Karnataka High Court
The State Of Karnataka vs Sonal Apparel Private Limited on 22 December, 2022
Author: P.S. Dinesh Kumar
Bench: P.S. Dinesh Kumar
STRP No.234/2016
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF DECEMBER, 2022
PRESENT
THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR
AND
THE HON'BLE MR. JUSTICE UMESH M. ADIGA
S.T.R.P No.234 OF 2016
BETWEEN :
M/S. BHARAT EARTH MOVERS LIMITED
REPRESENTED BY ITS
SHARAD KUMAR KALAGI
BEML SOUDHA, NO.23/1
4TH MAIN ROAD
SAMPANGI RAMNAGAR
BANGALORE-560027 ... PETITIONER
(BY SHRI. G. SHIVADASS, SENIOR ADVOCATE ALONG WITH
SHRI. SYED M. PEERAN, ADVOCATE)
AND :
THE STATE OF KARNATAKA
RERPESENTED BY THE COMMISSIONER
OF COMMERCIAL TAXES
GANDHINAGAR
BANGALORE ... RESPONDENT
(BY SHRI. JEEVAN J. NEERALGI, AGA)
....
THIS STRP IS FILED UNDER SECTION 65(1) OF
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
JUDGMENT AND DECREE DATED 5.1.2016 PASSED IN STA
NO.369/2015 ON THE FILE OF THE DISTRICT JUDGE,
MEMBER, COMMERCIAL TAXES, MEMBER. PARTLY ALLOWING
STRP No.234/2016
2
THE APPEAL FILED UNDER SEC.63(1) OF THE KARNATAKA
VALUE ADDED TAX ACT,2003.
THIS STRP, HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON 01.09.2022, COMING ON FOR PRONOUNCEMENT
OF ORDERS THIS DAY, P.S.DINESH KUMAR. J,
PRONOUNCED THE FOLLOWING:-
ORDER
This appeal by the assessee, challenging the common Judgment dated January 5, 2016 in STA No.369/2015 passed by KAT1, Bengaluru, has been admitted to consider following questions of law:
(a) Whether the Hon'ble Tribunal was right in holding that the Petitioner is not entitled to the benefit of input tax credit claimed by it after six months from the date of invoice?
(b) Whether the Hon'ble Tribunal was correct in holding that the time limit for filing of returns and revised returns under Section 35(1) and 35(4) of the K-VAT Act has to be read into Section 10(3) of the K-VAT Act for the purpose of availing input tax credit?
(c) Whether the Hon'ble Tribunal was right in holding that for the purposes of K-VAT Act, 'sale' will be deemed to have been completed at the time when invoice is issued by the selling dealer and not when the goods are accepted by the Petitioner after quality testing which is when 1 Karnataka Appellate Tribunal STRP No.234/2016 3 'sale' takes place in terms of the Sale of Goods Act, 1930?
(d) Whether the Hon'ble Tribunal has erred in not setting aside the interest and penalty levied on the Petitioner?
2. Heard Shri. G. Shivadass, learned Senior Advocate for the Assessee and Shri. Jeevan J. Neeralgi, learned AGA for the Revenue.
3. The present appeal and other connected cases are being disposed of by this common judgment as they involve common question of law. Thus, the question that arises for consideration is, whether the assessees' are entitled to the benefit of input tax credit claimed by them after the time limit from the date of invoice under Section 10(3) of the K-VAT Act?
4. Briefly stated the facts of the case are, assessee, BEML2, a Government of India Undertaking, is a registered dealer under the 2 M/s. Bharat Earth Movers Ltd.
STRP No.234/20164 Karnataka Value Added Act, 20033. It is engaged in the manufacture of earth moving equipments, Rail and Metro Coaches, Aerospace and Defence products etc. It procures raw materials and consumables from local VAT registered dealers and dealers outside the State in addition to the imports. The goods received by the assessee are subjected to series of quality control tests which takes about three to six months. Consequently, the normal period for receipt of goods to be accounted as purchases in the assessee's Books of Accounts varies up to six months and sometimes even more.
5. Once the goods are received, assessee's Inventory Account gets debited and the inward remittance account or GRIR4 Account is credited instead of Vendor's account. After the goods pass through the quality control tests, the GRIR Account gets debited in the books of assessee's account and 3 'KVAT Act' in short.
4Goods Received / Invoice Receipt STRP No.234/2016 5 Vendor's account is credited. Thereafter, payment is made to the Vendor as the goods are recorded as 'purchases'. If the goods fail in the quality control tests, the GRIR Account is debited and the accounting entry for inward remittance gets reversed.
6. Revenue issued a notice under Section 39(1) of the KVAT Act dated October 25, 2014 inter alia proposing to dis-allow the claim of input tax credit amounting to Rs.23,72,32,436/- in respect of the goods purchased during the tax period April 2010 to March 2011, on the ground that the input tax related to purchases made during the earlier tax period.
