KARNATAKA VALUE ADDED TAX ACT, 2003

Act, No. 32 of 2004

An Act to provide for further levy of tax on the purchase or sale of goods in the State of Karnataka. Be it enacted by the Karnataka State Legislature in Fifty-fourth year of the Republic of India, as follows:-

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S.1 Short title, extent and commencement

(1) This Act may be called the Value Added Tax Act 2003.

(2) It extends to the whole of the State of Karnataka.

(3) It shall come into force on such 1[date] as the Government may, by notification, appoint and different dates may be appointed for different provisions of the Act.

(4) The tax shall be levied on the sale or purchase of goods made after such date as the Government may, by notification, appoint and different dates may be appointed for different class or classes of goods.

1. All the provisions of the Act except section 3 and 22 have come into force on 11th March 2005, vide Notification No. FD 55 CSL 2005(1) dated 11-3-2005 (Karnataka Gazette Extraordinary No. 326, Dated 11-3-2005) Sections 3 and 22 have come into force on 1-4-2005 vide notification FD 55 CSL 2005(2) dated 23-3-2005.

S.2 Definitions

In this Act unless the context otherwise requires:-

• (1) 'Agriculture'with its grammatical variations includes horticulture, the raising of crops,grass or garden produce and grazing but does not include dairy farming, poultryfarming, stock breeding and mere cutting of wood.
• (2) 'Agriculturist' means aperson who cultivates land personally.
• (3) 'Agriculturalproduce or horticultural produce' shall not be deemed to include tea,beedi leaves, raw cashew, timber, wood, tamarind and such produce, except coffeeas has been subject to any physical, chemical or other process for being madefit for consumption, save mere cleaning, grading, sorting or drying.
• (4) 'AppellateTribunal' means the Karnataka Appellate Tribunal constituted under theKarnataka Appellate Tribunal Act, 1976 (Karnataka Act 59 of 1976).
• (5) 'Assessment' means an assessment made or deemed to have been made under this Act and includesa re-assessment.
• 1a[(5A) Bo
  

S.3 Levy of tax

(1) The tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act.

(2) The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the course of his business, by a person who is not registered under this Act.

S.4 Liability to tax and rates thereof

(1) Every dealer who is or is required to be registered as specified in Sections 22 and 24, shall be liable to pay tax, on his taxable turnover,

• (a) in respect of goods mentioned in,-
  • (i) Second Schedule, at the rate of one per cent,
  • 7[(ii) Third Schedule, at the rate of 11[five and one half per cent], and]
  • (iii) Fourth Schedule, at the rate of 12[fourteen and one half per cent].
• 8[(b) in respect of.-
  • (i) declared goods as specified in Section 14 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) at the maximum rate specified for such goods under Section 15 of the said Act;
  • (ii) cigarettes, cigars, gutkha and other manufactured tobacco at the rate of 13[twenty percent];
  • (iii) other goods at the rate of 12[fourteen and one half per cent].]
• 2[(c) in respect of transfer of pr
  

S.5 Exemption of tax

1[(1)] Goods specified in the First Schedule and any other goods as may be specified by a notification by the State Government shall be exempt from the tax payable under this Act. 3[subject to much restrictions and conditions as may be specified in the notifications]

4[(1-A) Any notification issued under sub-section (1), shall be valid until it is cancelled or varied, notwithstanding that the tax payable in respect of such goods is modified by amendment to this Act.]

2[(2) Notwithstanding anything contained in this Act, the Government may, in such circumstances and subject to such conditions as may be specified, by notification, and subject to such rules as may be prescribed, exempt the whole or any part of the tax payable for any period on sale of goods made to or made by a new industrial unit, in respect of which the Government has already notified exemption of tax under the provisions of the Karnataka Sales Tax Act, 1957

S.6 Place of sale of goods

(1) The sale or purchase of goods, other than in the course of inter-State trade or commerce or in the course of import or export, shall be deemed, for the purposes of this Act, to have taken place in the State irrespective of the place where the contract of sale or purchase is made, if the goods are within the State.-

• (a) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and
• (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation.

