THE STATE OF KARNATAKA vs M/S M.K..AGRO TECH.(P) LTD.

The Supreme Court interpreted Section 17 of the Karnataka Value Added Tax (KVAT) Act, 2003, and Rule 131 of the KVAT Rules, 2005, concerning input tax credit for manufacturers. The Court held that the sale of de-oiled sunflower cake, a by-product exempt from VAT, does not affect the full input tax credit entitlement for sunflower oil, as the input (sunflower oil cake) is fully utilized in the manufacturing process. The High Court's decision granting full input tax deduction was upheld, establishing that partial exemption rules apply only when multiple final products are involved, and output tax is payable on at least one.