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2016 (6) TMI 859 - KARNATAKA HIGH COURT

2016 (6) TMI 859 - KARNATAKA HIGH COURT - [2016] 90 VST 236 (Kar) - Input Tax Credit - correct amount of input tax rebate - scope of inputs - manufacturing activity - It was submitted that if there is failure on the part of the Assessee to get the specified formula through the Commissioner, the input tax credit is not permissible and has been rightly denied as per Rule 131[3] of the Karnataka Value Added Tax Rules, 2005. - Held that:- all electrical and electronic goods including air conditi .....

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ny input used for generation of electricity or steam, provided such electricity or steam is used within the factory for the manufacturing activity of the final product, the same would stand covered. - Decision in the case of MARUTI SUZUKI LIMITED [2009 (8) TMI 14 - SUPREME COURT] - It is also true that in the decision of the Apex Court, the matter was pertaining to consumable item, namely, ‘naphtha’ and ‘diesel’ for generation of electricity. But, in our view, once the goods are purchased in .....

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red as capital goods. Further, the language for all electrical or electronic goods is inclusive and not exhaustive. Therefore, when the other goods specified can also be considered as capital goods, but to be used in the manufacturing activity, there would not be any justifiable ground if the speeder system is purchased and used to back up the electricity in the manufacturing process to treat it differently for the purpose of input tax credit. - Decided in favor of assessee. - STRP Nos. 1/2014 & .....

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ead matter being STRP No.1/2014. 2. The present revision petitions have been preferred by the Assessee by raising the following substantial questions of law. (a) Whether, on the facts and in the circumstances of the petitioner s case, was the Appellate Tribunal justified in law in holding that the petitioner could not compute the input tax credit on the basis of its books of account and in accordance with Section 11, 14 and 17 of the Act and ought to resort only to Rule 131 (3) of the Rules?. (b .....

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ed to claim input tax credit in respect of the purchase of un-interrupted power supply system which is an integral part of the manufacturing process?. 3. In order to appreciate the facts and contentions in our present decision, we shall be dealing with the facts related to question wise instead of common discussion. 4. We may broadly state the facts that the re- assessment proceedings were undertaken before the Assistant Commissioner of Commercial Taxes and ultimately he passed the Order on 15.1 .....

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the present revision petitions before this Court. 5. We may now extract the discussion point wise. On the first question pertaining to the claiming of input tax credit which was not computable on the basis of the books of accounts, the Tribunal at paragraph - 12[a] has observed thus: (a) We have perused the assessment as well as appeal records. It was recorded that the assessee company having manufacturing, processing, packing and trading activities which involve purchase of taxable and exempted .....

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Further, it is submitted that in respect of the said exempted goods, Section 11(a) (1) of the Act, restricts the deduction of input tax while calculating the net tax payable. Accordingly, in view of the said provisions, the company did not claim any input tax credit separately in respect to sale of exempted goods. All inputs are taken as common input and eligible tax is claimed based on common formula. Further, they have submitted that they have also effected stock transfer of goods, to their b .....

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credit in respect of sales of exempted goods whereas it has taken credit of input tax in respect of goods taxable at 4% and taxable at 12.5% including furnace oil instead of disallowing the entire input tax pertaining to the exempted sale turnovers. Further the assessee has contended that they have not claimed any input tax credit in the units where exempt goods sales are effected. All inputs are taken has common input and eligible input tax is claimed based on common formula. This contention o .....

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intained by the appellant, do not revealed that the appellant company has maintained day to day accounts, stock accounts on a day to day basis in respect of exempted goods and taxable goods for the manufacturing activities. Hence both the authorities below concluded that the non- deductible input tax calculated by the appellant is not in accordance with the provisions of Section 11,14 and 17 of the KVAT Act, read with Rule 131 of KVAT Rules 2005. Accordingly, the same was worked out as per the f .....

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including non- taxable transactions). (4) For the purpose of Clause(3)-(a) Sale of taxable goods would be the aggregate of the amounts specified in clauses(b),(c),(d),(e) and (f) of sub-rule (1) of Rule 3 relating to sale of goods other than those exempt under Section 5 which are not sold in the course of export out of the territory of India [and those sold in the course of import into the territory of India]; and In this regard, we also refer the Commissioner s Circular cited supra in which at .....

