Assessee, engaged in purchase and sale of petroleum products, is entitled to Input Tax Credit on evaporation loss of such products: P&H High Court

Read Order: Excise and Taxation Commissioner, Haryana v. M/s Gupta Brother, Bhiwani and another (Assessment Year 2010-11)  

Monika Rahar

Chandigarh, March 21, 2022: While dismissing certain appeals by the Excise and Taxation Commissioner, Haryana against the orders of Haryana Tax Tribunal, Chandigarh, the Punjab and Haryana High Court has held that dealers of petrol pumps engaged in purchase and sale of petroleum products are entitled to Input Tax Credit on evaporation loss of the petroleum products. 

The first Respondent was the dealer running a petrol pump and engaged in the purchase and sale of petroleum products. For the assessment year 2010-11 (AY), the assessment was finalized by the Excise and Taxation Officer-cum-Assessing Authority, Bhiwani on December 23, 2013 allowing the claim of ITC. Revisional Authority revised the assessment vide order dated August 19, 2016. ITC for evaporation losses was reversed. The Haryana Tax Tribunal, Chandigarh accepted the contention of the dealer and allowed the appeal on July 3, 2017. It was held that the Assessing Authority rightly allowed the claim of ITC on evaporation. The review application filed by the State was dismissed by the Tribunal on 4th May 2018. 

Before the Bench of Justice Ajay Tewari, Avneesh Jhingan and Justice Pankaj Jain, the Excise and Taxation Commissioner, Haryana filed these appeals against the orders of the Tribunal. The tribunal accepted the appeals and held that dealers were entitled to Input Tax Credit (ITC) on evaporation loss of Petrol and High-Speed Diesel (HSD). 

The issue canvassed in appeals is based on the decision of Division Bench of this Court in All Haryana Petroleum Dealers Association, Bhiwani Versus The State of Haryana and others, 2014(42) R.C.R. (Civil) 811.

The Additional Advocate General, Haryana appearing for the State/Appellant argued that disposal of evaporated Petrol and HSD was otherwise than by way of sale hence the dealer was not entitled to ITC as per Entry 5 of Schedule E of the Haryana Value Added Tax Act, 2003. It was contended that the issue was covered in favour of the appellant by the decision of Division Bench of Punjab and Haryana Court in All Haryana Petroleum Dealers Association’s Case (Supra). 

On the other hand, the Advocate appearing for the dealers defended the order of the Tribunal. He contended that Entry 5 of Schedule E does not deal with petroleum products. It was argued that the reversal of ITC for evaporated petrol and HSD was not the issue before the High Court in All Haryana Petroleum Dealers Association’s Case (Supra). He raised an argument that considering the nature of the goods involved, it could not be held that goods were disposed of otherwise than by way of sale. 

After perusing the relevant provisions of law, the Court opined that it was admitted position that considering the nature of petrol and HSD, the Ministry of Petroleum allowed evaporation losses to the extent of 0.6% in case of motor spirit and 0.2% in the case of HSD. Further, the Court added that it was dealing with the cases where handling or evaporation losses were within the prescribed limits.  

Further, the Court stated that as per provisions of the Act, the tax paid to the State by the oil companies on the goods sold, would be ITC available to the purchasing dealers and there would be no ITC for tax paid on the goods specified in Schedule E when used or disposed of in the circumstances mentioned against those goods. 

Also, the Bench added that the circumstances mentioned in Schedule E against petroleum products and natural gas are that when used as fuel or exported out of the State. Importantly, the Court opined that Entry 5 of Schedule E is not dealing with the items mentioned at Entries 1 and 2. 

“In other words, circumstances mentioned against Entry 5 are not applicable to petroleum products and natural gas”, held the Court. 

On the argument of the counsel appearing for the dealers that considering the nature of goods, evaporation is not the disposal of goods otherwise than by way of sale, the Court decided not to dwell on it in view of the clear provision of the statute. 

Dismissing the appeals filed by the State, the Court answered the question in favour of the dealer i.e. assessee shall be entitled to ITC on evaporation of the petroleum products.

