Karnataka High Court
M/S Famento (Karnatraka) Mining vs The State Of Karnataka on 19 April, 2024
Author: S. G. Pandit
Bench: S. G. Pandit
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STRP No. 100004 of 2017
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.100004/2017
BETWEEN:
M/S. FAMENTO (KARNATAKA) MINING
COMPANY PRIVATE LIMITED,
(NOW KNOWN AS FOMENTO RESOURCES
PRIVATE LIMITED),
SHRI. YALAGURESH,
BEHIND KARNATAKA BAND ATM,
STATION ROAD, DIST: DHARWAD,
DHARWAD-580007.
(REPRESENTED BY AUTHORIZED SIGNATORY,
C. S. KULKARNI).
...PETITIONER
(BY SRI. ATUL K. ALUR AND
SRI. N. P. VIVEK MEHTA, ADVOCATES)
Digitally
signed by
VALLI AND:
MARIMUTHU
Location: High THE STATE OF KARNATAKA,
Court of
Karnataka REPRESENTED BY,
THE COMMISSIONER OF COMMERCIAL TAXES,
VANIJYA THERIGE KARYALAYA-1,
9TH CROSS, GANDHINAGAR,
BENGALURU-560009.
...RESPONDENT
(BY SRI. GANGADHAR J M., ADDL. ADV. GENERAL FOR
SMT. KIRTILATA R. PATIL, HCGP)
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STRP No. 100004 of 2017
THIS SALES TAX REVISION PETITION IS FILED UNDER
SECTION 65(1) OF THE KARNATAKA VALUE ADDED TAX ACT,
2003, AGAINST THE ORDER DATED 30.11.2016 PASSED IN STA
No.519/2015 ON THE FILE OF THE KARNATAKA APPELLATE
TRIBUNAL, BENGALURU, PARTLY ALLOWING THE APPEAL FILED
UNDER SECTION 63 OF THE KARNATAKA VALUE ADDED TAX
ACT, 2003.
THIS SALE TAX REVISION PETITION HAVING BEEN HEARD
AND RESERVED ON 30.01.2024 AND COMING ON FOR
PRONOUNCEMENT OF ORDER THIS DAY, K. V. ARAVIND J.,
PRONOUNCED THE FOLLOWING:
ORDER
This Revision Petition under Section 65(1) of the
Karnataka Value Added Tax Act, 2003, [hereinafter referred
to as 'KVAT Act' for short], impugning the order passed by
the Karnataka Appellate Tribunal, Bengaluru, [hereinafter
referred to as 'KAT' for short], in STA No.519/2015, dated
30.11.2016.
2. The petition is filed raising the following questions of
law;
"i) Whether on the facts and circumstances of the
case, the Tribunal was right in not allowing ITC
on normal loss / material loss due to spillage,
ground loss, and during transportation?
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ii) Whether on the facts and circumstances of the
case, the Tribunal was right in disallowing ITC
as per Section 19(1) of the KVAT Act?
iii) Whether on the facts and circumstances of the
case, Section 19 is applicable in the petitioner
case?
iv) Whether on the facts and circumstances of the
case, the Tribunal was right in confirming the
order of the audit authority and appellate
authority?
v) Whether on the facts and circumstances of the
case, the words used in Section 19(1) lost or
destroyed is also applicable to normal loss,
material loss due to spillage, grounds loss etc.?
vi) Whether on the facts and circumstances of the
case, the Tribunal was right in extending the
provisions of Section 19(1) to the normal loss,
material loss due to spillage, grounds loss,
etc.?
vii) Whether on the facts and circumstances of the
case, the Tribunal was right in not following the
judgment rendered under the Central Excise
Act?
viii) Whether on the facts and circumstances of the
case, the Tribunal was right in dissolving the
ITC at 0.65% on wastage / loss due to spillage,
handling, ground loss etc.?
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ix) Whether on the facts and circumstances of the
case, the Tribunal was right in partly allowing
the appeal?"
3. This Court, by order dated 04.12.2017, has admitted
the petition to consider the following question of law;
"Whether, on the facts and circumstances of the
case, the Tribunal was right in not allowing ITC on
normal loss/material loss due to spillage, ground
loss, and during transportation?"
