mohapatra,
Ashok Parija & R.P.Kar.
For Opp. Parties : Advocate General
7
PRESENT:
THE HON'BLE CHIEF JUSTICE SHRI V.GOPALA GOWDA
&
THE HON'BLE SHRI JUSTICE INDRAJIT MAHANTY.
__________________________________________________________________
Decided on: 12.8.2010
__________________________________________________________________
V.Gopala Gowda, C.J. In these matters hearing was closed on 12.8.2010 and the
following order was passed:-
"We are of the considered view that the impugned
notification SRO No.34/2009 dated 27.1.2009 in all the writ
petitions declaring 'coal' and 'furnace oil' as goods is illegal
and therefore the impugned notification is liable to be
quashed to the aforesaid extent and is accordingly quashed.
Reasons to follow."
2. Accordingly, we note the reasons in support of the aforesaid
order as hereunder:
3. The petitioners herein have filed the present batch of writ
petitions seeking to challenge the legality and validity of the Notification
S.R.O. No.34/2009 dated 27.1.2009 issued by the State of Orissa in the
Finance Department published in the Orissa Gazette dated 27.1.2009 in
terms of which the petitioners, who are registered dealers under the Orissa
Value Added Tax Act, 2004 have been disallowed from claiming any 'input
tax credit' in respect of VAT paid by them on their purchase of 'Coal' and
'Furnace Oil', on the basis of the impugned notification issued under
Section 20(8), clause(m) of the Orissa Value Added Tax Act, 2004 ( here-in-
after referred to as "OVAT Act") on the ground that the OVAT Act does not
vest in the Finance Department of the Government of Orissa with the
necessary authority in law for issue of such a notification and a further
prayer has been made seeking a writ declaring clause(m) of sub-Section 8
8
of the Section 20 of the OVAT Act as ultra virus the Constitution of India
as it suffers from the vice of excessive delegation.
4. For the purpose of convenience the impugned notification is
extracted herein, which runs thus:-
"The Orissa Gazette
EXTRAORDINARY
PUBLISHED BY AUTHORITY
No. 96, CUTTACK, TUESDAY, JANUARY 27, 2009/ MAGHA 7, 1930
FINANCE DEPARTMENT
NOTIFICATION
The 27th January 2009
S.R.O. No.34/2009-In exercise of the powers conferred by
clause (m) of sub-section (8) of section 20 of the Orissa Value Added Tax
Act, 2004 (Orissa Act 4 of 2005), the State Government, having been
satisfied that it is necessary so to do, hereby specify that no input tax
credit shall be allowed to the registered dealers in respect of the goods
description of which is given in the Schedule below.
SCHEDULE
Sl. Description of goods
No.
(1) (2)
1. Coal except when purchased for resale
2. Furnace oil except when purchased for resale
3. Kerosene except when purchased for resale
4. All automobiles including commercial vehicle/two wheelers/three
wheelers required to be registered under the Motor Vehicles Act
1988 and including tyres and tubes, spare parts and accessories
for the repair and maintenance thereof; except when purchased
for resale.
5. Air conditioning units other than those used in plant and
laboratory except when purchased for resale
6. Earth moving equipment such as dozers, loaders and excavators;
and poclain, dumpers and tippers etc. except when purchased for
resale.
7. Machinery and equipments including accessories and component
parts thereof purchased for use in mining.
8. Machinery and equipments including accessories and component
parts thereof purchased for use in construction activities such as
mixer, road roller, paver, vibrator etc.
[No.4762/CTA-63/08-F]
9
By order of the Governor
P.K.ROUT
Under-Secretary to Government"
5. Mr. A. K.Ganguly, learned Senior Advocate appearing for the
petitioner-M/s Tata Refractories Limited submitted that the impugned
notification purportedly issued by taking recourse to Section 20(8)(m) is
ultra virus Section 20(3) (b) read with Section 2(25) of the OVAT Act. It was
submitted that while the OVAT Act declares that "input tax credit" should
be allowed on purchases made within the State from a registered dealer
holding a valid registration certificate in respect of goods intended for the
purpose of "use as input" which includes (consumables directly used) in
respect of manufacture of finished products. The impugned notification is
clearly contrary to the said legislative mandate since it purports to declare
that, no input tax credit is to be allowed on 'coal' and 'furnace oil', even
though they are either raw materials or consumables directly used in the
processing and manufacturing of finished goods, i.e., refractory bricks. It
is further submitted on behalf of the petitioner that the impugned
notification is also ultra virus of clause(m) of sub-section(8) of Section 20
as the same exceeds the limits of the power conferred on the State
Government to specify only a circumstance or eventuality similar to those
spelt out in clauses (a) to (l) of sub-section 8 of Section 20 and purports to
altogether deny input tax credit for the raw materials/consumables like
Coal and Furnace Oil and that too, without specifying any
circumstance/eventuality similar to those contained in Section 20(8)(a-l) of
the OVAT Act, under which such credit could be denied.
