State Of Kerala vs. M/S.Hass Trading Co,Perambra

Facts

The State of Kerala is the revision petitioner, challenging an order of the Kerala Value Added Tax Appellate Tribunal. The respondent assessee, M/s. Hass Trading Co., deals in paints, white base, enamels, wood polish, and thinner. In 2006, the assessee paid 20% tax on purchases and sold these goods at the same rate, citing an amendment to the Kerala Value Added Tax Act, 2003, which included paints as a commodity taxable at 20%. The Assessing Officer declined input tax credit at 20% for several commodities, including white base, enamels, wood polish, thinner, CEM, wall putty, primer, and white cement. The first appellate authority confirmed this. The Tribunal allowed input tax credit at the rate paid by the assessee, reasoning that the State had not lost any tax.

Held

The Court held that input tax credit can only be allowed at the rate at which the commodity is taxed as per the Schedule to the Kerala Value Added Tax Act, 2003. Any tax paid in excess of the scheduled rate would be forfeited by the State, and the person who paid it would have to claim a refund. Therefore, the Tribunal was not right in allowing input tax credit at the rate of purchase without reference to the scheduled rate. However, despite answering the questions of law in favour of the State, the Court found that in the specific facts, a different view from the Tribunal was not warranted for all items. A doubt was created among dealers regarding the tax rate for paints due to amendments and circulars. The Court conceded that a misunderstanding was possible for items like white base, enamels, thinner, and primer. However, commodities like wall putty, wood polish, CEM, and white cement could not be considered paints. Consequently, the Tribunal's order was set aside only to the extent of these latter commodities. The Assessing Officer was directed to re-compute the tax credit after verifying that the assessee paid tax at the higher rate on sales and did not claim a refund for sales turnover at the higher rate. The assessee was to be heard, and the re-computation was to be completed within three months.

Key Issues

1. Whether the Tribunal was correct in allowing input tax credit on goods at the rate at which the assessee purchased them, irrespective of the rate of tax levied as per the Schedule to the Kerala Value Added Tax Act, 2003? (Question of law turning on Section 6(1)(a) of the Act and its Schedule). 2. Whether the Tribunal ought to have directed the assessee to approach the Department under Rule 56 of the Kerala Value Added Tax Rules, 2005, for a refund of excess tax paid? (Question of law turning on Rule 56 of the Rules). Petitioner's (State's) contentions: Input tax credit can only be allowed at the rate at which the commodity is taxed as per the Schedule to the Act. If tax is paid in excess of the scheduled rate, such excess collection is forfeited by the State, and the payer must claim a refund. Respondent's (Assessee's) contentions: The assessee paid tax at the higher rate (20%) on purchases and sales due to an amendment and subsequent circulars. Since the assessee paid tax at the higher rate and sold at the same rate without claiming a refund, they are entitled to input tax credit at that same rate.