TaxTMI 
TaxTMI 
2018 (9) TMI 1915
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....facts of the case are as under: 3. Appellant being manufacturer of Bakery products namely Bread, bun, Toast, Rusk, Biscuits, Cakes and other savouries registered with TIN of 29680088102 borne with LVO-280 Udupi. For which the ingredients being both taxable and non-taxable items of which major being the Maida, Sugar which are VAT exempted goods and other taxable goods were Vanaspati, Oil, Food additives, food colours and packing Materials. 4. Like the ingredients, even output tax is exempted U / s. 5 of the KVAT Act, 2003 on Bread, Bun Rusk, Toast and whereas the Biscuits, cakes, savouries have output taxes accordingly the appellant's turnover includes both taxable and non-taxable components. 5. Appellant maintains separate books of account for production of exempted goods by which he can ascertain and clearly identify the ingredients used for the purpose of taxable goods and exempted goods. Accordingly, on the basis of the books of accounts maintained the appellant is rejecting the input tax on monthly basis and files the same to the department along with the prescribed statement as mandated under the Act clearly identifying the inputs which are used for the production....
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....nto it concluded the proceedings without any base, resulted in appeal before this Tribunal. GROUNDS OF APPEAL 9. The FAA completely failed to understand the nature of business as well as the fact of maintenance of separate books of accounts and submissions of statement of facts and figures of the case, where in it is over whelmly submitted that the general Rule 131 of the KVAT Rules, 2005 is not applicable to the appellant. 10. It is further submitted that, in-spite of submission of separate set of books of account for purchase, consumption as well as the closing stock, the FAA has failed miserably to understand the facts of the case and non-applicability of Rule 131 to appellant contrary to the spirit of the law as well as the intention of the legislator. While reading the statutory provision of Section 17, on which reads as under;- "17, Partial Rebate Where a registered dealer deducting input tax- 1) Makes sales of taxable goods and goods exempt under section 5, or 2) In addition to sale of taxable goods or the sales referred to in clause (1) dispatches taxable goods or goods exempted under section 5 outside the State not as a direct result of ....
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...."apportionment" comes into picture, the apportionment means " distribute or allocate proportionally, divide and assign according to some rule or proportional distribution. The intention, preamble and statement of objects and reasons of the VAT law, is that to allow the input tax only in relation to the sale of taxable goods unless otherwise explicitly provided under the said Act. When it is clearly identifiable and no apportionment is required then the section 17 is not in operation, then only the section 1 1 is in operation and if the same has passed all the restriction provided there under, there should not be any hassle in claiming the input tax rebate in whatsoever manner. The section-17 deals with the Partial Rebate. If a dealer makes sales of taxable goods and goods exempted under section 5, then, the apportionment and attribution of "unidentifiable input tax" is deductible between such sales/ dispatches of goods shall be made in accordance with rules. Rule 131 provides for apportionment. Sub-Rule(l) of Rule 131 categorically states that all input tax directly relating to sale of goods exempt under section 5 is non-deductible. However, sub-rule(2) makes it clear that al....
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....esult i.e, result not intended to be sub-served by the object of the legislation, then if other construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. So the principle of purposive construction will have to be applied when the literal construction leads to absurdity. The context, scheme of the relevant Act as a whole and its purpose are as relevant in construing a taxing Act as in construing any other Act. Therefore, the rule that object of the legislature has to be kept in view and a construction consistent with the object has to be placed on the words used if there be ambiguity, is also applicable, in construing a taxing enactment. An exemption granted under a fiscal statute is a concession granted by the Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay. Therefore, in the instant case, if a literal construction is adopted, it leads to absurdity and it would defeat the object of the Act and the benefit conferred on the assessee by the Legislature is denied. On the contrary, purposive construction would achieve the o....
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....sposal of every input purchased by them. In such cases, the dealers may claim partial input tax rebate based on their books of account. This does not require any permission from the Commissioner. Further, in such cases, the partial rebating formula provided in Rule 131 should not be applied without any justifiable reason. It may also be noted that the apportionment formula prescribed in Rule 131(3) is a general formula and may not fit all cases. Therefore, cases in which its application does not give the correct amount of input tax rebate available to the dealer, the Commissioner would have to be moved by the dealer or the department officer concerned to specify a special formula. However, if even in such cases the procedure laid down in this Circular is applicable, then specification of a special formula would not be necessary. 12. It is further submitted that, in the said circular the para 10 which is re-produced here in below the manner in which the rejection method to be followed and the preamble of the said rejection is clearly mandated. (10) Further, even in cases which attract application of the partial rebating formula, it is not that the monthly return....
