2025 (10) TMI 726 - HC - VAT / Sales Tax

Procedural deficiency and natural justice breach in input tax credit hearing; matter remanded, petitioner given one further opportunity

M/s. Bellary Ispat (P) Ltd., Versus The State of Karnataka, The Joint Commissioner of Commercial Taxes (Appeals), Davanagere, The Assistant Commissioner Of Commercial Taxes, (Audit) -1 Davanagere.

HC found procedural deficiency and violation of natural justice in denial of adequate hearing on input tax credit claims, noting the tribunal's record did ... Denial of claim of the input tax after Six months - denial of opportunity of hearing - the judgment in State of Karnataka V/s. K. Bond polymers Pvt. Ltd. [2012 (3) TMI 373 - KARNATAKA HIGH COURT] ignored - denial of credit as per section 10 and 11 of the KVAT act - disallowing the qualified and brought forward excess tax against the claimed - non-grant of sufficient opportunity to petitioner to argue the case in main appeal and failure to grant reasonable time considering that the matter was only of the year 2022 - failure to observe that petitioner was not represented in cross appeal preferred by State - violation of principles of natural justice - HELD THAT:- The appeal before the Tribunal was preferred by the petitioner, whereas the cross appeal was filed by the State. The Tribunal, in paragraph 6 of the impugned order, recorded that sufficient opportunities were granted. However, it has not specified the number of opportunities afforded to the petitioner to present its case. Be that as it may, we are inclined to grant the petitioner one further opportunity in the interest of substantial justice. Denial of such opportunity may result in financial hardship to the petitioner. In any event, if the matter is remanded to the Tribunal for fresh consideration, no prejudice is likely to be caused to the State. Further, it is noted that this is not a case of denial of opportunity, but of non-availing the same. Although the default in appearance is attributable to the petitioner, in the interest of substantial justice, while remanding the matter, the petitioner is to be directed to pay costs. The appeals are restored and remanded to the file of the Karnataka Appellate Tribunal, Bengaluru, subject to payment of cost of Rs. 10,000/- to be deposited before the High Court Legal Services Authority - appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal erred in disallowing the claim of input tax where a prior decision permitting belated input tax claims was relied upon by the appellant and allegedly ignored by the Tribunal. 2. Whether the Tribunal's application of sections 10 and 11 of the KVAT Act (relating to entitlement for input tax) in disallowing the appellant's claim was legally correct. 3. Whether the Tribunal correctly disallowed carry-forward or set-off of qualified/excess tax against the appellant's claimed input tax. 4. Whether the Tribunal's process was vitiated by denial of opportunity to the appellant - specifically, by failing to grant adequate hearing time in the appeal and by not notifying or allowing representation in the State's cross-appeal - such that the Tribunal's order is perverse. 5. Whether remand for fresh adjudication is appropriate and, if so, on what terms (including costs and preservation of parties' contentions). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Tribunal's treatment of precedent permitting belated input-tax claims Legal framework: Administrative and appellate tribunals must apply relevant binding precedent and follow principles of reasoned decision-making; the entitlement to input tax is governed by statutory provisions and interpreted by prior authoritative decisions. Precedent Treatment: A prior judgment favorable to belated claims was cited by the appellant (referred to in the record). The Tribunal is said to have ignored that judgment. Interpretation and reasoning: The Court did not resolve the substantive correctness of either the prior judgment or the Tribunal's contrary approach on the merits. The Court observed the appellant's complaint that the Tribunal ignored favorable precedent but did not undertake a merits rehearing. Instead, the Court focused on procedural fairness and remanded the matter for fresh consideration where the Tribunal can reassess applicable precedent and statutory provisions. Ratio vs. Obiter: The Court's direction to remit for fresh consideration is ratio only to the extent it arises from procedural inadequacy and the need for the Tribunal to consider precedent afresh; there is no ratio on the substantive question whether belated input-tax claims are permissible. Conclusion: No substantive determination on the correctness of the Tribunal's ignoring of the earlier decision; matter remanded so the Tribunal may consider the precedent and statutory provisions in the first instance. Issue 2 - Application of sections 10 and 11 of the KVAT Act to entitlement for input tax Legal framework: Sections 10 and 11 of the KVAT Act set out rules for input tax entitlement and adjustments; determination of entitlement turns on statutory interpretation and factual proof before the fact-finding authority. Precedent Treatment: The Court did not overrule or adopt any specific prior interpretation; it left statutory interpretation to