In Brief
The State of Karnataka challenged a High Court judgment allowing M.K. Agro Tech full input tax credit on sunflower oil extraction. The assessee purchased sunflower cake (taxable), extracted oil (taxable), but also produced de-oiled cake as a by-product, which was exempted from VAT. The State sought partial rebate of input tax under Section 17 of the Karnataka VAT Act. The Supreme Court held that Section 17 applies whenever taxable and exempted goods are sold, regardless of whether the exempted good is a by-product. The Court rejected purposive construction, ruling that literal interpretation—focusing on 'sale' of 'goods'—properly governs VAT statutes. Since de-oiled cake was sold for 45% of total revenue, full input tax credit was denied; partial apportionment under Rule 131 applied. The State's appeal was allowed and the High Court judgment was set aside.
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