6. The petitioners further submits that the impugned notification
is a 'colorable device' since in effect it seeks to nullify the judgments
rendered by this Court in the case of M/s Reliance Industries Limited v.
Assistant Commissioner of Sales Tax and others, reported in (2008) 015
VST 0228 (Orissa). By way of an alternative arguments it was further
submitted by the petitioners that, if the impugned notification is held to be
10
within the ambit of clause (m) of sub-section (8) of Section 20 of the OVAT
Act, then the said provision, i.e., Section 20(8)(m) of the OVAT Act would
be liable to be quashed and declared unconstitutional for suffering from
the vice of excessive delegation of legislative power.
7. Mr. N.Venkat Raman, Senior Advocate appearing for the
petitioner-M/s Visa Steel Limited submitted that his client was essentially
in the business of manufacture of Sponge iron. It is further submitted by
him that in the process of manufacture of sponge iron, 'coal' is a raw
material since sponge iron cannot be manufactured without use of coal in
the process of its manufacture. While adopting the arguments addressed
by Mr. A.K. Ganguly, Senior Advocate as noted hereinabove, learned
counsel submitted that, the legislative mandate of Section 20(8) of the
OVAT Act there are various circumstances or situations in which a register
ed dealer could not claim or would not be allowed input tax credit in each
of the situations/circumstances narrated in clauses- (a) to (l) contained
therein. If an analysis is made of all the circumstances covered under
Section 20(8), it would be clear that each of such situation resulted in a
circumstance when there was no question of any accretion or additional
VAT payable/collectable in the circumstances contemplated therein. The
impugned notification and the denial of claim of input tax credit for
specific items such as coal and furnace oil in the circumstances that the
petitioners are in, i.e., manufacture, the manufactured product itself was
in the present circumstances subject to levy of VAT and therefore, there
was no situation in which such raw material on which input tax credit is
sought for escaping from VAT, since the final product produced by the
petitioners, i.e., sponge iron would be also liable for VAT. In other words,
learned counsel submitted that the notification issued by the Finance
Department purportedly in exercise of its power under clause (m) of sub-
Section (8) of Section 20 of the VAT Act is clearly beyond the authority
and/or competence of the executive i.e. Finance Department. Learned
counsel further submitted that in the present case the impugned
11
notification is clearly an attempt by the executive to overreach the
legislative mandate contained in the OVAT Act which specifically permits a
registered dealer under Section 20(3) to claim for input tax credit in terms
thereof.
7.1 Learned counsel further submitted that the principle of
ejusdem generis rule has to be applied to the scope of Clause(m) of sub-
Section (8) of Section 20 and, therefore, submitted that it is well
established principle that where general terms have been used following
particular expression, the said general term would take that colour and
meaning as that of preceding expression and in support of the aforesaid
proposition he placed reliance on a judgment of the Hon'ble Supreme
Court in the case of Collector of Central Excise, Bombay v.
Maharashtra Fur Fabric Ltd., reported in (2002) 7 SCC 444. Reliance is
also placed on the principle of ejusdem generis on a judgment of the
Hon'ble Supreme Court in the case of State of Karnataka and others -V-
Kempaiah, reported in (1998) 6 SCC 103, wherein the expression "in any
other manner" takes in it fold the last-mentioned categories of
administrative actions. In the said judgment it was held that the
expression "in any other manner" contained general words which
construed literally, should receive their full and natural meaning but when
they follow the specific and particular words of the same genus, it will be
presumed that the legislature has used the general words in a limited
sense to convey the meaning implied by the specific and particular words
used.
