Karnataka High Court
M/S Synthite Industrial Chemicals Ltd vs State Of Karnataka on 19 April, 2024
Author: S G Pandit
Bench: S G Pandit
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STRP No. 1001 of 2013
C/W STRP No. 202 of 2011
IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH
DATED THIS THE 19TH DAY OF APRIL, 2024
PRESENT
THE HON'BLE MR JUSTICE S G PANDIT
AND
THE HON'BLE MR JUSTICE K V ARAVIND
SALES TAX REVISION PETITION NO.1001 OF 2013
C/W
STRP NO.202 OF 2011
IN STRP NO.1001/2013
BETWEEN:
M/S. SYNTHITE INDUSTRIAL CHEMICALS LTD,
KUMARAPATNAM-581123,
NEAR HARIHAR,
RANIBENNUR TALUK,
HAVERI DISTRICT,
(REPRESENTED BY ITS
MANAGER OF FINANCE,
SRI. V. R. AJIT KUMAR,
AGED ABOUT 42 YEARS,
S/O. SRI. V. K. RAGHAVAN)
...PETITIONER
(BY SRI. TATA KRISHNA AND
SRI. SHASHANK S. HEGDE, ADVOCATES)
AND:
Digitally signed
by VALLI
MARIMUTHU STATE OF KARNATAKA,
Location: High VTK BUILDING,
Court of
Karnataka GANDHI NAGAR,
BENGALURU-560009.
...RESPONDENT
(BY SMT. KIRTILATA R. PATIL, HCGP FOR RESPONDENT)
THIS SALES TAX REVISION PETITION IS FILED U/S.65(1) OF
THE KARNATAKA VALUE ADDED TAX ACT, 2003, PRAYING TO
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STRP No. 1001 of 2013
C/W STRP No. 202 of 2011
FORMULATE THE QUESTIONS OF LAW STATED ABOVE AND ALLOW
THE PETITION AND SET ASIDE THE ORDER OF THE KARNATAKA
APPELLATE TRIBUNAL BEARING STA NOS.2428 TO 2430 OF 2009
DATED 12.07.2012 AND ETC.
IN STRP NO.202/2011
BETWEEN:
M/S. SYNTHITE INDUSTRIAL CHEMICALS LTD.,
KUMARAPATNAM-581123,
NEAR HARIHAR,
RANIBENNUR TALUK,
HAVERI DISTRICT,
(REPRESENTED BY ITS
MANAGER OF FINANCE,
SRI. V. R. AJIT KUMAR,
AGED ABOUT 41 YEARS,
S/O. SRI. V. K. RAGHAVAN)
...PETITIONER
(BY SRI. TATA KRISHNA AND
SRI. SHASHANK S. HEGDE, ADVOCATES)
AND:
STATE OF KARNATAKA,
REP. BY ITS SECRETARY,
FINANCE DEPARTMENT,
VIDHANA SOUDHA, BANGALORE.
...RESPONDENT
(BY SMT. KIRTILATA R. PATIL, HCGP FOR RESPONDENT)
THIS SALES TAX REVISION PETITION IS FILED U/S.23(1) OF
THE KARNATAKA VALUE ADDED TAX ACT, 2003, PRAYING TO
FORMULATE THE QUESTIONS OF LAW STATED ABOVE AND ALLOW
THE PETITION AND SET ASIDE THE ORDER OF THE KARNATAKA
APPELLATE TRIBUNAL BEARING STA NOS.380 TO 391/2010 DATED
29.11.2010 AND ETC.
THESE SALES TAX REVISION PETITIONS HAVING BEEN
HEARD AND RESERVED ON 14.02.2024 AND COMING ON FOR
PRONOUNCEMENT OF ORDERS, THIS DAY K V ARAVIND, J.,
PRONOUNCED THE FOLLOWING:
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STRP No. 1001 of 2013
C/W STRP No. 202 of 2011
ORDER
These revision petitions by dealer u/sec.23(1) of the
Karnataka Value Added Tax Act, 2003 (for short, 'KVAT Act,
2003') challenging the order passed by the Karnataka State
Appellate Tribunal (for short, 'Tribunal') dated 12.07.2012 and
29.11.2010. The following substantial questions of law are
admitted for consideration in STRP No.202/2011.
