TMI Blog2016 (3) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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. Section 10(3) of the KVAT Act, prior to its amendment vide the Karnataka Value Added Tax (Amendment) Act, 2015, shall be read down to enable the petitioners to calculate the net tax liability by deducting the input tax paid on its purchases from its out put tax liability, irrespective of the month in which the selling dealer raises invoices - petition allowed. - Writ Petition Nos. 22483-22494 of 2015 (T-RES), 38509, 38987-38997 of 2015 (T-RES), 38510, 38973-38983 of 2015 (T-RES), 23533-23568 of 2015 (T-RES), 56067-56074 of 2015 (T-RES), 57835-57843 of 2015 (T-RES), 2925, 4218-4228 of 2016 (T-RES), 3104-3115 - - - Dated:- 29-3-2016 - Anand Byrareddy, J. For Appellant: K.P. Kumar, Senior Advocate for T. Suryanarayana, Advocate For Respondents: A.S. Ponnanna, Additional Advocate General-II for S.V. Giri Kumar, Additional Government Advocate ORDER Anand Byrareddy, 1. These petitions are heard and disposed of by this com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchases. The scheme and object of the KVAT Act is amply evident on a reading of clauses (ii) and (iv) of the Statement of Object and Reasons to the Act. The said clauses state that the KVAT Act provides for the removing of cascading effect by allowing set off of all tax paid at earlier points in respect of goods sold against the tax payable, defined as output tax , at any point, the set off scheme being called as input rebating. The petitioners claim that they purchase various taxable goods to be used as inputs and consumables in the manufacture of finished products. In respect of such purchases, the petitioners pay taxes applicable to its selling dealers, and as the said tax paid qualifies as input tax under Section 10(2) of the KVAT Act, the petitioners had deducted the same while calculating the net tax liability as per Section 10(3) of the KVAT Act. The petitioners claim to have consistently availed credit of input tax paid by them in the month in which they accounted for the purchases in their books. However, due to practical constraints, the month in which the purchases were accounted for were often not the same month in which the purchase invoices were raised. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns filed for the month in which input tax is paid by it. More specifically, this court held that it is clear the words 'in that period' specifies the period during which input tax is paid . This court further clarified that if a dealer does not claim credit of input tax in its return filed for the month in which the input tax is paid, he may file revised returns for the same month within the time period prescribed under Section 35(4) of the KVAT Act, that is 6 months from the end of the relevant tax period. Thereafter, on April 1, 2015, the Karnataka Value Added Tax (Amendment) Act, 2015 ( the 2015 KVAT Amendment Act for short) was brought into force. As proposed in the Karnataka State Budget for the years 2015-16 Section 5 of the 2015 KVAT Amendment Act substituted Section 10(3) of the KVAT Act. Section 10(3) as substituted by the 2015 KVAT Amendment Act now reads as follows: Subject to input tax restrictions specified in sections 11,12,14,17,18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible by him as may be prescribed in that period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is levied only on the incremental monetary value addition on each sale of goods. Section 10(3) of the KVAT Act states that the net tax payable by a registered dealer shall be the amount of output tax payable by him in that period less the input tax deductible by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of the Act. Therefore the availment of input tax credit under Section 10(3) is a right vested in every registered dealer under the Act, and the same furthers the underlying object of the Act. Pertinently, Section 10(3) does not indicate any time period when or within which a dealer is required to avail input tax credit. Therefore, the consistent business practice of dealers across the State is to avail credit of input tax in the month in which they account for their purchases, which is generally done after the goods are received and an audit is conducted in order to ensure that the goods received are in conformity with the specifications contained in the purchase order. Since the physical movement of the goods and their verification after receipt takes some time, it is likely that the accounting of the purchases i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led for a month with reference to purchases effected within the preceding five months. It is a settled position of law that a provision inserted by way of a substitution would relate back to and apply with effect from the date the original provision was introduced, which in the case of section 10(3) is 1.4.2005. In this regard, reliance is placed on the following judgments: (a) Government of India v. Indian Tobacco Association,: 2005 (187) ELT 162 (b) Hassan Co-operative Milk Producers Societies Union Limited v. State of Karnataka, AIR 2014 Kar. 120 It is further pertinent to note that the underlying basis for the substitution, as stated in the Statement of Objects and Reasons for the 2015 KVAT Amendment Act, is as follows; It is considered necessary to amend the Karnataka Value Added Tax Act, 2003 to give effect to the proposals made in the Budget and matters connected therewith and specifically to, (iii) provide for claim of input tax rebate of preceding tax periods in the return filed for the subsequent tax period, if input tax rebate was not claimed in the relevant tax period. This is to facilitate the dealer to claim input tax credit at a later date as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (b) alternatively, section 10(3) having been substituted by the 2015 KVAT Amendment Act, would relate back to the day the original provision was introduced and (c) The substituted provision, being a beneficial amendment and being procedural in nature would have retrospective and retroactive operation. 