(2) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of goods at each of such places.

(3) Notwithstanding anything contained in the Sale of Goods Act

S.7 Time of sale of goods

(1) Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, and subject to subsection (2), the sale of goods shall be deemed to have taken place at the time of transfer of title or possession or incorporation of the goods in the course of execution of any works contract whether or not there is receipt of payment:

Provided that where a dealer issues a tax invoice in respect of such sale within fourteen days from the date of the sale, the sale shall be deemed to have taken place at the time the invoice is issued.

(2) Where, before the time applicable in sub-section (1), the dealer selling the goods issues a tax invoice in respect of such sale or receives payment in respect of such sale, the sale shall, to the extent that it is covered by the invoice or payment, be deemed to have taken at the time the invoice is issued or the payment is received.

(3) The Commissioner may on an application of any deale

S.8 Agents liable to pay tax

(1) Notwithstanding anything contained in any law for the time being in force including this Act, every person who, for an agreed commission or brokerage, buys or sells on behalf of any principal who is a resident of the State shall be liable to tax under this Act at the rate or rates leviable thereunder in respect of such purchase or sale, notwithstanding that such principal is not a dealer or that the turnover of purchase or sale relating to such principal is less than the minimum specified in sub-sections (1), (2) and (3) of Section 22.

(2) The principal shall not be liable to tax on his turnover in respect of which the agent is liable to tax under sub-section (1), and the burden of proving that the turnover has been effected through an agent liable to tax under the said sub-section, shall be on such principal.

S.9 Collection of tax by registered dealers, governments and statutory authorities

(1) Every registered dealer liable to pay tax under the Act shall collect such tax at the rate or rates at which he is liable to pay tax, and the tax collected shall be accounted for under the provisions of this Act and rules made thereunder.

(2) The Central Government, a State Government, a statutory body or a local authority shall, in respect of any taxable sale of goods effected by them, collect by way of tax any amount which a registered dealer effecting such sale would have collected by way of tax under this Act, issue a tax invoice, pay the tax so collected into the Government Treasury or any designated bank and furnish monthly returns, as specified under Section 35, to the prescribed authority.

S.9A Deduction of tax at source (in case of works contract)

1[9-A. Deduction of tax at source (in case of works contract)

(1) Notwithstanding anything contained in this Act, the Central Government, or any State Government, or an industrial, commercial or trading undertaking of the Central Government or of any state, or any such undertaking in joint sector or any other industrial, commercial or trading undertaking or any other person or body as may be notified by the Commissioner from time to time or a local authority or a statutory body, shall deduct out of the amounts payable by them to a dealer in respect of any works contract executed for them in the State, an amount equivalent to the tax payable by such dealer under the Act.

(2) No such deduction shall be made under sub section (1) ,if the amounts payable by them are in respect of sales of any goods , in the course of inter -state trade or commerce or , in the course of export out of the territory of India or, import into the territory of India or, outside the S

S.9B Deduction of tax at source (in case of purchases made by Government departments and others)

1[9-B. Deduction of tax at source (in case of purchases made by Government departments and others)

(1) Notwithstanding anything contained in this Act, the Central Government, or any State Government, or an industrial, commercial or trading undertaking of the Central Government or of any State, or any such undertaking in joint sector or a local authority or a statutory body not being a registered dealer under the Act or any other person or body as may be notified by the Commissioner from time to time shall deduct tax amount, out of the amounts payable by them to a dealer, at the rate applicable, in respect of purchase of goods effected by them in the State, with effect from such date as may be notified by the Commissioner.

(2) The authority making deduction under sub-section (1), shall send every month to the prescribed authority a statement in the prescribed form containing particulars of tax deducted during the preceding month and pay full amount of the ta

S.10 Output tax, input tax and net tax

(1) Output tax in relation to any registered dealer means the tax payable under this Act in respect of any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue of a prescribed declaration by such agent.