1) Whether, on the facts and in the circumstances of
the case, the Honourable Karnataka Appellate
Tribunal was right in law in holding that shipment
of goods to Rotterdam, Netherlands, against firm
purchase orders of foreign buyers is not a sale in
the course of export under Section 5(1) of the
CST Act if there is a time gap exceeding 100 days
between the end of transit and date of lifting by
the foreign buyer?
(for the months of July, August and December
2006)
2) Whether, on the facts and in the circumstance of
the case, the Honourable Karnataka Appellate
Tribunal was right in law in considering the value
of stock transfer of finished goods, manufactured
out of non local inputs, in computing the
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non-deductible input tax as per Rule 131 of the
KVAT Rules read with Section 17 of the KVAT Act?
(for the months of June, July, August, October,
November, December 2006 and, January and
February 2007)
3) Whether, on the facts and in the circumstances of
the case, the Honourable Karnataka Appellate
Tribunal was right in law in not addressing the
issue of apportionment methodology adopting a
proper trade cycle as per Rule 132(1) of the KVAT
Rules, thereby impliedly approving the action of
the lower authorities?
(for the months of September 2006 and March
2007)
4) Whether, on the facts and in the circumstances of
the case, the Honourable Karnataka Appellate
Tribunal was right in law in not allowing the
concessional rate of 4%, in accordance with
notification No.FD 300 CSL 2005
dated 24.10.2005, on the sale of used Quallis car
for the month of May 2006?
5) Whether, on the facts and in the circumstances of
the case, the Honourable Karnataka Appellate
Tribunal was right in law in not quashing the levy
of penalty?
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2. Heard Sri Tata Krishna along with Sri Shashank S.
Hegde, learned counsel for the petitioner/dealer and
Smt.Kirtilata R. Patil, learned HCGP for respondent/State.
3. Regarding 1st question of law:- The petitioner-
dealer is engaged in the business of manufacturer and sale of
oleoresin and celery oil. The dispute is for the period 2006-07.
M/s Synthite Industrial Chemicals Limited is a dealer under
the KVAT Act, 2003. During audit of books of accounts for the
period January 2006 to March 2006, it was found that 90% of
the goods manufactured are exported directly to the foreign
buyers. The dealer has transferred the goods to its company
godown in foreign countries, the sales are effected later from
the company godown to the buyers in the respective
countries. The dealer classified the stock transfer as direct
export to foreign buyers and claimed exemption on the same
by claiming rebate of input tax paid on the purchases used in
the manufacture and stock transfer of the goods. It was held
that dispatch of goods by the company to its godown at
foreign country is without pre-existing export order from the
foreign buyer. By issue of show-cause notice, proposed to
treat the transactions as stock transfer to the dealers godown
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in foreign countries and to declare the dealer as not eligible to
claim input tax rebate u/sec.11(a)(v) of the KVAT Act, 2003.
4. The dealer filed detailed reply inviting the attention
of the Assistant Commissioner of Commercial Taxes to Section
5 of the Central Sales Tax Act (for short, 'CST Act'). The
Assistant Commissioner rejected the objection and held that
the transaction is stock transfer of goods manufacture to its
own godown in foreign countries, the transaction is not an
export, disallowed the input tax by treating the goods
transferred as stock transfer by the dealer.
5. The dealer preferred appeal before the Joint
Commissioner of Commercial Taxes (Appeals). The Appellate
Commissioner by order dated 23.01.2010 confirmed the order
dated 30.10.2009 passed by the Assistant Commissioner of
Commercial Taxes by holding that the goods have been
moved to the existing godowns in foreign country of the
appellant company on its own and the same cannot be
considered as export.
6. The dealer being further aggrieved preferred
appeal before the Karnataka Appellate Tribunal. The Appellate
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Tribunal by order dated 29.11.2010 held that the goods
exported outside India and stored in the godowns owned by
the dealer would be considered as export for a period of 100
days. If the goods are not sold to the respective buyers within
100 days, the same will be considered as stock transfer by the
dealer.
