Tractors & Farm Equipment LTD vs. The State Of Karnataka
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Cause title — parties, addresses and appearances
ORDER Mr.T.Suryanarayana, learned counsel for the assessee.
Mr.Jeevan J.Neeralgi, learned Additional Government Advocate for the respondent.
This revision petition has been filed under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as 'the Act' for short) against the order dated 30.07.2015 passed by the Karnataka Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The tax period in this revision pertains to the period from 01.04.2007 to 31.03.2008. The revision was admitted by a Bench of this Court vide order dated 17.01.2018 on the following substantial questions of law: Whether in the facts and circumstances of the case and on the contentions raised by the petitioner, the tribunal was right in:
3 (i) upholding the orders passed by the Assessing Authority and the first Appellate Authority to the extent questioned herein? (ii) holding that the petitioner has collected tax from its purchaser, that is Toyota Kirloskar Motors Ltd. Within the meaning of Section 47(1) of the Karnataka Value Added Tax Act, 2003? (iii) applying the provisions of Section 47(3) of the Karnataka Value Added Tax Act, 2003 and forfeiting excess tax amounting to Rs.49,13,539/- paid by the petitioner in the month of October 2007 despite the petitioner having collected no amounts as tax or purporting to be way of tax from its purchaser, that is Toyota Kirloskar Motors Ltd.? (iv) holding that the petitioner is disentitled from claiming input tax credit that it is eligible to avail under the provisions of Section 14 of the Karnataka Value Added Tax Act, 2003 read with Notification No.FD 115 CSL 2007 (11) dated 30.03.2007, merely
4 because the petitioner had inadvertently understated in its input tax credit eligibility in its returns filed for the relevant tax periods and had failed to rectify the bona fide error in revised returns filed within the prescribed time period? And (v) holding that the provisions of Section 39(1) of the Karnataka Value Added Tax Act, 2003 do not permit the authorities under the Act to reduce the tax liability declared by the petitioner in its returns and allow the petitioner the benefit of additional input tax credit that it is entitled to claim under the provisions of the Act?
Facts leading to filing of this appeal briefly stated are that during the course of re-assessment under Section 39(1) of the Act by the Assistant Commissioner of Commercial Taxes (hereinafter referred to as 'the Prescribed Authority' for short) for the tax period from 01.04.2007 to 31.03.2008, the petitioner made a claim for additional input tax credit at the rate of 5 4% as specified in Section 14 of the Act instead of 3% as specified in the notification dated 30.03.2007. The Prescribed Authority rejected the claim of the petitioner on the ground that the petitioner had not made such claim either in the original returns or revised returns. The petitioner had made a claim for refund of Rs.49,13,539/- on account of an error in charging value added tax at the rate of 12.5% instead of 4% in respect of the sales made by the petitioner to Toyota Kirloskar Motors Limited, against which 5 invoices were raised by the petitioner which was disclosed in the monthly returns and the VAT was discharged at the rate of 12.5% instead of 4%. The contention of the petitioner that Toyota Kirloskar Motors Limited has not paid the VAT charged in the invoices raised and therefore, the petitioner was entitled for refund. The Prescribed Authority rejected the claim on the ground that the petitioner has concluded the same from the purchaser
6 Toyota Kirloskar Motors Limited. Accordingly, the order dated 18.02.2012 was passed.
The petitioner thereupon filed an appeal under Section 62 of the Act before the Joint Commissioner of Commercial Taxes (Appeals). The First Appellate Authority, by an order dated 20.04.2013, dismissed the appeal preferred by the petitioner. The petitioner thereupon filed an appeal before the Karnataka Appellate Tribunal under Section 63 of the Act. The Tribunal, by an order dated 30.07.2015, affirmed the order passed by the First Appellate Authority. The Tribunal rejected the claim of the appellant for additional input tax credit at the rate of 1% by placing reliance on the decisions of this Court in 'M/s. INFINITE COMMISSIONER OF COMMERCIAL TAXES, ZONE-II, GANGHINAGAR, BANGALORE' (2014) 68 VST 24 (KAR) and 'STATE OF KARNATAKA Vs. M/s. CENTUM INDUSTRIES PRIVATE LIMITED' ILR 2015
7 KAR 57. In the aforesaid factual background, this appeal has been filed.
Learned counsel for the petitioner, while inviting the attention of this Court to the statement of objects and reasons for enactment of the Act provides that the new legislation has been introduced to replace the old sales tax system for bringing in reforms in commodity taxation. It is further submitted that the new legislation provides for set off of all taxes paid at earlier point in respect of goods sold against tax payable, defined as output tax, at any point, the set off scheme being called as input rebating. Our attention has also been invited to Section 10(2) of the Act. The aforesaid Section provides that subject to input tax restrictions, input tax means the tax collected or payable on purchase of any goods for use in the course of business. It is also pointed out that Section 10(3) provides that subject to input tax restrictions, the net tax payable shall be the amount of output tax payable
8 less the input tax deductible whereas Section 10(5) provides that where the input tax exceeds the output tax payable, the excess amount shall be adjusted or refunded together with interest and the Act does not prescribe any time limit to claim the eligible input tax credit. It is further contended that the claim for eligible input tax credit is an indefeasible right available to a dealer under the scheme of the Act without any limitation in time for claiming such credit.
