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TMI Blog2018 (2) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... 5845-25855/2017, W.P.Nos.8046/2017 & 25856-25866/2017, W.P.Nos.8183-8194/2017, W.P.Nos.8206/2017 & 10601-10611/2017, W.P.Nos.11384- 11395/2017, W.P.Nos.11674-11685/2017, W.P.Nos.12165/2017 & 16929-16940/2017, W.P.Nos.20454-20465/2017, W.P.Nos.26337-26348/2017, W.P.Nos.26361-26372/2017, W.P.Nos.26779-26790/2017, W.P.Nos.26899-26910/2017, W.P.Nos.27451/2017 & 32900-32910/2017, W.P.Nos.10544/2017 & 10977-10987/2017, W.P.Nos.14220-14231/2017, W.P.No.16192/2017, W.P.No.21657/2017, W.P.Nos.28464- 28475/2017, W.P.No.11463/2017, W.P.Nos.16441/2017 &16895-16905/2017, W.P.Nos.10545/2017 & 10965-10975/2017, W.P.No.38502/2017, W.P.No.38503/2017, W.P.No.36730/2017, W.P.No.46532/2017, W.P.No.9849/2017, W.P.Nos.10562/2017 & 10914- 10924/2017, W.P.Nos.36403/2016 & 26429-26439/2017, W.P.Nos.37729/2016 & 26481-26491/2017, W.P.No.55140/2017, W.P.Nos.57971/2016 & 14974- 14984/2017, W.P.Nos.1227-1238/2018 (T-RES)W.P.Nos.58917-58928/2016 Petitioner: (By Mr. K.P. Kumar, Senior Counsel for Mr. T. Suryanarayana, Advocate) Respondents: (By Mr. A.S. Ponnanna, Addl. Advocate General Along with Mr. T.K. Vedamurthy, AGA) J U D G M E N T 1. The present batch of writ petitions is being disposed of by a common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Value Added Tax (VAT) to replace the erstwhile Single Point Sales Tax System by levy of Multiple Point Taxation on the sale of goods and to remove the cascading effect of the levy of sales tax at every point of sales, the concept of giving Input Tax Credit (ITC) was introduced in the VAT law enacted by various States including the State of Karnataka where under, against the Output Tax Liability in the hands of the assessee purchaser, the credit or deduction of input tax of the tax paid by his selling Dealer could be claimed as a deduction against his own Out put Tax Liability and only net of such tax liability was required to be paid by him and this is how ultimately removing the cascading effect of the tax of such Multiple Point Tax System under the VAT law, the ultimate consumer got the goods only with the net tax liability at the hands of the last seller in the chain of sales on the basis of value or sale price of such goods which he charges from the customers. 6. The controversy in the present impugned assessment/re-assessment orders arose because of a rather narrow and distorted interpretation of Section 10(3) put by the Authorities of the Respondent - Commercial Taxes Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Net Tax (NT) payable by the Dealer will be calculated is part of Chapter II dealing with the Incidence and Levy of tax comprising of Sections 3 to 21 of KVAT, Act, 2003. Chapter III comprises of Sections 22 to 28 - Registration of Dealers, Chapter IV comprising of Sections 29 to 34 deal with the Accounts of Documents and Chapter V comprising of Sections 35 to 57 deal with the Administration and Collection of Tax. 8. The provisions of Section 35 of the KVAT Act, 2003 deal with the filing of the 'Returns' by the Dealer and since the said provisions were mainly relied upon by the learned counsels for the Respondent - State for supporting the impugned assessment/re-assessment orders, the said provisions are also quoted below for ready reference. Section 35 and its proviso read thus:- "35. Returns: (1) Subject to sub-sections (2) to (4), every registered dealer, and the Central Government, a State Government, a statutory body and a local authority liable to pay tax collected under sub-section (2) of Section 9, shall furnish a return in such form and manner, including electronic methods, and shall pay the tax due on such return within twenty days [or fifteen days] after the end of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the KVAT Act, 2003 for the consolidated period from April 2009 to March 2010 though 'Tax Period' is dependent upon each Calendar month, which was passed by the Respondent - Deputy Commissioner of Commercial Taxes on 29/04/2016 is challenged, are narrated below for ready reference. 10. The petitioner, M/s. Kirloskar Electric Company Limited engaged in the manufacture and sale of Electrical Motors, Generators, Transformers, etc. purchased materials such as Steel, Copper, Bearings and Consumables and other goods required from the local Registered Dealers as well as the Dealers from out side the State of Karnataka and in respect of the tax paid by them on such purchases at the rate of 4% and 12.5%, they claimed this Input Tax Credit (ITC) against the output tax liability in respect of the sales made by it, in the said tax period and the term 'Tax Period' is defined under Section 2(33) of the KVAT Act, 2003 as defined under Rule 37 of the Karnataka Value Added Tax Rules, 2005, which in the case of present petitioners meant each calendar month as a separate tax period. 11. The Respondent Assessing Authority denied the Input Tax Credit (ITC) on the ground that the ITC is deductible o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els for the petitioners assessees may be noted as hereunder:- 17. Mr. K.P. Kumar, learned Senior Counsel urged that the claim of the Input Tax Credit cannot be restricted and denied to the petitioners assessees merely on the ground that the Sale Invoice on the basis of which ITC was claimed pertained to a month or a period prior to 'Tax Period' in question, since Section 10(3) of the KVAT Act, 2003 prior to its amendment with effect from 01/04/2015 did not provide any time limit within which the claim of deduction of such ITC has to be made against the OPT of the particular 'Tax Period' in which such goods are sold and the Tax Periods and assessment period involved in all the present Writ Petitions are admittedly prior to 01/04/2015. 