2022 (7) TMI 417 - HC - VAT and Sales Tax

Karnataka High Court affirms Fast Food Restaurant's eligibility for composition scheme under KVAT Act

The Joint Commissioner Of Commercial Taxes (Appeals) -5 The Assistant Commissioner Of Commercial Taxes (Audit & Recovery) -5. 9 DVO- 5, Bengaluru Versus M/s. Yosemite Hospitalities

The Joint Commissioner Of Commercial Taxes (Appeals) -5 The Assistant Commissioner Of Commercial Taxes (Audit & Recovery) -5. 9 DVO- 5, Bengaluru Versus ... Issues:1. Whether the Karnataka Appellate Tribunal erred in holding that the respondent did not violate the conditions of the composition scheme under the KVAT Act despite purchasing goods from outside KarnatakaRs.2. Whether the Karnataka Appellate Tribunal erred in ruling that the prohibition on purchasing goods from outside the state by a composition dealer under the KVAT Act does not apply to capital goodsRs.Analysis:Issue 1:The case involved a respondent, a proprietary firm running a Fast Food Restaurant, which had opted for the composition scheme under the KVAT Act. The jurisdictional Commercial Tax Officer alleged violations of the scheme's restrictions, disqualifying the respondent. The First Appellate Authority modified the reassessment order partially. The Karnataka Appellate Tribunal (KAT) allowed the appeal and set aside the reassessment order, prompting the Revenue to file an appeal. The Revenue contended that the respondent purchased goods from outside the state, rendering them ineligible for the composition scheme under Rule 135 of the KVAT Rules. The Revenue argued that the KAT's decision was based on an incorrect assumption that the goods were not 'goods held in stock', thus making the composition benefit unavailable to the respondent.Issue 2:The respondent, engaged in the Restaurant business, had purchased capital goods like Refrigerators and Freezers from outside the state for the restaurant's operation. The court referred to a previous case where it was established that goods used for specific purposes in a business, like flooring, became part of the immovable property and were not considered 'goods held in stock'. Applying this precedent, the court concluded that the goods purchased by the respondent for the restaurant's operation were capital goods and not 'goods held in stock'. Consequently, the court ruled in favor of the respondent, dismissing the revision petition by the Revenue.In conclusion, the High Court of Karnataka upheld the Karnataka Appellate Tribunal's decision, ruling in favor of the respondent based on the nature of the goods purchased and their utilization in the business as capital equipment. The judgment emphasized the distinction between capital goods and goods held in stock under the composition scheme of the KVAT Act, providing clarity on the eligibility criteria for composition benefits in such cases.