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le type of transactions, it was impossible to maintain day-to-day classification reflecting the factual position in the manufacturing and trading activities so as to correlate the transactions on one to one basis. The Rule provided to the KVAT Rules 131(3) or 131(5) with effect from 01.04.2006 has to be followed in respect of apportionment of non-deductible input tax in such circumstances. Hence, we agree with the respondent authorities for having restricted the claim of input tax credit by appl .....

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r the petitioner was that the Circular dated 26.06.2006, copy whereof is produced at Annexure-D, was already issued by the Commissioner of Commercial Taxes for the purpose of procedure for partially rebating under the Karnataka Value Added Tax Act, 2003 [hereinafter referred to as KVAT Act , for short] and such circular was binding to the Assessing Officer and the Department. As per the said Circular vide paragraph-9, it has been provided as under: (9) It may be noted that in many cases the dedu .....

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vided in Rule 1131 should not be applied without any justifiable reason. It may also be noted that the apportionment formula prescribed in Rule 131(3) is a general formula and may not fit all cases. Therefore, cases in which its application does not give the correct amount of input tax rebate available to the dealer, the Commissioner would have to be moved by the dealer or the departmental officer concerned to specify a special formula. However, if even in such cases the procedure laid down in t .....

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move the Commissioner for a specified formula, the Departmental Officer also could be moved which in the present case was the Assessing Officer or otherwise and just on mere ground that the amount was non computable of input tax credit, the claim could not have been denied. 9. Learned Counsel for the respondent-Revenue contended that it was for the Assessee-Petitioner to move the Commissioner if he was of the view that the input tax credit on the basis of actual material used could not be arriv .....

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e relevant point of time and its binding effect is accepted, then also as per the contents of paragraph-9 if specified formula on account of the nature of transaction was to be applied, it was for the Assessee to move the Commissioner and get the said formula approved. If the Assessee has without there being any prior approval, applied the formula on its own and has prepared books of accounts in a manner that the input tax is not identifiable in respect of product used as raw material, the Asses .....

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dit, it cannot be said that there is any error of law as sought to be canvassed. Under the circumstances, we answer question No.[a] against the Assessee and in favour of the Revenue. 12. As regards question No.[b], the relevant discussion in the impugned order of the Tribunal is at clause[b] which reads thus: (b) The assessee Company has mainly purchased furniture, chemicals, engineering goods scientific goods to its research centre i.e., HLRC and claimed input tax. According to Sec.2(19) of the .....

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n furtherance of gain or profit and whether or not any gain or profit approves there from, any transaction in connection with, or incidental or ancillary to , such trade, commerce, manufacture, adventure are concerned. The research activities of the appellant do not fit in to the definition of business as provided under the KVAT Act. In this regard we refer the judgment of Hon ble High Court of Madras in the case of South India Textile research association Vs. DCCT, Coimbatore reported in 41 STC .....

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egard and uphold the restrictions made by the authorities below in respect of input tax credit on the purchase made for the research unit which is not related to normal business activities. 13. The aforesaid shows that the Tribunal found that the research activity of the appellant do not fit in the definition of business as provided under the KVAT Act. Further, the Tribunal also observed that as per the orders of the Authorities below, the goods purchased are not utilized in the course of the bu .....

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cts which are being manufactured by the petitioner and therefore there was no reason on the part of the Tribunal to concur with the view taken by the lower authority. It was also submitted that the decision of Madras High Court upon which reliance has been made by the Tribunal is easily distinguishable and therefore the said question may be answered in favour of the Assessee. 15. On the contrary, Learned Additional Government Advocate appearing on behalf of the Respondent-Revenue contended that .....

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s been referred to and the view taken by the Tribunal is correct and may not be interfered by this Court. 16. In order to appreciate the contentions, the definition of the word business will be required to be considered. Section 2[6] of the KVAT Act reads as under: 2(6) Business includes:- (a) any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in further .....

