Karnataka High Court
The State Of Karnataka vs Tractor And Farm Equipment Limited on 3 March, 2025
Author: Krishna S Dixit
Bench: Krishna S Dixit
-1-
STRP No.26/2023
C/W STRP NO.4/2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF MARCH, 2025
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE G BASAVARAJA
STRP NO.26 OF 2023
C/W
STRP NO.4 OF 2024
IN STRP NO.26/2023:
BETWEEN:
1 . THE STATE OF KARNATAKA,
REPRESENTED THROUGH THE STATE REPRESENTATIVE,
KARNATAKA APPELLATE TRIBUNAL,
M S BUILDING,BENGALURU 560 001.
2 . THE JOINT COMMISSIONER OF
COMMERCIAL TAXES(ADMN-1),
DGSTO-01, BENGALURU.
3RD FLOOR, BMTC BUS STAND COMPLEX,
YESHWANTHPURA, BENGALURU - 560 022.
3 . THE DEPUTY COMMISSIONER OF
COMMERCIAL TAXES (AUDIT) 1.1
D.V.O-1, BENGALURU, 2ND FLOOR,
TTMC BUILDING, YESHWANTHPUR,
BENGALURU 560 022.
...PETITIONERS
(BY SRI.ADITYA VIKRAM BHAT., AGA)
AND:
TRACTOR AND FARM EQUIPMENT LIMITED
RAHEJA CHAMBERS, 12, MUSEUM ROAD,
BENGALURU 560 001.
-2-
STRP No.26/2023
C/W STRP NO.4/2024
REPTD BY ITS DEPUTY GENERAL MANAGER- FINANCE,
MR. K P SIVARAMAKRISHNAN
...RESPONDENT
(BY SRI.T SURYA NARAYANA., SENIOR COUNSEL A/W
SMT.TANMAYEE RAJKUMAR., ADVOCATE)
THIS STRP IS FILED UNDER SECTION 65 (1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
JUDGMENT DATED 03.03.2022 PASSED IN STA No. 42/2018
ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT
BANGALORE, ALLOWING THE APPEAL AND SETTING ASIDE THE
ORDER DATED 25.11.2017 PASSED IN SMR./CR.NO 13/16-17
ON THE FILE OF THE JOINT COMMISSIONER OF COMMERCIAL
TAXES( ADMIN) DGSTO-1, BENGALURU, REVISING THE
RECTIFICATION ORDER DATED 19.12.2015 PASSED BY THE
DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT)-
1.1, DVO-1, BENGALURU, FOR THE TAX PERIOD OF APRIL 2008
TO MARCH 2009.
IN STRP NO.4/2024:
BETWEEN:
1. THE STATE OF KARNATAKA,
REPRESENTED HEREIN BY
THE STATE REPRESENTATIVE,
KARNATAKA APPELLATE TRIBUNAL
MULTISTORIED BUILDING,
VIDHANA VEEDHI, BENGALURU - 560001.
2. THE JOINT COMMISSIONER OF COMMERCIAL TAXES
(ADMIN)-1, DGSTO-01, BENGALURU,
3RD FLOOR, B.M.T.C. BUS STAND COMPLEX,
YESHWANTHPUR, BENGALURU - 560 022.
3. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES
(AUDIT)-1.1, D.V.O.-1, BENGALURU
2ND FLOOR, TTMC BUILDING,
YESHWANTHPUR, BENGALURU - 560 022.
...PETITIONERS
(BY SRI.ADITYA VIKRAM BHAT.,AGA)
AND:
TRACTORS AND FARM EQUIPMENT LIMITED,
RAHEJA CHAMBERS, NO.12,
MUSEUM ROAD, BENGALURU - 560 001.
REPRESENTED HEREIN BY ITS
DEPUTY GENERAL MANAGER FINANCE,
MR. K.P. SIVARAMAKRISHNAN
...RESPONDENT
(BY SRI.T SURYA NARAYANA., SENIOR COUNSEL A/W
SMT.TANMAYEE RAJKUMAR., ADVOCATE)
THIS STRP IS FILED UNDER SEC.65(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
JUDGMENT DATED 03.03.2022, PASSED IN STA.NO.41/2018
ON THE FILE OF KARNATAKA APPELLATE TRIBUNAL AT
BANGALORE, ALLOWING THE APPEAL AND SETTING ASIDE THE
ORDER DATED 25.11.2017 PASSED IN JCCT(ADMN) DGSTO-
I/SMR/CR 14/16-17 ON THE FILE OF JOINT COMMISSIONER OF
COMMERCIAL TAXES (ADMN),DGSTO-01, YESHWANTHPUR,
BANGALORE, REASSESSMENT ORDER DATED 12.02.2016 ON
THE FILE DEPUTY COMMISSIONER OF COMMERCIAL TAXES
(AUDIT) 1.1, DVO-1, BENGALURU FOR THE TAX PERIOD FROM
APRIL - 2009 TO MARCH -2010.