17.1. He submitted that the petitioner - Dealer records the purchases in question in his Books of Accounts maintained in regular course of business as is mandated by Section 31 of the KVAT Act, 2003 itself on the date when the goods are delivered to the purchaser and upon verification are found to be in order, in accordance with the Purchaser Order and are not liable to be returned to the Selling Dealer and once the purchase is so recorded in the Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, he submitted that such disallowance of ITC would run absolutely contrary to the very concept of removing the cascading effect of tax on the multiple points of Sales under VAT law and neither any such statutory limitation could have been put nor it has been put in Section 10 (3) of the KVAT Act, 2003 and therefore such a restrictive interpretation cannot be put by the Respondent Assessing Authorities and the impugned orders are in contravention of the said clear provisions of the KVAT Act, 2003 and therefore deserve to be quashed and set aside by this Court. 17.5. Mr. Kumar relied upon the following decisions of this Court, a brief mention of which can be made hereunder immediately:- (a) In State of Karnataka Vs. K. Bond Polymers Pvt. Ltd. (2013) 66 VST 369 (Kar), the Division Bench of this Court headed by Hon'ble Justice N. Kumar (as his lordships then was) held that where the assessee purchased the goods during June 2005, July 2005, December 2005 and February 2006 paying tax at 4% under the KVAT Act 2003 as claimed by the supplier, but subsequently, the supplier charged a higher rate of tax at 12.5% and raising a Debit Note on 31/07/2006 which the assessee paid as the diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim input-tax credit in the same month in which the date of the invoice of the supplier or vendor falls. Section 35(1) makes it clear that every registered dealer shall furnish the return in such form and manner, and shall pay the tax due ( clearly the Net Tax = OPT- ITC ) on such return within 20 days or 15 days after the end of preceding month. Nowhere in the said section has it been contemplated that the purchasing dealer shall claim input tax in the same month. Section 35(4) contemplates that any dealer having furnished the return discovers any omission or incorrect statement therein, he may furnish the revised return at any time within a period of six months from the end of relevant tax period. The case on hand does not fall under section 35(4) of the KVAT Act." (c) In yet another judgment rendered by the learned Single Judge of this Court in the case of Sonal Apparel Private Limited Vs. State of Karnataka and another ( 2017 ) 97 VST 488 ( Kar ) decided on 29/03/2016, in a very lucid manner and even explaining and distinguishing the Division Bench judgment in the case of Centum Industries Private Limited (supra), which is the sheet anchor of the argument of the State befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted, the petitioners would be deprived of the benefit of availing credit of tax paid on their purchases, it would result in tax being levied under the provisions of the same Act on the same commodity at multiple stages. 38. In Centum Industries case [2015] 77 VST 117 (Karn); [2014] 80 KLJ 65, this Court has interpreted section 10(3) to mean that a dealer is required to avail of credit of input tax in the month in which the "input tax" is paid by the purchasing dealer. The said decision does not however, support the proposition that input tax must be availed of in the month in which the selling dealer raises his invoices. The Revenue is hence not justified in seeking to apply the said decision in support of its reasoning." Again repelling the contention of the Revenue based on the requirement of filing Revised Returns to claim the Input Tax Credit for the tax period to which ITC invoice or Sale Invoice pertains, the learned Single Judge negatived the said construction by holding that the same would amount to an absurd construction. To quote again, the learned Single Judge held as follows: " 40. A contention on behalf of the Revenue that a dealer is permitted to avail of credit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, Writ Appeal No.3176/2016 which has been admitted by the Division Bench of this Court on 20/06/2017. However both the learned counsels fairly submitted that the prayer of the State for stay of the operation of the judgment of the learned Single Judge was not accepted by the Division Bench of this Court and no interim order was granted, even after lengthy arguments made at the Bar. Thus, the learned Senior Counsel for the petitioners, Mr. Kumar submitted before the Court that the impugned assessment/re-assessment orders passed in this batch of writ petitions to the extent they take a restrictive interpretation of Section 10(3) of the KVAT Act, 2003 and deny the claim of the Input Tax Credit merely on the ground that the ITC invoice did not pertain to that very 'Tax Period' or the calendar month or that ITC was not claimed immediately in the Returns filed, even though in that 'Tax Period', the purchases concerned were not even recorded in their Books of Accounts, deserves to be quashed and set aside and for other points or issues in the said orders, the matter may be remanded back to the Assessing Authority for passing of the fresh assessment orders in accordance with law. