Fuel pump dealers are entitled to Input Tax Credit (ITC) on evaporation loss of petrol and diesel, the Punjab & Haryana High Court has ruled.
The ruling was given while disposing a bunch of 50 petitions filed by the Haryana government against orders of the State Tax Tribunal which favoured ITC to be vailed.
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According to the VAT (Value Added Tax) Act, ‘input tax’ means the amount paid to the State in respect of goods sold to a VAT dealer, which such a dealer is allowed to take credit of as payment of tax by him.
The government argued that the disposal of evaporated petrol and HSD was otherwise than by way of sale, and hence the dealer was not entitled to ITC as per entry 5 of Schedule E of the Haryana VAT Act. The said schedule deals with goods not eligible for ITC. Entry 5 talks about goods, except petroleum goods and capital goods, when used in the telecommunication network, mining, generation & distribution of electricity etc. This entry also includes export goods beside others.
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‘Within prescribed limits’
After going through the arguments, the court took note of the fact that considering the nature of petrol and HSD, the Ministry of Petroleum allows evaporation losses to the extent of 0.6 per cent in case of motor spirit and 0.2 per cent in case of diesel. It also noted that handling or evaporation losses in the cases being heard are within the prescribed limits.
It said that the tax paid to the State by the oil companies on the goods sold, would be ITC available to the purchasing dealers. 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. The circumstances mentioned in Schedule E against petroleum products and natural gas are when used as fuel or exported out of the State. Also, circumstances mentioned against Entry 5 are not applicable to petroleum products and natural gas.
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Accordingly, it ruled, “The question is answered in favour of the dealer i.e. assessee shall be entitled to ITC on evaporation of the petroleum products” and dismissed appeals filed against the State Tax Tribunal’s ruling.
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