J. Shyam Sundar Rao, Chairman -
(1.) THE appellant in the above 3 appeals is M/s. Oil and Natural Gas Corporation Limited, Rajahmundry Being aggrieved by the dismissal orders passed by the Appellate Deputy Commissioner (CT), Visakhapatnam ('The ADC' for short) these appeals have been filed. The details of the appeals are as follows: -
In the appeals grounds, in brief, it had been contended as follows:
The ADC failed to appreciate that the price fixed in the provisional invoice is only tentative and the final price is fixed by the Ministry of Petroleum & Gas ('MPNG' for short). The reduction in the VAT liability is due to final determination of the price by MPNG. Under Rule 16(3)(c) of the APVAT Rules, 2005, the previously agreed consideration has been altered by an agreement with the recipient and hence the reduction in the VAT liability pursuant to the determination of the sale price will result in refund payment. The Legislature contemplated such situation and provided for the adjustment of sale price in the tax invoice if not issued earlier or through a debit note or credit note, if tax invoice has already been issued. Thus, the amount which the buyer actually pays based on the final invoice issued determines the consideration for the transaction as well as the VAT liability. Rule 16(3)(f) has no application. Crude oil is not eligible for input tax credit. It is ineligible item under Rule 20(2)(e). As the buyer does not claim any input tax credit, Rule 16(3)(f) has no application. Rule 16(3)(f) will operate where the transaction is eligible for input tax credit. Under Rule 28 by issuing credit notes or debit notes, the adjustment of sale price takes place and ultimately tax liability has to be paid by filing the revised return. The revised returns in Form 213 are required to be filed both in cases of over -declaration of tax or under -declaration of tax.
(2.) AT the time of hearing of the appeals, it has been contended by the learned appellant's counsel that the price at which crude oil has to be sold will be fixed by MPNG. Hence, the appellant entered agreements with all its dealers and customers whereunder the appellant is obliged to issue revised invoice depending upon the reduction or increase of price fixed by MPNG. The terms of the agreement stated that previous month's rate will be considered while raising the invoice during the current month. After receiving the provisional rate for the current month, necessary adjustments will be issued by issuing debit/credit notes. Government notifies on quarterly basis, the discount/subsidy which is to be given to marketing companies. Adjustment of quarterly discount will be made in the second quarter by issuing credit notes. It is, therefore, argued that initially the appellant used to issue the provisional invoice and used to file VAT -200 return every month and after issuing final invoice the appellant used to issue debit note or credit notes to its customers and also used to file revised VAT -213 return showing the VAT liability. It is, therefore, argued that the appellant is entitled for refund and the Assistant Commissioner (CT) (LTU), Kakinada ('The AC' for short) as well as the ADC erred in not granting the refund.
On the other hand the learned SR states that without disturbing tax component the debit notes or credit notes have to be issued as per Rule 16(3)(f) of APVAT Rules.
In view of the contentions raised, now the point that arises for consideration is:
"Whether refusal to grant refund by the authorities below is warranted -
(3.) POINT : -
(a) Section 13 of APVAT Act deals with credit for input tax. Section 13(4) states that the VAT dealer shall not be entitled for input tax credit or sales tax credit in respect of the purchases of such taxable goods as may be prescribed. Rule 20(2) of APVAT Rules prescribes the items which are not eligible for input tax credit. Rule 20(2)(g) states that crude oil used for conversion and refining into petroleum products is not entitled for input tax credit. Hence, when crude oil was sold by one dealer to another dealer for refining or conversion the subsequent dealers who purchases crude oil are not entitled for input tax credit. Rule 23 deals with tax returns under APVAT Rules. The relevant rule for the purpose of appreciation of the point involved in the present transaction is Rule 23(6). The said clause reads as hereunder: -
"23(6)(a) If any VAT dealer having furnished a return on Form VAT 200 finds any omission or incorrect information therein, other than as a result of an inspection or receipt of any other information or evidence by the authority prescribed, he shall submit an application on Form VAT 213 within a period of six months from the end of the relevant tax period.
(b) On receipt of Form VAT 213 in the case of an under -declaration, a Form VAT 307 shall be issued for the under -declared tax and the interest due on the late payment. In the case of an over -declaration Form VAT 308 shall be issued."
