Queries under AP VAT Act, 2005

1.   The appellant is a manufacturer of High Carbon Ferro Chrome (HCFC) for its own and for Tata Steel Ltd., (TSL) on job work basis in the ratio of 40:60 for which the main raw material i.e. Chrome Ore and Coke are supplied by TSL.  For the purpose and in the course of manufacture of HCFC for the appellants own account as well as TSL certain inputs such as Furnace Oil, Molasses, Hydrated Lime, Tamping Paste, Oxygen Cylinders and Carbon Paste etc., are used commonly and burnt out in the production process and not forming part of the end product i.e. HCFC.

2.      The above referred inputs are used by the Company commonly for production of HCFC for the appellant’s own account as well as for TSL job work i.e. for conversion of the raw-material into finished product which falls under the definition and meaning of “Works Contract’ for which common accounts are maintained as it is not feasible to maintain separate accounts due to continuous production process.  The appellant company in its monthly VAT Returns claiming proportionate ITC for its own production by applying A x B / C formula as laid down under Rule 20 of A.P. VAT Rules right from dt.01.04.2005 till date which was all along been accepted by the assessing authority and monthly VAT assessments are finalized accordingly as per Sec.20(2).

3.   In the year 2008 the assessing officer has objected to the application of A x B / C formula and proposed to recalculate ITC ignoring 60 percent job work share of total VAT paid instead of confining to six/seven above referred common items only and excluding job work receipts from Total Turnover without applying A x B / C formula due to the reason that the job work receipts are not in the ambit of “Total Turnover” definition u.s 2(39) of APVAT Act, 2005 and that the goods purchased and used as inputs in job work  are ineligible for claiming ITC under Rule 20(2) (0) of APVAT Rules read with Section 13(4).

Sec2(39) “Total Turnover “ means the aggregate of sale prices of all goods,    taxable and exempted, sold at all places of business of the dealer in the State, including transactions falling under Section 8 of the Act (Zero rated sales) and under Section 6A of the Central Sales Tax Act, 1956, and shall also include the gross consideration received or receivable towards execution of Works Contract.

Sec.2(45) “Works Contract” includes any agreement for carrying out for cash or for deferred payment or for any other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, laying, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.

4.   The job work done by the appellant for conversion of chrome ore and coke into HCFC (High Carbon Ferro Chrome) falls under processing which comes under the definition of ‘Works Contract’ as defined in Sec.2(45) of the Act.  It is therefore submitted that the job work i.e. processing comes under the definition of ‘Works Contract’ for which the appellant is entitled to apply the formulae A x B / C for claiming ITC relying on the decided case of K.V. Nagarajan Vs DCTO 2007 (208) ELT165 (Mad.).