State Of Kerala vs. M.H.Firoz, M.H.Timbers

Facts

The respondent, M.H. Firoz, a dealer under the KVAT Act 2003, purchased standing rubber trees and paid tax at a rate of 12.5%. The dealer claimed input tax credit at this rate. The Department contended that the tax leviable on standing rubber trees was only 4%, and therefore, the dealer was only entitled to claim input tax credit at 4%, representing the tax legally due. The Kerala VAT Appellate Tribunal, however, allowed the dealer to claim input tax credit at 12.5%. The Tribunal's reasoning was based on the fact that a clarification (No. C3-37099/07/CT dated 30-5-2009) regarding the tax rate had not been properly published by the department, and the dealer had paid 12.5% tax on the purchase. The State of Kerala, represented by the Deputy Commissioner of State Tax, filed revision petitions challenging the Tribunal's order.

Held

The High Court dismissed the revision petitions filed by the State of Kerala. The Court agreed with the Kerala VAT Appellate Tribunal's finding that the clarification dated 30.05.2009, which clarified the rate of tax applicable for standing rubber trees, had not been properly published by the department. The Court noted that the necessity for issuing the circular indicated an existing uncertainty or ambiguity regarding the tax rate. The dealer had paid tax at the higher rate of 12.5% while purchasing the produce. Crucially, the Court observed that the revision petitioner (the State) had not demonstrated that the Tribunal's finding on the lack of proper publicity was erroneous or illegal, nor had it disputed that the dealer did not pay tax at 12.5%. Given these circumstances and the Tribunal's findings, the Court found no ground to interfere with the order in its revisional jurisdiction under Section 63 of the KVAT Act. Therefore, the dealer was allowed to claim input tax credit at the rate of 12.5%.

Key Issues

1. Whether the respondent-dealer is entitled to claim input tax credit at the rate of 12.5% on the purchase of standing rubber trees, or only at the rate of 4% as contended by the Department, under the KVAT Act 2003? Contentions: Petitioner (State of Kerala): The Department argued that the tax legally leviable on standing rubber trees was 4%. Therefore, the dealer could only claim input tax credit for the tax legally paid as per the statute, not the higher rate of 12.5% that was paid. The Department challenged the Tribunal's finding that the Circular regarding the tax rate was not properly published and that this omission justified allowing the dealer to claim credit at 12.5%. The Department contended that a reference to the Circular was of no use for allowing the dealer to claim input tax credit at 12.5%. Respondent (M.H. Firoz): The respondent-dealer claimed input tax credit at the rate of 12.5% because they had admittedly paid 12.5% tax on the purchase of standing rubber trees. The Tribunal found that the clarification regarding the tax rate had not been properly published by the department, and therefore, the dealer was eligible for input tax credit at the rate paid.