KIRLOSKAR ELECTRIC CO LTD Vs STATE OF KARNATAKA : KARNATAKA HIGH COURT (Dated: January 10, 2018)
Karnataka Value Added Tax - Writ Petition - Sections 2(33), 10(3), 35(3) & (4) & Rule 37
Keywords - Input Tax Credit - Sales Invoices - Tax Period.
The assessee-company manufactures & sells Electrical Motors, Generators, Transformers, amongst other things. For this, the assessee purchased materials such as Steel, Copper, Bearings and Consumables and other goods required, from local registered dealers as well as from dealers outside the State of Karnataka. In respect of the tax paid by them on such purchases @ 4% and 12.5%, the assessee claimed this Input Tax Credit (ITC) against the output tax liability in respect of the sales made by it. Such claim was made in the relevant tax period. Notably, the term 'tax period' is defined u/s 2(33) of the Karnataka Value Added Tax Act, 2003, which is further as defined in Rule 37 of the KVAT Rules, wherein each calendar month meant a separate tax period. However, the Revenue denied ITC on grounds that, ITC was deductible only in the particular ‘tax period’ in which the invoices of the selling dealer were raised, and the accumulated VAT ITC available in the various months preceding the ‘tax period’ in question, could not be used by way of ITC against the Output Tax for the ‘tax period’ of a particular month. Thus the Revenue passed several assessment & re-assessment orders for the entire year in one go, following which duty demands were raised, with imposition of interest & penalty. Hence the assessee and other dealers filed the present writs, by-passing the option of regular appeal.
On hearing the writ petitions, the High Court held that,
Whether the Revenue can deny ITC only because claim is not made in respect of Sale invoices which do not pertain to the same Tax Period, or on grounds that such claim is not made immediately in the month or months following the month of purchase of goods in question - NO: HC
Whether the Revenue can disallow ITC claimed for monthly period, without such claim being found to be unverified, or not supported by valid sales invoices - NO: HC
Whether a claim for Input Tax Credit can be denied, based on machinery provisions for filing returns or even those of limitation, to the effect of defeating the substantive claims made by dealers under the Act - NO: HC
Whether the tendency of the Revenue to pass such orders, contrary to law settled in favor of the Input Tax Credit claimant, is in utter disregard to judicial and hierarchical discipline, and punishable with contempt of court if such actions are repeated in future - YES: HC
++ the substantive provision of Section 10(3) of the KVAT Act, 2003, did not lay down any such restrictive time frame for allowing the deduction of ITC against the OPT in a particular tax period to determine the net tax payable for that tax period and therefore there is no justification whatsoever to accept such an interpretation put forth by the counsels for the Respondent State. Such contentions had not only been negatived and with great respects, rightly so by the Single Judge in the case of Sonal Apparel Private Limited case, but this Court is of the considered opinion that the Respondent Department is taking an unnecessarily distorted view of the observations made by the Division Bench of this Court in the case of Centum Industries Private Limited, where the Division Bench while disallowed the said claim of ITC made at a belatedly stage and observed simply as an obiter that the claim of ITC should relate to the tax period in question. The Division Bench never said that the ITC Invoice or Sale Invoice should also be pertaining to the same tax period, in which the credit of such ITC is claimed by the Dealer.
++ the counsels for the Respondent State were at complete loss of words to the question put by the Court as to, under what authority of law the State can retain the tax paid by the selling Dealer to the State as collected under the Sale Invoice which is passed on to the purchasing Dealer who are the assessees before this Court, if ITC in respect of such sale invoice was to be disallowed, contrary to the very concept of VAT law and the unrestricted language of Section 10(3) of the KVAT Act, 2003 and in apparent violation of Article 265 of the Constitution of India, there was simply no answer on behalf of the Respondent State to this query of the Court, except relying on the obiter from the judgment of the Division Bench of this Court in Centum Industries Private Limited case, which as explained above, does not support the case of the Revenue at all.