7. Learned counsel for the dealer submits that Section
5(1) of the CST Act considers the sale of goods in the course
of export out of India, if the sale occasions such export. It is
further submitted that the export in the present case is made
to Netherlands in pursuance of firm orders placed by the firm
buyers. It is submitted that foreign buyers place orders with
the appellant-company with a specified quantity required by
each of the foreign buyer, price of the goods is fixed and with
quality specifications to the particular goods required by the
foreign buyers. The dealer to comply with such orders placed
by foreign buyers, exports the goods by earmarking such
goods for a particular foreign buyer. However, such goods are
stored in the godown hired/owned by the dealer. On further
instructions from the foreign buyers, the goods are sent to the
concerned buyers in smaller portions as per the requirement
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of the concerned buyers from time to time. Learned counsel
further submits that the storing of the goods exported at
Netherlands is requirement of the trade. The European
customers are particular on supply of intended goods in
smaller portion at short interval of time. The time gap
between the receipt of exported goods in Netherlands and
supply to the importers was due to the reluctancy of the
European customers to hold substantial inventory of the
purchased goods. It is submitted that the entire goods
exported are specifically earmarked for a particular buyer,
however supplied in small portions. As the condition of export
i.e. sale, actual movement of goods to foreign country, not
being in dispute, the transaction is to be considered as sale in
the course of export.
8. Learned counsel further submits that in the
absence of Section 5(1) prescribing any time limit, the
Tribunal committed an error in holding that exported goods if
not supplied to the importers within 100 days, has to be
considered as stock transfer. When the statute has not
provided for any time limits, the Tribunal is not justified in
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prescribing the time for application of Section 5(1) of the CST
Act.
9. In support of the above submissions, learned
counsel places reliance on the judgment of the Haryana High
Court in the case of Nipha Exports Pvt.Limited V/s State
of Haryana and others1.
10. Learned High Court Government Pleader appearing
for the State submits that the stock transfer by the dealer to
its own godown in foreign countries has claimed as export.
The goods have been stored in the godown owned by the
dealer with the supervision of the representatives of the
dealer. As and when the orders have been placed by the
buyers in Netherlands, representatives of the dealer have
supplied the goods, which would be local sale in that country
and not export. It is further submitted that as the exports
were not against any import order, merely because goods are
out of the country cannot be considered as export. It is further
submitted that the goods exported have been stored by the
dealer after the goods reaches Netherlands. The said goods
(1998) 108 STC 0337
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have been sold in piece meal/small portions. Considering the
period of storage before goods are sold to the concerned
foreign importers, the Tribunal was justified in fixing the
reasonable time of 100 days from the receipt of goods in
foreign country to be considered as export and beyond 100
days to be considered as stock transfer.
11. The provisions of Section 5(1) of the CST Act reads
as under:
"5. When is a sale or purchase of goods
said to take place in the course of import or
export.- (1) A sale or purchase of goods shall be
deemed to take place in the course of the export of
the goods out of the territory of India only if the sale
or purchase either occasions such export or is effected
by a transfer of documents of title to the goods after
the goods have crossed the customs frontiers of
India."
Section 2(14) of the CST Act defines Export as:
"Export" means a sale of goods taking place in
the course of export of the goods out of the territory
of India only if the sale either occasions such export or
is effected by a transfer of documents of title to the
goods after the goods have crossed the customs
frontiers of India and includes the last sale of any
goods preceding the sale occasioning the export of
those goods out of the territory of India, if such last
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sale took place after, and was for the purpose of
complying with the agreement or order for or in
relation to such export."
12. Reading of the above provision would make it clear
that a sale of goods shall be deemed to take place in the
course of export out of the territory of India with the sale
occasions such export. The sale in the course with reference
to Section 5(1) of the CST Act has been considered by the
Hon'ble Supreme Court in the case of Coffee Board,
Bangalore V/s Joint Commercial Tax Officer, Madras
and another2. The observations reads as under:
"The phrase 'sale in the course of export'
comprises in itself three essentials: (i) that there must
be a sale, (ii) that gods must actually be exported, and
(iii) the sale must be a part and parcel of the export."
13. We need to examine fulfillment of three essentials
as stipulated by the Hon'ble Supreme Court to constitute the
"sale in the course of export" for the purpose of Section 5(1)
of the CST Act. Though the Prescribed Authority and the
Appellate Authority have held that there are no orders placed
from foreign buyers and the export is not against such orders,
25 STC 528
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the Tribunal has recorded a finding of fact that foreign buyers
have placed firm orders of purchase specifying the price of the
goods, quality specifications relating to particular goods. The
dispatch of goods is with particular quantities earmarked for
particular foreign buyers and in compliance of
instructions/orders of the foreign buyers at Netherlands. It is
only to meet the time lines of the buyers and in compliance of
the conditions of the orders placed, the goods are supplied to
the buyers from the earmarked exported goods and quantity
at a price fixed, as per the requirement of the buyers.
