Stock-in-trade classification for restaurant flooring tiles rejected; reassessment under VAT rules was not sustainable.

Vitrified tiles purchased for flooring of a vegetarian restaurant were treated as materials used to improve immovable property, not as stock-in-trade held in the regular course of business. On that reading of Rule 135 of the Karnataka Value Added Tax Rules, 2005, the purchaser could not be regarded as a dealer in relation to those tiles, so reassessment on that basis was not sustainable. The writ appeal was accordingly dismissed, although the order as to costs was set aside.

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Issues: Whether vitrified tiles purchased for flooring of a restaurant constituted goods held as stock-in-trade so as to attract reassessment under Rule 135 of the Karnataka Value Added Tax Rules, 2005.

Analysis: The purchaser was running a vegetarian restaurant and the tiles were acquired for flooring of the hotel. Rule 135 was understood as governing goods-in-stock used in the regular course of the registered business, not goods purchased for a different purpose that become part of the immovable property. On that footing, the assessee could not be treated as a dealer in relation to the vitrified tiles.

Conclusion: The reassessment notice was not sustainable, and the appeal failed. The dismissal of the writ appeal was justified, though the order as to costs was set aside.

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