It is also submitted that Section 14 of the Act provides for a special rebating scheme where the deduction of input tax shall be allowed on purchase of goods that are dispatched outside the State other than as a direct result of sale or purchase in the course of interstate trade or commerce to the extent of input tax charged at a rate higher than 4% or any lower rate as may be notified by the Government. It is also submitted that a notification dated 30.07.2007 was issued under 9 Section 14 of the Act, by which the rate of input tax disallowance was reduced to 3% with effect from 01.04.2007. Therefore, for the tax periods between 01.04.2007 to 31.03.2008 and thereafter, the petitioner was entitled to reduced rate of disallowance or input tax credit at the rate of 3% instead of 4%. It is also urged that Section 35 of the Act which provides for filing of returns and the revised returns does not limit or curtail the entitlement of a dealer to claim any benefit statutorily available to it if such returns are not filed within the time prescribed under the said provision.
It is further submitted that the Tribunal grossly erred in placing reliance on INFINITE BUILDERS AND CENTUM INDUSTRIES, supra, which do not apply to the fact situation of the case as in INFINITE BUILDERS, the dealer had filed 'Nil' returns claiming ignorance of position at law, paying tentative sum upon inspection of premises but had not filed
10 revised returns. Therefore, it was held by this Court that the conduct of the assessee was not bonafide. It is further pointed out that the decision in CENTUM INDUSTRIES does not apply to the facts of the case as in the aforesaid case, the dealer had claimed benefit of input tax credit after an unreasonable and unjustified delay and therefore, it was held that the dealer was not entitled to the benefit. It is also submitted that the duty of the Assessing Officer is not merely to impose tax i.e. lawfully excisable but also to give the assessee the benefit of any reduction or exemption that may become due to them upon facts actually found to be true by the Assessing Authorities, whether or not the assesses, out of ignorance or by mistake, make claim thereto. It is further submitted that the doctrine of estoppel cannot be invoked in matters of taxation. Insofar as claim under Section 47 for an amount of Rs.49,13,539/- is concerned, it is pointed out that the tax has not been collected by the petitioner from Toyota Kirloskar Motors
11 Limited which is evident from the communication dated 19.02.2010 and therefore, the provisions of Section 47(1) of the Act were not applicable to the fact situation of the case. In support of aforesaid submission, reliance has been placed on the decisions in 'GIRIDHARLAL PARASMAL Vs. THE STATE OF MYSORE' 1967 SCC ONLINE KAR 195, 'BHANDARI METALS AND ALLOYS (P) LTD. Vs. STATE OF KARNATAKA' (2004) 136 STC 292, 'STATE OF KARNATAKA Vs. K.BOND POLYMERS PRIVATE LIMITED, BANGALORE' (2012) 73 KAR.L.J. 429, 'R.S.JOSHI, LIMITED AND ANOTHER' (1977) 40 STC 497, 'COLLECTOR OF CENTRAL EXCISE, PUNE AND OTHERS' (1999) 7 SCC 448 AND 'THE STATE OF KARNATAKA Vs. M/S. MANYATA PROMOTERS PVT. LTD.' IN STRP NOS.329/2014 & 482-487/2014. 12
On the other hand, learned Additional Government Advocate has submitted that the right to claim input credit tax is not indefeasible right but is subject to the terms and conditions mentioned in the Act. It is further submitted that if the contention raised on behalf of the petitioner is accepted that the input credit tax is an indefeasible right, the purpose of the Act would be defeated. It is further submitted that the benefit of input credit tax can be availed off by the assessee in accordance with law. In support of aforesaid submission, reliance has been placed on the decision in INFINITE BUILDERS, supra and has submitted that the aforesaid decision has not been considered in the subsequent decisions of this Court.
