2010 (7) TMI 929 - HC - VAT and Sales Tax

Whether the petitioner was eligible for sales tax exemption and concession which was made available to new units under a Government order dated March 15 1996? Held that - The switch over to the VAT regime and the unfamiliarity with the procedures contemplated which are not in pari materia with the KST Act was also a factor which would have to be taken into consideration. If the benefit due to the petitioner is not in dispute the manner of claim as prescribed under the Act not having been followed may be a good ground for the authorities to have denied the benefit. But in the opinion of this court interest of justice would require that the respondents afford this benefit which has remained unavailed by the petitioner and for a fault not entirely of that of the petitioner. It is necessary that the petitioner be conferred the benefit of this unavailed portion by permitting the petitioner to file revised returns even at this late point of time in order to enable the petitioner to claim the benefit. Accordingly the writ petition is allowed. Annexure Z is quashed. The respondents are directed to permit the petitioner to file revised monthly returns for the relevant period in order to avail of the benefit and the respondents shall make necessary adjustments insofar as the tax liability of the petitioner is concerned. This shall be taken into account in any further proceedings that may be pending insofar as the petitioner is concerned.

Summary

Issues Involved:

1. Eligibility for sales tax exemption and VAT exemption.
2. Compliance with the procedures for claiming tax exemptions and refunds.
3. Reassessment and additional tax liability.
4. Denial of refund due to procedural lapses.
5. Petitioner's right to file revised returns.

Issue-wise Detailed Analysis:

1. Eligibility for Sales Tax Exemption and VAT Exemption:

The petitioner, operating a cashew factory since 1999, claimed eligibility for sales tax exemption under a Government order dated March 15, 1996. The Department of Industries and Commerce issued a Fixed Asset Valuation Certificate (FAVC) on April 13, 1999, entitling the petitioner to sales tax exemption from March 16, 1999, to March 31, 2005. This benefit was extended under the Karnataka Value Added Tax Act, 2003 (KVAT Act) through Notification No. FD 56 CSL 2005(1), dated April 18, 2005. A second notification under section 5(2) of the KVAT Act extended the benefit to the unavailed portion of the tax exemption, subject to conditions and procedures.

2. Compliance with Procedures for Claiming Tax Exemptions and Refunds:

The petitioner filed an application for a certificate of entitlement under section 5 of the KVAT Act, which was issued on July 30, 2005, granting VAT exemption of Rs. 5,37,417 for the assessment periods 2005-06 and 2006-07. Additionally, the petitioner sought transitional relief on stock in hand under section 18 read with rule 166 of the Karnataka Value Added Tax Rules, 2005, resulting in a rebate of Rs. 7,10,678. The petitioner claimed input-tax rebate against output tax payable under section 10 of the KVAT Act and sought a refund of Rs. 5,37,417 for the assessment period 2005-06. However, the respondents did not issue a refund order, citing the petitioner's failure to file revised returns.

3. Reassessment and Additional Tax Liability:

The Assistant Commissioner of Commercial Taxes issued a proposition notice under section 39(1) of the KVAT Act, leading to the reassessment of the petitioner's tax liability. The reassessment resulted in an additional tax liability of Rs. 7,29,955 and a penalty of Rs. 1,45,991. The petitioner argued that there was no excess claim of input tax-credit and that the reassessment did not account for the intra-State sales.

4. Denial of Refund Due to Procedural Lapses:

The respondents denied the petitioner's refund claim, stating that the petitioner had not filed revised returns and had failed to comply with the prescribed procedures. The petitioner contended that the respondents' delay in communicating the procedural requirements prevented timely filing of revised returns. The petitioner argued that the unfamiliarity with the KVAT Act, which differed from the KST Act, contributed to the procedural lapse.

5. Petitioner's Right to File Revised Returns:

The court acknowledged that the petitioner's failure to claim the refund in the monthly returns and comply with the condition of payment of net tax was a procedural lapse. However, the court noted that the respondents did not promptly inform the petitioner of the necessary procedures, which could have allowed the petitioner to file revised returns within the prescribed time. The court emphasized the need for justice and directed the respondents to permit the petitioner to file revised monthly returns to claim the unavailed benefit.

Conclusion:

The writ petition was allowed, and Annexure Z was quashed. The respondents were directed to permit the petitioner to file revised monthly returns for the relevant period to avail of the benefit. The court clarified that this decision should not be treated as a precedent in any other case.