2011 (9) TMI 896 - HC - VAT and Sales Tax

Court upholds disallowance of input tax credit on opening stock for 2005-06 assessment year

The court dismissed the revision case, upholding the disallowance of input tax credit on the opening stock for the assessment year 2005-06. The decision ... Denial of Input tax credit - Whether the Tribunal was justified in confirming disallowance of input tax credit claimed on opening stock held on the first day of the assessment year 2005-06 - Held that:- findings based on which disallowance was confirmed by the Tribunal are only on findings of fact based on accounts and audit statement filed in Form 25A, wherein from the gross profit accounted it was clearly established beyond doubt that the assessee had not passed on to the customers the sales tax paid on purchases of goods held as opening stock in respect of which input tax credit was availed of by the assessee. Since the tax paid on purchases was also recovered from the buyers along with tax payable under section 6 of the Kerala Value Added Tax Act, the input tax credit on opening stock is rightly demanded as reverse tax in terms of the second proviso to section 11(13) of the Kerala Value Added Tax Act read with sub-section (7) thereto. We notice that the demand is made under the statutory provisions based on the findings of facts with regard to the failure of the assessee to pass on the input tax credit availed of to the buyers/customers. Decided against assessee. Issues:Disallowance of input tax credit on opening stock for the assessment year 2005-06.Analysis:The judgment addresses the issue of disallowance of input tax credit claimed on the opening stock held on the first day of the assessment year 2005-06. The court considered the introduction of the value-added tax regime in the state from April 1, 2005, under the Kerala Value Added Tax Act, which allows registered dealers to claim input tax credit. The assessee in this case claimed input tax credit on the opening stock held on April 1, 2005, which had suffered tax under the Kerala General Sales Tax Act. However, the condition for allowing input tax credit on sales tax paid on opening stock required the tax amount to be passed on to consumers or dealers to whom goods are sold. Failure to pass on this credit would result in the amount being demanded as reverse tax under the statutory provisions of the Kerala Value Added Tax Act.The assessing officer noted an unusually high opening stock for the year 2005-06, significantly higher than the previous year's opening stock. The assessee explained this increase by stating that a bank advance was utilized for purchasing goods. However, upon further examination, it was found that the gross profit obtained by the assessee on sales made during the initial period of the value-added tax regime was significantly high, indicating that the sales tax paid on purchases was included in the sales price without being passed on to customers. This led to the conclusion that the assessee did not fulfill the condition for availing input tax credit on the opening stock, resulting in the demand for reverse tax as per the provisions of the Kerala Value Added Tax Act.The court emphasized that the findings supporting the disallowance of input tax credit were based on factual evidence from the accounts and audit statements filed by the assessee. It was established that the assessee had not passed on the sales tax paid on purchases to customers, leading to the rightful demand for reverse tax under the statutory provisions. The judgment dismissed the revision case, stating that the demand was made in accordance with the law based on the factual findings of the failure to pass on the input tax credit to buyers.