the Tribunal on remand. Interpretation and reasoning: The Court noted the dispute over entitlement under sections 10 and 11 but declined to adjudicate statutory questions at this stage because the Tribunal had not considered the matter after the appellant's absence (or had not recorded adequate particulars of opportunities). The Court indicated that these statutory contentions remain open for adjudication by the Tribunal at the rehearing. Ratio vs. Obiter: Direction to remit without addressing substantive statutory interpretation is ratio as to procedure; no substantive ratio on sections 10 and 11. Conclusion: Entitlement under sections 10 and 11 remains to be considered by the Tribunal on remand; the Court keeps parties' contentions open. Issue 3 - Disallowance of carry-forward/set-off of qualified/excess tax Legal framework: Questions of set-off/carry-forward of taxes are factual and law-mixed issues determined by statutory provisions and evidence before the adjudicatory authority. Precedent Treatment: No specific precedent was adjudicated by the Court on this point; the Tribunal's disallowance was subject to challenge. Interpretation and reasoning: The Court did not examine the correctness of the Tribunal's disallowance on merits. Given the procedural posture (the appellant's non-appearance before the Tribunal and contested opportunities), the Court remitted the matter for fresh consideration so that the Tribunal may determine the set-off/carry-forward issue with full opportunity to the parties. Ratio vs. Obiter: The Court's remand as to this issue is procedural ratio; there is no substantive holding whether carry-forward/set-off was rightly disallowed. Conclusion: The Tribunal must reconsider disallowance of carry-forward/set-off on remand with full opportunity to the appellant. Issue 4 - Whether the Tribunal denied natural justice by failing to afford adequate opportunity or notice Legal framework: Principles of audi alteram partem and natural justice require that a party be given adequate notice and opportunity to be heard before adverse orders; appellate tribunals must record opportunities granted and consider restoration/recourse provisions where a party defaults. Precedent Treatment: The Court applied settled principles of procedural fairness; it also referenced availability of a statutory/regulatory remedy (Rule 28(a) of the Tribunal's Regulations) to seek restoration where an appellant defaults. Interpretation and reasoning: The Tribunal recorded that 'sufficient opportunities' were granted but failed to specify number/timing. The Court found this inadequate given the appellant's assertion of non-representation and the existence of a cross-appeal by the State. The Court treated the matter as one of non-availing of opportunity (default) rather than outright denial, observing that the appellant could have utilized available remedies but had not. In the interest of substantial justice and to avoid potential financial hardship to the appellant, the Court exercised its supervisory jurisdiction to remit the appeals for fresh hearing, while imposing a cost to reflect the appellant's default. Ratio vs. Obiter: The finding that the Tribunal's recording of 'sufficient opportunities' without particulars is insufficient for appellate review is a ratio on procedural sufficiency; the Court's decision to remit (rather than dismiss) is a ratio grounded in interests of justice. The availability of Rule 28(a) as a remedy is noted but not determinative of the Court's exercise of discretion. Conclusion: The Tribunal's order was set aside and the matter remanded for fresh adjudication because procedural recording was inadequate and the appellant had not availed existing restoration remedies; the remand was ordered with costs to the appellant to reflect its failure to appear. Issue 5 - Appropriate remedy and terms on remand (including costs) Legal framework: High Courts may remit matters to tribunals for fresh consideration where procedural irregularity or failure to afford effective hearing may have occurred; courts may impose costs as a condition of remand where default by a party is a factor and to prevent prejudice to the other side. Precedent Treatment: The Court relied on principles permitting remand and imposition of costs in the interest of justice; no specific precedent was adjudicated. Interpretation and reasoning: Balancing the appellant's default against the potential for substantial injustice, the Court exercised discretion to allow the petition in part, set aside the Tribunal's order, restore and remand the appeals for fresh adjudication, and require the appellant to pay costs (Rs. 10,000) to be deposited with the High Court Legal Services Authority. The Court explicitly left all substantive contentions open for rehearing, and observed that remand would not prejudice the State. Ratio vs. Obiter: The directive to remit with specified costs and to keep contentions open is the operative ratio of the decision; it establishes the remedy appropriate where default intersects with potential hardship. Conclusion: Appeals were restored and remanded to the Tribunal for fresh consideration; the appellant must pay costs as a precondition to the rehearing; substantive issues remain open for adjudication by the Tribunal.