# CASE DETAILS M/S MODI NATURALS LTD v. THE COMMISSIONER OF COMMERCIAL TAX UP

- **Citation:** 2023 INSC 974
- **Court:** Supreme Court of India
- **Decided:** 2023-11-06
- **Case number:** Civil Appeal Nos. 5822-5823 of 2023
- **Bench:** Dr. Dhananjaya Y. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-m-s-modi-naturals-ltd-v-the-commissioner-of-commercial-tax-up-37074
- **Pages:** 31

## Headnote

Issue for consideration: (a) Whether the assessee is entitled to claim
full amount of tax paid towards the purchase of raw Rice Bran as ITC on the
basis of the provisions of s.13(1)(a) r/w. S. No. 2(ii) of the Table appended
thereto and s.13(3)(b) r/w. Explanation (iii) of s.13 of the UP VAT Act?; (b)
Whether the scope of the word "goods" as defi ned u/s. 2(m) of the UP VAT
Act as outlined in s.13(1)(f) of the UP VAT Act should be limited to only
"taxable goods"?; (c) Whether the decision of the Supreme Court in the case
of M.K. Agro Tech has any application to the case on hand?
Uttar Pradesh Value Added Tax Act, 2008 - On the basis of the
statutory provisions of s.13(1)(a) read with S.No. 2(ii) of the Table
appended thereto and s.13(3)(b) read with Explanation (iii) to s.13 of
the UP VAT Act, the assessee claimed full amount of tax paid as ITC
- The High Court relying on the decision of this Court in the case of
State of Karnataka v. M.K. Agro Tech Private Limited, took the view
that a dealer has no vested right to seek the benefi t of ITC as the same
is just a concession by virtue of the provisions of the Act - The High
Court held that the provisions of s.13(1)(a) read with S. No. 2(ii) of the
Table appended thereto and s.13(3)(b) r/w. Explanation (iii) of the UP
VAT Act are not applicable as asserted by the assesee and the case of
the assessee stood covered by s.13(1)(f) of the UP VAT Act - Propriety:
Held: A bare perusal of the scheme u/s. 13 of the UP VAT Act [and
specifi cally u/s. 13(1)(a)] makes it abundantly clear that in cases where the
747
purchased goods (in the present case Rice Bran) are used in the manufacture
of taxable goods (in the present case RBO and physically refi ned RBO)
except the non-VAT goods, and where such manufactured goods are sold
within the State or in the course of inter-state trade and commerce, the
registered dealers (like the assessee herein) are entitled to claim input tax
credit of the full amount - The charging section of the UP VAT Act, therefore,
entitles the assessee to claim full amount of tax paid on the purchases as
ITC - Furthermore, s.13(3)(b) of the UP VAT Act, introduces the concept of
proportionality in the scheme of the enactment and by means of a deeming
fi ction provides that where during the manufacture of VAT goods, exempt
and non-VAT goods (except as by-product or waste product) are produced,
the amount of ITC credit may be claimed and may be allowed in proportion
to the extent they are used or consumed in manufacture of taxable goods
other than the non-VAT goods and exempt goods - Explanation (iii) to
Section 13, forbids the Assessing Authority as well as the assessee from
raising any dispute in regard to the allowability of the ITC in cases where
exempted goods are being produced as a by-product or waste product during
the process of manufacture - The High Court committed an error in passing
the impugned judgment relying on the decision rendered in M.K. Agro Tech
- The impugned common judgment and order passed by the High Court is
set aside. [Paras 47, 48, 50]
Uttar Pradesh Value Added Tax Act, 2008 - s. 2(m) - Scope of the
word "goods":
Held: The defi nition of "goods" under Section 2(m) of the UP VAT
Act does not diff erentiate between exempt and taxable goods and equally,
the word "goods" under Section 13(1)(f) of the UP VAT Act has also not
been qualifi ed by the word "taxable". [Para 29]
Interpretation of Statutes - Taxing Statute:
Held: It is well accepted that a statute must be construed in accordance
with the intention of the Legislature and the courts should act upon the true
intention of the Legislation while applying law and while interpreting law.
In the litigation on hand, we have been asked to interpret the provisions of
a taxing statute. [Para 36]
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP
SUPREME COURT REPORTS
[2023] 15 S.C.R.
748
LIST OF CITATIONS AND OTHER REFERENCES
State of Karnataka v. M.K. Agro Tech Private Limited, [2017] 1

## Text

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[2023] 15 S.C.R. 746 : 2023 INSC 974
746
CASE DETAILS
M/S MODI NATURALS LTD.
v.
THE COMMISSIONER OF COMMERCIAL TAX UP
(Civil Appeal No (S). 5822-5823 of 2023)
NOVEMBER 06, 2023

