No reversal of ITC on evaporation of Petroleum Products by Petroleum dealers-PVAT Tribunal

There has been a lot of dispute on the issue whether the Petroleum products dealers should reverse the Input Tax Credit on the evaporation of petrol, diesel and other petroleum products as Rule 21(1) of Punjab VAT Rules, 2005 provides for disallowance of Input tax credit for tax paid on purchase of those goods which have been lost or damaged or destroyed beyond repair because of any theft, fire or natural clamity (please note the words because of any theft, fire or natural clamity have been removed from Rule 21(1) w.e.f 06-11-2008)
The Punjab & Haryana High Court in Bharat Petroleum Corporation Limited Vs. State of Punjab [(2009) 12 STM 463 (HC-P&H)] decided the above issue on merits in favour of the revenue and also at the same time dismissed the petition stating that the petitioner has the alternative statutory remedy of filing the appeal before lower appellate authorities.

However on further appeal to Supreme Court, it was held  "However, after directing the assessee to exhaust the statutory remedy, the High Court has made observations on the merits of the case. We are of the view that it would be open to the assessee to challenge the order of Assessment by filing appeal before the first appellate authority which will decide the matter on merits, uninfluenced by the observations made in the impugned judgement of the High Court.[(2010) 14 STM 476 (S.C.)]

Recently an application u/s 85 of Punjab VAT Act, 2005 was made by Thapar Filling Station, Hoshiarpur Road, Moga before the Commissioner of Punjab under the said Act, to decide on the above issue whether input tax credit is to be reversed on evaporation of petroleum products in view of Rule 21(1) or not. However, the commissioner dismissed the application observing that the matter is pending in the Punjab & Haryana High Court, ignoring the observations of Supreme Court as mentioned above.

On Further appeal to the Punjab VAT Tribunal in the same above case namely Thapar Filling Station V State of Punjab appeal No 136 of 2010 the matter has been decided finally on merits and the following observations have been made:

1.A person dealing in Petroleum Products shall be entitled to input tax credit u/s 13(1) of PunjabVAT Act, 2005 on the purchase value of the quantity purchased even if some quantity has evaporated in the process of handling, sale and is sold less.

2. The answer is negative that no ITC shall be reversed in case of less quantity of petroleum products sold due to loss on evaporation.

3.Evaporation of petroleum products cannot be treated natural clamity but in view of order already made in case of  M/S Aggarwal Filling Station, Muktsar Versus The State of Punjab decided on 05-08-2010 and the fact  that the words natural clamity had already been deleted w.e.f 07-11-2008,  the question doesnot require any answer.

The appeal stands accepted with answers as above. 

Thus the PVAT Tribunal has finaly held that ITC on Evaportation of petroleum products will be available and there is no need to reverse ITC on evaporation.

However the amendment in the definition of sale price as contained in section 2(zg) has been made w.e.f 28-03-2008, whereby an explantion 8 has been added which runs as under:

"The amount recieved or recievable by oil companies for the sale of diesel and petrol, shall be deemed to be equivalent to the sale price, on which the retail outlets will sell these comodities to the consumer."

The above explantion makes sure that no such issue of reversing ITC on evaporation arises after 28.03.2008 as the oil companies will pay the VAT on the sale price of retail outlets and the retail outlets need not to calculate any input or output tax on petrol and diesel in view of the order of Commissioner u/s 85 of Punjab VAT Act in case

The order of Tribunal in above case of Thapar Filling Station(Supra) can be downloaded herebelow:

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