7. Assessee submitted its reply dated December 4, 2014 contending inter alia that:
• delay in availing the input tax credit cannot be ground for denying the claim, as the provisions STRP No.234/2016 6 under the KVAT Act do not describe any time limit for availing the credit; and • purchase of goods is made after the goods pass the mandatory quality control tests.
8. The AO5 rejected assessee's contentions and passed the re-assessment order6 and confirmed the proposal made in the proposition notice. The JCCT(A)7 vide order dated 23.01.2015 dismissed assessee's appeal and confirmed the demands. On further appeal, KAT, by the impugned order, has allowed the appeal in part holding thus:
1) Appeal is allowed in part.
2) It is held that the amendment to Section 10(3) of the Act by virtue of Karnataka Value Added Tax (Amendment) Act, 2015 (Karnataka Act No. 15 of 2015) is clarificatory in nature and thus thereby operates retrospectively.
3) It is further held that the crores appellant is entitled for the benefit of Twenty thousand input tax credit amounting to Rs. 20,26,34,785 (Rs.5
Assessing Officer 6 dated 26.12.2014 7 Joint Commissioner of Commercial Taxes (Appeals) STRP No.234/2016 7 twenty-six lakhs thirty-four and seven hundred eight five) which is claimed within the period of six months as the said purchases are claimed in the returns within six months from the date of tax invoices as per substituted Section 10(3) of the Act which operates retrospectively'.
4) It is also held that the appellant is not eligible for the input tax credit amounting to Rs. 3,45,97,651/. as the same is availed beyond six months as it is not in accordance with Section 10(3) & Section 35(4) of the Act.
5) The prescribed authority has to examine whether there is any blameworthy conduct on the part of the appellant before invoking the provisions of Section 72(2) of the Act for the purpose of levy of penalty.
6) The interest has to be recomputed as per the observations made in this order.
7) The assessing authority is directed to issue revised demand notice as per this order.
8) The Registrar of the Tribunal is directed to comply regulation 53(b) of Chapter IX of Karnataka Appellate Tribunal Regulations 1979 by communicating this order to the persons mentioned therein.
9) The Office is directed to send back the lower authorities records immediately by registered post with acknowledgement due.
STRP No.234/20168
9. Feeling aggrieved, assessee, BEML has presented this appeal by framing questions of law recorded above.
10. Shri. G. Shivadass, learned Senior Advocate, for the Assessee inter alia contended that:
• assessee availed input tax credit on purchases in the month in which the purchases are accounted in their books of accounts, the time period may vary from the date of purchase invoice, owing to various factors, such as delay in receipt of inputs, testing, audit checks etc.;
• the provisions under the KVAT Act do not prescribe any time limit for taking input tax credit. Therefore, in the absence of any restriction provided in the KVAT Act, the eligibility to take credit in respect of tax paid by a dealer is independent of any time frame;
• prior to April 1, 2015, Section 10(3) of the KVAT Act, defined 'net tax payable by dealer as STRP No.234/2016 9 the difference between the amount of output tax payable in that period and the input tax credit as may be "prescribed" in that period.
The term "prescribed" must be understood as a reference to restrictions in the Act and allied Rules which determine the eligibility of input tax credit at the time of availment of such credit;
• that in Eicher Motors Ltd v. UOI8, the Hon'ble Supreme Court held that a credit under Modvat scheme was as 'good as tax paid'. The Scheme of credit under the VAT is pari materia to the Modvat/Cenvat Scheme, wherein, the manufacturer was eligible to avail credit as soon as tax is paid on eligible purchases made by him and could not be denied on grounds of delay in claiming the deduction;8
1999 (106) ELT 3 (SC).STRP No.234/2016 10
• that in Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd.,9 the Hon'ble Supreme Court has reiterated the same and held that input tax credit is an indefeasible right;
• that in State of Karnataka v. K. Bond Polymers Private Limited, Bangalore,10 and State of Karnataka Vs. M/s. Manyata Promoters Pvt.
Ltd.11, the Division Bench of this Court considered that the substantive provision of Section 10(3) of the Act does not prescribe a time limit for availment of credit was the unanimous understanding of both the Revenue and the assessee for almost 10 years right from 2005 till 2014.
11. In addition to the authorities noted above, Shri. G. Shivdass has placed reliance on the following authorities also.
9 1999 (112) E.L.T. 353 (S.C.).