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns proceeds on the assumption that allowing input tax is a statutory promise made to the dealer buying the goods from the registered dealer by paying that tax mentioned in the tax invoice. There is nothing in law stipulating that if input tax is not claimed during the month succeeding the month in which purchase is effected, the dealer would forfeit his claim to claim input tax. [From the words "allowing input tax is a statutory promise.....dealer would forfeit his claim to claim input tax" are the observations of the Tribunal quoted by the Division Bench, though not put the inverted commas, but then just following words... "On coming to the said conclusion, the Tribunal has not applied its mind"...makes it clear and has been verified by this Court as well from the order of the Tribunal ] In coming to the said conclusion, the Tribunal has not applied its mind to sub-section(3) of Section 10 which is the provision which determines the net tax payable by a registered dealer in respect of each tax period in arriving at tax liability the amount of output tax payable by the assessee in that period less the input tax deductible by him as may be prescribed in that period and accounted for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is permitted to file a revised Return under Section 35 (3) and (4) of the KVAT Act, 2003, within a period of six months from the end of relevant tax period respectively. 20. In the aforequoted paragraph 14 of the judgment of the Division Bench in Centum Industries Private Limited case, from the words "........ However, the Tribunal without reference to the statutory provisions proceeds on the assumption that allowing input tax is a statutory promise made to the dealer buying the goods from the registered dealer by paying that tax mentioned in the tax invoice. There is nothing in law stipulating that if input tax is not claimed during the month succeeding the month in which purchase is effected, the dealer would forfeit his claim to claim input tax" appear to be the quotation from the order of the Karnataka Appellate Tribunal, though inverted commas (" - ") have not been used by the Division Bench in the said Paragraph 14 of its judgment, but immediately thereafter, the Division Bench says "In coming to the said conclusion, the Tribunal has not applied its mind to sub Section (3) of Section 10 ..... " makes it obvious. Therefore it appears that what precedes these words is the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same would lead to absurd, impractical and totally unintended results. While on the one hand, the Dealer is enjoined with the legal obligation to maintain the Books of Accounts in the ordinary course of its business on a day-to-day basis as required under Section 31(1) of the KVAT Act and well settled Accounting Principles and he would record the purchases only when he purchases the goods and the goods are so received by him and depending upon the terms of contract, the contract is finally executed completely by recording such purchase in the Books of accounts, if on the other hand, the same is sought to be negatived and Dealer is called upon to file a revised return to claim the ITC in the 'Tax period' to which ITC invoice or sale invoice pertains, that would not only render the reversal of these entries illegal and wrong but against all canons of the settled Accounting principles and would make the Books of Accounts a total mess, while there is no good reason to interpret the provisions of Section 10(3) of the KVAT Act, 2003, in such a restrictive manner. 22. The substantive provision of Section 10(3) of the KVAT Act, 2003, did not lay down any such restrictive time frame for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of filing of the returns under Section 35 of the KVAT Act, 2003 for assessing the tax liability including the OPT, ITC and Net Tax liability under Section 10 of the KVAT Act, 2003, can be allowed to override the substantive provisions of Section 10 of the KVAT Act, 2003, contained in chapter II of the said KVAT Act, 2003. 26. In the absence of any valid answer and submission on behalf of the Respondent State, this Court can safely conclude that the machinery provisions cannot be allowed to override and defeat the substantive claim of the Input Tax Credits under Section 10(3) of the KVAT Act, 2003, which without any restriction of the time frame, allowed such deduction or credit of the ITC against the OPT liability of the Dealer in question. 27. When the Assessing Authority could pass the impugned re-assessment order, Annexure C dated 29/04/2016 for the whole year in one go, disallowing the ITC claim illegally by restricting it on the basis of monthly Tax Periods, what can be the justification for disallowing the same, without it being found to be an unverified claim, not supported by valid Sales Invoices ? None - is the simple answer ! 28. The Input Tax Credit under VAT law is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the month or months following the month of purchase of goods in question. The machinery provisions of filing of Returns under Section 35 of the KVAT Act cannot defeat the substantive claims under Section 10(3) of the Act. The Revenue is entitled only to verify that the Sale Invoices are genuine and valid and such ITC claim is not duplicate, fictitious or bogus. Article 265 of the Constitution of India does not entitle the State to retain such tax paid by Selling Dealers and deny the claim of ITC credit or set off in the hands of the Purchasing Dealers who claim such ITC against their Output Tax Liability when they sell goods further, incurring such Output Tax liability. 31. One wonders whether the subsequent amendments effected by the Respondent State in the year 2015 and 2016 though not applicable to the assessment period involved in this batch of writ petitions presently being decided by this Court, is a 'relaxation' or a 'restriction' and whether it is for the benefit of the assessees as contended by the Respondent State or seeks to restrict and defeat the claim of ITC in the period of assessment following such amendment. Be that as it may. Since that amendment is neither a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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