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TMI Blog2016 (3) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 10(3) of the KVAT Act, in a manner that would render it ultra vires the Constitution of India as well as the object and Scheme of the KVAT Act. It is recounted that the Karnataka Sales Tax Act, 1957 (Hereinafter referred to as the "KST Act", for brevity) which was the predecessor to the KVAT Act, provided for the levy of tax on sales of goods in the State of Karnataka. The provisions of the KST Act provided for a single point levy of tax on the sale or purchase of goods, and therefore, if the same commodity was sold more than once, tax could only be levied on the first sale or purchase, as the case may be and not on subsequent sales or purchases. However, due to the fact that goods often underwent a change in their form during various stages of manufacture and processing, the provisions of the KST Act result in tax being levied on the first sale of each new commodity that came into existence during the manufacturing process. Therefore, tax was levied at multiple stages before the final commodity was sold to the end consumer. The said multiple taxes were eventually passed on to and borne by the end consumer and this so-called cascading effect of taxes resulted in the escal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase orders that had been raised earlier. Therefore, it is often the case that the invoices are raised by the suppliers in one month but the purchases are accounted for in another month only after the audit is conducted. (b) Quality and quantity controls : In respect of certain supplies, due to quality and quantity mismatches the goods have to be returned to the suppliers in order to be replaced. In such cases, the goods are sent back and are accounted for only when the goods are replaced. Therefore, in these cases, too the month in which the purchases are accounted for may vary from month in which the invoices were raised. (c) Month of receipt of goods different from the month in which invoices are raised: In certain cases, goods are despatched and invoiced by the sellers on the 30th or 31st of a particular month and the goods will be received by the petitioners only on 1st or 2nd of the next month or even later depending upon the location of the supplier in the State of Karnataka and or actual despatch of goods by its supplier. In such cases, the petitioners will account for the purchases only in the next month after conducting the quantity and quality checks. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax period in which the credit is being availed. For instance, as per the amended provision, a dealer is permitted to take credit of goods purchased in the months of November, December, January, February and March in his returns filed for the month of April. Under Section 35(4) a dealer will also have an additional six months from the end of the relevant tax period to file revised returns for the month of April and claim any unavailed credit. On September 30, 2015, while dismissing the State's revision petition in State of Karnataka v. Manyata Promoters Private Limited (STRP No. 329/2014), a division bench of this court held that "nowhere in the Act has it been stated that the input tax credit should be claimed in the month in which the date of the invoice of the supplier/vendor falls or the purchasing dealer has to claim input tax credit in the same period in which the bills have been raised by the selling dealer." In the said case, this court therefore confirmed the petitioner's understanding that there was no time limit prescribed under the provisions of the KVAT Act for availment of input tax credit and that the Act did not make it mandatory for an assessee to avail cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of Section 10(3), the Revenue never objected to the same. However, in the latter half, of 2014, drawing inspiration from the judgment of this court in State of Karnataka v. Centum Industries Limited, (2014)80 KLJ 65, the revenue took the position that input tax credit must be taken in the month in which the purchase invoice was raised by the selling dealer. The Revenue's reliance on the said judgment, is however, wholly misplaced as that was a case where the dealer, having apparently accounted for his purchases in June 2006, claimed credit of the tax paid on the purchases in the month of February 2007. Noting that credit ought to have been claimed in the month of June 2006 an error that could have been rectified by filing a revised return within six months, that is by December 2006, the Court disapproved the dealer's action in claiming credit in the month of February 2007. Therefore, the facts of the said case are entirely different from the case of the petitioners, wherein they have consistently claimed credit in the month in which they have accounted for the purchases. Moreover there is nothing sacrosanct about the date of the seller's invoice as se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax v. Vatika Township, (2015)1 SCC 1 page 22 para 30 held that if a legislation confers a benefit on some persons, without inflicting a corresponding detriment on some other person and where to confer such benefit appears to have been the legislator's object, then the provision would have to be given retrospective effect. Therefore, since Section 10(3) as amended in 2015, is a beneficial provision, the said provision must be given retrospective effect with effect from the date of insertion of the original provision that is 1.4.2005. The Revenue contended that if for any reason, input