Composition scheme eligibility turns on business-use purchases, not stock-in-trade, so benefit could not be denied.

Items purchased for use in the business, rather than for resale, were not goods held in stock for denying composition benefits under the KVAT regime. The assessee bought machinery, parts and trays from outside the State for use in producing bakery products, not as stock-in-trade. On that factual characterisation, the statutory prohibition did not apply and the composition scheme could not be withdrawn. The denial of composition benefit was therefore unsustainable, and the assessee remained eligible to continue under the composition scheme.

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Issues: Whether the assessee was entitled to continue under the composition scheme when it had made inter-State purchases of machinery and parts for use in its business, and whether such items could be treated as goods held in stock so as to disentitle composition benefits.

Analysis: The dispute turned on the proper characterisation of the items purchased from outside the State. The assessee was engaged in sale of bakery products and had purchased machinery, parts and trays for use in the business, not for trading in those items. The prohibition under the composition provisions and the corresponding rules applies where the relevant purchases or holdings fall within the mischief contemplated by the statute. On the facts, the purchased machinery and related items were meant for use in preparing bakery products and were not stock-in-trade in the ordinary course of the assessee's business. Accordingly, they could not be treated as goods held in stock for the purpose of denying composition benefits.

Conclusion: The assessee remained eligible for the composition scheme, and the denial of composition benefit was not sustainable.

Ratio Decidendi: Items purchased for use in the business, and not for sale in the regular course of trade, cannot be treated as goods held in stock so as to deny composition benefits under the KVAT regime.

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