8. Mr. A.K. Mohanty, learned Advocate General appearing for the State
relied upon the averments made on behalf of opposite party as contained
in the counter affidavit filed through Mr.Sudhansu Mohan Das, Assistant
Commissioner of Commercial Taxes (Law). Learned Advocate General
submitted that the power under Section 20 (8) (m) of the OVAT Act, 2004
is neither conditional upon framing of rules nor is there any excessive
delegation of power to the Government which can be either be termed as
12
wide unchanelised or unguided. It is further submitted that the allegation
that the opposite party was trying to overcome the judgment in the case of
M/s Reliance Industries Ltd. versus Assistant Commissioner of Sales Tax
in which it was held that "furnace oil" is an "input" under Section 20 of the
OVAT Act is totally misconceived and in-appropriate in the present
circumstances. It was contended that the words and phrases contained in
the definition clauses of the OVAT Act cannot override the provisions of
the statute and the definition of the term "input" under section 2(25) of the
OVAT Act ought not to be read independent of the context in which it
appears.
8.1 Learned Advocate General submitted that no absolute right to
award 'input tax credit' can flow from an independent reading of section
2(25) of the OVAT Act and also placed reliance on the judgment of the
Hon'ble Supreme Court in the case of Special Officer and Competent
Authority Urban land Ceiling Hyderabad -Vs- P.S. Rao, AIR 2000 SC
843 as well as in the case of Vanguard Fire and General Insurance Co.
Limited v. Fraser & Ross, AIR 1960 SC 971. In order to canvass the
State's contention that, it is well settled law that, when the application of
the definition to a term in a provision makes it unworkable and otiose, it
can be said that the definition is not applicable to that provision because
of the context being contrary to the main statutory provision. Accordingly,
he submitted that Section 2(25) of the OVAT Act cannot form the fountain
head of an absolute right being claimed for by a petitioner for availing
input tax credit.
9. It was further submitted that notwithstanding the provision of
sub-section (3) of Section 20 which allow a registered dealer to avail input
credit on the goods used as input, the same was subject to the rider
contained in sub-section (8) of Section 20. Since clause-(m) of sub-section
(8) of Section 20 of the OVAT Act empowers the State Government to issue
necessary notifications disallowing input tax credit in certain cases, such
power is a "plenary power" and cannot be limited to the type of
13
circumstances similar to the other spelt out in clauses (a) to (l) of sub-
section (8) of Section 20. It was urged on behalf of the State Government
that the impugned notification was issued by exercise of power under
Section 20(8)(m) of the OVAT Act and since there was no element of sale in
respect of these commodities when the registered dealer uses the same
coal and furnace oil as input for manufacturing finished product, the
Government of Orissa in Finance Department after a thorough deliberation
has thought it fit to place restriction by 'disallowing input tax credit' in
such circumstances. It was further submitted that in the matter of
taxation it is the prerogative of the State, to pick and choose objects,
persons, methods and rates for taxation and that the petitioners are not
entitled to challenge the notification, since it is based on rational
consideration and it was decided to disallow input tax credit in respect of
'coal' and 'furnace oil' and other items covered in the notification to the
registered dealer, who use and consume the same for manufacturing of
finished products and such input tax credit was allowable only when such
items, i.e. coal and furnace oil were resold. It was also submitted that the
contention raised by the petitioners that the impugned notification dated
27.1.2009 of the Finance Department seeks to over reach and nullify the
judgment of this Court in the case of M/s Reliance Industries Limited
(supra) in which it was held that furnace oil was an input under Section
2(25) of the OVAT Act is incorrect. It was submitted that the same was
misconceived since the definition of 'input' given under Section 2(25) of the
OVAT Act is altogether different from the definition of 'input tax credit'
under Section 2(27) of the Act and in terms of said sub-section, the same
was subject to Section 20 of the OVAT Act. Therefore, since this Court in
the case of M/s Reliance Industries dealt with Section 2(25), the said case
has no applicability to a case under Section 2(27) of the OVAT Act and
that two definitions are mutually exclusive.
10. In the light of contentions advanced by the learned counsel for
the rival parties as noted herein above it becomes imperative at this stage
14
to take note of various relevant provisions in sub-Sections 2(25), 2(26),
2(27) and 2(28) and Sections 12 and 20 of the OVAT Act, 2004 and Rule
11 of the OVAT Rules, 2005. Those are quoted below:-
2. Definitions- In this Act, unless the context otherwise
requires. (1) to (24) xx xx xx xx
xx
(25) "input" means any goods purchased by a dealer in the
course of his business for resale or for use in the
execution of works contract, in processing or
manufacturing, where such goods directly goes into
composition of finished products or packing of goods for
sale, and includes consumables directly used in such
processing or manufacturing;
(26) "input tax" in relation to any registered dealer means the
tax collected and payable under this Act in respect of sale
to him of any taxable goods for use in the course of his
business, but does not include tax collected on the sale of
goods made to a commission agent purchasing such goods
on behalf of such dealer.