Read Order: Excise and Taxation Commissioner, Haryana v. M/s Gupta Brother, Bhiwani and another (Assessment Year 2010-11)  

Monika Rahar

Chandigarh, March 21, 2022: While dismissing certain appeals by the Excise and Taxation Commissioner, Haryana against the orders of Haryana Tax Tribunal, Chandigarh, the Punjab and Haryana High Court has held that dealers of petrol pumps engaged in purchase and sale of petroleum products are entitled to Input Tax Credit on evaporation loss of the petroleum products. 

The first Respondent was the dealer running a petrol pump and engaged in the purchase and sale of petroleum products. For the assessment year 2010-11 (AY), the assessment was finalized by the Excise and Taxation Officer-cum-Assessing Authority, Bhiwani on December 23, 2013 allowing the claim of ITC. Revisional Authority revised the assessment vide order dated August 19, 2016. ITC for evaporation losses was reversed. The Haryana Tax Tribunal, Chandigarh accepted the contention of the dealer and allowed the appeal on July 3, 2017. It was held that the Assessing Authority rightly allowed the claim of ITC on evaporation. The review application filed by the State was dismissed by the Tribunal on 4th May 2018. 

Before the Bench of Justice Ajay Tewari, Avneesh Jhingan and Justice Pankaj Jain, the Excise and Taxation Commissioner, Haryana filed these appeals against the orders of the Tribunal. The tribunal accepted the appeals and held that dealers were entitled to Input Tax Credit (ITC) on evaporation loss of Petrol and High-Speed Diesel (HSD). 

The issue canvassed in appeals is based on the decision of Division Bench of this Court in All Haryana Petroleum Dealers Association, Bhiwani Versus The State of Haryana and others, 2014(42) R.C.R. (Civil) 811.

The Additional Advocate General, Haryana appearing for the State/Appellant argued that disposal of evaporated Petrol and HSD was otherwise than by way of sale hence the dealer was not entitled to ITC as per Entry 5 of Schedule E of the Haryana Value Added Tax Act, 2003. It was contended that the issue was covered in favour of the appellant by the decision of Division Bench of Punjab and Haryana Court in All Haryana Petroleum Dealers Association’s Case (Supra). 

On the other hand, the Advocate appearing for the dealers defended the order of the Tribunal. He contended that Entry 5 of Schedule E does not deal with petroleum products. It was argued that the reversal of ITC for evaporated petrol and HSD was not the issue before the High Court in All Haryana Petroleum Dealers Association’s Case (Supra). He raised an argument that considering the nature of the goods involved, it could not be held that goods were disposed of otherwise than by way of sale. 

After perusing the relevant provisions of law, the Court opined that it was admitted position that considering the nature of petrol and HSD, the Ministry of Petroleum allowed evaporation losses to the extent of 0.6% in case of motor spirit and 0.2% in the case of HSD. Further, the Court added that it was dealing with the cases where handling or evaporation losses were within the prescribed limits.  

Further, the Court stated that as per provisions of the Act, the tax paid to the State by the oil companies on the goods sold, would be ITC available to the purchasing dealers and there would be no ITC for tax paid on the goods specified in Schedule E when used or disposed of in the circumstances mentioned against those goods. 

Also, the Bench added that the circumstances mentioned in Schedule E against petroleum products and natural gas are that when used as fuel or exported out of the State. Importantly, the Court opined that Entry 5 of Schedule E is not dealing with the items mentioned at Entries 1 and 2. 

“In other words, circumstances mentioned against Entry 5 are not applicable to petroleum products and natural gas”, held the Court. 

On the argument of the counsel appearing for the dealers that considering the nature of goods, evaporation is not the disposal of goods otherwise than by way of sale, the Court decided not to dwell on it in view of the clear provision of the statute. 

Dismissing the appeals filed by the State, the Court answered the question in favour of the dealer i.e. assessee shall be entitled to ITC on evaporation of the petroleum products.