[DR. DHANANJAYA Y. CHANDRACHUD, CJI,
J. B. PARDIWALA AND MANOJ MISRA, JJ.]
HEADNOTES
Issue for consideration: (a) Whether the assessee is entitled to claim
full amount of tax paid towards the purchase of raw Rice Bran as ITC on the
basis of the provisions of s.13(1)(a) r/w. S. No. 2(ii) of the Table appended
thereto and s.13(3)(b) r/w. Explanation (iii) of s.13 of the UP VAT Act?; (b)
Whether the scope of the word "goods" as defi ned u/s. 2(m) of the UP VAT
Act as outlined in s.13(1)(f) of the UP VAT Act should be limited to only
"taxable goods"?; (c) Whether the decision of the Supreme Court in the case
of M.K. Agro Tech has any application to the case on hand?
Uttar Pradesh Value Added Tax Act, 2008 - On the basis of the
statutory provisions of s.13(1)(a) read with S.No. 2(ii) of the Table
appended thereto and s.13(3)(b) read with Explanation (iii) to s.13 of
the UP VAT Act, the assessee claimed full amount of tax paid as ITC
- The High Court relying on the decision of this Court in the case of
State of Karnataka v. M.K. Agro Tech Private Limited, took the view
that a dealer has no vested right to seek the benefi t of ITC as the same
is just a concession by virtue of the provisions of the Act - The High
Court held that the provisions of s.13(1)(a) read with S. No. 2(ii) of the
Table appended thereto and s.13(3)(b) r/w. Explanation (iii) of the UP
VAT Act are not applicable as asserted by the assesee and the case of
the assessee stood covered by s.13(1)(f) of the UP VAT Act - Propriety:
Held: A bare perusal of the scheme u/s. 13 of the UP VAT Act [and
specifi cally u/s. 13(1)(a)] makes it abundantly clear that in cases where the
747
purchased goods (in the present case Rice Bran) are used in the manufacture
of taxable goods (in the present case RBO and physically refi ned RBO)
except the non-VAT goods, and where such manufactured goods are sold
within the State or in the course of inter-state trade and commerce, the
registered dealers (like the assessee herein) are entitled to claim input tax
credit of the full amount - The charging section of the UP VAT Act, therefore,
entitles the assessee to claim full amount of tax paid on the purchases as
ITC - Furthermore, s.13(3)(b) of the UP VAT Act, introduces the concept of
proportionality in the scheme of the enactment and by means of a deeming
fi ction provides that where during the manufacture of VAT goods, exempt
and non-VAT goods (except as by-product or waste product) are produced,
the amount of ITC credit may be claimed and may be allowed in proportion
to the extent they are used or consumed in manufacture of taxable goods
other than the non-VAT goods and exempt goods - Explanation (iii) to
Section 13, forbids the Assessing Authority as well as the assessee from
raising any dispute in regard to the allowability of the ITC in cases where
exempted goods are being produced as a by-product or waste product during
the process of manufacture - The High Court committed an error in passing
the impugned judgment relying on the decision rendered in M.K. Agro Tech
- The impugned common judgment and order passed by the High Court is
set aside. [Paras 47, 48, 50]
Uttar Pradesh Value Added Tax Act, 2008 - s. 2(m) - Scope of the
word "goods":
Held: The defi nition of "goods" under Section 2(m) of the UP VAT
Act does not diff erentiate between exempt and taxable goods and equally,
the word "goods" under Section 13(1)(f) of the UP VAT Act has also not
been qualifi ed by the word "taxable". [Para 29]
Interpretation of Statutes - Taxing Statute:
Held: It is well accepted that a statute must be construed in accordance
with the intention of the Legislature and the courts should act upon the true
intention of the Legislation while applying law and while interpreting law.
In the litigation on hand, we have been asked to interpret the provisions of
a taxing statute. [Para 36]
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP
SUPREME COURT REPORTS
[2023] 15 S.C.R.
748
LIST OF CITATIONS AND OTHER REFERENCES
State of Karnataka v. M.K. Agro Tech Private Limited, [2017] 12 SCR
1007 : (2017) 16 SCC 210 - held inapplicable.
CIT v. Kasturi and Sons Ltd. (1999) 3 SCC 346 : [1999] 1 SCR 1207;
State of W.B. v. Kesoram Industries Ltd. (2004) 10 SCC 20 - relied on.
Central India Spg. and Wvg. & Mfg. Co. Ltd. v. Municipal Committee,
Wardha [1958] SCR 1102; AIR 1958 SC 341; CIT v. Jalgaon Electric
Supply Co. Ltd. [1960] SCR 880 : AIR 1960 SC 1182; CIT v. Central India
Industries Ltd. [1972] 1 SCR 619 :(1972) 3 SCC 311; Azam Jah Bahadur
v. Expenditure Tax Offi cer (1971) 3 SCC 621 : AIR 1972 SC 2319 : [1972]
1 SCR 470; Kapil Mohan v. CIT [1998] 3 Suppl. SCR 647 : (1999) 1 SCC
430; State of M.P. v. Rakesh Kohli [2012] 6 SCR 661 :(2012) 6 SCC 312;
Rajasthan Rajya Sahakari Spg. & Ginning Mills Federation Ltd. v. CIT
(2014) 11 SCC 672; State Bank of Travancore v. CIT (1986) 2 SCC 11 :
1986 SCC (Tax) 289 - referred to.
Partington v. Attorney General (1869) LR 4 HL 100; Cape Brandy
Syndicate v. IRC (1921) 1 KB 64; Canadian Eagle Oil Co. Ltd. v. Selection
Trust Ltd., 1946 AC 119 at p. 140 (HL); Ormond Investment Co. v. Betts
1928 AC 143 (HL); Mapp v. Oram 1970 AC 362 : (1969) 3 WLR 557 :
(1969) 3 All ER 215 (HL); IRC v. Ross and Coulter (1948) 1 All ER 616
(HL) - referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5822-5823
of 2023.
From the Judgment and Order dated 03.05.2019 of the High Court of
Judicature at Allahabad in CTR Nos.148 of 2018 and 315 of 2017.
Appearances:
Arvind P Datar, Sr. Adv., Saubhagya Agarwal, Arjun Sharma, Shreyas
Maheshwari, Ms. Sukanya Das, M/s. Karanjawala & Co., Advs. for the
Appellant.
749
R. K. Raizada, AAG, Bhakti Vardhan Singh, Anuroop Chakravarti,
Ankit Khatri, Advs. for the Respondent.
Avi Tandon, Santosh Kumar Gupta, Ms. Meghna Tandon, Ami Tandon,
Srinivas Vishven, Mohit Prasad, Ms. Vanshika Gupta, Anish Agarwal, Mohit
Shivakumar, Dushyant Sharma, Advs. for the Intervenor.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
J. B. PARDIWALA, J.
1. Since the issues raised in both the captioned appeals are the same, the
parties are also the same and the challenge is also to the self-same judgment
passed by the High Court, those were taken up for hearing analogously and
are being disposed of by this common judgment and order.
2. For the sake of convenience, the appellant shall hereinafter be