(2) Subject to input tax restrictions specified in Sections 11,12,14, 1[17 and 18], input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases.

4[(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

S.11 Input tax restrictions

(a) Input tax shall not be deducted in calculating the net tax payable, in respect of:

• (1) Tax paid on purchases attributable to sale 2[or manufacture or processing or packing or storage] of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India;
• 3[(2) tax paid on goods as specified in the Fifth Schedule subject to such conditions as may be specified, purchased and put to use for purposes other than for,
  • (i) resale, or
  • (ii) manufacture or any other process of other goods for sale;
• (3) tax paid on purchase of goods as may be notified by the Government or Commissioner subject to such conditions as may be specified;
• (4) tax paid on purchase of capital goods other than those falling under clause (2) or (3) except as provided in section 12;
• (5) tax paid on purchase of goods, that are despatched outside th
  

S.12 Deduction of input tax in respect of capital goods

(1) Deduction of input tax shall be allowed to the registered dealer in respect of the purchase of capital goods 1[on or after the commencement of this Act] for use in the business of sale of any goods in the course of export out of the territory of India and in the case of any other dealer in respect of the purchase of capital goods wholly or partly for use in the business of taxable goods.

(2) Deduction of input tax under this Section shall be allowed only after commencement of commercial production, or sale of taxable goods or sale of any goods in the course of export out of the territory of the India by the registered dealer 2[****]

1. Inserted by Karnataka Value Added Tax (Amendment) Act, 2005.

2. Omitted by Karnataka Value Added Tax (Amendment) Act, 2006, Act 4 of 2006, w.e.f. 01.04.2006, for the following;- "and shall be apportioned over a specified period, as may be prescribed."

S.13 Pre -registration purchases

Deduction of input tax shall be allowed to the registered dealer, subject to the restrictions of Section 11, in respect of tax charged to him by a seller on taxable sale of goods made to him for the purpose of the business within three months prior to the date of his registration provided that no input tax shall be allowed in respect of goods which have been sold or otherwise disposed of prior to the date of registration.

S.14 Special rebating scheme

1[14. Special rebating scheme

Deduction of input tax shall be allowed on purchase of goods, specified in clauses (5) and (6) of sub-section (a) of Section 11, to the extent of the input tax charged at a rate higher than four per cent or any lower rate as may be notified by the Government.]

1. Substituted by Karnataka Value Added Tax (Amendment) Act, 2006, Act 4 of 2006, w.e.f. 01.04.2006, for the following:- "14. Special rebating scheme Deduction of input tax shall be allowed on the difference between the rate of input tax charged at a rate higher than four per cent and the rate specified in Third Schedule on purchases specified in sub-section (5) and sub-section (6) of Section 11."

S.15 Composition of tax

(1) Subject to such conditions and in such circumstances as may be prescribed, any dealer other than a dealer who purchases or obtains goods from outside the State or from outside the territory of India, liable to pay tax as specified in Section 4 and,

• 2[(a) whose total turnover 3[in a year] does not exceed an amount as may be notified by the State Government which shall not exceed fifty lakh rupees, and who is not a dealer falling under clause (b) or (c) or (d) below;]
• (b) who is a dealer executing works contracts; or
• (c) who is a hotelier, restaurateur, caterer; 4[or dealer running a sweetmeat stall or an ice cream parlour] 5[or bakery or any other class of dealers as may be notified by the Government]
• (d) who is a mechanised crushing unit producing 6[granite or any other metals];

may elect to pay in lieu of the net amount of tax payable by him under this Act by way of com

S.16 Special accounting scheme

Where a dealer liable to pay tax under Section 4 is unable to identify each individual sale, its value or the rate of tax, 1[or is unable to issue a tax invoice as specified in section 29 for each individual sale] he may apply to the prescribed authority to pay net tax under Section 10 under a special method to be mutually agreed by such authority in such manner as may be prescribed.

