2022 (7) TMI 423 - HC - VAT and Sales Tax

Court allows Private Limited Company to pay taxes under composition scheme for interstate machinery purchases

The State Of Karnataka Represented By The Deputy Commissioner Of Commercial Taxes, (SR) The Joint Commissioner Of Commercial Taxes, (Appeals) Mangaluru, The Deputy Commissioner Of Commercial Taxes, (Audit - 5) Mangaluru Versus M/s. Yen Cafe (A Unit Of Yenepoya Gourment (P) Ltd),

The State Of Karnataka Represented By The Deputy Commissioner Of Commercial Taxes, (SR) The Joint Commissioner Of Commercial Taxes, (Appeals) Mangaluru, ... Issues:- Interpretation of eligibility for paying taxes under the composition scheme as per Section 15(1)(c) of the Act.- Consideration of interstate purchases affecting eligibility for the composition scheme.Analysis:Issue 1: Interpretation of eligibility for paying taxes under the composition schemeThe High Court considered whether the Tribunal was correct in allowing the Respondent's appeal and holding them eligible to pay taxes under the composition scheme provided by Section 15(1)(c) of the Act. The Respondent, a Private Limited Company in the food and drinks business, had opted for the composition scheme under the Karnataka Value Added Tax Act, 2003. The Assessing Authority denied the benefit of the composition scheme due to the Respondent's interstate purchase of machinery. The First Appellate Authority upheld this decision, leading to the appeal before the Karnataka Appellate Tribunal, which eventually allowed the appeal. The Revenue challenged this decision, arguing that the Respondent's interstate purchases made them ineligible for the composition scheme. However, the Court, after considering the arguments, held that the Respondent's purchases were for their business activities and not for resale, aligning with a previous judgment regarding the treatment of similar purchases as not constituting 'goods in stock.' Consequently, the Court ruled in favor of the Respondent, upholding their eligibility for the composition scheme.Issue 2: Consideration of interstate purchases affecting eligibility for the composition schemeThe core dispute revolved around the Respondent's interstate purchases of machinery and consumables for their restaurant business. The Revenue contended that such purchases rendered the Respondent ineligible for the composition scheme under the KVAT Rules. Conversely, the Respondent argued that these purchases were essential for their business operations and should not be categorized as 'goods in stock.' The Court analyzed the nature of the purchases and their intended use by the Respondent, emphasizing that the goods were not for resale but for operational purposes. Drawing parallels with a previous case involving the use of tiles in a restaurant, the Court concluded that the purchases in question did not fall under the category of 'goods in stock.' This reasoning led to the Court ruling in favor of the Respondent, dismissing the Revenue's revision petition and upholding the eligibility of the Respondent for the composition scheme.