4. The brief facts are, the petitioner is a private limited
company engaged in the business of buying, handling,
processing and sale of Iron ore in the name and style of
M/s. Fomento (Karnataka) Mining Company Private Limited,
now known as Fomento Resources Pvt. Ltd.,
5. The Deputy Commissioner of Commercial Taxes
(Audit)-2, Hubli, ['DCCT (Audit)' for short] passed re-
assessment order under Section 39(1) of the KVAT Act,
2003, by restricting input tax credit at Rs.3,40,326/-
towards loss of Iron-ore valued at Rs.85,08,160/-, by
orders dated 30.12.2013 for the tax period 2008-2009.
Against the orders of re-assessment, the petitioner
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preferred an appeal before the Joint Commissioner of
Commercial Taxes (Appeals), Belagavi. The Appellate
Commissioner by order dated 11.09.2015 passed an order
under Section 62(6) of the KVAT Act holding that the
petitioner has not disputed the fact that there is loss of Iron
ore on account of spillage, moisture loss, ground loss etc.,
by applying the provisions of Section 19 of the KVAT Act,
upheld the order of DCCT (Audit), rejecting the claim of
proportionate input tax credit.
6. Being further aggrieved, the petitioner preferred
appeal before the KAT, Bengaluru. The Tribunal by order
dated 30.11.2016 upheld the view of the Appellate
Authority by holding that petitioner is not eligible for input
tax credit, on loss in transportation, ground loss and loss
due to moisture.
7. Heard Sri Atul K Alur, learned counsel for the
petitioner and Sri Gangadhar J M., Additional Advocate
General for Smt. Kirtilata R Patil, learned High Court
Government Pleader for the respondent.
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8. Learned counsel for the petitioner submits that
provisions of Section 19 of the KVAT Act are not applicable
in the case of the petitioner. Further submits that the
material loss due to spillage, ground loss, transportation,
material loss while grading and separating the Iron ore,
material loss due to moisture, material loss while handling
the Iron ore, are to be treated as wastage, which is normal
in the course of business operations. Such losses having
occurred in the course of the goods being used in the
course of business operations, it cannot be construed as
goods lost or destroyed so as to apply Section 19(1) of the
KVAT Act. Further submits that the provisions of Section 19
of KVAT Act can be invoked only when the goods are not
used in the course of business. Where the goods are lost in
the course of business, it cannot be held that goods are not
used in the course of business or lost or destroyed to deny
input tax credit.
9. Learned counsel for the petitioner, in support of his
contentions, places reliance on the following judgments;
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i) State of Karnataka V/s Deccan Mining
Syndicate Private Limited, Race Course road,
Bangalore - 2021(101) KGST L.J. 231 (HC)
(DB).
ii) Interfit Techno Products Ltd., V/s Principal
Secretary/Commissioner of Commercial Taxes,
Ezhilagam, Chepauk, Chennai and another -
(2015) 81 VST 389 (Mad).
iii) Steel Authority of India Ltd V/s Collector of
Central Excise - Appeal (Civil) 3406-11 of
1990.
iv) M/s. Rupa & Company Limited, Tirupur V/s.
The Customs, Excise & Service Tax Appellate
Tribunal, Chennai-6 & another - Civil
Miscellaneous Appeal No.2350 of 2006 &
M.P.No.1 of 2006.
v) M/s. ARS Steels & Alloy International Pvt. Ltd.,
V/s. The State Tax Officer, Group-I, Chennai -
W.P. No.2885 of 2021 and allied matters.
vi) M/s. Saradhambika Paper and Board Mills
Private Limited V/s. The State Tax Officer,
of 2021 and allied matters.
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vii) M/s. R.K. Ganapathy Chettiar V/s. The
Assistant Commissioner (ST), Kangeyam -
W.P. No. 14166 of 2021 and allied matters.
viii) M/s. Global Calcium Private Limited V/s. The
Assistant Commissioner (Commercial Tax)
Hosur (North) - Writ Petition No.17420 to
17423 of 2015.
ix) M/s. Aisan Fabrix Private Limited V/s. The
Principle Secretary/Commissioner of
Commercial Taxes, Ezhilagam, Chennai - W.P.
(MD) NO. 5212 of 2014 and allied matters.
x) Eastman Exports Global Clothing Pvt. Ltd., V/s.
The Assistant Commissioner (CT) Tirupur- W. A
No.1094 of 2020 and allied matters.