14. The Tribunal has not recorded any finding with
regard to the allegations of the authorities that the stock
transfer is treated as sale in the course of export to claim
benefit of Section 5 of the CST Act. The finding of fact
recorded by the Tribunal is not challenged by the State. On
examination of the scope of Section 5(1) of the CST Act, we
are of the view that the export from India to foreign
destination and the sale of such exported goods is not in
dispute. The State has not even contended that the goods
exported outside India against a firm orders has been supplied
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other than to the importers to consider it as a local sale. In
view of finding of fact recorded by the Tribunal that firm
orders were placed by the buyers with specification of quality,
quantity and price and export is against such orders, merely
because out of the quantity exported, supply is made through
the agent of the dealer in smaller portion of the buyer/
importers, the same would not ceases to be sale in the course
of export and can be termed as local sale. The transaction in
disputes satisfy all the three essentials to constitute sale in
the course of export as enunciated by the Hon'ble Supreme
Court in the case of Coffee Board (supra). We hold that
transaction is sale in the course of export.
15. The Tribunal though considered the export of
goods as sale in the course of export by referring to the
judgment of the Hon'ble Supreme Court in the Consolidated
Coffee Limited V/s Coffee Board3, held that the period of
100 days from the date of receipt of goods at Netherlands
would be considered as transit of goods in the course of
export and beyond 100 days, it has to be considered as mere
stock transfers. The judgment referred to by the Tribunal
46 STC 164
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supra in the case of Consolidated Coffee Limited is not
applicable to the facts of the present case. In view of auction
conditions, three months' period or extended period was
contemplated. The Hon'ble Supreme Court in the judgment
supra has not laid down any principle in the context of Section
5(1) of the CST Act.
16. It is settled position of law that while interpreting
the physical statute, it is not permissible for the Court to
either read in or read out any words into the statute. The
provisions of fiscal statute has to be read in a plain context.
When Section 5(1) of the CST Act even does not suggest any
timeline or not to consider the sale as export after expiry of a
particular period, the Tribunal committed an error in
prescribing 100 days. The 100 days fixed to convert sale in
the course of export as stock transfer is without jurisdiction.
17. In view of above reasoning, we answer the
question in the negative, in favour of the dealer and against
the Revenue.
18. Regarding 2nd question of law:- The prescribed
authority issued show-cause notice for apportionment of input
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tax credit under Rule 131 r/w Section 17 of the KVAT Act,
2003. The dealer filed a detailed objection contending that
goods manufactured without using local inputs should be
excluded from application of formula under Rule 131. Without
any discussion, the prescribed authority concluded the
assessment. On appeal by the dealer though ground was
raised, the appellate authority dismissed the appeal. On
further appeal, the Tribunal though formulated a point for
consideration, the specific contention is not addressed.
19. Learned counsel for the appellant submits that in
reply to the show-cause notice, it was specifically contended
that finished goods manufactured by the dealer includes goods
purchased locally (within State) as well as from outside the
State. The stock transfer of finished goods manufactured
without using local inputs could not be considered as stock
transfer for the purpose of formula stipulated under Rule 131
of the KVAT Rules. It is further submitted that all the three
authorities committed an error in not recording any finding on
the specific contention urged by the appellant. It is the
specific contention of the appellant that out of stock transfer
of Rs.4,20,82,147/-, stock transfer of Rs.3,22,78,345/- was
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from purchases within the State and Rs.98,03,802/- was
purchases outside the State. It is contended that purchase to
the extent of Rs.98,03,802/- cannot be considered for the
purpose of applying the formula under 131 of KVAT Rules.
20. Per contra, learned High Court Government Pleader
appearing for the State submits that the said contention was
not raised before any of the authorities. It is not permissible
to the dealer to raise such contention for the first time before
this Court.
21. In re-joinder, learned counsel for the appellant
submits that by reply under letter dated 11.08.2008, the said
contention has been specifically raised along with table and
the impugned orders have no reference to the said reply.
Learned counsel further submits that the contentions urged in
the reply dated 11.08.2008 forms part of the appeal memo at
Page 20.