tax credit could not be availed in the month in which the purchase invoice was raised, the dealer could have filed a revised return within a period of 6 months under the provisions of Section 35(4) with reference to the month in which the seller's invoice was raised. This is wholly impermissible, impractical and opposed to all canons of accounting, business and commercial practices. Virtually every dealer is liable to a tax audit, and revising a return for the month in which the seller raises his invoice would be incompatible with the dealer's accounts, as the purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich input tax is paid and output tax is payable and the same has to be accounted in accordance with the provisions the Act. The same is further clarified by this court in the case of State of Karnataka v. M/s. Centum Industries, (2015) 77 VST 117 (Kar) and held as under:-- "When in the statute a specific period is prescribed for filing of the return under Section 35(1) of the Act and when a provision is made under Section 35(4) of the Act for filing of a revised return again prescribing a time limit, when in sub-Section (3) of Section 10 it is categorically stated that the input tax shall be accounted in accordance with the provisions of this Act, the assessee would not be entitled to the benefit conferred on him under Sub-Section (4) of Section 10, if it is not accounted for." It is contended that in the case of MA. Infinite Builders and Developers, Bangalore v. The Additional Commissioner of Commercial Taxes, (STA 59 of 2009 and 75-83 of 2013), this court has categorically held that: "the benefit of input tax cannot be extended by overlooking the statutory requirements under Section 10(4) of the Act read with Sub-Section (1) and (4) of Section 35 of the Act. Where a statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the net tax payable." That Section 10(3) as it stood originally provided for the assessee to claim credit for the input tax paid, subject to making a claim for the same within the tax period. If the assessee failed to make such a claim within the period, he would. The right to claim input tax credits subject to the right to file corrected returns under Section 35(4) of the Act. Therefore the provisions of Section 10(3) of the Act is a Substantive provision vesting in the assessee a right to get input tax credit subject to the claim be made within the time frame and creating a liability on the assessee to forfeit the right to input tax credit if fails to make the claim on time and the rights on the revenue to demand payment of the input tax claim that is disallowed. The provision is therefore very clearly a substantive one in nature. That the legislature by way of amendment of Section 10(3) has retained the tenor of the earlier provision, with only a rider that a claim for input tax being extended by five preceding months. Apart from this change, there is nothing else that is different in the new Section 10(3), therefore the claim of the petitioners that the amendment to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be quite possible that if Section 10(3) of the KVAT Act is to be interpreted to mean that a dealer is permitted to take credit of tax paid on purchases only in the in which the selling dealer raises invoices, it would result in possible situations where credit cannot be availed of by dealers, for practical reasons as cited by the petitioners. The Scheme of the KVAT Act being to provide for set off of all tax paid at the earliest points of purchase against the tax payable by him on his sales, by compelling a dealer to avail credit of tax paid on purchases only in the month in which the selling dealer raises invoices, the Scheme would be defeated and it may result in double taxation. Under the provisions of the erstwhile Karnataka Sales Tax Act, 1957, tax was leviable only at the stage of first sale of goods. Under the KVAT Act, tax is leviable on every sale of goods, irrespective of whether it is the first, second or third sale. However, in order to ensure that the Act does not fall foul of the prohibition placed by the Constitution of India on double taxation, the provisions of the Act permit a dealer to deduct the amount of tax paid by him on his purchases while calculating hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in dispute that from the inception of the KVAT Act, Section 10(3) was consistently interpreted by the Revenue to mean that a dealer is permitted to deduct the input tax paid on his purchases irrespective of the month in which the purchases were effected. Based on the understanding that Section 10(3) did not require dealers to avail credit only in the month in which the purchases were effected. They were held entitled to avail such credit, as long as the claim of input tax credit was supported by the prescribed documents. The ambiguity as to the purport of Section 10(3) arose as a result of the Department's clouded interpretation of the Centum Industries case. The newly substituted provision clears the air and puts to rest the ambiguity, it may hence be said that the amendment to Section 10(3) is clarificatory and therefore could be given retrospective effect. The apex court has held that a clarificatory or declaratory amendment is generally passed in order to rectify what the legislature deems to have been a judicial error. In the case on hand the judgment in Centum Industries case was rendered on 31.7.2014 and in less than a year, the Legislature amended Section 10(3) dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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