(27) "input tax credit" in relation to any tax period means the
setting off of the amount of input tax or part thereof under
Section 20 against the output tax, by a registered dealer
other than a registered dealer paying turnover tax under
Section 16;
(28) "Manufacture" means any activity that brings out a
change in an article or articles as result of some
process, treatment, labour and result in transformation
into a new and different article so understood in
commercial parlance having a distinct name, character
and use, but does not include such activity of
manufacture as may be notified."
12. Levy of tax on purchase - Every dealer who, in the course
of his business, purchase or receives any goods -
(i) from a registered dealer, in the circumstances in which no
tax under Section 11 is payable by that registered dealer on such
goods, or
(ii) from any person other than a registered dealer.
shall be liable to pay tax on the purchase price or prevailing market
price of such goods, if after such purchase or, as the case may be,
receipt, the goods are not sold within the State or in the course of
15
inter-State trade or commerce or in the course of expert out of the
territory of India, but are-
(a) sold or disposed of otherwise; or
(b) consumed or used in the manufacture of goods
declared to be exempted from tax under this Act; or
(c) after their use or consumption in the manufacture of
goods, such manufactured goods are disposed of
otherwise than by way of sale in the State or in the
course of inter-State trade or commerce or export out
of the territory of India; or
(d) used or consumed otherwise,
and such tax shall be levied at the same rate, at which
tax under Section 11 would have been levied, on the sale
of such goods within the State on the date of such
purchase or receipt.
20. Input tax credit - (1) Subject to the provisions of this Act,
for the purpose of calculating the net tax payable by a registered
dealer for any tax period, an input tax credit as determined under
this section shall be allowed to such registered dealer against the tax
paid or payable in respect of all sales or purchase taxable under this
Act, other than sales or purchase of goods specified in Schedule C
and Schedule D.
(2) The input tax credit to which a registered dealer is entitled
under Sub-section (1) shall be the amount of tax paid by
the registered dealer to the seller on his turnover of
purchase of goods during the tax period, calculated,
subject to the provisions contained in Sub-sections (3), (4)
and (5), in such manner as may be prescribed.
(3) Input tax credit shall be allowed for purchases made
within the State from a registered dealer holding a
valid certificate of registration in respect of goods
intended for the purpose of -
(a) sale or resale by him in the State;
(b) use as inputs or as capital goods in the
manufacturing or processing of goods, other than
those specified in Schedule A and Schedule C and
Schedule D for sale;
(c) sale of goods subject to levy of tax at zero rate under
Section 18;
(d) for use as containers for packing of goods, other than
those exempt from tax under this Act, for sale or
resale; or
16
(e) transfer of stock of taxable goods other than by way
of sale, to any place outside the State :
Provided that -
(a) the input tax credit on purchases for the purpose of
Clause (e) shall only be allowed in respect of the
amount of tax paid or payable in excess of tax at the
rate of four per centum;
(b) if goods purchased are used partially for the purpose
specified in this sub-section, input tax credit shall
be allowed proportionately to the extent they are
used for such purposes; and
(c) where a registered dealer sells or dispatches goods,
both taxable and exempt under this Act, the input
tax credit shall be allowed proportionately only in
relation to the goods which are not so exempt.
(4) Notwithstanding anything contained in this section or
elsewhere in this act, and subject to such conditions and
restrictions and in such manner, as may be prescribed,
input tax credit may be allowed partially or in phased
manner, in respect of such goods or such class of dealers
or in such cases, as may be prescribed.
(5) (a) Input tax credit on capital goods shall be allowed from
the date of first sale of taxable goods produced or
manufactured after the commencement of such production
and shall be adjusted against the output tax over a period
not exceeding three years :
Provided that no input tax credit shall be allowed on such
capital goods used for the purpose and in the circumstances as
specified in Schedule 'D'.
(b) Input tax credit under Clause (a) of this sub-section
shall be allowed in lump sum provided the value of
such capital goods is rupees one lakh or less.
(c) Input tax credit on capital goods shall be allowed only
on purchases of such good made on or after the
appointed day.
(d) In case of closure of business before the
commencement of commercial production, on input
tax credit on capital goods shall be allowed and input
tax credit carried forward, if any, shall be forfeited.