22. We have perused the orders passed by the
prescribed authority, appellate authority and the Tribunal. It is
the specific contention of the dealer that out of stock transfer
of Rs.4,20,82,147/-, total of Rs.3,22,78,345/- is from the
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goods purchased locally and Rs.98,03,802/- is from the goods
purchased outside the State. To the extent the goods
purchased outside the State cannot form part of the formula
under Rule 131 of the KVAT Rules 2005. The orders impugned
have not considered the above specific contention of the
dealer. The prescribed authority, appellate authority and the
Tribunal are bound to record a finding on the issues raised
and also being the fact finding authorities. In the absence of
any finding of fact recorded by all the three authorities, we
are of the view that matter requires to be reconsidered to
address the specific issue as raised by the dealer in its reply
dated 11.08.2008. Without answering the question of law, we
deem it appropriate to remit the said issue for fresh
consideration to the prescribed authority after granting an
opportunity to the dealer.
23. Regarding 3rd question of law (Common in
STRP No.1001/2013 and STRP No.202/2011:- The
petitioner is engaged in the business of dealer in oleoresin
chilly seeds. The prescribed authority proposed to tax the
chilly seeds @ 12.5% under KVAT Act whereas the dealer
contended that it should be taxed at 4%. However the
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prescribed authority rejected the contention of the dealer and
taxed at 12.5%. On appeal before the First Appellate
Authority, the First Appellate Authority dismissed the appeal
by holding that prior to 01.04.2006, the chilly seeds being
general commodity to be taxed at standard rate of tax at
12.5%. On appeal by the dealer, the Tribunal by following the
judgment of this Court in the case of Tropical Flavours
(Private) Ltd. V/s State of Karnataka and others (2010)
27 VST 390 held that in view of amendment with effect from
01.04.2006 is to be taxed at 4%. The dealer raised an
additional issue on applying the scheme of partial rebating as
provided u/sec.17 of the KVAT Act and 131 of the KVAT Rules
2005. The Tribunal after considering the scheme of partial
rebating upheld the application of partial rebating provided
u/sec.17 of the KVAT Act.
24. Learned counsel appearing for the dealer submits
that Section 17 of the KVAT Act provides for partial rebate for
apportionment and attribution of input tax deductible in view
of the Rules or by special method to be approved by the
Commissioner. It is the specific contention of the dealer that
Rule 131 provides formula for apportionment of input tax. It is
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submitted that considering the appellant is dealer in chillies
being seasonal crops, partial rebate provided u/sec.17 r/w
Rule 131 is not suitable to appellant business, the
Commissioner in terms of Section 17 of the KVAT Act and Rule
131 of the Rules ought to have provided a different trade
cycle to the appellant for partial rebating. It is specifically
contended that the trade cycle ought to have been considered
from December to December instead of April to March. In
support of the said contention relies on the Circular
No.13/2006-07 dated 26.06.2006 prescribing the procedure
for partial rebating. The circular has mandated fixing of a
trade cycle depending on the nature of the business carried on
by the dealer. Thus, submits that the order of the Tribunal in
not adjudicating the said issue is erroneous.
25. Learned HCGP appearing for the State submits that
Section 17 of the KVAT Act and Rule 131 and 132 of the KVAT
Rules provides for partial rebating and apportionment of input
tax. Rule 132 of the KVAT Rules mandates to complete the
return on provisional basis each month and true
apportionment for the year shall be made in the return
furnished for the 6th and final month of the year after
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calculating apportionment under Rule 131(3) or 131(5) of the
KVAT Rules for the part period and the whole year. It is
further submitted that the circular relied on by the dealer
would only enable the dealer to adopt the periods to complete
the return on provisional basis among different months of the
year. Either Rule 132 or the circular would not enable the
dealer to fix trade cycle beyond the year. It is submitted that
the year has been defined as per Section 2(38) of the KVAT
Act to mean the year commencing on the first day of April.
Hence, the contention of the dealer that the trade cycle ought
to have been fixed from December to December is contrary to
the scheme of the act. It is further submitted that in terms of
Section 17 of the KVAT Act and Rule 131(5) of the KVAT Rules
and also under the circular dated 26.06.2006, it is for the
dealer/appellant to seek approval of the Commissioner to
specify the method for partial rebate.
26. We have carefully considered the submissions
made by both the parties.