102012 (73) Kar. L.J. 429 (HC) 11 2015 VIL 486 KAR STRP No.234/2016 11 • Sonal Apparels Pvt Ltd & Ors Vs. State of Karnataka12 • Kirloskar Electric Co. Ltd. & Ors Vs. State of Karnataka13
12. Shri. Jeevan J Neeralgi, learned AGA, for the Revenue contented that:
• the input tax credit disallowance is in accordance with Section 10(3) and Rule 37(2) as well as Section 7 and Section 35 of the KVAT Act;
• the amendment w.e.f. 01-04-2015 to Section 10(3) of the KVAT Act is prospective in nature and not retrospective. Now, the dealers are allowed to claim Input Tax Credit relating to a tax period even if it is not claimed in that tax period without revising the returns for five months. The amendment has reduced the burden of revising each month return and 12 (2017) 97 VST 488 (Kar) 13 2018 VIL 36 KAR.STRP No.234/2016 12
provides for claiming of Input Tax Credit without revising the return;
• it is well-settled that every amendment, whether by way of substitution or insertion, is presumed to be prospective. The principle behind this is that commercial laws must govern the current situation. The only exception to the presumption of prospective operation is that amendments to procedural law and amendments that are clarificatory in nature. The current amendment being a substantive law and not explanatory in nature ought to have a prospective operation. The mere use of the term "substitution" will not make the law retrospective in operation; • Section 35 of the KVAT Act provides for filing of the returns within the stipulated time, on which the computation of tax liability has to be made including Input Tax Credit in terms of Section STRP No.234/2016 13 10(3). Section 35(4) provides for filing of revised returns within six months from the end of the relevant tax period. The timeline prescribed for filing of return or revised return should be always adhered to by the dealers without which timely tax compliance cannot be ensured by the State. Thus, timely and correct filing of returns is the duty cast upon the dealers by the statutes;
• any violation in filing of returns or incorrect declaration of tax liability and input tax credit claimed would attract penal provisions including disallowance of Input Tax Credit subject to provisions under section 10(3);
13. He has placed reliance on the following authorities:
• UOI & Ors v. Kirloskar Pneumatic Co. Ltd 14 14 (1996) 4 SCC 453 STRP No.234/2016 14 • Enercon India Ltd. v. State of Karnataka & Ors15 • JCB India Ltd v. UOI & Ors16
14. We have carefully considered the rival contentions and perused the records.
15. The sum and substance of Shri. G. Shivadass's argument is, prior to April 1, 2015, Section 10(3) of the KVAT Act, permitted the dealers to avail input tax credit irrespective of the month in which the selling dealer had raised an invoice. Therefore, the assessee's are entitled to the benefit of input tax credit.
16. The Revenue's case is, Section 10(3) of KVAT Act as it existed from 01-04-2005 to 31-03- 2015 provided for Input Tax Credit claim during the tax period to which it related to, unless it was claimed correctly within six months by revising the 15 (2015) 64 (II) ITPJ 285 (Karn-HC) 16 W.P. No. 3142/2017 STRP No.234/2016 15 return as provided under section 35(4) of KVAT Act, if not claimed in the same tax period.
17. Undisputed facts of the case are, the assessee in the present appeal and other connected cases, has claimed input tax credit for the tax period prior to the year 2015. The credit claimed was disallowed by the Revenue on the ground that the assessees have not claimed the input tax credit within the prescribed time limit under Section 10(3) of the KVAT Act.
18. Section 10(3) of the KVAT Act (prior to 2015 amendment) reads as follows:
10. Output tax, input tax and net tax.
(3) Subject to input tax restriction 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 and shall be accounted for in accordance with the provisions of this Act.
STRP No.234/201616
19. Section 10(3) of the KVAT Act (After 2015 amendment) reads as follows:
(3) Subject to input tax restrictions specified in Section 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 and relatable to goods purchased during the period immediately preceding five tax periods of such tax period, if input tax of such goods is not claimed in any of such five preceding tax periods and shall be accounted for in accordance with the provisions of this Act.
20. The Hon'ble Single Judge in Kisloskar Electric Co. Ltd. v. State of Karnataka held as follows:
"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 STRP No.234/2016 17 same in question, this Court need not make any further analysis of these amendments."
21. The State Legislature has clarified in Budget 2016-201717 that Section 10(3) of the KVAT Act shall have effect only from 01.04.2015.
22. The amended18 provision of Section 10(3) of the KVAT Act clearly provides that the input tax availed by a dealer in a tax period shall be relatable to goods purchased during immediately preceding five tax periods of such tax period and shall be accounted for in accordance with the provisions of KVAT Act.
23. In the connected appeal, M/s Sonal Apparel Pvt Ltd. v. State of Karnataka & Ors19, the assessees have raised a common ground challenging the Section 10(3) of the KVAT Act, as ultra vires the 17 Dated March 18, 2016, pg. 134.
18After 2015 amendment w.e.f 01.04.2015. 19 W.P. 22483-22494/2015 decided on March 29, 2016 STRP No.234/2016 18 Constitution of India as well as the object and Scheme of the KVAT Act.
