Vettathil Agencies vs. The State Tax Officer

Facts

The petitioner, Vettathil Agencies, filed a writ petition challenging assessment orders for the assessment years 2009-10 and 2010-11. The assessing authority, the State Tax Officer and the Deputy Commissioner of Commercial Taxes, had included the total turnover and amounts received by the petitioner as discounts through credit notes from cement suppliers in the taxable turnover. The petitioner contended that these discounts should not be taxed. The impugned orders were passed by the State Tax Officer and the Deputy Commissioner of Commercial Taxes, with the Commissioner of Commercial Taxes as a respondent.

Held

The Court allowed the writ petition, setting aside the impugned assessment orders to the extent they linked the credit notes received by the petitioner from suppliers to the assessment and levied tax thereon. The Court followed the decision of a Full Bench of the same High Court in Saji Thomas v. Assistant Commissioner, Department of Commercial Taxes Special Circle and Ors [2022 (3) KHC 515]. The Full Bench had held that the language of Section 11(3) read with the Fifth proviso of the Kerala Value Added Tax Act, 2003, does not permit the levy of tax on credit notes within the scope of assessment. The Court reiterated that the definition of 'turnover' in Section 2(lii) is applicable unless the context otherwise demands. It was held that Explanation VII to Section 2(lii) deals with deemed turnover, but its application depends on the context. The Legislature, by incorporating the second limb to the Fifth proviso to Section 11(3), had taken out credit notes received subsequent to invoice and payment of tax by the manufacturer/supplier, provided such credit notes do not affect input tax already deposited. The ratio is that credit notes not affecting input tax already deposited cannot be treated as taxable turnover by the extended meaning of Section 2(lii) Explanation VII of the Kerala Value Added Tax Act.

Key Issues

1. Whether the amount received by the petitioner by way of discount through credit notes from suppliers can be added to the total turnover and subjected to tax under the Kerala Value Added Tax Act, 2003? (Question of law) The petitioner argued that the amounts received as discounts via credit notes should not be considered as taxable turnover. They relied on the interpretation of Section 11(3) read with the Fifth proviso of the Kerala Value Added Tax Act, 2003, and the Full Bench decision of the Kerala High Court in Saji Thomas v. Assistant Commissioner, Department of Commercial Taxes Special Circle and Ors [2022 (3) KHC 515]. The Revenue contended that such amounts received as discounts should be included in the turnover, likely by invoking Section 2(lii) Explanation VII of the Act, which deals with deemed turnover. They argued for an extended meaning of turnover to encompass these credit notes.