Input tax credit denied for cultivation inputs used in tea and coffee growing, as agriculture remained distinct from business use.

Input tax credit under the Karnataka Value Added Tax Act was denied for fertilizers, chemicals, pesticides and agricultural implements used in cultivating tea and coffee plants because cultivation was treated as agricultural or horticultural activity, not a business use of goods. The Act's business definition could not be stretched to cover agricultural inputs merely because the assessees also manufactured tea and coffee for sale, and the required nexus between the purchases and use in the course of business was absent. Cultivation and manufacture were treated as distinct stages, so the reassessment orders were upheld.

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Issues: Whether inputs such as fertilizers, chemicals, pesticides and agricultural implements used in growing tea and coffee plants are eligible for input tax credit under the Karnataka Value Added Tax Act, 2003, when the assessees also manufacture tea and coffee for sale.

Analysis: The statutory scheme drew a clear distinction between agriculture and business. Tea and coffee cultivation was held to be an agricultural or horticultural activity, while the manufacture of tea or coffee for sale was a separate commercial process. The definition of "business" in the Act was not capable of being expanded to include agricultural activity merely because the assessees were also dealers or manufacturers. The inputs on which credit was claimed were used for cultivation, not in the manufacture or processing of tea or coffee as marketable commodities. The relevant provisions on input tax credit required a purchase of goods for use in the course of business, and the necessary nexus was absent. The Court also relied on the distinction drawn in the Act between tea and coffee in the definition of agricultural produce or horticultural produce and on the principle that cultivation and manufacture are distinct stages.

Conclusion: Input tax credit was not available on fertilizers, chemicals, pesticides or agricultural implements used in cultivation of tea and coffee plants, and the challenge to the reassessment orders failed.

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