State Of Karnataka vs. O G Variar And Sons Variar Bakery - Karnataka High Court, 30 June 2022

Cause title — parties, addresses and appearances

STRP No.4/2022 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF JUNE, 2022 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE ANANT RAMANATH HEGDE S.T.R.P No.4 OF 2022 BETWEEN : STATE OF KARNATAKA THROUGH THE COMMISSIONER OF COMMERCIAL TAXES VANIJYA THERIGE KARYALAYA -1 1ST MAIN ROAD, GANDHINAGAR BANGALORE-560 009 ... PETITIONER (BY SHRI. JEEVAN J. NERALAGI, AGA) AND : O.G.VARIAR AND SONS VARIAR BAKERY NO.68, 12TH MAIN, 2ND BLOCK RAJAJINAGAR BANGALORE-560 010 REP. BY ITS PARTNER SRI. O.G. JAYASHANKAR VARIAR ... RESPONDENT (BY SHRI. M. THIRUMALESH, ADVOCATE) THIS STRP IS FILED UNDER SECTION 65(1) OF KARNATAKA VALUE ADDED TAX ACT., 2003 AGAINST THE ORDER DATED 12.03.2020 PASSED IN STA.NOS. 244/2015, 245/2015 376/2015 AND 377/2015 AND CROSS APPEAL NOS.371/2016, 372/2016, 324/2016 AND 325/ 2016, ON STRP No.4/2022 2 THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT BENGALURU, ALLOWING THE APPEALS SETTING ASIDE THE ORDER DATED 22.12.2014 PASSED IN VAT.AP.NO.564- 575/2013, 14 AND ORDER DATED 24.12.2014 PASSED IN VAT.AP.NO.576-587/2013-14 AND ORDER DATED 10.04.2015 PASSED IN VAT.AP.NO.1034-1045/ 2014-15 BY THE JOINT COMMISSIONER OF COMMERCIAL TAXES, (APPEALS)-2 BENGALURU FILED AGAINST THE RE-ASSESSMENT ORDER DATED 24.02.2014 AND 27.02.2014 RESPECTIVELY, PASSED BY THE COMMISSIONER TAX OFFICER DVO BENGALURU UNDER SEC. 39(1), 36 AND 72(2) OF THE ACT FOR THE TAX PERIODS FROM 2011-12 AND 2012-13. THIS STRP, HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 01.06.2022, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, P.S.DINESH KUMAR J, PRONOUNCED THE FOLLOWING:-

ORDER

This Revision Petition by the Revenue is filed for consideration of following questions:

"(1) Whether on the facts and in the circumstances of the Petitioner's case the Tribunal was right in law, in allowing the Respondent's Appeal and holding that the Respondent was eligible to pay taxes under the scheme of composition as provided for under Section 15(1)(c) of the Act, especially when the Respondent had effected purchase of machinery in the course of interstate trade for use in business activity of the Respondent?

(2) Whether on the facts and in the circumstances of the Petitioner's case the Appellate Tribunal was right in law on dismissing the Cross Appeals filed by the Petitioner herein?"

Heard Shri. Jeevan J.Neralagi, learned AGA for petitioners and Shri. M. Thirumalesh learned Advocate for the respondent.

Brief facts of the case are, respondent is a partnership firm engaged in sale of bakery products. It opted for composition scheme for payment of tax as per Section 15(1) of the KVAT Act, 20031 and it was assessed at the rate of 4% on the sale of food items.

Based on the scrutiny of e-sugam Forms and examination of books of accounts, the Assessing Authority2 passed re-assessment orders (dated 24.02.2014 for the Assessment Year 2011-12, order dated 27.02.2015

for the 1 Karnataka Value Added Tax Act 2 Commercial Tax Officer (Audit 2.2), Koramangala, Bengaluru Assessment Year 2012-13 and order dated 27.02.2015 for the Assessment year 2013-14, upto July 2013), denying the benefit of payment of tax under Composition Scheme on the ground that respondent had made interstate purchases.