We have considered the submissions made by learned counsel for the parties and have perused the record. The Act has been enacted with an object to replace the then existing sales tax system in line with 13 national consensus for bringing in reforms in commodity taxation. One of the objects of the Act is to provide for set off of all tax paid at the earlier points in respect of goods sold against tax payable defined as output tax, at any point, the set off scheme being called as input rebating. Before proceeding further, we may take notice of the relevant statutory provision viz., Section 10(2) and (3), Section 35(4) and Section 47(1) and (3), which are reproduced below for the facility of reference: 10(2) Subject to input tax restrictions specified in Sections 11,12,14, 17 and 18, input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases. 10(3) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, the net tax payable by a registered dealer
14 in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of Chapter V. 35 (4) If any dealer having furnished a return under this Act, other than a return furnished under sub-section (3) of Section 38, discovers any omission or incorrect statement therein, other than as a result of an inspection or receipt of any other information or evidence by the prescribed authority, he shall furnish a revised return within six months from the end of the relevant tax period except when such revised return is on issue of a debit note under Section 30, subject to sub-section (2) of Section 72. 47. Payment and disbursement of amounts wrongly collected by dealer as tax.- (1) Subject to Section 30, where any amount is collected by way of tax or purporting to be way of tax from any person by any dealer, whether knowingly or not, such dealer shall 15 pay the entire amount so collected, to the prescribed authority within twenty days after the close of the month in which such amount was collected, notwithstanding that the dealer is not liable to pay such amount as tax or that only a part of it is due from him as tax under this Act. 47(3) Notwithstanding anything contained in this Act, or in any other law for the time being in force, any amount paid or payable by any dealer under sub-section (1), shall, to the extent it is not due as tax be forfeited to the Government and be recovered from him and such payment or recovery shall discharge him of the liability to refund the amount to the person from whom it was collected.
It is also pertinent to note that in exercise of powers conferred by Section 14 of the Act, the Government of Karnataka has specified that deduction of input tax shall be allowed on purchase of goods specified in clause (5) and (6) of Sub-Section (a) of 16 Section 11 of the Act to the extent of input tax charged at a rate higher than 3%.
In the instant case, the assessee had claimed the benefit of input tax credit at the rate of 4%. However, subsequently, a claim was made for additional input tax credit at the rate of 1% on account of an error in disallowing input tax credit at the rate of 4% as specified in Section 14 of the Act instead of 3% as specified in Notification dated 30.03.2007. No time limit has been prescribed under the provisions of the Act for making a claim for additional input tax credit. Therefore, the claim for eligible input tax credit is an indefeasible right which is available to the dealer under the Act without any limitation of time for claiming such credit. It is pertinent to note that Section 14 of the Act provides for special rebating scheme, where the deduction of input tax shall be allowed on purchase of goods that are dispatched outside the state other than as a direct result of sale and purchase made during the course of inter
17 state trade of commerce to the extent of input tax charge higher than 4% or any lower rate as may be notified by the government. In the instant case, the government has prescribed the lower rate of 3% by Notification dated 30.03.2007 and therefore the aforesaid rate was applicable for the tax period from 01.04.2007 to 31.03.2008. Therefore, the petitioner cannot be deprived of the aforesaid statutory benefit and Section 35 of the Act does not curtail the entitlement of the dealer to such statutory benefit to it if such return is not filed within the time prescribed therein.
It is pertinent to note that the tribunal has placed reliance on decision of M/s INFINITE BUILDERS AND DEVELOPERS SUPRA which was a case where the dealer had filed NIL returns claiming ignorance of position of law and did not file any revised return and thereafter filed the revised return just before two days of the audit inspection. Therefore, this court
18 held that the conduct of the assessee was not bonafide as he has not disclosed his liability to pay output tax therefore, the aforesaid decision is not applicable to the fact situation of the case. Similarly, in CENTUM INDUSTRIES supra this court in the peculiar facts of the case held that where there is unreasonable and unjustifiable delay in claiming the benefit of input tax credit, the dealer was not entitled to that benefit. However, in the instant case, it is pertinent to note that the petitioner has not been deprived of the benefit on the ground that its claim is inordinately delayed. Therefore, the aforesaid decisions do not apply to the fact situation of the case.
Now we may deal with the issue with regard to forfeiture under Section 47 of the Act. From the communication dated 19.02.2020, it is evident that the tax has not been collected by the petitioner from Toyota Kirloskar Motors Ltd. It is also not in dispute that the petitioner by mistake paid the tax at a higher rate and 19 when Toyota Kirloskar Motors Ltd. has confirmed that such a tax has not been collected by the petitioner, Section 43(1) of the Act has no application to the fact situation of the case and the order of forfeiture is illegal. For the aforementioned reasons, the substantial questions of law are answered in favour of the petitioner and against the respondent. In the result, the impugned order of the tribunal 30.07.2015 passed in S.T.A.No.1846-57/2013 to the extent it is against the appellant is quashed. In the result, petition is allowed. JUDGE JUDGE RV/ss
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.