10. Per contra, learned Additional Advocate General
submits that the Iron ore claimed to be lost would attract
Section 19 of the KVAT Act. Section 19 of the KVAT Act
mandates refund of input tax credit if the goods are not
used in the course of business. Further submits that, to the
extent of goods claimed to have lost are not used in the
course of business, Section 19(1) of the KVAT Act has
rightly been invoked by the Revenue. In terms of Section
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19 of the KVAT Act, even if the goods are lost or destroyed
after claiming input rebate, the input rebate has to be
reversed, which would be in terms of Section 19 of the
KVAT Act.
11. We have given our careful consideration to the
contentions raised by both parties, perused the petition
papers and the judgments cited at bar.
12. Section 19 of the KVAT Act, reads as under;
"19. Change in use [or tax payment scheme]
after deduction of input tax.-
(1) Where a registered dealer has deducted input
tax on any goods and those goods are not used in
the course of his business or lost or destroyed, any
input tax deducted becomes repayable in the period
following the date on which those goods were put to
such other use.
(2) Where such goods have been wholly or mainly
used or are intended for use in sale of taxable goods
or in sale of any goods in the course of export out of
the territory of India prior to the change of use,
[input tax repayable shall be calculated] on the
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prevailing market value of such goods at the time of
change of use.
(3) Where a registered dealer after deducting input
tax on any goods used in the course of his business,
opts for composition of tax under section 15, the
input tax deducted on the goods held in stock on the
date on which the dealer so opts shall be repayable
by the dealer in the tax period following such date
and the input tax so repayable shall be calculated on
the market value of such goods on such date."
13. On plain reading of Section 19, it is clear that when a
registered dealer has deducted input tax on any goods, and
those goods are not used in the course of his business or
lost or destroyed, input tax deducted is repayable. Section
19(1) of the KVAT Act does not provide for any exception
from repayment of input tax credit when the goods are not
used in the course of business or lost or destroyed, with
reference to any nature of business, circumstances or
situation. It is settled position of law, while interpreting the
fiscal statute, the provision has to be read on its plain text
without reading in or reading out words. In the absence of
Section 19(1) of the KVAT Act providing any exceptions
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depending on situations or circumstances or nature of
business from repayment of input tax, the contention of the
petitioner that goods were lost due to spillage,
transportation, while grading and separation and moisture
loss and the same would not fall within the scope of "lost or
destroyed" as is referred to Section 19(1) of the KVAT Act
and not liable to repay the input credit in terms of Section
19(1) of the KVAT Act, is not acceptable.
14. As per the submissions of the petitioner as well as the
books of accounts as reflected in the balance sheet, as
pointed out by the DCCT (Audit) in the re-assessment
order, it is clear that loss of Iron ore valued at
Rs.85,08,160/- is due to transportation, handling,
processing, ground loss and proportionate input tax credit
at Rs.3,40,326/- is reflected, thus clear that the iron ore is
not used in the course of business to that extent.
15. In the facts of the present case, it is undisputed that
the Iron ore valued at Rs.85,08,160/- is not used in the
course of business. Hence, the authorities have rightly held
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that proportionate input tax credit is to be repayable by the
petitioner.
16. The further contention of the petitioner that loss of
Iron ore due to transportation, handling, processing, ground
loss, would not constitute "lost" in terms of Section 19(1) of
the KVAT Act, is not correct.
17. Learned counsel for the petitioner has relied on
various decisions and the same are detailed as under;
In Eastman Exports Global Clothing (P) Ltd. Vs.
The Assistant Commissioner (CT) and others in
W.A.No.1094 of 2020 and allied matters, Dated
28.02.2023, the controversy before the Court though
regarding interpretation to Section 19 of TNVAT Act, which
is corresponding to Section 19 of the KVAT Act, the facts
involved in both the cases are not similar. The Madras High
Court was considering the issue as to, converting Yarn into
fabric and fabric into garments involving loss of loose fibers,
which is invisible and result in manufacturing loss. In such
circumstances, the applicability of Section 19(9) of TNVAT
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Act has been examined. The Madras High Court concluded
on interpreting Section 19(9) of TNVAT Act and held that
manufacturing/invisible loss in the course of manufacture,
the loss is inevitable and inherent part of the manufacture
and held that Section 19(9) of TNVAT Act is not attracted.
Whereas, in the present case, except the self-serving
statement of the petitioner that loss of Iron ore due to
transportation, handling, processing, ground loss was in the
course of business, no other material is placed on record.