1. Inserted by Karnataka Value Added Tax (Second Amendment) Act, 2005, Act 27of 2005, w.e.f. 07.06.2005.

S.17 Partial rebate

Where a registered dealer deducting input tax

• (1) makes sales of taxable goods and goods exempt under Section 5, or
• (2) in addition 1[sales of taxable goods or] the sales referred to in clause (1), dispatches taxable goods or goods exempted under Section 5 outside the State not as a direct result of sale or purchase in the course of inter-State trade, or
• (3) puts to use the inputs purchased in any other purpose (other than sale, manufacturing, processing, packing or storing of goods), in addition to use in the course of his business, 2[or]
• 1[(4) falls under any of the above clauses and also purchases any petroleum product for use as fuel in production of any goods or captive power,]

apportionment and attribution of input tax deductible between such sales and despatches of goods or such purpose, shall be made in accordance with Rules or by special methods to be approved by the Commissioner or any

S.18 Deduction of tax at source in the case of canteens

2[18. Deduction of tax at source in the case of canteens

(1) Notwithstanding anything contained in this Act, a factory or other industrial concern or any other establishment, in which a canteen or cafeteria or restaurant or other similar facility is run, through a dealer, as an amenity provided for the employees of such factories or concerns or establishments, shall deduct out of any amounts payable by them to such dealer as their contribution by whatever name called, in respect of sale of articles of food and drinks to their employees, an amount at the rate of four percent of the aggregate of the sale prices received or receivable by such dealer from the employees and contribution paid or payable by such factories or concerns or establishments to such dealer.

(2) No deduction shall be made under sub-section (1) if the aggregate of the sale prices received or receivable by and contribution paid or payable to such dealer in respect of sale of articles of foo

S.18-A [Omitted]

4[18A.****]

1. Inserted by Karnataka Value Added Tax (Amendment) Act, 2007, Act 6 of 2007 w.e.f. 01.04.2007.

2. Inserted by Karnataka Value Added Tax (Amendment) Act, 2008, w.e.f. 01.08.2008.

3. Substituted by Karnataka Value Added Tax (Amendment) Act, 2010, w.e.f. 01.04.2010, for the following:- "provisions of this sub-section"

4. Omitted by Karnataka Value Added Tax (Amendment) Act, 2012, Act No. 17 of 2012, w.e.f. 01.04.2012, for the following:- " 1[18-A. Deduction of tax at source in the case of certain goods (1) Notwithstanding anything contained in this Act, every registered dealer purchasing oil seeds or non-refined oil or oil cake or scrap of iron and steel or any other goods as may be notified by the Commissioner, for use in manufacture or processing or any other purpose as may be notified by the Commissioner, shall deduct out of the amounts payable by him to the registered dealer selling such goods to h

S.19 Change or tax payment scheme after deduction of input tax

19. Change in use 2[or tax payment scheme] after deduction of input tax

(1) Where a registered dealer has deducted input tax on any goods and those goods are not used in the course of his business or lost or destroyed, any input tax deducted becomes repayable in the period following the date on which those goods were put to such other use.

(2) Where such goods have been wholly or mainly used or are intended for use in sale of taxable goods or in sale of any goods in the course of export out of the territory of India prior to the change of use, 1[input tax repayable shall be calculated] on the prevailing market value of such goods at the time of change of use.

2[(3) Where a registered dealer after deducting input tax on any goods used in the course of his business, opts for composition of tax under section 15, the input tax deducted on the goods held in stock on the date on which the dealer so opts shall be repayable by the deale

S.20 Deduction of input tax on exports and interstate sales, and to special economic zone units and developers etc

20. Deduction of input tax on exports and interstate sales 5[and to special economic zone units and developers]

(1) Tax paid under this Act by any dealer on purchase of inputs in respect of

• (a) any goods sold in the course of export out of the territory of India, or
• (b) any goods taxable under the Act, sold in the course of interstate 4[trade or commerce]
• 1[(c)****]
• 1[(d)****]

shall be deducted as provided under Section 10 2[subject to such conditions as may be prescribed] from output tax payable by such dealer.