27. For convenience relevant provisions/rules are
extracted below:
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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 [sales of taxable goods or]
the sales referred to in clause (1),
despatches taxable goods or goods
exempted under Section 5 outside the
State not as a direct result of sale or
purchase in the course of inter-State
trade, or
(3) puts to use the inputs purchased in any
other purpose (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 despatches of
goods or such purpose, shall be made in accordance
with Rules or by special methods to be approved by
the Commissioner or any other authorised person
and any input tax deducted in excess shall become
repayable forthwith.
Rule 131
131. Apportionment.-Apportionment of input tax
in the case of a dealer falling under Section 17 shall
be calculated as follows. -
(1) All input tax directly relating to sale of goods
exempt under Section 5 other than such
goods sold in the course of export out of the
territory of India, is non-deductible.
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(2) All input tax directly relating to taxable sales
may be deducted, subject to the provisions of
Section 11.
(3) Any input tax relating to both sale of taxable
goods and exempt goods, including inputs
used for non-taxable transactions, the non-
deductible input tax, may be calculated on
the basis of the following formula:
(Sales of exempt goods +
non taxable transactions) x
total input tax Non- = Total sales
deductible input tax
(including non-taxable
Transaction)
(4) For the purpose of clause (3).-
(a) "Sale of taxable goods" would be the
aggregate of the amounts specified in
clauses (b), (c), (d), (e) and (f) of sub-
rule (1) of Rule 3 relating to sale of goods
other than those exempt under Section 5
which are not sold in course of export out
of the territory of India [and those sold in
the course of import into the territory of
India]; and
(b) "total sales" means total turnover less.-
(i) the amount specified in clause (a)
of sub-rule (1) of Rule 3;
(ii) the deductions specified in clause
(e) of sub-rule (2) of Rule 3;
(iii) the aggregate of sale prices
received or receivable in respect
of subsequent sale in the course
of inter-State trade or commerce
of any goods purchased in the
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course of inter-State trade or
commerce during their inter-State
movement;
(iv) the aggregate of sale prices
received or receivable in respect
of sale in the course of export out
of the territory of India of any
goods purchased in the course of
export; and
(v) the aggregate of sale prices
received or receivable in respect
of sale in the course of import into
the territory of India of any goods
purchased in the course of
import.]
(5) Where in the case of any dealer, the
Commissioner is of the opinion that the
application of the formula prescribed under
clause (3) does not give the correct amount
of deductible input tax, he may direct the
dealer to adopt a special formula as he may
specify.
Rule 132,
132. Claims to input tax.-(1) Any dealer claiming
input tax deduction under Rule 131, shall complete
his return on a provisional basis each month, and
the true apportionment for the year shall be made
in the returns to be furnished for the sixth and final
months of the year after calculating the
apportionment under clause (3) or (5) of Rule 131
for the part period and the whole year.
(2) Where, under sub-rule (1), in any period
of one month the total input tax due on a dealer's
non-taxable transactions does not exceed five
hundred rupees, all such input tax in that period
shall be treated as input tax on taxable sales.
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Section 2(38)
(38) "Year" means the year commencing
on the first day of April.
28. Section 17 provides for partial rebate to a
registered dealer deducting input tax. The apportionment and
attribution of input tax deductible is to be computed in
accordance with the Rules. Rule 131 and 132 of the KVAT
Rules prescribes the procedure for apportionment of input tax.
Section 17 of the KVAT Act further enables the Commissioner
to approve the special method for apportionment and
attribution of input tax u/sec.17 r/w Rule 131(5) of the KVAT
Rules. This aspect has been dealt by the circular relied on by
the dealer dated 26.06.2006. Rule 131 of the Rules provides
for claiming input tax with reference to Section 17 of the Act,
Rule 132 of the Rules mandates that the dealer to complete
his return on provisional basis each month and true
apportionment for the year which was made in the return to
be furnished for 6th and final months of the year after
calculating the apportionment under Rule 131 for part period
of the year.
29. Rule 131 and 132 of the KVAT Rules has been
explained in the circular. While explaining the procedure under
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Rule 132, the circular provided for change of the trade cycle
from Rule 131. The change is only to the extent of the true
apportionment for the 6th or the final month is permitted to be
altered depending on the nature of the business. The said Rule
would not permit to go beyond the year i.e. end of March
2006. Section 17 of the KVAT Act r/w Rule 131 and 132 of the
KVAT Rules in no way indicate the partial rebate and
apportionment beyond the year.
