Entitlement of dealers to take credit of the tax paid at the time of purchase and set off against the output tax at the time of sale under the KVAT Act.

A.K. Jayasankaran Nambiar, J.

1. Since the issues involved in these writ petitions are the same, they are taken up for consideration together and disposed by this common judgment.

2. The issue involved in these writ petitions is with regard to the availment of input tax credit by dealers, of the tax paid by them at the time of purchase of goods from their suppliers. An incidental issue that arises for consideration is whether amounts offered by way of discount through credit notes issued by the supplier of the goods, at a point in time subsequent to the sale of the goods to the petitioners, can be added to the sales turnover of the petitioners' by invoking the provisions of explanation VII to the definition of turnover under Section 2(iii) of the KVAT Act. In WP (C) 19976/2012, it is the first issue that comes up for consideration and in all the other writ petitions, it is the second incidental issue that arises for consideration.

The brief facts necessary for a disposal of the writ petitions are as follows:

3. The petitioners are all registered dealers under the KVAT Act trading in the commodity, Cement. The petitioners purchase Cement from various suppliers/manufacturers and, at the time of purchase of the Cement, they pay the price indicated in the invoice raised on them by the suppliers. Immediately on payment of the price inclusive of tax, indicated in the invoice raised by the supplier, the petitioners avail input tax credit of the tax so paid. In the course of trade, the petitioners also receive certain amounts, by way of discount from the supplier of the goods. The said discount is often given to them by way of credit notes raised on them, and the said amount is not claimed by way of discount by the supplier, while filing returns before his assessing authority, for the purposes of completion of his assessment under the KVAT Act or the corresponding State enactment in his State. The petitioner subsequently sells the Cement purchased by him from his supplier, at prices, which are sometimes lower than the price at which he purchased the goods, but invariably at a price higher than his purchase price, as reduced by the discount amount received by him, by way of credit notes. The assessment authorities under the KVAT Act, proceeded to issue notices to the petitioners, under Section 25(1) of the KVAT Act, raising demands on the following two contentions, namely,

"i) Insofar as the petitioner had paid tax on the Cement purchased by him from his supplier, at a price lower than his purchase price, the petitioner would have to reverse the input tax credit, which he had availed at the time of receipt of the goods, from the supplier.

ii) Insofar as the petitioner had sold the Cement purchased by him from the supplier at a price lower than the purchase price indicated in the invoice of the supplier, the discount amount subsequently received by the petitioner by way of credit notes, would have to be added to the sales turnover of the petitioner in accordance with Explanation VII to Section 2(iii)."

4. Pursuant to notices issued to the petitioners in many of the cases, assessment orders were also passed, confirming the proposals in the pre-assessment notices. These assessment orders have also been impugned in the various writ petitions. In those cases, where the assessment orders have not been passed, the notices issued to the petitioner have been impugned.

5. I have heard the learned Senior Counsel Sri. Sreekumar, duly instructed by Sri. P.R. Ajith Kumar, Sri. Premjith Nagendran and Sri. Sahasranaman, learned counsel on behalf of the petitioners and Sri. Liju V. Stephen, Learned Government Pleader for the respondents.

6. On a consideration of the facts and circumstances of the case and the submissions made across the Bar, I find that the issues in all these writ petitions have to be considered in the light of the statutory provisions under the KVAT Act and in particular, the provisions of Section 11 of the KVAT Act r/w Section 2(iii)