M/S. Associated Pipe Industries vs. State Of Kerala

Facts

These two Other Tax Revisions (VAT) were filed by M/s. Associated Pipe Industries, Kollam, challenging orders of the Kerala Value Added Tax/Agrl. Income Tax and Sales Tax Appellate Tribunal. O.T. Revision No. 111 of 2022 pertains to the assessment year 2013-2014, and O.T. Revision No. 1 of 2023 pertains to the assessment year 2012-2013. The core issue is the disallowance of input tax credit (ITC) claimed by the petitioner on various inputs purchased locally and interstate, used in the manufacture of PVC pipes. The petitioner contended that ITC was claimed only on locally purchased inputs, which were entirely consumed in manufacturing PVC pipes sold within the State. The revenue authorities consistently found that the petitioner failed to maintain accounts demonstrating this specific allocation of ITC.

Held

The Court held that the impugned orders of the Tribunal did not warrant intervention. The consistent finding of the First Appellate Authority and the Tribunal was that the petitioner failed to produce records or accounts to substantiate their contention that ITC was not availed on tax paid on raw materials/inputs purchased from outside the State, and that these inputs were used exclusively for manufacturing PVC pipes that were stock transferred outside the State. In the absence of a clear bifurcation in the accounts between the two streams of supply (stock transfer outside the State and sale within the State), the authorities were justified in disallowing ITC proportionate to the quantity of PVC pipes stock transferred outside the State. The Court found no fault with the disallowance of input tax credit proportionate to the stock transferred outside the State. The questions of law were answered in favour of the revenue and against the assessee.

Key Issues

1. Whether the Tribunal was correct in disallowing input tax credit in respect of tax paid on various inputs purchased locally and interstate, used in the manufacture of PVC pipes sold within the State and stock transferred outside the State, contrary to the petitioner's claim of exclusive use of locally purchased inputs for local sales? (Question of mixed law and fact, turning on the interpretation and application of the third proviso to Section 11(3) of the Kerala Value Added Tax Act). Petitioner's arguments: The petitioner argued that they had produced manufacturing, trading profit and loss accounts, and worksheets to demonstrate that ITC was not availed on interstate purchases used for stock transfers outside the State. They contended that separate accounts were maintained for the two streams of supply (local sales and stock transfers), justifying the full ITC claim for local sales. Revenue's arguments: The learned Government Pleader argued that the authorities consistently found no records or accounts were produced by the petitioner to substantiate their claim that ITC was not availed on interstate purchases used exclusively for stock transfers. The mere mention of attached documents in a reply to a pre-assessment notice was insufficient given the specific finding of non-production of records.