referred to as the assessee and the respondent shall hereinafter be referred
to as the revenue.
3. These appeals are at the instance of an assessee, duly registered
under Section 17 of the Uttar Pradesh Value Added Tax Act, 2008 (for
short, 'the UP VAT Act') and are directed against the common judgment
and order dated 03.05.2019 passed by the High Court of Judicature at
Allahabad in the Commercial Tax Revisions Nos. 315 of 2017 and 148 of
2018 respectively, by which the High Court allowed both the Commercial
Tax Revisions fi led by the revenue against the Orders dated 04.05.2016 and
05.07.2017 respectively passed by the Commercial Tax Tribunal, Bareilly
Bench, Bareilly and thereby took the view that the assessee is not entitled to
the full benefi t of Input Tax Credit (for short, 'ITC') claimed on the goods
purchased by it for manufacturing its fi nal product.
FACTUAL MATRIX
4. The assessee is a company engaged in the business of manufacture
and sale of Rice Bran Oil (for short, 'RBO') and Physical Refi ned RBO.
The assessee as stated above is a registered dealer under the UP VAT Act
and the RBO manufactured by the assessee falls within the ambit of "taxable
goods" under the UP VAT Act. For the purpose of manufacturing RBO, the
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP
SUPREME COURT REPORTS
[2023] 15 S.C.R.
750
assessee procures Rice Bran (for short, 'inputs'/'purchased goods') and
follows the Solvent Extraction Process. During the manufacturing process of
RBO a by-product in the form of "De-Oiled Rice Bran" (for short, 'DORB')
is also produced. DORB falls within the category of exempted goods under
S. No. 4 of Schedule - I of the UP VAT Act.
5. The dispute between the parties relates to the assessment years
2013-14 and 2015-16 respectively.
6. The assessee by processing Rice Bran in its solvent extraction
plant produced 13.77% taxable goods i.e., RBO and 83.63% by-product
i.e., DORB. As stated, aforesaid by further refi ning the RBO, the physical
refi ned RBO is also produced. The record reveals that for the Assessment
Year 2013-14, the assessee purchased 8,21,935.71 quintals of Rice Bran
for a sum of Rs. 93,69,53,404.00 and paid tax of Rs. 4,68,47,670.00. By
processing the inputs, 1,13,180.54 quintals of RBO was produced and
6,87,138.25 quintals of DORB was produced. Out of 1,13,180.54 quintals of
RBO, 93,241.15 quintals of RBO was further refi ned to produce 76,068.37
quintals of physical refi ned RBO. The said quantity of physical refi ned RBO
and the balance quantity of RBO (19,939.40 quintals) was sold within the
State of Uttar Pradesh for Rs. 45,91,66,611 and Rs. 9,60,11,540 respectively
aggregating to a total of Rs. 55,51,78,151/-. The assessee's tax liability on
the said sales was calculated at Rs. 2,77,58,908/-.
7. On the basis of the statutory provisions of Section 13(1)(a) read with
S. No. 2(ii) of the Table appended thereto and Section 13(3)(b) read with
Explanation (iii) to Section 13 of the UP VAT Act, the assessee claimed full
amount of tax paid as ITC i.e., a sum of Rs. 4,68,47,670/-. The claim of the
assessee came to be rejected vide the Order of the Deputy Commissioner,
Tax Fixation, Div. - I, Pilibhit passed in terms of Section 28(2)(i) of the UP
VAT Act. It is the case of the revenue that had the assessee been permitted
to avail the full ITC, it would have led to a loss of Rs. 1,90,88,763.00 to
the State exchequer.
8. In connection with both the Assessment Years i.e. 2013-14 and 201516, respectively vide two separate orders, the Deputy Commissioner took
the view that in terms of Section 13(1)(f), the assessee could have availed
the ITC on the inputs only vis-à-vis the taxable sales, as the sale price of the
fi nal goods was lesser than the manufacturing cost of the purchased goods.
751
In other words, according to the Deputy Commissioner the term "goods" in
Section 13(1)(f) of the UP VAT Act means only the taxable goods. The matter
ultimately reached before the Additional Commissioner Grade II, (Appeals),
2nd Commercial Tax, Bareilly. The Incharge Additional Commissioner for
the Assessment Year 2015-16 took the view that the assessee was entitled
to claim full ITC and accordingly allowed the appeal of the assessee. The
Incharge Additional Commissioner accepted the case put up by the assessee
that the word "goods" in Section 13(1)(f) of the UP VAT Act cannot be
restricted to only "taxable goods". However, for the Assessment Year 201314, the Additional Commissioner proceeded to remand the matter to the Tax
Fixation offi cer for passing the re-tax fi xation order.
9. The revenue being dissatisfi ed with the view taken by the Additional
Commissioner went in appeal before the Commercial Tax Tribunal, Bareilly
Bench, Bareilly in so far as the Assessment Year 2015-16 is concerned. We
may clarify that so far as the Assessment Year 2013-14 is concerned, it was
the assessee who had to go before the Commercial Tax Tribunal by way of a
second appeal as the Additional Commissioner had allowed the appeal fi led
by the assessee and had remanded the matter to the Tax Fixation Offi cer.
10. Although the Commercial Tax Tribunal passed two separate orders
with respect to the two assessment years referred to above, yet the issues
between the parties remained common. Ultimately, it is the revenue who went
before the High Court with two Commercial Tax Revision Applications being
the Revision No. 148 of 2018 and Revision No. 315 of 2017 respectively.
Both the revision applications were heard analogously by the High Court.
11. The High Court formulated the following substantial question of
law for its consideration: "Whether under the facts and circumstances of
the case, the Commercial Tax Tribunal was legally justifi ed in granting the
benefi t of ITC of Rs. 1,90,88,763.00 which was reversed by the Assessing
Authority?"
12. The High Court relying on the decision of this Court in the case of
State of Karnataka v. M.K. Agro Tech Private Limited, reported in (2017) 16
SCC 210 took the view that a dealer has no vested right to seek the benefi t
of ITC as the same is just a concession by virtue of the provisions of the
Act. The High Court held that the provisions of Section 13(1)(a) read with
S. No. 2(ii) of the Table appended thereto and Section 13(3)(b) read with
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
752
Explanation (iii) of the UP VAT Act are not applicable as asserted by the
