2018 (5) TMI 371 - HC - VAT and Sales Tax

Court allows writ petitions, quashes assessment orders denying Input Tax Credit

The court allowed the writ petitions, quashing the impugned assessment orders that denied Input Tax Credit (ITC) claims under Section 10(3) of the KVAT ... Input Tax Credit - Section 10(3) of the KVAT Act, 2003 - denial on the ground that the claim of Input Tax Credit against the Output Tax Liability of the assessees did not pertain to the same ‘Tax period’ for which Output Tax Liability and Net Tax Liability was to be determined in accordance with Section 10(3) of the Act - interpretation of statute. Held that: - the controversy involved in these writ petitions is squarely covered by a decision in the case of Kirloskar Electric Co. Ltd. And Others Versus The State of Karnataka [2018 (2) TMI 524 - KARNATAKA HIGH COURT], where it was held that The substantive provision of Section 10(3) of the KVAT Act, 2003, did not lay down any such restrictive time frame for allowing the deduction of ITC against the OPT in a particular tax period to determine the net tax payable for that tax period and therefore there is no justification whatsoever to accept such an interpretation put forth by the learned counsels for the Respondent State. Such contentions had not only been negatived and with great respects. It was also held in the case that the machinery provisions cannot be allowed to override and defeat the substantive claim of the Input Tax Credits under Section 10(3) of the KVAT Act, 2003, which without any restriction of the time frame, allowed such deduction or credit of the ITC against the OPT liability of the Dealer in question - The matters would stand restored to the file of the Respondent Assessing Authorities to pass fresh orders in accordance with law. Petition disposed off. Issues Involved:- Claim of Input Tax Credit (ITC) under Section 10(3) of the KVAT Act, 2003.- Interpretation of Section 10(3) and Section 35(4) of the KVAT Act, 2003.- Impact of amendments to Section 10(3) in 2015 and 2016.- Authority of the State to retain tax paid by selling dealers.- Judicial discipline and compliance by the Respondent Department.Detailed Analysis:Claim of Input Tax Credit (ITC) under Section 10(3) of the KVAT Act, 2003:The court noted that the controversy in the writ petitions is covered by a previous decision (Kirloskar Electric Company Limited Vs. State of Karnataka). The Division Bench in Centum Industries Private Limited disallowed the ITC claim due to a belated claim, not based on the substantive provisions of Section 10(3). The court emphasized that there was no time restriction in Section 10(3) for claiming ITC, and disallowing ITC based on a delayed claim was unjustified.Interpretation of Section 10(3) and Section 35(4) of the KVAT Act, 2003:The court observed that the Division Bench's decision in Centum Industries was misinterpreted by the Respondent State. The Division Bench did not impose a time restriction on ITC claims under Section 10(3). The court clarified that the machinery provisions under Section 35 for filing returns cannot override the substantive claim of ITC under Section 10(3).Impact of Amendments to Section 10(3) in 2015 and 2016:The court acknowledged that the amendments to Section 10(3) in 2015 and 2016 were not applicable to the assessment periods in question. The amendments were intended to facilitate ITC claims, and the court rejected the Respondent State's argument that these amendments implied a restrictive interpretation for previous periods.Authority of the State to Retain Tax Paid by Selling Dealers:The court questioned the Respondent State's authority to retain tax paid by selling dealers if ITC was disallowed. It was emphasized that retaining such tax without allowing ITC claims violates Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by the authority of law.Judicial Discipline and Compliance by the Respondent Department:The court expressed concern over the Respondent Department's tendency to pass orders contrary to judicial decisions, indicating a disregard for judicial discipline. The court directed the Commissioner of Commercial Taxes to issue a circular to ensure compliance with the court's judgments to avoid unnecessary litigation. The court warned that non-compliance might invite contempt proceedings.Conclusion:The court allowed the writ petitions, quashing the impugned assessment orders that denied ITC claims. The matters were remanded to the Assessing Authorities for fresh orders in accordance with the court's interpretation. The court also provided an avenue for the petitioner assessee to file a regular appeal if other issues arise, ensuring that such appeals are disposed of without objections on the question of limitation. The court's decision underscores the importance of judicial discipline and adherence to substantive provisions over procedural technicalities.