State Of Kerala vs. Sri.Vinod Kumar O.B.

Facts

The State of Kerala filed revision petitions challenging the order of the Kerala Value Added Tax Additional Appellate Tribunal, Palakkad. The assessee, M/s. Royal Rexin House, also filed revision petitions. The appeals pertained to assessment years 2009-10, 2010-11, and 2011-12. The State's appeals concerned the input tax credit (ITC) allowed by the Tribunal and the deletion of penalties. The assessee's appeals challenged the Tribunal's refusal to allow them to continue under the presumptive dealership scheme under Section 6(5) of the Kerala Value Added Tax Act, 2003. The core dispute involved the eligibility for presumptive tax, ITC, and the imposition of penalties.

Held

The Court held that the assessee was not entitled to continue under the presumptive dealership scheme as they had inter-State purchases and the goods imported were found to be taxable. Section 6(5) of the Act specifically disables importers of taxable goods from opting for presumptive dealership. Therefore, the Tribunal's order refusing continued presumptive dealership was upheld, answering the assessee's question against them and in favour of the Revenue. Regarding input tax credit, the Court found that Section 25C allows ITC to a presumptive tax dealer brought under the regular scheme of assessment. Since the assessee was held ineligible for presumptive dealership, they were eligible for ITC. Thus, the State's question on ITC was answered in favour of the assessee. On the issue of penalty, the Court held that Section 22(7) can be invoked in proceedings under Section 25(1), as it is not confined to proceedings solely under Section 22. The Tribunal's deletion of penalty was therefore found to be incorrect. However, the Court noted that the penalty under Section 22(7) is mandatory and calculated at thrice the tax difference, while Section 25(3) allows discretionary penalty up to twice the tax evaded. Since ITC was allowed, the penalty computation must be based on the tax difference after accounting for the allowed ITC. The Court dismissed the assessee's appeals and allowed the State's appeals concerning penalty, while dismissing the State's appeals concerning ITC.

Key Issues

1. Whether the assessee, a dealer paying presumptive tax under Section 6(5) of the Kerala Value Added Tax Act, 2003, is entitled to input tax credit, given the specific prohibition under Section 11(4) of the Act? The State argued that Section 11(4) prohibits ITC for presumptive tax dealers. The assessee contended that Section 25C allows ITC if a presumptive tax dealer is brought under the regular scheme of assessment. 2. Whether the Tribunal was correct in deleting the penalty levied under Section 22(7) of the Act, on the grounds that proceedings were taken under Section 25(1)? The State argued that Section 22(7) could be invoked in any proceedings under the Act, including those under Section 25(1). The assessee argued that Section 22 deals with assessment for non-filing or defective returns, and a 'lesser tax at the presumptive tax rate' constitutes a defective return, implying proceedings should have been under Section 22, not Section 25(1). 3. Whether the Tribunal was right in refusing the dealer to continue under the presumptive tax regime, especially when imports were of non-taxable goods, made on wrong advice, and without deliberate suppression? The assessee argued that the imports were of non-taxable goods, made on wrong advice, and without intent to suppress, thus they should be allowed to continue under the presumptive scheme.