6[(2) Tax paid under this Act on purchase of inputs by a registered dealer who is a developer of any special economic zone or an unit located in any special economic zone established under authorisation by the authorities specified by the Central Government in this behalf, shall be refunded or deducted from the output tax payable

S.21 Reimbursement of tax

3[21. Reimbursement of tax

Tax collected under this Act on such class of purchases as may be prescribed, made by specialised agencies of the United Nations Organisation, Multilateral Financial Institutions and Organisations notified under the United Nations (Privileges and Immunities) Act, 1947 (Central Act 46 of 1947) and Consulates or embassies of any other country but excluding consulates or Embassies of any other country but excluding consulates or embassies as my be notified shall be reimbursed, in such manner and subject to such conditions as may be prescribed.]

4[Provided that reimbursement of Tax collected under this Act shall also be available in respect of personal purchases made by the Diplomats and Consulate officers of the Embassies and Consulates of the countries which are notified subject to such conditions as may be specified therein by the State Government based on reciprocal agreements entered into by the Central Government with

S.22 Liability to register

5[(1)***]

(2) Every dealer who at any time has reason to believe that his taxable turnover is likely to exceed 6[11[ten] lakh rupees] during any year after the year ending Thirty First day of March 12[2015] shall be liable to be registered and report such liability forthwith or on such date as may be notified by the Government.

(3) Every dealer whose taxable turnover exceeds 7[13[eighty three thousand three hundred thirty] rupees] in any one month after the date from which the tax shall be levied, in accordance with Section 3, 2[****] shall register forthwith.

(4) Every dealer to whom a business or part of a business is transferred by another dealer who is liable to be registered under this Act, shall apply for registration from the date of that transfer, if he is not already registered.

(5) Every dealer liable to register under sub-sections (2), (3) or (4) shall report his liab

S.23 Voluntary registration

A dealer who sells taxable goods, though not liable to register under Section 22 but who desires to register voluntarily, shall make an application to the prescribed authority in such form and in such manner as may be prescribed, giving correct and complete particulars 1[and such dealer on becoming liable to register under section 22 shall on the date he becomes so liable, be eligible for deduction of input tax as specified under section 13 subject to the conditions specified in section 11.]

1. Inserted by Karnataka Value Added Tax (Amendment) Act, 2009, w.e.f. 01.04.2009.

S.24 Suo motu registration

Where a dealer liable to be registered has failed to inform the competent authority of his liability to be registered, the competent authority may after conducting such survey, inspection or enquiry as may be prescribed, proceed to register such person under Section 22.

S.25 Registration

(1) The form of application to register under Section 22 or 23, the time and manner of making application, and the fee, payable shall be as may be prescribed.

2[Provided that the Commissioner may notify the website in which an application shall be made electronically.]

(2) On receipt of an application to register under Section 22 or 23, the prescribed authority shall register any such dealer and grant him a certificate of registration, if he is satisfied that the applicant is a bona fide dealer and that he complies with the 1[the date of such application or form the date of commencement of business by such dealer, whichever is later.]

(3) The prescribed authority may refuse to grant a certificate of registration to the applicant for any good and sufficient reasons to be recorded in writing, after allowing the applicant to show cause in writing against such refusal.

(4) In respect of the Central Government, any State Government, any

S.26 Security

(1) The prescribed authority may, for the proper payment of the tax, from time to time demand from a registered dealer or from a dealer who has applied for registration under this Act, reasonable security not exceeding a prescribed amount to be paid in the prescribed manner.

(2) The prescribed authority may, by order, forfeit the whole or any portion of the security furnished by a dealer,

• (a) for collecting any amount of tax, interest or penalty that is payable by such dealer, or
• (b) if such dealer is found to have misused any prescribed certificate or declaration or has failed to keep or retain them in the prescribed manner.

(3) No order shall be passed under sub-section (2), without giving the dealer an opportunity of showing cause in writing against such forfeiture.