THESE PETITIONS HAVING BEEN HEARD AND RESERVED
FOR ORDER, THIS DAY, KRISHNA S. DIXIT.J., PRONOUNCED
THE FOLLOWING:
CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
HON'BLE MR JUSTICE G BASAVARAJA
CAV ORDER
(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)
State has preferred these Revision Petitions for
assailing the Appellate Tribunal's orders whereby,
respondent-Assessee's appeals having been favoured, he
has been granted deduction of Input Tax Credit at the rate
admissible in law although what was claimed in the
Returns filed by him, was less than that.
II. FOUNDATIONAL FACTS OF THE CASE:
(a) Assessee is a registered dealer under the
Karnataka Value Added Tax Act, 2003 ("2003 Act"). For
the tax periods April 2008 to March 2009 and April 2009 to
March 2010, the Assessee had filed his Returns inter alia
claiming Input Tax Credit on purchase of goods which
were used in the manufacture and sale/stock-transfer. In
terms of Sections 11(a)(5) and 14 of the Act read with
Notification No. FD 507 CSL 2007 (IX) dated 01.04.2008
(KVAT Notification) issued under 2003 Act and other
Notification No.1/2008-CST-F.No.28/11/2007-ST dated
30.05.2008 ('CST Notification') issued under the provisions
of the Central Goods and Services Tax Act, 2017, Assessee
claimed to be eligible to deduct input tax paid on the
purchase of subject goods used as inputs in the
manufacture of taxable goods stock-transferred outside
the State to the extent of input tax charged at a rate
higher than 3% with effect from 01.04.2008 and at a rate
higher than 2% with effect from 01.06.2008 while
calculating his net tax liability under the Act.
(b) On his purchases of goods which were
chargeable to VAT at 12.5% which were used in the
manufacture of goods that were stock-transferred outside
the State, the Assessee availed Input Tax Credit at the
rate of 10.5% (12.5%-2%), under a wrong impression
that the aforesaid benefit was available only in respect of
goods liable to tax at the rate of 12.5% but was not
available in respect of inputs purchased at the rate of 4%;
he did not claim the benefit of Input Tax Credit of 1 % for
the months of April 2008 and May 2008 (4%-3%) and
from June 2008 onwards till March 2010- 2% (4% -2%) in
his returns.
(c) During the course of re-assessment under
Section 39(1) of the Act for the said tax periods, the
Assessee made a claim for additional Input Tax Credit at
the rate of 1%/2% (4%-3%/2%) in line with Section 14 of
2003 Act read with the aforesaid two Notifications. For the
tax period April 2008 to March 2009, the Assessing
Authority originally rejected the claim in the proceedings
under section 39(1). Subsequently, pursuant to Assessee's
rectification application filed under section 69 for the tax
periods April 2008 to March 2009, the earlier order
rejecting the additional claim of Input Tax Credit was set
right and eventually, the claim came to be allowed. For
the tax periods April 2009 to March 2010 however, the
Assessing Authority allowed the claim in the assessment
proceedings under section 39 itself, by noting that a dealer
cannot be denied the benefit provided by the statute i.e.,
section 14 of the Act.
(d) The Joint Commissioner of Commercial Taxes
initiated suo moto Revision Proceedings under section 63-
A of the Act and passed an order setting aside those
passed by the Assessing Authority under sections 39(1)
and 69 and thereby disallowed additional claim of ITC for
the subject periods, on the ground that more than what
was claimed as ITC in the Return is not admissible, in the
absence of a Revised Return. Aggrieved by this, Assessee
preferred appeals and the Tribunal allowed the same by
setting aside the orders of JCCT principally following the
Coordinate decision of this Court in the Assessee 's own
case for the previous tax period 2007-08 in TRACTOR
AND FARM EQUIPMENT LTD. VS. STATE OF
KARNATAKA1. That is how the Revision Petitions filed by
the State u/s 65(1) of the Act are at our hands now.