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.... para it has been laid down specifically laid down that wherever the deductible input is identifiable, then recourse of partial rebating should not be resorted. 13. It is further submitted that, the FAA in her order sheet page no.4 in second para observes that; "......................the appellant has maintained separate accounts showing the purchases, consumption and stock of raw materials used in the manufacture of items exempted from tax and same are produced for verification before the assessing authority. ..... The appellant also filed extract of account of raw materials purchased, consumed and stock in relation to the manufacture of tax-exempted items... Further in page 5 of her order sheet observes that; ".................the plea of the appellant is that he has maintained separate accounts showing the purchases, consumption and stock of materials relatable to tax exempted products and hence the same has to be adopted is not acceptable. It is true that the appellant has filed extract of accounts said to have been maintained describing the purchases and consumption of materials relatable to exempted goods. From the above facts it is clear that the a....
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....ly, the deductible input tax is identifiable, then recourse to the partial rebating formula would not be necessary. These specific instructions are also not considered by both the authorities and they have concluded proceedings overlooking these beneficial and administrative guidelines of the department. The conclusion of order in haste itself is the testimony of the lack of administrational fair play by FAA. Whereas it is categorically stated that the said adoption of Rule 131 should not be applied without any justifiable reasons. Further it noted that the said rule is general one and may not fit to all. The intention of the legislature is to 'give the correct input tax rebate to the dealer". Both AA and FAA have failed miserably to understand the intention of the legislature and pass on the legal and real justice intended by the law as well as the legislature. The summary for the years in question is as follows: 2005-06 2006-07 2007-08 From the above it could be seen that the rejection by adoption of rule 131 is more than 200% of the actual. 14. It is further submitted that the turnover portion of the appellant contains majorly that of exempted goods which a....
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....as been categorically laid that; "...................Therefore, what follows from the aforesaid judgment is, the volume, frequency, continuity and regularity of transactions of purchase and sales being an important element in determining whether the business was carried out apart from the elements of profit making being there, occasional sales of a business nature would make the respondent, a casual dealer. In the instant case, the assessee is a dealer in wood and wood products. He is not selling cars occasionally every year. The car, which he has sold is a solitary transaction. It is nothing to do with the business, which is being carned on by him. It is not sale of business nature. There is no profit motive in the sale of the said car". Sarne view is expressed by Hon'ble Delhi High Court(DB) in the case of M/S. Panacea Biotech Ld. VS Commissioner of Trade WP (C) No. 4717/2011 & CM No. 9555/2011 dated 14.12.2012, which is also not considered by FAA. 16. Heard the learned counsel Sri. Raghavendra Maiya for the appellant and the learned State Representative. The records, the orders of the lower authorities and the facts are perused. The arguments and grounds of appeal....
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....se (other than sale, manufacturing, processing, packing or storing of goods), in addition to use in the course of his business, or, (4) falls under any of the above clauses and also purchases any petroleum product for use as fuel in production of any goods or captive power, apportionment and attribution of input tax deductible between such sales and dispatches of goods for such purpose, shall be made in accordance with Rules or by special methods to be approved by the Commissioner or any other authorized person and any input tax deducted in excess shall become repayable forthwith. The expression apportionment and attribution of input tax deductible between such sales and purchases indicates that the provision speaks of deductible input tax that is a partial rebate of input tax for such sales on which tax has accrued as sale taxable or export and stock transfers on which value there is no tax accrued. As could be seen above, under the facts and circumstances of the present case, the situation as mentioned under sub-section 1 of section 17 is present to the exclusion of other situations spelt under sub-sections 2, 3, and 4 of Sec. 17. The apportionment of input tax ....