Feeling aggrieved, respondent challenged the re-assessment orders before the First Appellate Authority3 and the said Authority, vide order dated 22.12.2014 in VAT:AP No 564- 575/13-14, order dated in 24.12.2014 in VAT AP. No.576 to 587/13-14 and order dated 10.04.2015 in VAT AP.1034 to 1045/14-15 upheld the orders of the reassessment insofar as it related to denial of benefit of payment of tax by way of composition, but however held that the respondent shall be granted the benefit of input tax credit. Feeling aggrieved by orders passed by the First Appellate

3 Joint Commissioner of Commercial Taxes (Appeals)-2, Shanthinagar, Bengaluru authority, the respondent filed STA No.244/2015, STA 245/2015, STA 376/2015 and STA 377/2015 before the KAT4, Bengaluru. Revenue also filed Cross Appeals registered as Nos.371/2016, 372/2016, 324/2016 and 325/2016. By the impugned common judgment order 12.03.2020, the KAT has allowed the appeals filed by the assessee and set aside the order of the First Appellate Authority, the Assessing Authority and Revenue dismissed the Cross Appeals filed by the Revenue. Hence, this Revision Petition.

Shri. Jeevan J. Neeralagi, learned AGA for the Revenue submitted that it is not in dispute that the respondent has made inter State purchase of bakery machinery. In terms of Rule 135(1) & (2) of the KVAT Rules5, the option to pay tax by way of composition shall not be available to a dealer, who

4 Karnataka Appellate Tribunal, Bengaluru 5 Karnataka Value Added Tax Rules, 2005 makes inter-State purchase. The Assessing Authority and the First Appellate Authority, on appreciation of facts on record have rightly denied the benefit to pay taxes under composition to the respondent. He further submitted that though the First Appellate Authority upheld the order of reassessment in so far as it related to denial of benefits of payment of tax by way of composition, it has erred in granting the benefit of input tax credit. The KAT has allowed the appeals on an erroneous assumption that the goods in question are not 'goods in stock'. In view of the admitted facts, the the inter-State purchases made by the respondent cannot be considered as 'goods in stock'.

We have carefully considered rival contentions and perused the records.

Undisputed facts of the case are, respondent is in the business of sale of bakery items. It has purchased bakery machinery, its parts and aluminum trays from outside the State. Respondent is not engaged in the business of sale of machinery.

10.

In the case of Shri. Anantha Padmanabha Bhat, rightly relied upon by the KAT, this Court has held that the vitrified tiles used in the 6 W.P. No. 54356, 54357/2015 (Tax-Res) and W.P. Nos. 57006- 57027/2015 decided on 03.06.2016 restaurant owned by the assessee therein, were not sold by him in the regular course of business but they were used for the flooring of the restaurant. Hence, it had become part of the immovable property. It is held thus in that case:

“7. Admittedly, the petitioner is running a restaurant only and is engaged in the business of serving vegetarian food and not engaged in the business of sale of Vitrified Tiles. In the restaurant, the Vitrified Tiles in question were not sold by him in the regular course of business, but were used only for the purpose of flooring of the restaurant premises. When so fixed in the floor, the Vitrified Tiles of-course became the part of the immovable property, and it is beyond the common sense and basic commercial prudence to even comprehend that the Vitrified Tiles fixed on the floor of the restaurant could be treated by an assessing authority as the 'goods in stock' dealt with by the assessee or sold in the course of regular course of business. The assessing authorities trained and well acquainted with the commercial terms, cannot be allowed to take such perverse views.”

11.

In the instant case, admittedly, respondent is engaged in sale of bakery items. The goods purchased by the respondent are for preparing the bakery items. Hence, they cannot be considered as 'goods held in stock'. We are in respectful agreement with the view taken by this Court in Anantha Padmanabha Bhat’s case.

12.

In view of the above, the questions framed by the Revenue are answered in favour of the assessee.

13.

Resultantly, this revision petition fails and it is accordingly dismissed.

No costs. JUDGE JUDGE

SPS