III. The Revenue has framed the following
questions of law for consideration:
In STRP No.4/2023:
"(1) Whether in light of the judgment in
State of Karnataka vs. M/s Centum Industries
(2015) 77 VST 117, 2014 SCC OnLine Kar
12109: (2014) 5 KCCR 1375: ILR 2015 Kar 57,
the Hon'ble Karnataka Appellate Tribunal was
right in upholding that the order passed by the
Assessing Authority extending the special
rebating scheme to the Respondent?
(2021) 93 GSTR 319
(2) Whether pursuant to Section 35 of the
KVAT Act, the Respondent could have availed
the benefit of special rebating scheme without
filing revised Returns when the Respondent has
not claimed for it in the Returns filed for the
said assessment period?
IN STRP 26/2023:
(3) Whether on the facts and in the
circumstances of the Petitioners' case, the
Appellate Tribunal was right in law, in allowing
the Respondent's Appeal by setting aside the
order passed by the Revisional Authority and
restoring the order of re-
assessment/rectification ?
(4) Whether on the facts and in the
circumstances of the Petitioners' case, the
Appellate Tribunal was right in law, in allowing
the Respondent's Appeal and holding that the
Respondent was eligible for deduction of Input
Tax Credit tax at 2% on the input purchased
locally at 4% used in the manufacture of stock
transferred out goods as envisaged as per the
provisions of Section 14 of the Act ?
(5) Whether on the facts and in the
circumstances of the Petitioners' case, the
Appellate Tribunal was right in law, by holding
that the Respondent for the periods from April
2008 to May 2008 and June 2008 to March
2009 is eligible for deduction of Input Tax
Credit at rate 1% and 2% on the input
purchased locally at 4% used in the
manufacture of stock transferred out goods as
envisaged as per the provisions of Section 14
of the Act ?
IV. SUBMISSIONS AT THE BAR:
(A) Learned AGA argued that filing of Returns is a
mandate of law; there is a format prescribed for that and
it has a column relating to Input Tax Credit; unless it is
specifically claimed in the Return itself or at least in the
revised Return, benefit of the kind cannot be granted; as a
corollary, grant of benefit cannot exceed the claim
specified in the Return; a default in this regard cannot be
rewarded; compliance with the conditions is a must; there
is a statutory limitation for making the claim for Input Tax
Credit; after all, Input Tax Credit being a concession,
cannot be claimed as a matter of right.
(B) Learned Sr. Advocate appearing for the
Assessee per contra contended that: one of the avowed
objects of 2003 Act is to grant benefit of Input Tax Credit;
substantive provisions are enacted in that direction;
delayed refund of Input Tax Credit attracts interest; in the
scheme of Article 265 of the Constitution of India, State
cannot retain money belonging to subjects; Input Tax
Credit is not something like gratis, but partakes the
character of State liability; therefore, Input Tax Credit is a
concession, is misconceived; machinery provisions of a
statute cannot override its substantive provisions; Act
does not say that unless claim for Input Tax Credit is
made in the Return, it cannot be allowed; after all,
Assessee's case is not the one of not making the claim in
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the Return, but its one of rectification of what is claimed in
the Return, that too relatable to the extant rates of tax;
Act provides for self-assessment; virtually there is no
limitation for claiming Input Tax Credit as long as
assessment proceedings are not closed, as has happened
in this case; it is the statutory duty of authorities to assess
the correct tax payable and it is more so when re-
assessment is undertaken; it is incongruous to say that
Section 39(1) is exclusively for the benefit of the State;
denying Input Tax Credit amounts to double taxation not
authorized by law.
(C) Both the sides in support of their contentions,
passionately pressed into service an avalanche of decisions
and we have treated only those relevant of them.
V. In the light of pleadings of the parties coupled
with the above submissions, the questions that arise for
our consideration are as under:
(i) If Input Tax Credit is a concession as
distinguished from a right under the scheme of 2003 Act,
what really is meant by and follows from that...?
(ii) Whether the claim for Input Tax Credit cannot
be entertained unless made in the Return or revised
Return...?
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(iii) Whether claim for Input Tax Credit can be
rectified under section 39 of the Act even when it is
disadvantageous to the State Exchequer...?
(iv) Whether there is any limitation period for
claiming the Input Tax Credit...?
The above questions have been articulated after putting
them to the counsel representing the parties who had
advanced Marathon submissions.