assesee and the case of the assessee stood covered by Section 13(1)(f) of
the UP VAT Act. The High Court relying on Section 13(1)(f) of the UP VAT
Act took the view that the assessee is not entitled to claim full ITC on the
inputs. The High Court accordingly allowed both the revision applications
fi led by the revenue.
13. In such circumstances referred to above, the asseesee is here before
this Court with the present appeals.
SUBMISSIONS ON BEHALF OF THE ASSESSEE
14. Mr. Arvind Datar, the learned Senior Counsel appearing for the
assessee vehemently submitted that the High Court committed a serious error
in passing the impugned judgment. According to Mr. Datar the impugned
judgment of the High Court is incorrect as it has failed to take notice of the
fact that the case of the assessee herein is squarely covered by the provisions
of Section 13(1)(a) read with S. No. 2(ii) of the Table appended thereto
and Section 13(3)(b) read with Explanation (iii) of the UP VAT Act. It was
argued that the High Court erroneously held that Section 13(1)(f) of the UP
VAT Act is applicable to the case on hand.
15. Mr. Datar further argued that the entire edifi ce of the impugned
judgment of the High Court is based on incorrect application of the decision
of this Court in case of M.K. Agro Tech (supra). He would argue that the
statutory provisions under the Karnataka Value Added Tax Act, 2003 and
UP VAT Act are distinct and diff erent in all respects. He pointed out that
the UP VAT Act specifi cally carves out an exception for the by-products and
waste products respectively. Even if those are exempt goods or non-VAT
Goods, the ITC is permissible.
16. Mr. Datar further argued that the defi nition of the word "goods"
under Section 2(m) of the UP VAT Act does not diff erentiate between the
exempted and taxable goods and equally the word "goods" under Section
13(1)(f) of the UP VAT Act cannot be said to be qualifi ed by the word
"taxable". He pointed out that, if the legislative intent was to qualify "goods"
with the word "taxable", it could have been said so by the Legislature in
Section 13 of the UP VAT Act itself. It was argued that if the legislative
intent in the 2010 amendment was to limit the scope and ambit of the word
753
"goods" under Section 13(1)(f) of the UP VAT Act solely to "taxable goods",
there was nothing that prevented the concerned legislature from expressly
utilising the phrase "taxable goods" in Section 13(1)(f) of the UP VAT Act.
17. In the last, Mr. Datar argued that in construing taxation statutes,
the court should apply the strict rule of interpretation. When the competent
legislature mandates taxing certain business/certain objects in certain
circumstances, it cannot be expounded/interpreted to those which were not
intended by the legislature.
18. In such circumstances referred to above, Mr. Datar the learned
Senior Counsel prayed that there being merit in his appeals those may be
allowed and the impugned judgment passed by the High Court be set aside
and that of the Tribunal be affi rmed.
SUBMISSIONS ON BEHALF OF THE REVENUE
19. Mr. R.K. Raizada, the learned Additional Advocate General
appearing for the State of UP on the other hand vehemently opposed both
the appeals submitting that no error, not to speak of any error of law could
be said to have been committed by the High Court in passing the impugned
judgment.
20. The principal contention canvassed on behalf of the revenue is that
the use of the expression "except as by-product or waste product" in Section
13(3)(b) of the UP VAT Act is decisive and if the exempt goods or non-VAT
goods are being produced as the main products only and not being produced
as the "by-product or waste product" then in such circumstances, Section
13(3)(b) of the UP VAT Act would have no application. According to the
learned counsel, Section 13(3)(b) would be applicable only to a situation
wherein the manufacturing of the "VAT goods", "exempt goods" and "nonVAT goods" are not being produced as the "by-product" or "waste product".
21. It was argued that in the case on hand, the cumulative sale price
of the RBO and DORB respectively is more than the cost price and in such
circumstances, Section 13(3)(b) read with Explanation (iii) of the UP VAT
Act would have no applicability. It was also argued that Section 13(1)(f)
of the UP VAT Act starts with a non-obstante clause having an overriding
eff ect on the provision of Section 13(1)(a) of the UP VAT Act. The words
and expressions used in Section 13(1)(f) of the UP VAT Act require a textual
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
754
interpretation matching with the contextual interpretation that Section 13(1)
(f) of the UP VAT Act seeks to remedy the mischief, caused by the words
used in the Table of Section 13(1)(a) of the UP VAT Act. Section 13(1)(f)
UP VAT Act restricts the amount of ITC fi guring in Table of Section 13(1)
(a) UP VAT Act to the extent of tax payable on the sale value of goods or
manufactured goods, in specifi c cases, i.e., costing of the manufactured
taxable goods except the non-VAT goods being lower than the costing of
the taxable inputs.
22. It was also argued that the High Court rightly placed reliance on
the decision of this Court in the case of M. K. Agro Tech (supra).
23. In such circumstances referred to above, Mr. R.K. Raizada
submitted that there being no merit in both the appeals those may be
dismissed.
ANALYSIS
24. Having heard the learned counsel appearing for the parties and
having gone through the materials on record the following questions fall
for our consideration:
a. Whether the assessee is entitled to claim full amount of tax paid
towards the purchase of raw Rice Bran as ITC on the basis of the provisions
of Section 13(1)(a) read with S. No. 2(ii) of the Table appended thereto and
Section 13(3)(b) read with Explanation (iii) of Section 13 of the UP VAT
Act?
b. Whether the scope of the word "goods" as defi ned under Section
2(m) of the UP VAT Act as outlined in Section 13(1)(f) of the UP VAT Act
should be limited to only "taxable goods"?
c. Whether the decision of this Court in the case of M.K. Agro Tech
(supra) has any application to the case on hand?
RELEVANT PROVISIONS OF THE UP VAT ACT, 2008
25. Before we advert to the rival submissions canvassed on either side,
we must look into few relevant provisions of the UP VAT Act:
"2. Defi nitions
xxx

