Celinamma Mathew vs. State Of Kerala

Facts

The petitioner, Celinammathew, Managing Director of Bond Well Resins (P) Ltd., is a manufacturer of Amino Resins. She purchased Technical Grade Urea, a raw material, from registered dealers under the KVAT Act, paying 4% tax in 2011-12 and 5% tax from 2012-13 to 2016-17. The sellers remitted this tax. The petitioner claimed input tax credit (ITC) on these purchases against her output tax liability. The Assistant Commissioner (Assessment), Kannur, issued notices (Exts.P1 to P5) under Section 25(1) of the KVAT Act, proposing to disallow ITC on Technical Grade Urea, classifying it as an exempted commodity under Section 11(5)(n) and the First Schedule of the Act. The petitioner filed objections and representations. An order (Ext.P9) was passed by the first respondent disallowing the ITC claim. The petitioner also filed refund applications (Exts.P32 to P34) which remained unaddressed. The petitioner approached the High Court seeking quashing of Ext.P9, directions for refund, and to drop proceedings.

Held

The Court held that the writ petition could be disposed of with specific directions. The third respondent, the Assistant Commissioner (Assessment), was directed to complete the assessments under Exts.P1 to P5 notices in accordance with law. This completion must be done after providing notice to the petitioner and affording her an opportunity of being heard, within three months of receiving a copy of the judgment. Crucially, while considering Exts.P1 to P5, the assessing authority must verify whether the petitioner is eligible for the input tax credit claimed. The Court also directed that Ext.P6 objection should be taken into consideration before finalizing the proceedings. The Court did not explicitly rule on the refund applications (Exts.P32 to P34) or the legality of the tax collection, but rather focused on directing the proper completion of the assessment proceedings. The ratio is that assessment proceedings concerning disputed input tax credit on exempted goods must be completed by the assessing authority after affording the assessee an opportunity of hearing and considering all objections.

Key Issues

1. Whether the petitioner is eligible to claim input tax credit on the purchase of Technical Grade Urea, a commodity falling under the First Schedule of the KVAT Act, which is stated to be an exempted commodity, under Section 11(5)(n) of the KVAT Act? 2. Whether the petitioner is entitled to a refund of the tax paid on the purchase of exempted goods, which were claimed as input tax credit, under Section 72(3) of the KVAT Act? The petitioner argued that the collection of tax was illegal and without authority, entitling her to a refund of the illegally collected tax. She also sought to drop the proceedings initiated under Section 25(1) of the KVAT Act. The respondents contended that the petitioner is not entitled to any refund as the commodity purchased was exempted, and tax paid on exempted goods is not refundable. They further argued that any sum collected in contravention of Section 30 of the KVAT Act could be reimbursed under Section 72(3), but since the tax was remitted to the State Exchequer with consent, the petitioner is not entitled to a refund under Section 72(3).