M/S.Alukkas Photo Press vs. The Commercial Tax Officer, Kottayam

Facts

The petitioner, M/s. Alukkas Photo Press, engaged in screen printing and flex board printing, purchased a digital press for their business. The vendor paid Rs. 4,72,75/- as tax on this sale under the Kerala Value Added Tax (KVAT) Act. The petitioner applied for input tax credit (ITC) of this tax paid, as per Section 11(2) of the KVAT Act. The 1st respondent, the Commercial Tax Officer, rejected the petitioner's claim via Ext.P1 order dated 15.07.2016. The rejection was based on the ground that the vendor treated the sale as a 'deemed sale' and that Section 11(4) of the KVAT Act restricted ITC in such cases. The respondents argued that the vendor only transferred the right to use the capital goods, not an outright sale, and thus the petitioner could not claim ITC.

Held

The Court held that as per the scheme of the KVAT Act, particularly Section 11, any registered dealer liable to pay tax is entitled to avail input tax credit on goods purchased for their business. For capital goods, ITC is allowed over three years, subject to prescribed conditions. The Court found no provision in Section 11 that mandates the purchaser to be the owner of the goods to avail ITC, nor that the nature of the vendor's sale classification (actual vs. deemed) should disentitle the purchaser from ITC, provided the purchaser has paid tax on the procurement. The Court reasoned that Section 11(4), relied upon by the respondents, deals with disqualifications for the person availing ITC. The disqualification regarding payment of tax on a 'deemed sale' was relevant only to the vendor. The petitioner, having paid tax on an actual sale transaction, could not be denied ITC based on the vendor's tax treatment. Therefore, the Court quashed the order rejecting the ITC claim and allowed the writ petition, holding the petitioner entitled to ITC subject to compliance with other requirements of Section 11 of the KVAT Act and Rule 13 of the KVAT Rules.

Key Issues

1. Whether the petitioner, a registered dealer, is entitled to avail input tax credit (ITC) under Section 11(2) of the KVAT Act for tax paid on the purchase of capital goods (a digital press) when the vendor treated the transaction as a 'deemed sale' and paid tax accordingly. 2. Whether Section 11(4) of the KVAT Act, which restricts ITC entitlement, can be invoked against the petitioner when the disqualification pertains to the vendor's classification of the transaction as a 'deemed sale'. Petitioner's arguments: The petitioner contended that Section 11(4) of the KVAT Act only imposes restrictions on the entitlement to avail ITC. They argued that these restrictions were applicable only to the vendor, and since the vendor had discharged their tax liability without claiming ITC, the petitioner should not be denied ITC on the tax they bore. The petitioner emphasized that they paid tax on an actual sale transaction, not a deemed sale. Respondents' arguments: The respondents maintained their stand based on Section 11(4) of the KVAT Act. They asserted that the vendor had shown the transaction as a 'right to use' capital goods, classifying it as a deemed sale, and therefore, it could not be considered a sale for the purpose of the petitioner availing input tax credit.