2022 (7) TMI 422 - HC - VAT and Sales Tax

Court upholds bakery's tax scheme despite interstate purchases for machinery, not resale, clarifying eligibility.

State Of Karnataka Through The Commissioner Of Commercial Taxes, Bangalore Versus O.G. Variar And Sons Variar Bakery

State Of Karnataka Through The Commissioner Of Commercial Taxes, Bangalore Versus O.G. Variar And Sons Variar Bakery - TMI Issues:1. Eligibility of the respondent to pay taxes under the composition scheme despite interstate purchases.2. Dismissal of cross-appeals by the Appellate Tribunal.Eligibility for Composition Scheme:The respondent, a bakery product seller, opted for the composition scheme under Section 15(1) of the KVAT Act. Re-assessment orders were passed denying the composition scheme benefit due to interstate purchases. The First Appellate Authority upheld the denial but granted input tax credit. The Karnataka Appellate Tribunal (KAT) allowed the respondent's appeals and dismissed the Revenue's cross-appeals. The Revenue argued that interstate purchases disqualify the respondent from the composition scheme under Rule 135(1) & (2) of the KVAT Rules. They contended that the KAT erred in considering the goods as not 'goods in stock.' However, the respondent argued that the purchases were for restaurant machinery, not bakery product sales, citing a previous court ruling. The High Court agreed with the respondent, emphasizing that the goods were not 'goods in stock' as per the Anantha Padmanabha Bhat case.Dismissal of Cross-Appeals:The Revenue contended that the KAT's decision was legally unsustainable due to the nature of the purchases and the erroneous consideration of the goods. However, the respondent successfully argued that the purchases were not for resale but for restaurant use, aligning with the precedent set in the Anantha Padmanabha Bhat case. The High Court concurred with the respondent's position, ruling in favor of the assessee and dismissing the revision petition. The judgment highlighted the distinct purpose of the purchases and their categorization as not 'goods in stock,' leading to the dismissal of the Revenue's claims.In conclusion, the High Court upheld the KAT's decision, emphasizing the specific nature of the purchases and their intended use, which aligned with the Anantha Padmanabha Bhat case precedent. The judgment clarified that the purchases for restaurant machinery did not qualify as 'goods in stock,' rendering the respondent eligible for the composition scheme despite interstate acquisitions.