(e) In case where there is production of both taxable
goods and goods exempt from tax, the input tax
credit admissible on capital goods shall be
determined in the manner prescribed.
17
(f) Where the used capital goods are sold, the same shall
be subject to tax under this Act.
(6) Input tax credit shall not be claimed by the dealer for any
tax period until the dealer receives the tax invoice in
original evidencing the amount of input tax :
Provided that for good and sufficient reasons to be
recorded in writing, the Commissioner may, in the
prescribed manner, allow such credit subject to such
conditions and restrictions as may be specified in the order
allowing the credit.
(7) A registered dealer who intends to claim input tax credit
shall, for the purpose of determining the amount of input
tax credit, maintain accounts and such other records as
may be prescribed in respect of the purchases and sales
made by him and stock in trade held.
(8) No input tax credit be claimed by or be allowed to a
registered dealer -
(a) in respect of any taxable goods purchased by him
from another registered dealer for resale but given
away by way of free sample of gift;
(b) who makes payment of turnover tax as provided in
Section 16;
(c) in respect of capital goods used for the purpose and
in the circumstances as specified in Schedule 'D' ;
(d) in respect of goods brought from outside the State
against the tax paid in any other State;
(e) in respect of stock of goods remaining unsold at the
time closure of business;
(f) in respect of goods purchased on payment of tax, if
such goods are not sold because of any theft, damage
and destruction;
(g) where the tax invoice is not available with the dealer
or there is evidence that the same has not been
issued by the selling registered dealer from whom the
goods are purported to have been purchased;
(h) in respect of goods purchased from a dealer whose
certificate of registration has been suspended;
(i) in respect of sale of goods specified in Schedule A;
(j) in respect of sale of goods specified in Schedule C;
(k) in respect of raw materials used in manufacture or
processing of goods, where the finished products are
exempt from tax; and
(l) executing works contract, in relation to works
contracts executed by him, where he has exercised
18
option under Sub-section(3) of Section 11 to pay tax
by way of composition; and
(m) in any other case as the Government may, by
notification, specify.
Rule-11. Calculation of Input Tax Credit-
(1) where a dealer effects sales of goods both,
subject to tax and exempt from tax, under the
Act, the following calculation for claiming input
tax credit shall apply -
(a) where all the sales effected by a dealer in a tax
period are subject to tax under the Act, the
whole of the input tax may be claimed as
credit.
(b) where all the sales effected by the dealer for a
tax period are exempt from tax under the Act,
no input tax may be claimed as credit.
(c) Where a part of the sales effected by a dealer
in a tax period are subject to tax and the
remaining part of the sale are exempt from tax
under the Act, the amount that can be claimed
as input tax credit shall be calculated from the
following formula:
P X Q
R
Where -
"P" is the total amount of input tax;
"Q" is the taxable turnover of sales including zero-
rated sales; and
"R" is the total amount of all sales including
exempt sales:
During the tax period.
(d) where the fraction Q/R, is less than 0.05, the
dealer may not claim any input tax credit for
that period.
(e) where the fraction Q/R is more than 0.95, the
dealer may claim the entire input tax as credit
for that period.
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(2) Input tax credit on capital goods under Clause
(e) of Sub-section (5) of Section 20 shall be
allowed in the following manner:
(a) the total input tax eligible for credit on capital
goods for each tax period shall be equally
apportioned over a period of thirty six months
and -
(i) in case of a start up or new business,
input tax credit shall be allowed as
apportioned for each tax period,
beginning from the first sale after
commencement of commercial
production;
(ii) in case of a continuing business, input
tax credit shall be allowed as
apportioned for each tax period
following the tax period during which
such input tax credit accrued.
(b) the input tax credit, admissible under Clause
(a), where there is sale of both taxable and tax
exempt finished products, shall be determined
on application of the principles as provided
under Sub-rule (1) in respect of each tax
period.
Explanation - For the purpose of this sub-rule, the
expression "total input tax" referred to in Sub-rule (1)
shall be the input tax as apportioned in respect of a tax
period:
Provided that for the purpose of calculating input
tax credit under this sub-rule, if the value of the capital
goods is within rupees one lakh in a tax period, the input
tax credit claimed on such amount shall be allowed in
one installment."