xxx

xxx
755
(m) "goods" means every kind or class of movable property and
includes all materials, commodities and articles involved in the
execution of a works contract, and growing crops, grass, trees and
things attached to, or fastened to anything permanently attached
to the earth which, under the contract of sale, are agreed to be
severed, but does not include actionable claims, stocks, shares
or securities;

Xxx

xxx

xxx
(p) "input tax" in relation to a registered dealer who has
purchased any goods from within the State, means the aggregate
of the amounts of tax, -
(i) paid or payable by such registered dealer to the registered
selling dealer of such goods in respect of purchase of such goods;
and
(ii) paid directly to the State Government by the purchasing
dealer himself in respect of purchase of such goods where such
purchasing dealer is liable to pay tax under this Act on the
turnover of purchase of such goods
Provided that tax paid or payable in respect of transfer of right
to use any goods shall not form part of the input tax

Xxx

xxx

xxx
(u) "manufacturer" in relation to any goods mentioned or
described in column (2) of Schedule IV of this Act, means a
dealer who, by application of any process of manufacture, after
manufacture of a new commercial commodity inside the State,
makes first sale of such new commercial commodity within the
State, whether directly or otherwise; and includes a selling agent
who makes sale of such new commodity on behalf of the person
who has manufactured it;
(v) "non-vat goods" means any of the goods mentioned or
described in column (2) of Schedule-IV;

Xxx

xxx

xxx
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
756
(z) "registered dealer" means a dealer registered under Section
17 or Section 18;

Xxx

xxx

xxx
 (ah) "taxable dealer" means a dealer who is liable to pay tax
under this Act;
(ai) "taxable goods" means any goods except goods mentioned
or described in column (2) of Schedule I;

