State Of Kerala vs. M/S.Zecco INDIA PVT LTD

Facts

The State of Kerala filed a revision petition challenging an order of the Kerala Value Added Tax Appellate Tribunal. The Tribunal had reversed an assessment order passed against M/s. Zeeco India Pvt Ltd for the year 2005-06. The dispute arose from a composite contract between M/s. Kochi Refineries Limited (M/s. KRL) and M/s. Zeeco Inc, USA, for a project. M/s. Zeeco India Pvt Ltd was assigned a portion of this work. The assessing authority included $150,000, representing payment for imported equipment and consumables, in the assessee's turnover. Another dispute concerned the taxability of goods supplied by the assessee in execution of the work, which the assessing authority deemed a local sale. A third issue involved the rejection of the assessee's books of account and estimation of turnover under Rule 9(2A)(a) of the KVAT Rules. Finally, the denial of input tax credit claimed by the assessee was also contested.

Held

The Court held that the materials on record needed re-evaluation to determine if the import was made pursuant to a contract between M/s. KRL and the foreign company, and if it was in pursuance of a purchase order by M/s. KRL. The Court also noted contradictions regarding the reimbursement of customs duty. Consequently, the Court directed the Tribunal to reconsider these aspects and arrive at a clear finding. Regarding the estimation of turnover under Rule 9(2A)(a), the Court acknowledged the Revenue's contention that the assessing authority had relied on this rule. Given the remittance of the matter for reconsideration on the import issue, the Court also directed the Tribunal to decide the turnover estimation issue afresh based on the relevant Rule. Concerning the denial of input tax credit, the Court found that the issue of whether credit could be denied based on the invoice form (Form 8B) remained. As other issues were being remanded, this issue was also left open for fresh decision by the Appellate Tribunal. The Court set aside the Tribunal's order to the extent of these three issues and remanded the appeal to the Tribunal for fresh disposal.

Key Issues

1. Whether the Tribunal erred in holding that the import of equipment and consumables by the assessee company, valued at $150,000, was not taxable turnover, considering the contract between M/s. KRL and the foreign company and the reimbursement of customs duty. 2. Whether the Tribunal correctly determined that the supply of goods by the assessee in execution of the work constituted a local sale, and not an inter-state sale, based on the invoices being raised in the name of the assessee's site office. 3. Whether the Tribunal was justified in reversing the assessing authority's estimation of turnover under Rule 9(2A)(a) of the KVAT Rules, despite the assessee maintaining proper books of account. Contentions of the Revenue: The Revenue argued that the Tribunal lacked materials to conclude that the import was pursuant to a contract or purchase order by M/s. KRL. It contended that the Tribunal erred in holding Rule 9(2A)(a) inapplicable, asserting that the assessing authority correctly estimated turnover based on this rule. The Revenue also argued that input tax credit was rightly denied as purchase bills were in Form 8B, indicating no requirement for input tax credit. Contentions of the Assessee: The assessee contended that the Tribunal correctly found privity of contract between M/s. KRL and the foreign company, and that the import was in pursuance of M/s. KRL's purchase order, making the turnover exempt. The assessee argued that the Tribunal correctly rejected the estimation of turnover as their books of account were proper. The assessee also argued that denial of input tax credit was incorrect.