Creamline Dairy Products Ltd, ... vs Department Of Income Tax

2. Briefly stated, the assessee is engaged in the business of procuring, processing and selling of milk and milk products. For A.Y 2009-10, assessee filed return of income of Rs.10,72,61,830 under normal provisions and Rs.11,33,34,732 u/s 115JB. The order u/s 143(3) was passed on 19.12.2011 determining the income under normal provisions at Rs.10,81,22,976.

Page 1 of 5 ITA No.1670 of 2014 Creamline Dairy Products Ltd Hyderabad

3. The AO in her rectification order u/s 154 dated 20.11.2013 made an addition of Rs.22,06,098 towards the excess claim of unavailed VAT by giving the following reason:

"The assessment u/s 143(3) of the I.T. Act, 1961 for the A.Y 2009-10 was completed on 19.12.2011. It was observed in the manufacturing expenses the assessee company claimed Rs.13,91,849 towards unavailed VAT 12.5% and Rs.37,67,841 towards unavaoied VAT 4% totaling to Rs.51,59,690. As per record the unavailed input 4% was Rs.23,59,651 and unavailed input 12.5% Rs.5,93,941 totaling to Rs.29,53,592 during the financial year 2008-09 which the relevant to A.Y 2009-10. Hence the excess claim of unavailed VAT is for Rs.22,06,098 (Rs.51,59,690 - Rs.29,53,592). As the mistake is apparent from the record the scrutiny order is modified".

4. The ld Counsel for the assessee filed elaborate submissions/clarifications before the CIT (A) as follows:

• The assessee's products are sold under the brand name "Jersey". To understand the issue of "unavailed VAT" , it is essential to understand the manufacturing process of the assessee and the relevant details which are described in step-wise manner as under:

(a) The assessee procures the main raw material i.e. milk from farmers and milk is an exempted good under Andhra Pradesh Value Added Tax Act, 2005.

(b) Assessee also purchases various packing material (for packing milk, curd, ghee etc) and consumables like soap, oil, caustic soda, sulphuric acid and spares of plant and machinery. All these purchases are liable to VAT.

Page 2 of 5 ITA No.1670 of 2014 Creamline Dairy Products Ltd Hyderabad

(c) The products are sold by the assessee like ghee, butter, cream, milk power are liable for VAT.

(d) Whenever the assessee pays VAT on purchases that is called "input tax".

(e) Whenever the assessee pays tax on the goods sold, it is called "output tax".

(f) As per the VAT Act, 2005, if the assessee had paid input tax on raw material, he does not have to pay output tax on goods sold. Meaning thereby the assessee is entitled to input tax credit.

(g) Assessee also sells the following output which are liable to VAT:

(i) Ghee

(ii) Butter

(iii) Milk powder

4. Since the assessee has already paid Rs.4,00,000 of input tax, taking credit for this, he would only pay Rs.1.00 lakhs on output tax on sales turnover.

Now the profit & loss a/c appears as under:

Purchases = 10/- Sales - 12/- Input tax = .... Output tax 1/- 10/- 13/-

Net profit = 13-10 = 3

In the instant case, since the entire turnover is not liable to VAT the formula of A x B/C was applied and say, for example the assessee is eligible for input tax credit of Rs.2.00 lakhs the profit and loss account read as under:

Purchases = 10 Sales = 12 Unavailed input tax= 2 Output tax = 3 12/- 15/-

Page 3 of 5 ITA No.1670 of 2014 Creamline Dairy Products Ltd Hyderabad

5. Hence it was argued that giving input tax credit is only a mechanism devised to avoid tax collection twice, once at the time of purchase and the other at the time of sale. It would not have effect on profit.

6. The ld CIT (A) held as follows:

"5. In summary, the net output tax payable of Rs.1,71,76,712 was paid and the appellant submitted the details of date, amount, cheque No. It is to be clearly understood whether the credit for input tax is availed or not, the input tax has to be allowed as this is an incurred expenditure, provided the amount was paid.

5.1 It is also pertinent to mention that the issue of availing input tax credit which can only be understood by the long drawn process of verifying the registers and input, output VAT tax payments, cannot be the subject matter u/s 154, which can be applied only to rectify apparent mistakes".

7. Aggrieved, by the order of the ld CIT (A), Revenue is in appeal raising the following grounds:

"1. The order of the ld CIT (A) is erroneous on facts and law.

2. The ld CIT (A) erred in stating that the unavailed VAT and unavailed input cannot be rectified by passing order u/s 154.

3. The CIT (A) ought to have called for the remand report and the CIT (A) failed to give opportunity to the AO as required under rule 46A".

Page 4 of 5 ITA No.1670 of 2014 Creamline Dairy Products Ltd Hyderabad

8. We have heard both the parties. The issue as to whether the credit for input tax is availed or not and also whether the amount was paid and hence the input tax has to be allowed on the ground that it is an expenditure which has been incurred, requires explanation, deliberations and application of mind. It is not mistake apparent from the record, for it to be decided u/s 154. Further, when two views are possible, section 154 cannot be invoked. Hence, we confirm the order of the ld CIT (A) wherein he has stated, the issue of availing input tax credit can be understood only by a long drawn process of verifying the registers and input and output VAT Tax payments. Hence it is not an apparent mistake to be rectified u/s 154.

9. In the result, Department's appeal is dismissed.

Order pronounced in the Open Court on 27th March, 2015.

Sd/- Sd/- (P.M. Jagtap) (Asha Vijayaraghavan) Accountant Member Judicial Member

Hyderabad, dated 27th March, 2015.

Vnodan/sps Copy to:

1. The Dy. CIT, Circle 1(2) 4th Floor, Aayakar Bhavan, Hyderabad

2. M/s Creamnline Dairy Products Ltd, 6-3-1235/B/21 Asif Avenue, Raj Bhavan Road, Somajiguda, Hyderabad

3. The CIT(A)-II Hyderabad

4. The CIT-I Hyderabad

5. The DR, ITAT, Hyderabad

6. Guard File

By Order

Page 5 of 5