In Brief
M/s Modi Naturals Limited, a manufacturer of Rice Bran Oil (RBO) and Physical Refined RBO, claimed full Input Tax Credit on Rice Bran purchases. During solvent extraction, the process produced both RBO (13.77%, taxable) and De-Oiled Rice Bran (83.63%, exempt by-product). The tax authority denied full ITC, but the Commercial Tax Tribunal allowed it. The High Court reversed the Tribunal. The Supreme Court held that under the UP VAT Act, the assessee is entitled to full ITC because Section 13(3)(b) read with Explanation (iii) deems purchased goods as used in manufacture of taxable goods when exempt by-products result, creating a scheme wholly distinct from Karnataka's apportionment method. The decision in M.K. Agro Tech was inapplicable.
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