A.M.Rahman vs. State Of Kerala

Facts

These Other Tax Revisions (VAT) concern assessments under the Kerala Value Added Tax Act (KVAT Act) and Central Sales Tax Act (CST Act) for the assessment years 2009-10 to 2012-13. The petitioners, dealers of raw rubber, purchased it from registered dealers and growers, and sold it both within and outside the State. They were entitled to input tax credit (ITC) under Section 11 of the KVAT Act and special rebate under Section 12. However, the 3rd proviso to Section 11(3) and Section 12(1) of the KVAT Act restricted ITC/rebate when inter-state sales were exempted. The Kerala Value Added Tax/Agri. Income Tax and Sales Tax Appellate Tribunal upheld the disallowance of ITC/rebate, leading to these revisions.

Held

The Court held that while the petitioners' contentions based on Sections 11 and 12 of the KVAT Act might seem persuasive initially, a closer scrutiny of the statutory provisions revealed that the exemption notifications must be viewed in the context of these provisions. The Court found that the statutory provisions under the KVAT Act restrict the availment of input tax credit (ITC) to situations where tax is payable on outward sales and prohibit it when outward inter-state sales are exempted. Therefore, the exemption notifications issued by the State Government under Section 8(5) of the CST Act were interpreted as bringing into operation the prohibition under the 3rd proviso to Section 11(3) and the 3rd proviso to Section 12(1) of the KVAT Act. Consequently, the petitioners were not entitled to avail ITC on purchases of rubber within the State as long as the exemption notifications were in force. The amendments to these notifications in 2019, with retrospective effect, were held to only enable those who had paid CST under Section 8(1) of the CST Act to adjust those payments against demands arising from the disallowance of ITC/special rebate. The Court found no reason to modify the impugned order of the Tribunal, which granted limited relief. The questions of law were answered against the assessees and in favour of the Revenue.

Key Issues

1. Whether the Appellate Tribunal was justified in holding that dealers engaged in interstate sales of rubber are liable to pay tax under the KVAT Act, despite the explanatory note to notification SRO No. 521/2019 indicating that those paying tax under Section 8(1) of the CST Act remain outside its purview? (Question of law, concerning interpretation of notification SRO No. 521/2019 and Section 8(1) of CST Act). 2. Whether the Appellate Tribunal was justified in relying on notification SRO No. 804/08, which was superseded by SRO No. 753/2011, to hold that interstate sales of rubber were exempted and consequently disallowing ITC/rebate under Rule 12A of the KVAT Rules, overlooking the proviso to SRO No. 753/2011 as amended by SRO No. 521/2019? (Question of law, concerning interpretation of notifications and Rule 12A of KVAT Rules). 3. Whether the Appellate Tribunal was justified in overlooking the mandatory provisions of the 2nd proviso to sub-section (1) and sub-section (3) of Section 12 and sub-section (6) of Section 11 of the KVAT Act, assuming that persons making interstate sales of rubber are not entitled to ITC or special rebate even when tax was collected under Section 8(1) of the CST Act and C forms were issued? (Question of law, concerning interpretation of Sections 11(6), 12(1), and 12(3) of KVAT Act and Section 8(1) of CST Act). 4. Whether the Appellate Tribunal's interpretation of notification SRO No. 753/2011, as amended by SRO No. 521/2019, is correct according to the settled rules of interpretation of statutes? (Question of law, concerning statutory interpretation). Petitioner's arguments: The petitioners contended that they were entitled to ITC/rebate, especially since they paid tax under Section 8(1) of the CST Act and had C forms. They argued that the amendments in 2019 clarified that those paying CST under Section 8(1) were outside the purview of the exemption notification. They also argued that the Tribunal erred by relying on a superseded notification. Revenue's arguments: The revenue contended that the statutory provisions, specifically the 3rd proviso to Section 11(3) and Section 12(1) of the KVAT Act, restricted ITC/rebate when inter-state sales were exempted. They argued that the exemption notifications, when read in the statutory context, brought into operation these prohibitions.