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....x is either directly related to exempt goods or if the quantum of input tax is directly related to taxable sales, then the said quantum may be adopted either for disallowing the input tax related to exempt goods under clause 1 or for allowing the input tax input tax as related to taxable sales as under clause 2 as the case may be. Only when either of the clause 1 and 2 is not possible to be adopted then only recourse to clause 3 has to be made. In all cases of partial rebate, a blind recourse to the formula under clause 3 above is incorrect. The authorities who resort to the application of formula under clause 3 of rule 131 need to make sufficient grounds for the same after providing opportunity of being heard in the matter. A blind recourse to formula with a view that, it may result in more quantum of Non-Deductible Input Tax as a result of which the Net Tax payable increases is not justifiable. Recourse to the formula is permissible only when the adoption of clause 1 or 2 is not possible. 20. In the case on hand the appellant produced the tabulation of calculations as to the Non-deductible input tax for each tax period. The exempt goods like bread and rusk need ingredients lik....
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....he Commissioner would have to be moved by the dealer or the department officer concerned to specify a special formula. However, if even in such cases the procedure laid down in this Circular is applicable, then specification of a special formula would not be necessary. Therefore it is clear that the AA and FAA have not followed the circular instructions properly. Hence there is no reason to doubt the quantum of NDIT applied by the appellant himself for all the three years under appeal. The re-assessment order passed by the AA adopting the formula in a routine manner without taking into the specific facts of the case and rejecting the calculations of the appellant is totally unjustified and not called for and therefore the order of the FAA in dismissing the appeal without following the law and the circular instructions is not maintainable in the eye of law. Hence point- Nol is answered in the NEGATIVE. 22. Point No.2: AA has levied tax on sale of old vehicles which the FAA has upheld failing to take note of the jurisdictional High Court of Karnataka Division bench's decision in the case of M/S. Vasavi Wood Industries Vs. State of Karnataka vide STRP No. 621/2013 date....
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.... The dealer was not liable to pay sales tax under the Act on the sale of intellectual property. " (VI) Judgment by Hon'ble High Court of Karnataka in the case of M/S. Ciniplex Pvt. Ltd Vs State of Karnataka (2012) 53 VST 84: 24. The petitioner M/S. Ciniplex Pvt. Ltd was engaged in the business of sale of food articles, snacks and beverages and sold several discarded goods as one-time sale. The issue with which the Hon'ble High Court was concerned for decision was whether the sale of used metal detectors, water coolers and lockers by the dealer engaged in the business of sale of food articles, snacks and beverages - one-time sale of discarded goods - was liable to tax under KVAT Act, 2003. Holding that it was a one-time sale by M/S. Ciniplex Pvt. Ltd and it was not a dealer carrying on any business in discarded goods, the Hon'ble High Court held that the levy of tax on sale of the discarded goods was without authority of law. Quote - paragraph 7 on page 89 of 53 VST: "7. Therefore, it is clear that to attract levy of tax under the Act, pursuant to carrying of business in a particular commodity, it must depend upon the volume, frequency, continuity and reg....
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....er 2018.] ============= Document 1 Month Taxable Exempted Total turnover turnover Total Non turnover input deductible U/R 131 Non deductible as per Excess Input tax rejection Books April 68.629 1,18,739 1,87,368 22,767 8,999 2,500 6,499 May 3,33,023 2,87,726 6,20,749 16,185 12,468 6,020 6,448 June 2,04,336 5,01,583 7,05,919 15,010 10,400 4,966 5,434 Document 2 July 2,28,438 6,45,033 8,73,471 19,925 10,390 5,206 5,184 Aug 1,89,260 6,52,876 8,42,136 19,804 12,602 4,903 7,699 Sept 3,15,752 6,23,120 9,38,872 17,617 8,905 3,732 5,173 Oct 2,21,224 6,77,382 8,98,605 19,154 16,481 1,649 14,832 Nov 2,37,340 10,82,428 13,19,768 20,538 6,741 1,350 5,391 Dec 3,06,830 11,98,273 15,05,103 29,842 4,622 4,307 315 Jan 3,13,678 3,61,986 6,75,664 25,927 13,913 5,198 8,715 Feb 2,59,825 2,61,975 5,21,800 22,219 17,074 5,404 11,670 Mar 1,98,107 5,26,689 7,24,796 20,398 12,139 ....