Karnataka High Court
M/S Steer Engineering Private Limited vs The State Of Karnataka on 30 January, 2018
Author: Vineet Kothari
Bench: Vineet Kothari
1/13
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 30th DAY OF JANUARY, 2018
BEFORE
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
WRIT PETITION No.58836/2016 (T-RES)
BETWEEN:
M/s. Steer Engineering Private Limited
Represented by its Director
Shri. Sathish Padmanabhan
No.290, 4th Main, 4th Phase,
Peenya Industrial Estate
Bangalore-560 058.
... Petitioner
(By Sri K.N.Arvinda Navada, Advocate)
AND:
1. The State of Karnataka
Through its the Principal Secretary
Finance Department
Vidhana Soudha
Dr. B.R.Ambedkar Road,
Bangalore-560 001.
2. The Assistant Commissioner of Commercial Taxes
LVO-75, DVO-6, 'B' Block,
KIADB Building, 14th Cross,
Peenya Industrial Area
Bangalore-560 058.
... Respondents
(By Sri T.K. Vedamurthy, AGA)
This Writ Petition is filed under Articles 226 and 227 of
the Constitution of India praying to declare that the proviso to
Date of order: 30-01-2018 in WP No.58836/2016
M/s. Steer Engineering Private Limited.
vs.
The State of Karnataka & anr.
2/13
Section 10(3) of the KVAT Act, 2003 inserted by the Karnataka
Value Added Tax (Amendment) Act, 2016 is illegal, ultra vires
and unreasonable and etc.,
This Writ Petition coming on for preliminary hearing this
day, the Court made the following:
ORDER
Mr.K.N.Arvinda Navada, Adv. for Petitioner. Mr.T.K.Vedamurthy, AGA for Respondents.
1. Learned counsel for both parties submit that controversy in the present case is covered by a decision of this Court rendered on 10.1.2018 in the case of Kirloskar Electric Co. Ltd. Vs. State of Karnataka in WP.Nos.58917-58928/2016 & connected matters, in which this Court dealing with the controversy of input tax under Section 10(3) of the KVAT Act, 2003, held that the claim of ITC cannot be restricted for the tax period in which output tax is computed and assessed by the respondents.
2. The relevant portion of the judgment is quoted below for ready reference:
Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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"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 forth by the learned counsels for the Respondent State. Such contentions had not only been negatived and with great respects, rightly so by the learned Single Judge in the case of Sonal Apparel Private Limited case, but this Court is of the considered opinion that the Respondent Department is taking an unnecessarily distorted view of the observations made by the Division Bench of this Court in the case of Centum Industries Private Limited, where the Division Bench while disallowed the said claim of ITC made at a belatedly stage and observed simply as an obiter that the claim of ITC should relate to the tax period in question. The Division Bench never said that the ITC Invoice or Sale Invoice should also be Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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pertaining to the same tax period, in which the credit of such ITC is claimed by the Dealer.
23. The learned counsels for the Respondent State were at complete loss of words to the question put by the Court as to, under what authority of law the State can retain the tax paid by the selling Dealer to the State as collected under the Sale Invoice which is passed on to the purchasing Dealer who are the assessees - petitioners before this Court, if ITC in respect of such sale invoice was to be disallowed, contrary to the very concept of VAT law and the unrestricted language of Section 10(3) of the KVAT Act, 2003 and in apparent violation of Article 265 of the Constitution of India, there was simply no answer on behalf of the Respondent State to this query of the Court, except relying on the aforesaid obiter from the judgment of the Division Bench of this Court in Centum Industries Private Limited case, which as explained above, does not support the case of the Revenue at all.
Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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24. In the peculiar facts of the Centum Industries Private Limited case, the claim of ITC credit was disallowed on the basis of the belated claim made by it and not while interpreting the substantive provisions of Section 10(3) of the Act in a narrower way, as is sought to be canvassed by the Respondent State before this Court even now.
25. The learned counsels for the Respondent State were again without any answer to the question of the Court as to how the machinery provisions 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 Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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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 Ltd. 1999 ( 112 ) E.L.T.353 ( SC ) held in paragraph 17 as under:-
Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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"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 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 Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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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."
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.
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 Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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9/13can be denied on the ground that such claim is not made immediately 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 Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
vs. The State of Karnataka & anr.
10/13contended 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, therefore of the considered opinion that the impugned assessment orders/re- assessment orders passed by the Respondent - Assessing Authorities to this extent of denying the claim of ITC to the petitioners assessees are illegal and unsustainable and deserve to be quashed and set aside by this Court.
33. The writ petitions are accordingly allowed and the impugned orders are quashed and set aside. The matters would stand restored to the file of the Respondent Assessing Authorities to pass fresh orders in accordance with law as interpreted above as far as claim of Input Tax Credit is concerned.
Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
vs. The State of Karnataka & anr.
11/1334. This Court is of the further opinion that despite more than one judgment interpreting the provisions of Section 10(3) of the KVAT Act, 2003, in favour of the assessees, the tendency on the part of the Assessing Authorities of the Respondent Department to still keep on passing the orders contrary to these judgments is in utter disregard of the judicial and hierarchical discipline which they are bound to observe and it may also amount to a deliberate disobedience on their part and may invite contempt action and therefore to prevent any such further unnecessary litigation on this issue, at the behest of the different Authorities of the Department taking a contrary view, it is directed that the Head of the Respondent Department, namely, the Commissioner of Commercial Taxes shall issue a Circular in terms of the various aforesaid judgments of this Court in favour of assessees, for being followed by the Authorities through out the State to avoid any further multiplicity of litigation before this Court and Appellate Forums. Therefore, such a Circular shall be issued by the Respondent Commissioner of Commercial Taxes Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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12/13and the Respondent - Departmental Authorities, including the Appellate Authorities under the Act are cautioned that now onwards if any contrary view is found to be taken by such Authorities of the Department on aforesaid issue, this Court would initiate suo motu contempt proceedings against the Commissioner of Commercial Taxes as well as the concerned Authorities of the Respondent Department.
35. With these observations and directions, these writ petitions are allowed. All the impugned orders passed by the Assessing Authorities are set aside and the matters are restored to file of the respective Assessing Authorities, for passing fresh orders in accordance with law, as interpreted above. No costs.
3. In view of the same, the present writ petition is allowed and the impugned order at Annexure-A, dated 11.7.2016 is set aside. The matter is remanded back to the concerned authority for passing fresh orders in Date of order: 30-01-2018 in WP No.58836/2016 M/s. Steer Engineering Private Limited.
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Sd/-
JUDGE *ck/-