++ in the peculiar facts of the Centum Industries Private Limited case, the claim of ITC credit was disallowed on the basis of the belated claim made by it and not while interpreting the substantive provisions of Section 10(3) of the Act in a narrower way, as is sought to be canvassed by the Respondent State before this Court even now. The counsels for the Respondent State were again without any answer to the question of the Court as to how the machinery provisions of filing of the returns under Section 35 of the KVAT Act, 2003 for assessing the tax liability including the OPT, ITC and Net Tax liability u/s 10 of the KVAT Act, 2003, can be allowed to override the substantive provisions of Section 10 of the KVAT Act, 2003, contained in chapter II of the said KVAT Act, 2003. In the absence of any valid answer and submission on behalf of the Respondent State, this Court can safely conclude that the machinery provisions cannot be allowed to override and defeat the substantive claim of the Input Tax Credits u/s 10(3) of the KVAT Act, 2003, which without any restriction of the time frame, allowed such deduction or credit of the ITC against the OPT liability of the Dealer in question.
++ when the Assessing Authority could pass the re-assessment order, Annexure C dated 29/04/2016 for the whole year in one go, disallowing the ITC claim illegally by restricting it on the basis of monthly Tax Periods, what can be the justification for disallowing the same, without it being found to be an unverified claim, not supported by valid Sales Invoices? None - is the simple answer. The Input Tax Credit under VAT law is pari materia with the concept of Cenvat or Modvat under Excise Law and dealing with a similar problem, the Supreme Court in the case of Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd. Thus the claim of credit of input tax is indefeasible as was the case of Cenvat under Excise law and such credit of ITC under VAT law which is equivalent to tax paid in the chain of sales of the same goods, cannot be denied on the anvil of machinery provisions or even provisions relating to time frame which is law of limitation only bars the remedy rather than negativing the substantive claims under the taxing statutes.
++ both the questions framed above are therefore liable to be answered in favour of the assessees. The claim of ITC cannot be restricted and denied on the stated grounds by Revenue. It cannot be denied only because ITC claim is not made in respect of Sale Invoices which are not pertaining to same Tax Period, nor it can be denied on the ground that such claim is not made immediately in the month or months following the month of purchase of goods in question. The machinery provisions of filing of Returns u/s 35 of the KVAT Act cannot defeat the substantive claims u/s 10(3) of the Act. The Revenue is entitled only to verify that the Sale Invoices are genuine and valid and such ITC claim is not duplicate, fictitious or bogus. Article 265 of the Constitution of India does not entitle the State to retain such tax paid by Selling Dealers and deny the claim of ITC credit or set off in the hands of the Purchasing Dealers who claim such ITC against their Output Tax Liability when they sell goods further, incurring such Output Tax liability.
++ one wonders whether the subsequent amendments effected by the Respondent State in the year 2015 and 2016 though not applicable to the assessment period involved in this batch of writ petitions presently being decided by this Court, is a ‘relaxation’ or a ‘restriction’ and whether it is for the benefit of the assessees as contended by the Respondent State or seeks to restrict and defeat the claim of ITC in the period of assessment following such amendment. Be that as it may. Since that amendment is neither applicable to the facts of the present case nor any of the sides has called the same in question, this Court need not make any further analysis of these amendments.
++ this Court is, therefore of the considered opinion that the assessment orders & re-assessment orders passed by the Respondent - Assessing Authorities to this extent of denying the claim of ITC to the petitioners assessees are illegal and unsustainable and deserve to be quashed and set aside by this Court. The writ petitions are accordingly allowed and the orders are quashed and set aside. The matters would stand restored to the file of the Respondent Assessing Authorities to pass fresh orders in accordance with law as interpreted above as far as claim of Input Tax Credit is concerned.
++ This Court is of the further opinion that despite more than one judgment interpreting the provisions of Section 10(3) of the KVAT Act, 2003, in favour of the assessees, the tendency on the part of the Assessing Authorities of the Respondent Department to still keep on passing the orders contrary to these judgments is in utter disregard of the judicial and hierarchical discipline which they are bound to observe and it may also amount to a deliberate disobedience on their part and may invite contempt action and therefore to prevent any such further unnecessary litigation on this issue, at the behest of the different Authorities of the Department taking a contrary view, it is directed that the Head of the Respondent Department, namely, the Commissioner of Commercial Taxes shall issue a Circular in terms of the various aforesaid judgments of this Court in favour of assessees, for being followed by the Authorities through out the State to avoid any further multiplicity of litigation before this Court and Appellate Forums. Therefore, such a Circular shall be issued by the Respondent Commissioner of Commercial Taxes and the Respondent - Departmental Authorities, including the Appellate Authorities under the Act are cautioned that now onwards if any contrary view is found to be taken by such Authorities of the Department on aforesaid issue, this Court would initiate suo motu contempt proceedings against the Commissioner of Commercial Taxes as well as the concerned Authorities of the Respondent Department.