Xxx

xxx

xxx
"13. Input tax credit
(1) Subject to provisions of this Act, dealers referred to in the following
clauses and holding valid registration certifi cate under this Act, shall, in
respect of taxable goods purchased from within the State and mentioned
in such clauses, subject to conditions given therein and such other
conditions and restrictions as may be prescribed, be allowed credit of
an amount, as input tax credit, to the extent provided by or under the
relevant clause:
(a) Subject to conditions given in column (2), every dealer liable to pay
tax, shall, in respect of all taxable goods except non-vat goods, capital
goods and captive power plant, where such taxable goods are purchased
on or after the date of commencement of this Act, be allowed credit of
the amount, as input tax credit, to the extent provided in column 3 of
the table below:
TABLE
Serial
No.
Conditions
Extent of amount of
input tax credit
(1)
(2)
(3)
1.
If purchased goods are re-sold-
(i) inside the State, or
(ii) in the course of inter-state trade
or commence; or
(iii) in the course of the export of the
goods out of the territory of India.
Full amount of
input tax
757
2.
If purchased goods are
used in manufacture of
-
(i) any goods except non-vat goods
and where such manufactured goods
are sold in the course of the export
of the goods out of the territory of
India; or
(ii) any taxable goods except nonvat goods and where such
manufactured goods are sold
either inside the State or in the
course of inter-State trade or
commerce.
Full amount of input
tax
3.
If purchased goods are -
(i) transferred or consigned outside
the State otherwise than as a
result of a sale; or
(ii) used in manufacture of any
taxable goods except non-vat
goods and such manufactured
goods are transferred or
consigned outside the State
otherwise than as a result of
a sale.
Partial amount of
input tax, which is in
excess of four percent
of the purchase price
on which the dealer
has paid tax either to
the registered selling
dealer or to the State
Government"

Xxx

xxx

xxx
(f) Notwithstanding anything to the contrary contained in this subsection where goods purchased are resold or goods manufactured
or processed by using or utilizing such purchased goods are sold,
at the price which is lower than
(i) purchase price of such goods in case of resale; or
(ii) cost price in case of manufacture,
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
758
the amount of input tax credit shall be claimed and be allowed
to the extent of tax payable on the sale value of goods or
manufactured goods. (Clause (f) was inserted w.e.f. 20-08-2010
vide notif. no 1101(2) dt. 20-08-2010, U.P. Act No 19 of 2010)

xxx

xxx

xxx
(3) (a)Where purchased goods are to be used or disposed of partially
for the purpose specifi ed in clause (a) of sub-section (1) or otherwise,
the input tax credit may be claimed and be allowed proportionate to
the extent they are used or disposed of for the purposes specifi ed in
such clause,
(b)Subject to the provisions of this section where during process of
manufacture of vat goods, exempt goods and non vat goods except as
by product or waste product are produced, the amount of input tax
credit may be claimed and be allowed in proportion to the extent they
are used or consumed in manufacture of taxable goods other than
non vat goods and exempt goods Explanation:- For the purpose of
this subsection the "exempt goods" shall include taxable goods other
than non vat goods, which are disposed of otherwise than by way of
sale within the State or in the course of inter-State trade or commerce
or sale in the course of export of goods out of the territory of India or
sale out side the State."

xxx

 xxx

xxx
Explanation:-For the purposes of this section, -
(i) goods for use in manufacture of any goods includes goods
required for use, consumption or utilization in manufacture or
processing of such goods or goods required for use in packing
of such manufactured or processed goods;
(ii) manufacture of any goods includes processing of such goods
and packing of such manufactured or processed goods; and
(iii) where during the process of manufacture of any taxable
goods any exempt goods are produced as by-product or wasteproduct, it shall be deemed that purchased goods have been used
759
in the manufacture of taxable goods. Conversely, where during
the process of manufacture of any exempt goods any taxable
goods are produced as by-product or waste product; it shall be
deemed that purchased goods have been used in the manufacture
of exempt goods.
(iv) where during the process of manufacture of any vat goods
any non-vat goods are produced as by-product or waste-product,
it shall be deemed that purchased goods have been used in the
manufacture of vat goods. Similarly, where during the process of
manufacture of any non-vat goods any vat goods are produced as
by-product or waste-product, it shall be deemed that purchased
goods have been used in the manufacture of non-vat goods.
(w.e.f.01.01.2008)."
(Emphasis supplied)
26. As the entire debate revolves around the interpretation of Section 13
of the UP VAT Act, we must look into the Statement of objects and reasons
for the enactment of Section 13(1)(f) by way of the 2010 Amendment Act.
In the Statement of objects and reasons of the Uttar Pradesh Value Added
Tax (Amendment) Bill, 2010 (for short, "the 2010 Amendment"), it has
been stated that the amendment was to provide for -
"xxx
(d) limiting the input tax credit to the extent of tax payable on the sale
value of goods or manufactured goods in cases where goods purchased
are resold or goods manufactured or processed by using or utilizing
such purchased goods are sold at a price lower than purchase price
or cost price;"
(Emphasis supplied)
27. The plain reading of the aforesaid would indicate that the legislative
intent was never to limit or circumscribe the scope of "goods" as outlined
in Section 13(1)(f) to only "taxable goods". The amendment was eff ected
with some defi nite purpose. The mischief that was sought to be addressed
by virtue of introducing Section 13(1)(f) to the scheme of the UP VAT Act
was one where the goods (including taxable, exempt goods, by-products
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
760
or waste products) manufactured were being sold at a price lower than the
cost price.
28. It is in such cases that the extent of permissible or allowable
ITC would be limited to the tax payable on the sale value of the goods or
manufactured goods. We are at one with Mr. Datar that this was the sole
purpose of the 2010 Amendment.
29. We are also at one with Mr. Datar that the defi nition of "goods"
under Section 2(m) of the UP VAT Act referred to above does not diff erentiate
between exempt and taxable goods and equally, the word "goods" under
Section 13(1)(f) of the UP VAT Act has also not been qualifi ed by the word
"taxable".
30. Mr. Datar is right in his submission that the necessary corollary
to the reading of the provision ought to be that the goods which are
manufactured/produced by using or utilizing the purchased goods and whose
sale price is being considered for applying Section 13(1)(f) of the UP VAT
Act, ought to be taxable goods.
31. The aforesaid is further manifested from the fact that wherever
the legislative intent was to qualify "goods" with the word "taxable", it has
been so done by the Legislature in Section 13 of the UP VAT Act itself.
32. Had the legislative intent of the 2010 Amendment been to limit the
scope and ambit of "goods" under Section 13(1)(f) solely to "taxable goods",
there was nothing that could have prevented the Legislature from expressly
using the phrase "taxable goods" in Section 13(1)(f) of the UP VAT Act.
33. Mr. Datar is right in his submission that the said omission in Section
13(1)(f) is all the more glaring considering that the said amendment was
inserted in the year 2010.
34. In the aforesaid context, our attention was also drawn by Mr. Datar
to the provisions of Rule 23(6) of the Uttar Pradesh Value Added Tax Rules,
2006 (for short, "the UP VAT Rules") (which provides for the computation
of reverse ITC in cases of a dealer other than a trader), wherein the word
"goods" has not been qualifi ed by "taxable" and rather has used the word
"any" to expressly convey the unequivocal legislative mandate. Rule 23(6)
of the UP VAT Rules is reproduced hereunder:
761
"23. Computation of reverse input tax credit in cases of a dealer other
than trader:
(1) In case of a dealer, other than a dealer referred to in sub-rule (1) of
rule 22, amount of reverse input tax credit, in respect of any quantity
or measure of any goodsxxx