30. Section 2(38) of the KVAT Act defines the year
means the year commencing on the first day of April. Even the
circular No.13/2006-07 dated 26.06.2006 only provides for
alteration of the months during which provisional or final
returns to be filed. In other words, as mandated under Rule
132(5) of the KVAT Rules only the period of true
apportionment for the sixth and final months of the year can
be altered. However, the mandate remains that the said
alteration provided would remain within the year. Hence, the
contention of the appellant that the trade cycle to be
permitted from December to December is contrary to Rule 132
of the KVAT Rules.
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31. Further Section 17 r/w Rule 132 and the circular
dated 26.06.2006 clearly mandates that the Commissioner
has to be moved by the dealer or the departmental officer
concerned to specify the special formula. The language used
u/sec.17 of the Act is the Commissioner to approve special
method, which according to us if a proposal or a request is
made by the dealer, such special method can be approved.
Section 17 does not mandate specifying special method by the
Commissioner suo moto, in the absence of any request by the
dealer.
32. In the present case, before the prescribed
authority and the First Appellate Court, the appellant was
agitating the issue relating to rate of tax whether at 12.5% or
4%. The prescription of special method was for the first time
raised before the First Appellate authority.
33. Considering the scheme of Section 17 r/w Rule 131
and 132 of the Rules, we are of the view that the request for
specifying special method by the Commissioner ought to have
been made during the year itself i.e. before March 2006 in the
present case. After expiry of the relevant year the dealer is
not right in seeking specification of special method of trade
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cycle before the Tribunal that to after expiry of 3 years of tax
period. In our view the dealer is not entitled to seek from
Commissioner to specify special method invoking Section 17
r/w Rule 131 and 132 of the Rules after lapse of relevant year.
34. In view of the above, the contention of the dealer
that the Tribunal has failed to adjudicate the issue is not
sustainable. In view of our finding above, the said exercise
renders academic. For the aforesaid reasons, we answer the
aforesaid question in favour of the revenue and against the
dealer.
35. Regarding 4th question of law:- During the
relevant period, the appellant has sold Qualis jeep for a sum
of Rs.2,50,000/- and claimed levy 4% on the used motor
vehicle in terms of Notification No.FD 300 CSL 2005 dated
24.10.2005. The prescribed authority denied the benefit of the
circular and levied VAT at 12.5% holding that the circular is
applicable only for dealers. The appellate authority upheld the
finding of the prescribed authority. On further appeal by the
dealer, the Tribunal upholding the finding of the prescribed
authority held that the dealer has purchased new car and used
it over a period and thereafter sold the used car. Since the
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dealer has purchased the new car, the circular is not
applicable to levy VAT at 4%.
36. Learned counsel for the petitioner submits that the
circular has been misinterpreted by all the three authorities.
Learned counsel contends that the car was sold during the
period 2006-07. The notification dated 24.10.2005, during the
relevant period reads as under:
NOTIFICATION
NO. FD 300 CSL 2005, Bangalore, dated:
24.10.2005.
In the exercise of the powers conferred by sub-
section (3) of section 4 of the Karnataka Value Added
Tax Act, 2003 (Karnataka Act 32 of 2004) the
Government of Karnataka hereby reduces with
immediate effect, the tax payable 1[under sub-section
(1) of Section 4 the said Act by a dealer engaged in the
purchase and sale of user cars, on the sale of used car]
to four percent of the difference between the taxable
turnover in respect of such sale and the amount paid
towards purchase of such car subject to the condition
that,-
(i) no deduction of input tax is claimed by the dealer
in respect of purchase of any goods used in the
car sold; and
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(ii) such car has been registered in the State prior to
its sale under the provisions of the Motor
Vehicles Act, 1988 (Central Act 59 of 1988)
Note: (1) The words (by a dealer under sub-section (1)
of Section 4 of the said Act on the sale of used car]
substituted by Notification No.FD 115 CSL 2007(7)
Bangalore, dated:30.03.2007. Relyon Reference
No.VAT2007-07.
37. The said notification has undergone amendment by
way of a substitution under notification dated 30.03.2007.
Prior to amendment from 30.03.2007, the notification was
applicable to all dealers u/sec.4(1) on sale of used car.