S.27 Cancellation of registration

(1) In any case where,

• (a) any business of a registered dealer has been discontinued, transferred fully or otherwise disposed of; or
• (b) there is any change in the status of the ownership of the business; or
• (c) the taxable turnover of sale of goods of a registered dealer has, during any period of 1[twelve consecutive months] not exceeded 4[6[ten] lakh rupees]; or
• (d) a dealer issues tax invoices without effecting any taxable sales; or
• (e) a dealer being an individual, registered under this Act dies,

and for any other good and sufficient reason, the prescribed authority may, either on its own motion or on the application of the dealer, or in the case of death, on the application of the legal heirs, made in the prescribed manner, cancel the registration certificate from such date, including any anterior date, as it considers fit having regard to the circumstances of the case.

S.28 Obligation of registered dealer to inform changes after registration

(1) Where.-

• (a) a registered dealer sells or otherwise disposes of his business or any part thereof, or
• (b) there is any other change in the ownership of the business including any change in the status, or
• (c) a registered dealer discontinues his business or changes his place of business or opens a new place of business, or
• (d) a registered dealer changes the name or nature of the business, such registered dealer or, in case of his death his legal representative, shall within the prescribed time, inform the prescribed authority accordingly.

(2) Where,-

• (a) a change of ownership of the business takes place on account of transfer of business from one registered dealer to another, the dealer succeeding to the business, or
• (b) there is any change in the status of the ownership of the business, such registered dealer shall surrender the certificate of registration already issued in respect of th
  

S.29 Tax invoices and bills of sale

(1) A registered dealer effecting a 1[a sale of taxable goods or exempt goods along with any taxable goods, in excess of the prescribed value] shall issue at the time of the sale, a tax invoice marked as original for the sale, containing the particulars prescribed, and shall retain a copy thereof.

(2) A tax invoice marked as original shall not be issued to any registered dealer in circumstances other than those specified in sub-section (1), and in a case of loss of the original, a duplicate may be issued where such registered dealer so requests.

2[(3) A registered dealer,-

• (a) selling non-taxable goods; or
• (b) opting to pay tax by way of composition under section 15 and selling any goods; or
• (c) permitted to pay tax under section 16 selling any goods;

in excess of the prescribed value shall issue a bill of sale containing such particulars as may be prescribed.]

previous reference

S.30 [Omitted]

4[30.****]

1. Inserted by Karnataka Value Added Tax (Amendment) Act, 2006, Act 4 of 2006, w.e.f. 01.04.2006.

2. Substituted by Karnataka Value Added Tax (Amendment) Act, 2006, Act 4 of 2006, w.e.f. 01.04.2006, for the following:- "(3) Any registered dealer who receives or issues credit notes or debit notes shall modify his return for the period in which the credit note or debit note is issued and pay any tax due on such return."

3. Inserted by Karnataka Value Added Tax (Amendment) Act, 2006, Act 4 of 2006, w.e.f. 01.04.2006.

4. Omitted by Karnataka Value Added Tax (Amendment) Act, 2012, Act No. 17 of 2012, w.e.f. 01.04.2012, for the following:- "(1) Where a tax invoice has been issued for any sale of goods and within six months from the date of such sale the amount shown as tax charged in that tax invoice is found to exceed the tax payable in respect of the sale effected, 1[or is not payable on account of goods s

S.31 Accounts

(1) Every registered dealer and every dealer liable to pay tax under this Act shall keep and maintain a true and correct account, in Kannada or English or Hindi or in such other language as the Government may, by notification, specify, of all his purchases, receipts, sales, other disposals, production, manufacture and stock showing the values of goods subject to each rate of tax under this Act including input tax paid and output tax payable.

(2) If the Commissioner or prescribed authority is of the opinion that the accounts kept and maintained by any dealer or any class of dealers do not sufficiently enable him or it to verify the returns required under this Act or to make any assessment under it, he or it may, by order, require any dealer or class of dealers, to keep such accounts and records including tax invoices of manufacture, sales, purchases, disposals or transfers of stock other than by way of sales in such form and in such manner as he or it may direct.