xxx

xxx
(6) In respect of any quantity or measure of any goods manufactured
or processed by using or utilizing purchased goods, sold at the price
which is lower than cost price, the amount of reverse input tax credit
shall be equal to the diff erential amount of tax paid or payable on the
purchase price of such goods and tax paid or payable on sale price of
manufactured or processed goods sold."
35. We take notice of the fact that "taxable goods" has been separately
defi ned under Section 2(ai) of the UP VAT Act. The defi nition reads thus:
"(ai) "taxable goods" means any goods except goods mentioned or
described in column (2) of Schedule I;"
GENERAL PRINCIPLES FOR INTERPRETATION OF TAXING
STATUTES
36. It is well accepted that a statute must be construed in accordance
with the intention of the Legislature and the courts should act upon the true
intention of the Legislation while applying law and while interpreting law.
In the litigation on hand, we have been asked to interpret the provisions of
a taxing statute.
37. Justice G.P. Singh, in his treatise Principles of Statutory
Interpretation (14th Edn. 2016 p. 879) after referring to Micklethwait, In
re;1 Partington v. Attorney General2, Rajasthan Rajya Sahakari Spg. &
Ginning Mills Federation Ltd. v. CIT3, State Bank of Travancore v. CIT4
1 (1855) LR 11 Ex 452 : 156 ER 908
2 (1869) LR 4 HL 100
3 (2014) 11 SCC 672
4 (1986) 2 SCC 11 : 1986 SCC (Tax) 289
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
762
and Cape Brandy Syndicate v. IRC5, summed up the law in the following
manner:
"A taxing statute is to be strictly construed. The well-established rule in
the familiar words of Lord Wensleydale, reaffi rmed by Lord Halsbury6
and Lord Simonds7, means:
"The subject is not to be taxed without clear words for that purpose;
and also that every Act of Parliament must be read according to the
natural construction of its words.""
38. In a classic passage Lord Cairns stated the principle thus:
"If the person sought to be taxed comes within the letter of the law he
must be taxed, however great the hardship may appear to the judicial
mind to be. On the other hand, if the Crown seeking to recover the tax,
cannot bring the subject within the letter of the law, the subject is free,
however apparently within the spirit of law the case might otherwise
appear to be. In other words, if there be admissible in any statute, what
is called an equitable construction, certainly, such a construction is
not admissible in a taxing statute where you can simply adhere to the
words of the statute."
39. Viscount Simon quoted8 with approval a passage9 from Rowlatt,
J. expressing the principle in the following words: (Cape Brandy case10,
KB p. 71)
'... in a taxing Act one has to look merely at what is clearly said. There
is no room for any intendment. There is no equity about a tax. There
is no presumption as to a tax. Nothing is to be read in, nothing is to
be implied. One can only look fairly at the language used.'"
40. It was further observed:
"In all tax matters one has to interpret the taxation statute strictly.
5 (1921) 1 KB 64
6 Ed: Tennant v. Smith, 1892 AC 150 at p. 154
7 Ed. : St Aubyn v. Attorney General, 1952 AC 15 at p. 32 (HL)
8 Ed. : Canadian Eagle Oil Co. Ltd. v. Selection Trust Ltd., 1946 AC 119 at p. 140 (HL)
9 Cape Brandy Syndicate v. IRC, (1921) 1 KB 64
10 Ibid.
763
Simply because one class of legal entities is given a benefi t which is
specifi cally stated in the Act, does not mean that the benefi t can be
extended to legal entities not referred to in the Act as there is no equity
in matters of taxation...."
41. Yet again, it was observed:
"It may thus be taken as a maxim of tax law, which although not to be
overstressed ought not to be forgotten that,
'the subject is not to be taxed unless the words of the taxing
statute unambiguously impose the tax [on] him', (Russell v.
Scott11, AC p. 433).
The proper course in construing revenue Acts is to give a fair and
reasonable construction to their language without leaning to one side
or the other but keeping in mind that no tax can be imposed without
words clearly showing an intention to lay the burden and that equitable
construction of the words is not permissible [Ormond Investment Co.
v. Betts12 ]. Considerations of hardship, injustice or anomalies do
not play any useful role in construing taxing statutes unless there be
some real ambiguity [Mapp v. Oram13]. It has also been said that if
taxing provision is
'so wanting in clarity that no meaning is reasonably clear, the