Case Remanded
2018-TIOL-130-HC-MAD-VAT
BHARAT PETROLEUM CORPORATION LTD Vs DEPUTY COMMISSIONER (ST)-1 : MADRAS HIGH COURT (Dated: January 10, 2018)
Tamil Nadu VAT Act, 2006 - Writ - Sections 22(2) & 27.
Keywords: Cost of product - High speed diesel - Manufacturing process - Oil dealer - Production of light diesel oil & Reduced tax rate.
The Assessee-company, engaged in providing purest oil by virtue of using its own highly developed refineries. The Assessee had filed its return for the relevant AY. The Assessee has preferred the present Writ challenging the revision notices passed by the Revenue wherein, it was stated that light diesel oil (LDO) could not be sold at the reduced rate of 5%. It was believed by the Revenue that the manufacturing process, which was involved in the production of LDO was different and therefore, it would not be covered within the ambit of diesel entitled for concessional rate of duty at 5%. The Revenue intended to reopen the Assessee's assessment. However, the Assessee had objected the same by placing three interpretations, firstly that by applying common parlance test, the term 'diesel' referred to in the Notification issued by the Government of Tamil Nadu, was referring only to high speed diesel (HSD), which was available for sale in the petrol pumps and not LDO available in petrol pumps, but were supplied for manufacturing units. Secondly, as per the Bureau of Indian Standards, HSD falls under IS 1460 specification whereas LDO falls under IS 15770-2008 specification. The Assessee further stated that LDO was used in medium and slow speed engines operating below 750 rpm and one of the usage was for power generation. Apart from such, the Assessee stated that after implementation of the Goods and Services Tax (GST) Act, 2017, HSD was kept outside its purview and it continued as subject to the provisions of the Act whereas LDU came under the subject matter to GST of 18%.
In Writ, the High Court held that,
Whether when following a notification issued by the State Govt w.e.f. July, 2011, the assessee has been supplying LDO at reduced tax rate, reopening proceedings proposed by Revenue will have cascading effect of taxes on all future transactions resulting in increased cost of product - YES: HC
Whether if a oil dealer submits its objection after issuance of SCN by Revenue, adding that dealer is free to come any time in AO's office in the revision notices will be considered as affording an opportunity of personal hearing - NO: HC
++ this Court is convinced to entertain the writ petitions for the reason that in the proposal to reopen the assessment, which was deemed to have been completed u/s 22(2), no proper facts were disclosed as to on what basis, the Revenue proposed to reopen the assessment and assess the Assessee's turnover to a higher rate of tax. It is only in the said assessment orders, the Revenue has opened his mind, from a reading of which, it is seen that the Revenue is of the opinion that the manufacturing process, which is involved in the production of LDO is different and therefore, it will not be covered within the ambit of diesel entitled for concessional rate of duty at 5%;
++ this Court finds that there has been serious violation of the principles of natural justice, which has put the Assessee in a disadvantageous position and they were prevented from meeting the point while submitting the objections, as the Revenue did not disclose the basis for reopening. In such an event, the Assesseeis justified in approaching this Court under Article 226 of The Constitution of India;
++ one more aspect, which weighs in the mind of this Court, to entertain the writ petitions is that the Notification issued by the Government of Tamil Nadu has been in vogue since July 2011 and for all these years, the Assessee has been supplying LDO to the Neyveli Lignite Corporation at reduced rate of 5%. Thus, the reopening proceedings would have a cascading effect on all future transactions that may be done by the Assessee and other similar Oil Corporations and this can lead to an escalation in the cost of the product ultimately resulting in increased cost of production of electricity using LDO. Thus, the writ petitions are held to be maintainable and the preliminary objection raised is decided against the Revenue and in favour of the Assessee;
++ after the Assessee pointed out the marked differences between the two products namely, HSD and LDO, for the first time in the said orders, the Revenue has made certain observations with regard to the manufacturing process, which is adopted for the production of LDO. At best, the observations made in the such orders can be construed as the personal opinion of the AO. In any event, the Revenue, having now opened up his mind and disclosed as to why he proposed to reopen the assessments, which were deemed to have been completed, the Assessee should have an opportunity to put forth their objections;
++ this Court had an occasion to consider a similar observation made in other revision notice as well. This Court was of the opinion that this is not a true compliance of the requirement u/s 27 nor would it satisfy the principles of natural justice. This is so because after issuance of SCN, if a dealer submits their objections, there is every likelihood that the AO may be convinced with the objections and may even drop the proposal. In such an event, appearing before the AO in person is unnecessary. Secondly, for the personal hearing to be effective, the AO has to necessarily consider the objections and form a prima facie opinion, after which, if the dealer appears and explains their case, the AO can take a decision. Adding a sentence in the revision notices by stating that the dealer can come any time to the office of the AO will not satisfy the requirement of affording an effective opportunity of personal hearing;
++ the present assessments may have a cascading effect on various factors apart from the fact that it is a recurrent issue not only to the Assessee, but also others. This Court is convinced that the said orders have been passed in violation of the principles of natural justice and that the Assessee did not have adequate opportunity to put forth their objections, as the revision notices were bereft of particulars.