11. It is clear from the pleadings of the parties that this Court had
the occasion to deal with the definition of 'input' in Section 2(25) of the
OVAT Act, 2004 in the case of M/s Reliance Industries Limited (supra)
and came to a conclusion that the definition of the term 'input' in Section
2(25) of the OVAT Act was an 'inclusive' definition by which legislature
clearly covered the following:-
i) goods purchase
by a dealer in course of his business for resale;
20
ii) for use in the execution
of works contract;
iii) in processing or
manufacturing, where such goods directly go into
composition of the finished products or packing of goods
for sale; and
iv) includes consumable
directly used in such processing or manufacturing.
11.1. Accordingly, the Court came to a conclusion in terms of the
'input' definition that, the only requirement is that the consumables are
directly used in such processing and/or manufacturing and the term of
'consumable' was not limited to those goods which directly go in
composition of the finished products alone. The term 'consumable'
postulates that such articles may be destroyed or completely used in
course of the processing or manufacturing of such goods and for such
reason since the term 'consumable' was used by the legislature, the said
definition was held to be an 'inclusive definition'. Therefore, after referring
to various judgments in the said case, the Court came to a conclusion that
input comprises of two types of commodities, i.e. (i) those commodities
which directly go into the composition of finished product and (ii) the
consumables used in the manufacturing process for production of finished
product and concluded that for 'consumable' to qualify as an 'input' it is
not at all necessary that in order for consumable to qualify as 'input'
should directly go into the composition of the finished product. What is
required is that consumable should be directly used in the manufacturing
process for production of the finished product. In that view of the matter
Court concluded that 'furnace oil' used by the petitioner in the process of
manufacturing of PSF was to be treated as 'input' as defined under Section
2(25) of the OVAT Act and the credit for input tax which has been paid by
the dealer on the purchase of furnace oil can be claimed under Section
2(27) of the OVAT Act against the tax payable on finished product, i.e.
PSF.
21
12. In the present case, we are required to deal with the issue of
impugned notification and in particular relating to 'coal' and 'furnace oil'.
In the case at hand, clearly such items i.e., coal and furnace oil are clearly
covered under sub-sections (25), (26), and (27) of Section 20 of the OVAT
Act. Apart from the above, in terms of Section 12 of the OVACT Act, 2004
petitioners are liable to pay the OVAT on their purchase as stipulated
under Section 12 at the rate prescribed under Section 14 of the OVAT Act.
At this juncture it become important to note herein that in term of Section
20(1), there is no dispute in the present case that the petitioners are
entitled there under to claim input tax credit since neither coal nor
furnace oil has been specified neither in Schedule-C nor Schedule-D of the
Act. In terms of sub-Section 2 of Section 20 the input tax credit is to be
limited to the amount tax paid by the petitioner dealer on the purchase of
the 'input' as stipulated under sub-section (2) and most importantly under
Section 20(3) the legislative mandate is that input tax credit shall be
allowed when purchase is made within the State from a registered dealer
holding a valid certificate of registration in respect of goods intended for
the purpose stipulated in terms thereof. It is also an admitted fact that
although power is vested in the State Government under sub-Section (4) of
Section 20 of the OVAT Act to prescribe condition and restriction where
input tax credit may be allowed partially or in a phased manner in respect
of such goods for such classes of dealer as may be prescribed, admittedly
no such rule under sub-section (4) of Section 20 has been enacted by the
State Government.
13. Further more importantly none of the circumstances
described under sub-section (8) of the Section 20 and clauses (a) to (l)
thereof are attracted in the present case. Therefore, the State having relied
on clause- (m) of sub-section (8) of Section 20 to issue the impugned
notification, the only remaining issue that arises for our consideration is
as to whether the State Government was competent to issue notification of
a nature impugned herein in terms of the said provision.
22
14. The scope of our enquiry and determination herein revolves
round the question of adjudicating as to the scope and power vested in
State Government under clause-(m) of sub-section-(8) of Section 20 of the
OVAT Act. In terms thereof it is clear that the Government is authorized to
notify "any other case" as may be deemed appropriate in terms of sub-
section (8) of Section 20 of the OVAT Act.
14.1 At the outset on an analysis of the circumstances contained in
sub-section (8) of Section 20 it is clear that whereas clause-(a) deals with
the situation where the taxable goods purchased by the registered dealers
is not re-sold in course of his business but given away as a free sample or
gift. In other words the case in which there is no further resale of the
purchased goods consequently there is no scope of giving a right to the
situation for any further levy thereon. Since no levy of VAT is permissible
in the event of a free sample or a gift, the benefit of input tax credit for
inter State purchase by such a dealer ought not to be claimed.
