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2018 Supreme(Kar) 146
IN THE HIGH COURT OF KARNATAKA, BENGALURU
VINEET KOTHARI, J.
Kirloskar Electric Co. Ltd. & Ors. - Petitioners
Versus
The State of Karnataka & Ors. - Respondents
W.P.Nos.58917-58928, 27983-27994, 27995-28006, 28796 & 28997–29007, 31159-31170, 31430-31441, 33906-33917, 34001, 36313-36323, 35703-35708, 36404, 37148-37159, 39369-39380, 46927-46938, 46927-46938, 46939-46950, 53182-53193, 55050, 58511-58521, 59250-59261, 57971 of 2016, W.P.Nos.26349-26360, 4199-4210, 8042, 19016-19062, 8044, 8045, 25845-25855, 8046, 25856-25866, 8183-8194, 8206, 10601-10611, 11384-11395, 11674-11685, 12165, 16929-16940, 20454-20465, 26337-26348, 26361-26372, 26779-26790, 26899-26910, 27451, 32900-32910, 10544, 10977-10987, 14220-14231, 16192, 21657, 28464-28475, 11463, 16441, 16895-16905, 10545, 10965-10975, 38502, 38503, 36730, 46532, 9849, 10562, 10914-10924, 36403, 26429-26439, 37729, 26481-26491, 55140, 14974-14984 of 2017, 1227-1238 of 2018 (TRES)
Decided On : 10-01-2018
For the Petitioners:Mr. K.P. Kumar, Senior Counsel for Mr. T. Suryanarayana, Advocate
For the Respondents:Mr. A.S. Ponnanna, Addl. Advocate General Along with Mr. T.K. Vedamurthy, AGA)
Headnote:KARNATAKA VALUE ADDED TAX ACT, 2003 [K.A. No. 32/2004] - Section 10(3) vis-à-vis Section 35 - Meaning and purport of - Denial of claim of input Tax Credit (ITC) on the ground that the claim of Input Tax Credit against the Output Tax Liability of the Assesses did not pertain to the same 'Tax period' for which Output Tax Liability and Net Tax Liability was to be determined in accordance with Section 10(3) of the KVAT Act, 2003 - Held, The claim of ITC cannot be restricted and denied on the stated ground by Revenue. It cannot be denied only because ITC claim is not made in respect of Sale Invoice 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 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 KVAT Act, 2003. 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 good further, incurring such Output Tax Liability. The claim or credit of input tax is indefeasible as was the case of the 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.
The provisions of Section 10 of the KVAT Act, 2003, which prescribe how the Output Tax (OPT), Input Tax (IPT) and Net Tax (NT) payable by the Dealer will be calculated is part of Chapter II dealing with the Incidence and Levy of tax comprising of Sections 3 to 21 of KVAT Act, 2003. Chapter III comprises of Sections 22 to 28 - Registration of Dealers, Chapter IV comprising of Sections 29 to 34 deal with the Accounts of Documents and Chapter V comprising of Sections 35 of 57 deal with the Administration and Collection of Tax. The substantive provisions 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 respondent State. The 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 in 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.
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 he Head of the respondent Department, namely, the Commissioner of Commercial Taxes shall issue a Circular in terms of the various 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 the Court and Appellate Forums. Therefore, such a Circular shall be issued and 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, High Court would initiate suo motu contempt proceedings against the Commissioner of Commercial Taxes as well as the concerned Authorities of the respondent Department.
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 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 been dealt with and the relevant provisions of Section 10(3) of the Karnataka Value Added Tax Act, (“KVAT Act, 2003” for short) had come up for interpretation before this Court in some of the judgments rendered by this Court including the Division Benches, the controversy does not appear to have died down even with these judgments, as the Assessing Authorities of the Respondent Department have continued to disallow the Input Tax Credit (ITC) under Section 10(3) of the KVAT Act, 2003 on the ground that the claim of Input Tax Credit against the Output Tax Liability of the assessee did not pertain to the same ‘Tax period’ for which Output Tax Liability and Net Tax Liability was to be determined in accordance with Section 10(3) of the Act and assailing these assessment/reassessment orders, this batch of several writ petitions came to be filed before this Court and after hearing both the sides, they are being disposed of by this common judgment.
4. The questions which arise are:
(i) Whether the claim of deduction or set off of Input Tax Credit against Output Tax Liability of the dealer can be restricted or denied on the ground of any time frame within which such Sales Invoices on the basis of which ITC is claimed should pertain or information or record of such ITC Invoices should be informed in the Returns to be filed, particularly if such time frame is restricted to the period of ‘Tax Period’ which can be as short as a month or quarter, or the period of filing of Returns being 20 days from the end of month concerned or maximum six months from the end of ‘Tax period’ even for filing of Revised Returns disclosing errors and omissions?
(ii) 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?
5. The KVAT Act, 2003, in super session of the earlier Karnataka Sales Tax Act, 1957 was brought into force with effect from 01/04/2005 introducing the concept of Value Added Tax (VAT) to replace the erstwhile Single Point Sales Tax System by levy of Multiple Point Taxation on the sale of goods and to remove the cascading effect of the levy of sales tax at every point of sales, the concept of giving Input Tax Credit (ITC) was introduced in the VAT law enacted by various States including the State of Karnataka where under, against the Output Tax Liability in the hands of the assessee purchaser, the 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/reassessment 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 restric