courts will be unable to regard it as of any eff ect [IRC v. Ross
and Coulter [IRC v. Ross and Coulter14]'."
42. Further elaborating on this aspect, the learned author stated as
follows:
"Therefore, if the words used are ambiguous and reasonable open
to two interpretations benefi t of interpretation is given to the subject
[Central India Spg. and Wvg. & Mfg. Co. Ltd. v. Municipal Committee,
Wardha15]. If the legislature fails to express itself clearly and the
11 1948 AC 422 : (1948) 2 All ER 1 (HL)
12 1928 AC 143 (HL)
13 1970 AC 362 : (1969) 3 WLR 557 : (1969) 3 All ER 215 (HL)
14 (1948) 1 All ER 616 (HL)
15 AIR 1958 SC 341
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
764
taxpayer escapes by not being brought within the letter of the law,
no question of unjustness as such arises [CIT v. Jalgaon Electric
Supply Co. Ltd.16 ]. But equitable considerations are not relevant in
construing a taxing statute, [CIT v. Central India Industries Ltd.17],
and similarly logic or reason cannot be of much avail in interpreting
a taxing statute [Azam Jah Bahadur v. Expenditure Tax Offi cer18]. It
is well settled that in the fi eld of taxation, hardship or equity has no
role to play in determining eligibility to tax and it is for the legislature
to determine the same [Kapil Mohan v. CIT19]. Similarly, hardship
or equity is not relevant in interpreting provisions imposing stamp
duty, which is a tax, and the court should not concern itself with the
intention of the legislature when the language expressing such intention
is plain and unambiguous [State of M.P. v. Rakesh Kohli20 ]. But just
as reliance upon equity does not avail an assessee, so it does not avail
the Revenue."
43. The passages extracted above, were quoted with approval by this
Court in at least two decisions being CIT v. Kasturi and Sons Ltd.21 and State
of W.B. v. Kesoram Industries Ltd.22 (hereinafter referred to as "Kesoram
Industries case", for brevity). In the later decision, a Bench of fi ve Judges,
after citing the above passage from Justice G.P. Singh's treatise, summed up
the following principles applicable to the interpretation of a taxing statute:
"(i) In interpreting a taxing statute, equitable considerations are
entirely out of place. A taxing statute cannot be interpreted on any
presumption or assumption. A taxing statute has to be interpreted in
the light of what is clearly expressed; it cannot imply anything which
is not expressed; it cannot import provisions in the statute so as to
supply any defi ciency; (ii) Before taxing any person, it must be shown
that he falls within the ambit of the charging section by clear words
16 AIR 1960 SC 1182
17 (1972) 3 SCC 311 : AIR 1972 SC 397
18 (1971) 3 SCC 621 : AIR 1972 SC 2319
19 (1999) 1 SCC 430 : AIR 1999 SC 573
20 (2012) 6 SCC 312 : (2012) 3 SCC (Civ) 481
21 (1999) 3 SCC 346
22 (2004) 10 SCC 201
765
used in the section; and (iii) If the words are ambiguous and open
to two interpretations, the benefi t of interpretation is given to the
subject and there is nothing unjust in a taxpayer escaping if the letter
of the law fails to catch him on account of the legislature's failure
to express itself clearly."
44. Applying the aforesaid principles of interpretation, we fi nd
it diffi cult to accept the case put up by the revenue as doing so would
permit the assessing authority to do something indirectly what he cannot
do directly i.e., get around the mandate of the exception carved out by
Section 13(3)(b) read with Explanation (iii) by invoking Section 13(1)(f)
of the UP VAT Act.
45. It is also pertinent to note that indisputably, the DORB which is
produced as part of the Solvent Extraction process is a by-product of the
manufacturing process. Our attention was drawn by Mr. Datar to a letter
dated 13.01.2015 addressed by the Additional Commissioner (Legal)
Commercial Tax, UP to all Zonal Additional Commissioner Grade-I,
Commercial, Tax Uttar Pradesh (Annexure P-1) which reads thus:
"Letter No. Legal-2(1) Rice export (2014-15)/1458/ Commercial Tax
Sender:
The Commissioner
Commercial Tax
Uttar Pradesh
To
All Zonal Addl. Commissioner Grade-1
Commercial Tax
Uttar Pradesh
Lucknow dated 13 Jan. 2015
Sir,
After examining the records of traders/ manufacturer of the rice bran
oil, the Joint Commissioner (SIB) Commercial Tax Gonda vide his DO
M/S MODI NATURALS LTD. v. THE COMMISSIONER OF
COMMERCIAL TAX UP [J. B. PARDIWALA, J.]
SUPREME COURT REPORTS
[2023] 15 S.C.R.
766
letter No. 47/ Jt. Comm. (SIB) Commercial Tax Gonda dated 16.7.2011
has submitted a detailed report. Copy of which is attached. In this
context the Addi.