14.2 So far as clause (b) of sub-Section (8) of Section 20 is
concerned, since the registered dealer contemplated therein had opted for
payment of 'turnover tax' under Section 16(composite tax), obviously
thereby no question of claiming of credit input tax can arise. Under
clause-(c) where a registered dealer purchases capital goods, input tax
credit thereon is permissible under sub-section (5) of Section 20 to the
extent and in the manner stipulated therein. In so far as clause-(d) is
concerned, the same refers to purchases by a registered dealer from out
side the State against the tax paid in any other State and obviously
thereby since no tax was paid within the State of Orissa, no question of
claim for input tax credit for such tax can obviously be permitted. So far
as clause-(e) is concerned, if a registered dealer has stock of goods
remaining unsold at the time of closure of his business, clearly thereby
since the event of further sale has not taken place, no question of input
tax credit can arise. So far as clause-(f) is concerned, if goods are
purchased by a registered dealer and the same is stolen, damaged or
23
destroyed, obviously such goods are not more available for resale and in
absence of such goods no claim of input tax credit could be permissible. In
so far as clause-(g) is concerned, where a registered dealer is not in a
position to provide the tax invoice, no question of grant of input tax credit
is also permissible. So far as clause- (h) is concerned, a registered dealer,
who may have purchased goods from a registered dealer, but if such
selling dealer registration certificate has been suspended the purchasing
dealer can have no right to claim input tax credit. In so far as clauses- (i)
& (j) are concerned, the goods which we are presently concerned, i.e., Coal
and Furnace oil are admittedly not specified in the Schedule- A or C. In so
far clause-(k) is concerned, where the finished products of the registered
dealer is exempted from tax either in whole or in part under the Act, no
question of input tax credit on inputs or capital goods other than those
covered under Schedules- A, C or D would obviously available in view of
the exemption of tax of the final products either whole or in part. In so far
as clause- (l) is concerned, if a registered dealer executes works contract
and has exercised his option under sub-section (3) of Section-11 to pay
tax by way of composition as prescribed under section 11(c) in view of
exercise of such option no question of availing input tax credit would arise.
We now come to clause-(m) of sub-section-(8) which contemplates and
vests power in Government to make notification specifying any other
goods, this is the power which the State has resorted to in passing the
impugned notification.
15. In the case at hand, we are clearly of the considered view that
both the judgments cited by the petitioners in the case of Collector of
Central Excise Bombay v. Maharashtra Fur Fabric Ltd. as well as in
the case of State of Karnataka and others -V- Kempaiah (supra) clearly
cover the field. The principle of ejusdem generis shall apply to the scope
and ambit of clause-(m) of sub-section (8) of Section 20 of the OVAT Act,
2004. Clearly clauses- (a) to (l) of sub-section (8) of Section 20 are
circumstances specified by the legislature under which no input tax credit
24
can be claimed nor allowed to a registered dealer. Only such additional
circumstance may be specified by a notification of the State Government,
but the nature of such notification has to satisfy the requirement of sub-
section (8) of Section 20 of the OVAT Act.
16. We are afraid that we cannot accept the contention raised by
the State that under section 20(8) (m) the State is vested with "plenary
power" and not limited to the type of circumstances similar to those spelt
out under clauses- (a) to (l) of sub-section (8) of Section 20 of the OVAT
Act.
17. The principle of ejusdem generis has been well settled by the
Hon'ble Supreme Court of India in various judgments, including the
judgments referred by us hereinabove and for this purpose we cannot do
better than what has been said by the Hon'ble Supreme Court in the case
of State of Karnataka and others v. Kempaiah (supra), particularly in
para-8 thereof and in the case of Collector of Central Excise Bombay v.
Maharashtra Fur Fabric Ltd.(supra) particularly in para-6 thereof.
Paragraph-8 of the judgment of the Honble Supreme Court in the case of
State of Karnataka and others -V- Kempaiah reads as follows:-
"8. The definition of the word "action" in
Section 2(1) read as under:-
"2. (1) 'action' means administrative action taken by way
of decision, recommendation or finding or in any other manner
and includes willful failure or omission to act and all other
expressions [relating to] such action shall be construed
accordingly."
