TMI Blog2018 (2) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... osing errors and omissions? What is the true meaning and purport of Section 10(3) of the KVAT Act, 2003 vis-à-vis Section 35 of the same Act, 2003? Held that: - The substantive provision of Section 10(3) of the KVAT Act, 2003, did not lay down any such restrictive time frame for allowing the deduction of ITC against the OPT in a particular tax period to determine the net tax payable for that tax period and therefore there is no justification whatsoever to accept such an interpretation put forth by the learned counsels for the Respondent State. Such contentions had not only been negatived and with great respects - 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgment as they involve common question of law. 2. The facts are illustratively taken from Writ Petition Nos.58917-928/2016 (M/s. Kirloskar Electric Company Ltd. Vs. The State of Karnataka and another) and a reference is made to the Statement of Objections filed by the Respondent State in Writ Petition Nos.26337-348/2017 (Micromatic Grinding Technologies Ltd. Vs. The State of Karnataka and others). 3. Though the controversy in hand has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Department. The provisions of Section 10(3) of the KVAT Act, 2003 which was amended in the year 2015 and again in the year 2016 as it stood prior and after these two amendments is quoted below for ready reference. SECTION 10(3) OF THE KVAT ACT PRIOR TO AMENDMENT IN 2015 10. Output tax, input tax and net tax. (1) .. (3) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, the net tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the preceding month or any other tax period as may be prescribed: [Provided that the specified class of dealers as may be notified by the Commissioner shall furnish particulars for preparation of the return in the prescribed form [and] submit the return in the prescribed form, electronically through internet in the manner specified in the said notification: Provided further that the specified class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged 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 only in that Tax Period during which the invoices of the selling Dealer is raised and the accumulated VAT ITC available in the various months preceding the Tax Period in question, could not be used/given by way of Input Tax Credit against the Output Tax (OPT) for the Tax period of a particular month. 12. The words in that period as em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Accounts to be maintained in the ordinary course of business, the ITC can be claimed as deduction against the Output Tax of any next Tax period for which such Output Tax and the same cannot be denied by the Assessing Authority. 17.2. Mr. Kumar also urged before the Court that the decision of the Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 differential tax amount to Selling Dealer and claimed the Tax Rebate of that amount of differential Tax in the VAT Returns filed for the month of December 2006, and the Division Bench of this Court allowed the said claim of the assessee and rejected the Revision Petition filed by the State, by hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 before this Court even now, the learned Single Judge noted the contention of the Revenue that, if for any reason, Input Tax Credit could not be availed of in the month in which purchase invoice was raised, the Dealer could have filed a Revised Return within a period of six m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se [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 belatedly up to six months by revising the return under section 35(4) of the KVAT Act, apparently drawing inspiration from the decision in Centum Industries case [2015] 77 VST 117(Karn.); [2014] 80 KLJ 65, is not relevant. It would not be po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. 18. On the other hand, the learned Additional Advocate General, Mr. A.S. Ponnanna and the learned Additional Government Advocate, Mr. T.K. Veda Murthy, appearing for the Respondent State and Commercial Taxes Department were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulating 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 in accordance with the provisions of the Act. If the assessee is not putting forth a claim for input tax deduction in the return filed in July 2006 nor as he put forth such a claim in a revised claim which he could have f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reasoning given by the Tribunal while deciding the Appeal in favour of the petitioner assessee which, however, the Division Bench of this Court did not approve as aforesaid, mainly for the reason of delay in making the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 allowing the deduction of ITC against the OPT in a particular tax period to determine the net tax payable for that tax period and therefore there is no justification whatsoever to accept such an interpretation put fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pari- materia with the concept of CENVAT or MODVAT under Excise Law and dealing with a similar problem, the Hon ble Supreme Court in the case of Collector of Central Excise, Pune Vs. Dai Ichi Karkaria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms 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 applicable to the facts of the present case nor any of the sides has called the same in question, this Court need not make any further analysis of these amendments. 32. This Court is, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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