However due to amendment to notification dated 30.03.2007,
the said notification was made applicable to dealer u/sec.4(1)
engaged in purchase and sale of used cars. In view of
amendment not applicable to the period in question, the
authorities committed an error in denying the benefit of the
notification.
38. Per contra, learned HCGP appearing for the State
would submit that the amendment is by notification dated
30.03.2007 and applicable for the period in question. It is
further submitted that on overall reading of the notification, it
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is intended to apply only to the dealers engaged in the
purchase and sale of used cars. Further submits that in the
event this Hon'ble Court comes to the conclusion that the
pre-amended notification is applicable, compliance of the
conditions stipulated therein needs to be examined by the
prescribed authority.
39. It is the specific contention that petitioner is a
dealer u/sec.4(1) of the KVAT Act. The circular as existed prior
to amendment extended the concessional rate of tax at 4% on
sale of the used car. The amendment subsequent to the sale
of car restricting the benefit under the notification only to a
dealer engaged in purchase and sale of used car is not
applicable. Further the amended circular has not been given
effect to the date of pre-amended notification i.e. 24.10.2008.
Notification dated 24.10.2008 is a beneficial notification. It is
settled principles of law that any beneficial tax provisions
having ambiguity, to be applied in favour of the tax payer. In
the absence of express language in the notification restricting
the benefit other than to the dealers engaged in purchase and
sale of used cars prior to the amendment, it is to be held that
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the appellant would be entitled to benefit of circular as existed
prior to the amendment.
40. In view of our discussion above, it is to be held
that the dealer is entitled for benefit of notification dated
24.10.2005 and the rate of tax on sale of Qualis vehicle is 4%.
However applicability of 4% is subject to conditions at (i) and
(ii). As all the authorities proceeded to reject the claim of the
dealer holding notification dated 24.10.2005 is not applicable,
no finding has been recorded on compliance of the conditions.
As submitted by the dealer, the sale of the Qualis vehicle was
during the month of May 2006. The said submission is not
disputed. Hence, we are of the considered view that only to
the limited extent to verify the compliance of conditions of the
notification dated 24.10.2005, we remit the issue to the
prescribed authority for fresh consideration. We make it clear
that the scope of remand is only to the extent to verify
compliance of conditions at (i) and (ii). We answer the above
question of law in favour of the dealer.
41. Regarding 5th question of law:- This question is
not admitted by this Court. We have considered the
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submission of both counsels. We are satisfied that this
question arises for our consideration. Hence, we proceed to
consider and answer the same. The prescribed authority while
determining the tax liability has levied penalty u/sec.72(2) of
the KVAT Act on the basis of percentage of tax quantified. The
levy of penalty has not been disturbed by the Appellate
Commissioner. The Tribunal in the impugned order has
observed that in view of re-determination of tax on various
issues, the quantum of penalty would proportionately alter to
the re-computed tax liability.
42. Learned counsel appearing for the dealer submits
that the direction issued by the Tribunal to levy fresh penalty
is not permissible. It is submitted that the issues adjudicated
by the authorities being debatable, levy of penalty is not
warranted.
43. Per contra, learned HCGP by supporting the
impugned order submits that levy of penalty is in relation to
the tax determined in the original orders. The tax liability
having been recomputed, as a consequence the penalty
u/sec.72(2) also would change.
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44. We have given careful consideration to the
submissions made by the learned counsel for both the parties.
45. Penalty provided u/sec.72(2) of the KVAT Act is
10% of the amount of tax under or over stated. If the tax
liability is to be re-determined as per the findings given by the
appellate authorities and this Court, as a consequence, the
penalty also to be recomputed. On perusal of Section 72(2) of
the KVAT Act and the finding recorded by the Tribunal, we find
no error in the finding recorded by the Tribunal. We answer
the above question in favour of the Revenue and against the
dealer.
46. Conclusion:
In view of our aforesaid analysis and reasoning, we
answer the questions of law No.1 and 4 in favour of the
petitioner/dealer and against the State. 2nd question of law is
not answered in view of the order of remand to the prescribed
authority. Questions of law No.3 and 5 are answered in favour
of the State and against the dealer. As a result, STRP
No.1001/2013 is dismissed and STRP No.202/2011 is partly
allowed.
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No order as to costs.
Sd/-
JUDGE
Sd/-
JUDGE
CLK