A perusal of the definition indicates that it encompasses
administrative action taken in any form whether by way of
recommendation or finding or "in any other manner", e.g.,
granting licences or privileges, awarding contract, distributing
government land under statutory rules or otherwise or
withholding decision on any matter etc. The expression "in any
other manner" takes it in fold the last-mentioned categories of
administrative actions. Mr. Nagaraja has argued that the
expression "in any other manner" will have to be given a wider
meaning so as to include other actions of the public servants
such as the action of the respondent in amassing wealth,
otherwise the very purpose of the Act will be frustrated. We are
25
afraid we cannot accede to the contention of the learned
counsel as it would not only be contrary to the principle of
construction of statutes but will also be repugnant to the object
of the Act, pointed out above. The expression "in any other
manner" contains general words which construed literally,
should receive their full and natural meaning but when they
follow specific and particular words of the same genus, it will be
presumed that the legislature has used the general words in a
limited sense to convey the meaning implied by specific and
particular words. This follows from application of the rule of
ejusdem generis. That rule which is an exception to the rule of
construction that general words should be given their full and
natural meaning, was enunciated by Lord Campbell in R. v.
Edmundson "1... where there are general words following
particular and specific words, the general words must be
confined to things of the same kind as those specified". (Craies
on Statute Law, 6th Edn., p.179.) These rules of interpretation
are so well settled that they hardly need any authority to
support our conclusion. Now in the definition of action, the
expression "in any other manner" follows "decision",
"recommendation" or "finding". So it connotes other categories
of administrative action; it cannot be interpreted to mean
actions which have no nexus to any administrative action."
Paragraph-6 of the judgment of the Hon'ble Supreme
Court in the case of Collector of Central Excise Bombay v.
Maharashtra Fur Fabric Ltd.(supra) reads as follows:-
"6. A careful reading of the proviso to the notification
would show that by resorting not only to the process of
bleaching, dyeing, printing, shrink-proofing,, tentering, heat-
setting, crease-resistant processing, but also to "any other
process or any two or more of these processes", the respondent
would lose the benefit of the exemption. It is well-established
principle that general terms following particular expressions
take their colour and meaning as that of the preceding
expression, applying the principle of ejusdem generis rule,
therefore, in construing the words "or any other process", the
import of the specific expressions will have to be kept in mind.
It follows that the words "or any other process" would have to
be understood in the same sense in which the process,
including tentering, would be understood. Thus understood, a
process akin to stentering/tentering would fall within the
meaning of the proviso and, consequently, the benefit of the
notification cannot be availed by the respondent."
26
18. In view of the aforesaid law laid down by the Hon'ble Supreme
court we apply the principle of ejusdem generis to clause (m) of sub-section
(8) of Section 20 and are of the considered view that the present
notification impugned hereinabove cannot stand the test of application of
the principle of ejusdem generis. Accordingly, we are of the considered view
that the impugned notification vide S.R.O. No.34/2009 dated 27.1.2009,
limited to declaring 'coal and 'furnace oil' as goods at serial 1 and 2 thereof
is illegal and therefore declare that the said notification would not have
any application and will stand quashed to the aforesaid extent, since the
impugned notification is ultra virus Section 20(3) (b) read with Section
2(25) and 2(27) of the OVAT Act. 2004 and consequently purchase made
by the petitioner manufacturers of the aforesaid item, i.e., coal and
furnace oil within the State from a registered dealer holding a valid
registration certificate in respect of goods intended for the purpose of use
as input and/or consumable directly used in respect of manufacture of
finished product is clearly contrary to the legislative mandate.
19. Accordingly, the impugned notification S.R.O. No. 34/2009
dated 27.1.2009, to the extent noted hereinabove, stands quashed.
20. Insofar as the alternative prayer made by the petitioners
seeking to challenge the provision of Section-20(8) (m) of the OVAT Act,
2004 is unconstitutional. We are of the considered view that such power
does not suffer from the vice of excessive delegation of the legislative
power, since sub-section (8) itself as well as the OVAT Act, 2004 contains
the necessary guidelines and limits under which power under clause (m)
thereof can be exercised by the State. Therefore such prayer of the
petitioners fails and the said provision cannot be held to be excessive or
unguided.
21. In view of the conclusion reached by us in Paragraph-18 as
noted hereinabove, we are of the considered view that the other
contentions raised by the parties are merely academic and therefore, need
27
not be answered in the present case. Writ application is allowed in terms
of the direction noted hereinabove.
.........................
Chief Justice
I. Mahanty, J.I agree.
.......................... I.Mahanty, J.
ORISSA HIGH COURT, CUTTACK The 12th August, 2010/AKD