Composition scheme relief for restaurant capital goods: items used in business are not stock-in-trade and do not defeat eligibility.

A restaurant dealer under the KVAT composition scheme does not lose composition benefit merely because it purchases refrigerators, freezers and similar items from outside the State for use as capital goods in the business. Goods acquired for use in the restaurant, and not for sale in the ordinary course of trade, are not stock-in-trade and cannot be treated as goods held in stock for denying composition relief. The reasoning follows the earlier restaurant-flooring principle that articles used in the business, rather than traded, do not breach composition conditions. On that basis, the assessment-based denial of composition benefit was set aside and the dealer was entitled to retain the scheme benefit.

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Issues: Whether a restaurant dealer under the composition scheme under the KVAT law loses the benefit of composition by purchasing refrigerators, freezers and similar items from outside the State for use as capital goods in the business, and whether such items can be treated as goods held in stock.

Analysis: The respondent ran only a restaurant and had purchased the goods in question as capital equipment for running that business. The decisive distinction was between goods dealt with in the ordinary course of business and goods acquired for use in the business. Items such as refrigerators and freezers used as capital goods are not stock-in-trade and do not become goods held in stock merely because they were purchased from outside the State. The reasoning adopted in the earlier restaurant-flooring case was applied to hold that articles used for the business, and not sold in the regular course, cannot be treated as stock for denying composition benefit.

Conclusion: The purchase of capital goods for use in the restaurant did not violate the composition conditions, and the respondent was entitled to retain the benefit of composition.

Final Conclusion: The revision failed, and the assessment-based denial of composition benefit was set aside in substance.

Ratio Decidendi: Goods acquired as capital equipment for use in the assessee's business, and not held for sale in the ordinary course of trade, are not goods held in stock for the purpose of denying composition scheme benefits.

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