Assessee's Writ allowed
2018-TIOL-129-HC-MUM-CX
JITENDRA PANDEY Vs CC & CE: BOMBAY HIGH COURT (Dated: January 11, 2018)
CX - COD - Matter travelled upto this court earlier where assessee sought amendment to pending civil writ petition and which was granted but eventually this Court found that assessee has an alternate equally efficacious remedy to challenge even the first order of appellate authority, hence, said writ petition was withdrawn with liberty to file a statutory appeal before Tribunal who refused to condone the delay - Tribunal could not have faulted the assessee as assesses acted bonafide and under legal advise - There was nothing intentional about the act attributed to assessee - Thus there was no gross negligence, utter callousness or malafides and the delay in filing the appeal was properly explained - In these circumstances, liberal principles should have been applied to condone the delay - The Tribunal has taken a hyper technical view of the matter as is apparent from order under challenge - While condoning the delay a reasonable amount should have been directed to paid as costs to the Revenue: HC
Appeal allowed
2018-TIOL-128-HC-DEL-CUS
HAWA VALVES Vs UoI : DELHI HIGH COURT (Dated: January 3, 2018)
Cus - The petitioners have filed the petition impugning Trade Notice no. 11/2015 dated 14.12.2015 and claimed that said notice is contrary to provisions of FTP 2009-2014 - Petitioner engaged in business of manufacturing industrial valves, bulk of which are exported to other countries - According to petitioners, they are entitled to benefits of Focus Product Scheme (FPS) against its exports of industrial valves - The petitioners claim that in terms of FPS, petitioner is entitled to licences equivalent to 4% of FOB value of its exports - The petitioners are aggrieved as in terms of impugned notice, such benefit is not available for export of industrial valves and is restricted only to bicycle parts - The controversy relates to products as specified at serial no. 269 - First of all, the product code noted against serial no. 269 is specified as 8481 - Concededly, said products are not restricted to items used in bicycles alone - Plain reading of description of product against serial no. 269 of Appendix 37D indicates that products such as valves for pipes, boiler shells, tanks, vats or the like including pressure reducing valves cannot possibly be considered as items used in bicycles - Thus, the only manner in which said description of the goods can be read is to ignore the punctuation mark of colon after the word bicycle or read the same as a coma - It would plainly not be open for the description to be read in a manner so as to retain the meaning of the punctuation mark of colon after the word bycycle and ignore the text that follows.
Lastly and more importantly, the FPS was discontinued with effect from 31.03.2015 and was replaced by a new incentive scheme captioned “Merchandise Exports from India Scheme” - Thus, admittedly, export of goods covered under ITC (HS) Code 8481 is eligible for benefits under the MEIS - In the past, respondents had readily accepted that the industrial valves were covered under the products specified against serial no. 269 of Appendix 37D and were eligible for benefits under the FPS - In this view, it would be difficult to accept that the intention of the Central Government was to not grant export incentives to industrial valves and restrict the same only to valves used in bicycles for a short intervening period - Impugned notice cannot be sustained - Court respectfully concurs with the view of Gujrat High Court in Intoclast Pvt Ltd. 2016-TIOL-2576-HC-AHM-CUS in setting aside the said impugned notice: HC
Writ Petition allowed