5. On the other hand, the learned Additional Advocate General, Shri A.S. Ponnanna, appearing for the State would contend that Section 2(33) KVAT authorizes the State legislature to prescribe the tax period for the purpose of submission of filing monthly returns under Section 35 of the KVAT Act, 2003. Rule 37 of the KVAT Rules, 2005 has prescribed tax period as one calendar month in case of registered dealers in whose case total turnover exceeds ₹ 25 lakhs in a year. Hence, the tax period for all purposes under KVAT Act, 2003 and Rules 2005 is a month. Accordingly, Section 10 of the Act narrates the manner in which net tax is to be calculated. Section 10(2) of the Act defines input tax in relation to any registered dealer as tax collected or payable under this Act on the sale to him of any goods for use in the course of his business. Section 10(3) of the Act prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution of Section 10(3) made by the Amendment is prospective in effect and not retrospective. It is further contended that a combined reading of Sections 7(1), 7(2), 10(2), 10(3) and 10(4); and of the Rule 37 gives the following meanings: a) To support the claim of input tax, there must be a valid tax-invoice. As the tax-invoice is at the base of the input tax claim, the month in which the tax-invoice is issued is the 'period' in which the input tax is deductible. b) Sale happens: i. When the tax-invoice is issued, as ii. When the transfer of title to the goods happens; c) Issuance of tax-invoice is an indication of transfer of title to the goods; d) When a dealer sells, the other dealer purchases. Every sale must have a corresponding purchase; e) After the tax-invoice is issued, either the tax is paid immediately or becomes payable. This 'paid' tax or 'payable' tax is the 'input tax' deductible by a registered dealer subject to the restrictions specified; and f) Section 10(3), as it was in the Financial Year 2012-2013 and Financial Year 2013-2014, is clear that the input tax deductible is the input tax deductible 'in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be prospective. The principle behind this is that commercial laws must govern the current situation. The only exception to the presumption of prospectivity is amendments to procedural law and amendments that are clarificatory in nature. The current amendment being to substantive law and is not explanatory in nature ought to have prospective operation. The mere use of the term substitution will not make the law retrospective in operation. In the present case, the claim of the petitioners is not merely for retrospective operation but it is retroactive, thereby making the amended provision inapplicable to assessments or the years 2010-2011 to 2011-2012. That could never have been the intention of the legislature. Even if the amendment is to be held as retrospective, it could only be for the five preceding tax periods from the date of the amendment coming in to force which is on 1.4.2015. Reliance is placed on Bhagat Ram v. Union of India, 1988 (Supp) SCC 626; Shyam Sunder and others v. Ram Kumar and another, (2001) 8 SCC 24; K.M. Sharma v. I.T.O., (2002) 4 SCC 339 and Zile Singh v. State of Haryana and others, (2004) 8 SCC 1. 6. On a consideration of the above rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue is hence not justified in seeking to apply the said decision in support of its reasoning. On the other hand, in Manyata Promoters case, a Division bench of this court has categorically held that the provisions of the Act do not require a dealer to avail credit only in its returns filed for the month in which the purchase invoices are raised by the selling dealer. A contention on behalf of the Revenue that a dealer is permitted to avail credit belatedly upto six months by revising the return under Section 35(4) of the KVAT Act, apparently drawing inspiration from the decision in Centum Industries case, is not relevant. It would not be possible to hold that Section 10(3) first restricts availment of credit to the same month as the month of purchase and then Section 35(4) goes on to permit the same by way of revision of return would be an absurd construction. Such an interpretation would lead to the conclusion that the KVAT Act encourages availment of credit by the dealer without ensuring the eligibility for the same, as delay in availment would result in denial of credit altogether and thereafter rectifying any incorrect credit available by revising the return. Such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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