(b) A reading of the above rule shows that every VAT dealer who furnishes a return in VAT -200 within 6 months from the end of the relevant tax period shall submit an application on Form VAT -213 if he finds any omission or incorrect information or as a result of an inspection or receipt of any other information. It means that if any other information is received a VAT dealer has to submit a revised Form VAT -213. Here the information that had been received by the appellant is the price fixation which is being received by the appellant from MPNG from time to time. There is a strict control of fixation of price of crude oil or petroleum products. The MPNG will fix the price at which crude oil has to be sold. The price fixation will depend upon the price fixed by OPEC Nations (Oil and Petroleum Export Countries). The International market will fix the price for crude oil and petroleum product or for both. Thereafter the MPNG will fix the price of these petroleum products including crude oil. The dealers have to sell the crude oil at a rate which varies from month to month. Hence, the appellant had been selling crude oil to its customers at the prices fixed by the MPNG. When there is a price fluctuation fixed by the MPNG necessarily the appellant has to file revised return in Form VAT -213 every month. Therefore, the appellant entered into agreement with its customers specifying in the terms of the contract that the appellant would issue initial invoice or provisional invoice showing the VAT liability and in case the VAT liability gets reduced he will issue final invoice reducing the tax component or in case the price is increased he will issue debit notes. Hence, issuing debit notes or credit notes will depend upon the price fixation which will be made by MPNG from time to time. At this relevant time it is necessary to extract Rule 16 which deals with determination of taxable turnover. Rule 16(3)(c) is pertinent for the purpose of determination of the issue. It reads as hereunder: -
Rule 16(3) An adjustment of sales price and VAT or any other tax can be made in relation to taxable sale where -
(c) the previously agreed consideration for the sale has been altered by agreement with the recipient, whether due to an offer of a discount or for any other reason; or
(c) A reading of the above rule shows that though the price agreed earlier it can be adjusted subsequently for any other reason. It may be due to discount or for any other reason. The other reason, for the appellant, here is the price fixation which will be made by MPNG from time to time. Hence, Rule 16(3)(g) permits an adjustment of sale price in terms of the agreement between the dealers. But the assessing authority as well as the appellate authority relied upon Rule 16(3)(f) which states that whenever any credit notes are to be issued for discounts the VAT dealer shall pass the credit notes without disturbing tax component on the price in the original tax invoice. Example that had been given under Rule 16(3)(f) is as follows: -
"16(3)(f): For example: if 100 TVs are sold @ Rs. 10,000/ - each, amounting to Rs. 10,00,000/ -, the original tax charged @ 12.5% is Rs. 1,25,000/ -. If the discount of 10% is offered subsequently based on fresh purchases, the selling dealer can pass on the benefit of Rs. 1,00,000/ - for the price without disturbing the tax component of Rs. 1,25,000/ -, The buying dealer will not alter the input tax credit already claimed amounting to Rs. 1,25,000/ -. The selling VAT dealer will not claim reduction in output tax liability consequent to lowered price offered."
(d) Relying on the above rule the authorities below rejected the claim of refund holding that if refund is ordered the tax component will be disturbed which was already paid by the appellant, since it would effect the input tax credit claimed by the subsequent dealer. But in our humble opinion Rule 16(3)(f) will be applicable only in case where the subsequent dealers claim input tax credit for the items which are eligible for input tax credit. The Legislature prescribed Rule 16(3)(f) since it enables the dealers to give credit notes as an incentive for discounts to promote the business, but with a restriction that the tax component shall not be disturbed, since the subsequent dealers if claim input tax credit the incentives if granted by means of credit notes will disturb the tax component. But where the input tax credit is ineligible, Rule 16(3)(f) has no application at all. Here crude oil is one of the items referred under Rule 20(2) as ineligible item for ITC in accordance with Section 13(4) of APVAT Act. When crude oil is ineligible for input tax credit Rule 16(3)(f) has no application at all. Rule 28 enables the dealer to issue credit notes or debit notes in respect of price adjustment also when accounts are settled between the seller and the buyer. Such adjustment shall be made within 12 months from the end of every year. But here the said adjustments had been made by the appellant in the next month by issuing final invoice and also by issuing either debit note or credit note depending upon the price fixation made by MPNG. Therefore, we hold that the authorities below erred in rejecting the claim of refund application made by the appellant relying on Rule 16(3)(f) of APVAT Rules, instead of accepting the refund returns filed by the appellant in accordance with Rules made under APVAT Act. The issue is, therefore, found in favour of the appellant and against the revenue.
(a) T.A. No. 297/2011: - In the result, the appeal is allowed.
(b) T.A. No. 298/2011: - In the result, the appeal is allowed.
(c) T.A. No. 299/2011: - In the result, the appeal is allowed.
Dictated to the Stenographer, transcribed by her and pronounced on this the 08th day of November, 2011.;