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function which has direct nexus to the manufacturing activity of the assessee would fall within the definition of the word business apart from the principal activity of manufacturing. The word business even otherwise is defined in an inclusive manner and not by giving exhaustive meaning. If one is running an independent research organization or research institute and it is amenable to any person interested to get services of Research Institute, it may stand on a different footing and different c .....

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NER [C.T.], COIMBATORE Vs. SOUTH INDIA TEXTILE RESEARCH ASSOCIATION reported in [[1978] 41 STC 197, it was an independent co-operative Research Institution in a textile industry supported by a Council of Scientific and Industrial Research of Government of India and therefore the observations were made that where the Organization is constituted solely and exclusively for the purpose of carrying on research and is not dealing in sale of a resultant product, it cannot be said to be falling within t .....

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TEXTILE RESEARCH ASSOCIATION [supra] cannot be applied to the facts of the present case. 20. In another decision of the Madras High Court in the case of STATE OF TAMIL NADU Vs. CEMENT RESEARCH INSTITUTE OF INDIA reported in [[1992] 86 STC 124], the same situation arose, in as much as, it was an Institution initiated by Cement Industries and supported by Council of Scientific and Industrial Research of the Government of India. It was an independent Research Organization. Under the circumstances, .....

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f UNILEVER INDUSTRIES PVT. LTD., Vs. THE STATE OF KARNATAKA rendered in CRP No.683/2006 and others decided on 6.7.2007, the matter came up before this Court against the Order passed by the Tribunal in STA Nos.1819-1821/2004 decided by the Tribunal vide Order dated 1.9.2005. If facts of both decisions are considered, it appears that in the said case, in respect of very assessee, it was contended that the appellant therein was engaged in the research activity, but the relevant aspect is that in Pa .....

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ence would fall within the definition of the word Business . 23. In view of the aforesaid observation and discussion, we find that the view taken by the lower Authority and further confirmation of the Tribunal for giving restricted meaning to the word business cannot be maintained. The petitioner would be entitled to input tax credit on the purchases made for research unit as claimed. Under the circumstances, question No.[b] shall stand answered in favour of the Assessee and against the Revenue. .....

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der 5th schedule to the KVAT Act 2003. These electrical goods have not been sold nor used in the manufacturing of processing of any other goods for the sale. The disallowance of input tax credit is in order and we agree with the orders passed by the authorities below in this regard. 25. The aforesaid shows that the Tribunal itself allowed the input tax credit mainly on the ground that the electrical goods have not been sold nor used in the manufacturing or processing of any goods or sale. Under .....

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e or manufacture or any process of other goods for the sale. It was submitted that when there was express provision made for admissibility of input tax credit, even on all electrical goods, there was no reason on the part of the Tribunal to disallow the claim. He submitted that the goods of Express Speeder System were purchased by the Assessee in order to ensure that there is no disruption of the power resulting into seriously hampering the manufacturing process. He submitted that the Express Sp .....

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pported the view taken by the Tribunal by contending, inter alia, that the said Express Speeder System was by way of capital goods and cannot be said to be a consumable item used in the manufacturing process and hence in his submission, the Tribunal has rightly confirmed the view taken by the lower Authority. 28. We may have to first consider the provisions of Section 11[a][2] of the KVAT Act which reads as under: 11. Input tax restrictions:- (a) Input tax shall not be deducted in calculating th .....

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olers, telephones, fax machines, duplicating machines, photocopiers and scanners, parts and accessories thereof, other than those for use in the manufacture, processing, packing or storing of goods for sale and those for use in computing, issuing tax invoice or sale bills, security and storing information. 30. If the aforesaid provisions of the Act and the items specified of goods are considered, all electrical and electronic goods including air conditioners, air coolers, telephones, fax machine .....

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cal or electronic goods so narrated and referred to hereinabove should have the nexus to the manufacturing process if they are purchased and put to use for the purpose of or in furtherance to the manufacturing process. 31. We may usefully refer to the decision of the Apex Court in the case of MARUTI SUZUKI LIMITED Vs. COMMISSIONER OF CENTRAL EXCISE, DELHI-III reported in [(2009) 9 SCC 193] and more particularly, the observations made at paragraph-45 which reads as under: 45. To sum up, we hold t .....

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