24. The Hon'ble Single Judge, allowing the writ petition has held thus:
"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 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 view could not have been the intention of the legislature as that would lead to a situation where filing of a revised return under Section 35(4) would become a rule, rather than an exception...
...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 STRP No.234/2016 19 output tax liability, irrespective of the month in which the selling dealer raises invoices.
(Emphasis supplied)
25. In Kirloskar Electric Co. Ltd. v. State of Karnataka20, the facts are, the assessees claimed Input Tax Credit against the output tax liability in respect of the sales made by it in the year 2009-10. The AO21denied the claim on the ground that the input tax credit is deductible only in that 'Tax Period' during which the invoices of the selling Dealer is raised.
26. The Hon'ble Single Judge, has allowed the writ petition holding that:
"30. Both the questions framed above are therefore liable to be answered in favour of the petitioners assessees. The claim of ITC cannot be restricted and denied on the stated grounds by Revenue. It cannot be denied only because ITC claim is not made in respect of Sale Invoices which are not pertaining to same Tax Period, nor it can be denied on the ground that such claim is not made immediately in the month or months following the month of purchase 20 WP 58917-58928/2016 reported in 2018 VIL 36 KAR 21 Assessing Officer STRP No.234/2016 20 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."
27. Feeling aggrieved by the decisions, the Revenue has filed Writ Appeals No.3176/2016 & connected cases.
28. Shri. Jeevan J. Neeralgi, learned AGA, for the Revenue urged the following contentions in this writ appeal:
• that tax invoice is a document that supports the input tax for the period in which the invoice is issued;STRP No.234/2016 21
• that in State of Karnataka v. M/s. Centum Industries22and M/s Infinite Builders and Developer, Bangalore v. The Additional Commissioner of Commercial Taxes23, this Court has clarified that the words "in that period" under Section 10(3) provides the period in which input tax is paid and output tax is payable and the same has to be accounted in accordance with the provisions of the Act;
• the Hon'ble Single Judge has erred in holding that the un-amended Section 10 (3) did not prescribe any time limit for availing input tax credit;
• Section 10(3) read prior to April 01, 2015, mandatorily requires dealers to avail input tax credit only in the month in which the invoice is issued, and it was only after the amendment that dealers were permitted to avail credit of 22 (2015) 77 VST 117 (Kar) 23 (2013) 76 KLJ 790.STRP No.234/2016 22
tax paid on purchases effected preceding five tax periods.
29. In the Kirloskar Electric (stated supra), the Hon'ble Single Judge, referring to Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd.24, has held that:
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 Ltd. 1999 (112) E.L.T.353 (SC) held in paragraph 17 as under:-
"17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgement thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilized, has to be paid for. We are here really concerned with credit that 24 1999 7 SCC 448 STRP No.234/2016 23 has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co- relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that is becomes available."
(Emphasis Supplied)
30. It is further held that:
29. Thus the claim of credit of input tax is indefeasible as was the case of CENVAT under Excise law and such credit of ITC under VAT law which is equivalent to tax paid in the chain of sales of the same goods, cannot be denied on the anvil of machinery provisions or even provisions relating to time frame which is law of limitation only bars the remedy rather than negativing the substantive claims under the taxing statutes.
31. Thus, in view of the above recorded findings, we respectfully agree with the opinion of the Hon'ble Single Judge. The law laid down in Collector of Central Excise, Pune v. Dai Ichi Karkaria STRP No.234/2016 24 Ltd (stated supra), has been time and again followed by the Hon'ble Supreme Court in several cases.25 Thus, it is settled that the input tax credit is an indefeasible right.
32. The main issue is whether the assessees who have filed the returns belatedly are entitled for input credit or not. A plain reading of provision of Section 10(3) of the KVAT Act, 2003, shows that no time limit or restriction is prescribed for availing the input tax credit. In Dai Ichi Karkaria Ltd. (stated supra), the Apex court has held that credit is indefeasible. The Modvat credit is similar to the Input Tax Credit in this case. Therefore, no exception can be taken to the view taken by the Hon'ble Single Judge that the Input Tax Credit cannot be denied on the anvil of the machinery provisions or the provisions relating to the time frame. Hence, in our 25 CCE v. Kripa Chemicals (P) Ltd, (2005) 1 SCC 12; CCE v. New Swadeshi Sugar Mills, (2016) 1 SCC 614; CCE v. Cadbury India Ltd, (2006) 7 SCC 228.
STRP No.234/201625 considered view, the assessees shall be eligible to avail the input tax credit as and when the tax is paid by them, without any limitation of time.
33. Hence, the following:
ORDER
(a) STRP No. 234/2016 is allowed.
(b) The questions are answered in favour of the assessee and against the Revenue.
No costs.
Sd/-
JUDGE Sd/-
JUDGE SPS