2016 (7) TMI 546 - HC - VAT and Sales Tax

Court rules in favor of petitioner over reassessment of Vitrified Tiles purchase, emphasizing practical tax rule interpretation.

Sri. Anantha Padmanabha Bhat Versus Commissioner of Commercial Taxes in Karnataka, Bengaluru and Commercial Tax Officer (Audit), Bengaluru

The Court ruled in favor of the petitioner, finding that the assessing authority misused its power for reassessment based on the purchase of Vitrified ... Entitlement of composition scheme - conditions and restrictions imposed under Rules 135 and 144 of the KVAT Rules, 2005 - they were 'goods in stock' - demand of regular tax on the sales/turnover as per Section 3 of the KVAT Act, 2003. - Held that:- Rule 135(2) of the KVAT Rules, 2005 clearly talks only about goods in the stock which clearly refers to the goods dealt by the assessee in the regular day-to-day business for which he is registered by the Department. These Rules do not intend to cover the goods purchased for construction or being material to be fixed in the building premises of the assessee like the Vitrified Tiles in the present case. In the present case, the Tiles purchased from the State of Gujarat on payment of Central Sales Tax and fixed in the floor of the Restaurant in question, cannot be said to be 'goods in stock' while they can definitely be said to be 'goods' as such. The restriction against sale of such goods which were purchased from outside the State stands complied with in the present case, as it is not the case of the Revenue that the Vitrified Tiles purchased by the assessee from the State of Gujarat in this case, were sold in the course of his business. Therefore, the question of violation of condition as specified under Rule 135(2) of the KVAT Rules, 2005 does not arise in the present case. Demand set aside - Decided against the revenue with cost of ₹ 10,000/- to be paid by the respondent assessing authority to the assesse. Issues:- Denial of benefit of Composition Scheme under Section 15(1) of the Karnataka Value Added Tax Act, 2003 based on purchase of Vitrified Tiles from outside the State.- Interpretation of Rule 135(2) of the Karnataka Value Added Tax Rules, 2005 regarding 'goods in stock' for availing the Composition Scheme.- Validity and reasonableness of the assessing authority's decision to re-assess the petitioner.Analysis:1. The petitioner, running a restaurant in Bangalore, opted for the Composition Scheme under Section 15(1) of the Act to pay tax at a concessional rate of 4%. The assessing authority issued a re-assessment notice and subsequent orders, contending that the petitioner violated rules by purchasing Vitrified Tiles from outside the State, making him ineligible for the Composition Scheme.2. The petitioner argued that the Vitrified Tiles were used for flooring the restaurant and became part of the immovable property, not 'goods in stock' as per Rule 135(2) of the KVAT Rules. The petitioner contended that the prohibition on purchasing goods from outside the State did not apply in this case, as the Tiles were not sold in the regular course of business.3. The Revenue's counsel maintained that any goods purchased from outside the State disqualify the assessee from the Composition Scheme. They emphasized strict compliance with scheme conditions and argued that the petitioner's purchase of Vitrified Tiles rendered him ineligible for the concessional tax rate.4. The Court analyzed Rule 135(2) of the KVAT Rules, emphasizing that it refers to goods dealt with in the regular course of business. The Court noted that the Tiles purchased for construction and fixed in the restaurant were not 'goods in stock' for the purpose of the Composition Scheme.5. The Court criticized the hyper-technical approach of the assessing authorities, stating that such views damage the Revenue Department's reputation. The Court highlighted the purpose of the Composition Scheme to provide tax concessions and avoid detailed tax assessments for each item.6. Ultimately, the Court found that the assessing authority misused its power for reassessment based on the purchase of Vitrified Tiles. The Court ruled in favor of the petitioner, quashing the re-assessment order and the notice, and awarded costs to the petitioner.7. The judgment focused on the interpretation of rules regarding the Composition Scheme and the application of such rules to the petitioner's case. It highlighted the importance of considering the practical implications and purpose of tax schemes while ensuring fair treatment for taxpayers.