Further, as seen from the replies filed by the petitioner, it is
only on estimation on probabilities not a realistic loss. Even
if it is held to be loss, on strict interpretation of Section
19(1) of the KVAT Act, even if the goods are lost on which
input tax credit is claimed, Section 19(1) of the KVAT Act
mandates to repay the said input tax credit without any just
exceptions.
18. Section 19(1), (2) and (9) of the Tamil Nadu Value
Added Tax Act, 2006 (hereinafter referred to as "TNVAT
Act" for short), reads as under;
"19. Input tax credit
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(1) There shall be input tax credit of the amount
of tax paid Omitted [or payable] under this
Act, by the registered dealer to the seller on
his purchases of taxable goods specified in the
First Schedule: ...
(2) Input tax credit shall be allowed for the
purchase of goods made within the State from
a registered dealer and which are for the
purpose of-
(i) re-sale by him within the State; or
(ii) use as input in manufacturing or
processing of goods in the State: or
(iii) use as containers, labels and other
materials for packing of goods in the
State: or
(iv) use as capital goods in the
manufacture of taxable goods.
(v) Sale in the course of inter-State trade
or commerce falling under sub-
section (1) and (2) of section 8 of the
Central Sales Tax Act, 1956 (Central
Act 74 of 1956)
(vi) Agency transactions by the principal
within the State in the manner as
may be prescribed."
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(9) No input tax credit shall be available to a
registered dealer for tax paid [or Payable] at
the time of purchase of goods, if such-
(i) goods are not sold because of any theft,
loss or destruction, for any reason,
including natural calamity. If a dealer
has already availed input tax credit
against purchase of such goods, there
shall be reversal of tax credit;
Or
(ii) inputs destroyed in fire accident or lost
while in storage even before use in the
manufacture of final products; or
(iii) inputs damaged in transit or destroyed
at some intermediary stage of
manufacture."
19. Section 19 of TNVAT Act is corresponding to Section
19 of the KVAT Act. If the contention of the petitioner is
examined on comparison with similar provision under the
TNVAT Act, input tax credit is denied when the goods are
not sold due to theft, loss or destruction or for any reason.
Section 19(9)(iii) of TNVAT Act would further restrict the
claim of input tax credit even when the goods are damaged
in transit or destroyed at some intermediary stage of
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manufacture. On comparative analysis of the provisions of
both the enactments, it is clear that if the goods are not
used in the course of business or lost or destroyed, the
petitioner is liable to repay the input tax credit.
20. The Co-ordinate Bench of this Court in the case of
State of Karnataka vs. Deccan Mining Syndicate
Private Limited, Race Course Road, Bangalore reported
in 2021(101) KGST L.J. 231 (HC) (DB) was dealing a
different factual situation. The dealer therein was
transporting Iron ore by rail to the ports for onward
exports. On stock verification, the authorities found that
there was shortage of few metric tons of Iron ore. The
prescribed authority issued proposition notice, treating the
difference as suppressed taxable turnover on the basis of
the report of Central Bureau of Investigation (CBI). This
Court held that merely because there is a shortage of stock,
the difference cannot be held to be suppression that too on
the basis of the report of the CBI. There is a possibility of
transit / handling loss. The said judgment does not cover
the situation as contemplated under Section 19(1) of KVAT
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Act. No law has been laid down on interpretation of Section
19(1) of the KVAT Act.
21. The other judgments of the Madras High Court deals
with Section 19(9) of the TNVAT Act wherein the goods
were used in the course of business and the quantity of
goods lost was considered as invisible loss in the process of
manufacture. The nature of loss claimed in the present
case i.e. due to transportation, handling, processing,
ground loss etc., are not the nature of losses as considered
by the Madras High Court. In fact, Section 19(9) of the
TNVAT Act specifically disentitles the input tax credit to the
goods lost in transit or for any other reason. In view of the
above distinction, the judgments relied upon by learned
counsel for the petitioner are of no assistance.
22. In view of the foregoing reasons, we are of the view
that the finding recorded by the authorities and the Tribunal
does not call for interference and question of law is to be
answered in the affirmative.
23. Hence, the following:
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Order
i) The petition is dismissed.
ii) The question of law is answered in the
affirmative, in favour of the Respondent
Authorities and against the Petitioner.
iii) No order as to costs.
Sd/-
JUDGE
Sd/-
JUDGE
MV