VI. Our discussion follows as under:
(A) A THUMBNAIL DESCRIPTION OF TAXATION:
(a) Power to tax is one of the attributes of State
sovereignty. Tax is a price a person pays for being a
member of civilized society, to put it broadly. Tax is
broadly defined as a pecuniary charge imposed by statute
upon persons, property or transactions, for public
purposes: it is a forced contribution of wealth to meet the
public needs of a government2. Benjamin Franklin (1706-
1790) said3:
Roberts vs. McNary, 636 SW 2d 332
Letter of 1789 written to Jean-Baptiste Le Roy-A French Scientist of the
time
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'Our new Constitution is now established, and
has an appearance that promises permanency;
but in this world, nothing can be said to be
certain but death and taxes...'
(b) Article 265 of our Constitution reads:
"Taxes not to be imposed save by authority of
law: No tax shall be levied or collected except
by authority of law."
Apex Court in CIT vs. Mc.DOWELL4 said no tax can be
levied without legislative authority. Though tax is an
inevitable liability in any civilized society, such liability
cannot be created except by a statute. When tax is due to
the government, under a statute, subject has to remit it. A
great Indian poet Kalidasa (500 CE) in his epic poem
"Raghuvamsham" (1-18) states:
"King Dilip collects from his subjects only 1/6th
of their income as tax for the welfare of State,
indeed like the sun taking earthly water drops,
only to indemnify her with multiples of rain-
drops..."
Chanakya in his acclaimed work "Arthashaastra" advises
the Rulers:
"Collect taxes from the citizens as honeybees
collect nectar from the flowers, gently and
without inflicting pain...";
(2009) 8 S.C.R. 983
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(B)A BRIEF DESCRIPTION OF RELEVANT
PROVISIONS OF 2003 ACT:
(a) 2003 Act enacts Value Added Taxation replacing the
conventional Sales Tax system. In its Statements of
Objects and Reasons, it is inter alia stated:
"(v) Tax paid on inputs purchased within the
State is provided to be rebated against goods
sold within the State, in the course of inter-
State trade;
(vi) Provides limited rebating of tax paid in
excess of 4% to input used in the goods sent
out of the State on stock or consignment;"
Section 2(15) of the Act defines 'goods' and section 2(19)
defines 'input' to mean any goods in an inclusive way.
Section 2(20) defines 'input tax' and section 2(22) defines
'output tax' both with reference to section 10. Sub-section
(1) of section 10 defines output tax to mean the tax
payable under the Act in respect of any taxable sale of
goods; sub-section (2) defines input tax to mean the tax
collected or payable under the Act on the sale to a
registered dealer of any goods for use in the course of his
business. Both these taxes are inclusively defined, is
apparent from their text. Sub-section (3) mandates
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payment of net tax which is arrived at by deducting input
tax from output tax.
(b) Sub-section (3) of section 10 has certain special
features and therefore, for ease of understanding, the
same is reproduced below:
"[(3) Subject to input tax restriction specified in
sections 11, 12, 14, 17, 18 and 19, the net tax
payable by a registered dealer in respect of
each tax period shall be the amount of output
tax payable by him in that period less the input
tax deductible by him as may be prescribed in
that period and shall be accounted for in
accordance with the provisions of this Act.]
[Provided that, a registered dealer while
calculating the net tax payable on or after first
day of April 2015 may claim input tax relatable
to goods purchased during the period
immediately preceding five tax periods of such
tax period, if input tax of such goods is not
claimed in any of such five preceding tax
periods.]"
Apparently, this provision begins with the expression
"Subject to input tax restriction specified in sections..."
One of the sections specified in section 10 is section 11
which prescribes "Input tax restrictions" as indicated by its
very heading. Clause (a) of section 11 provides that in
respect of what items Input tax shall not be deducted in
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calculating the net tax. However, Sections 12, 13, 15, 16,
17 & 18 are not much relevant to our discussion. Section
14 which is also enlisted in section 10, assumes
importance and therefore, the same is reproduced:
"Special rebating scheme.- Deduction of input
tax shall be allowed on purchase of goods,
specified in clauses (5) and (6) of sub-section
(a) of Section 11, to the extent of the input tax
charged at a rate higher than four per cent or
any lower rate as may be notified by the
Government."
Since this provision is as clear as gangetic waters, it
admits no interpretation.
(c) We are at this point reverting to some provisions of
section 10 again. Sub-section (4) contemplates evidentiary
aspect of input tax for the purpose of working out net tax
payable. What is very significant is sub-section (5) which
has the following text:
"Subject to input tax restrictions specified in
Sections 11, 12, 14, 17, 18 and 19, where
under sub-section (3) the input tax deductible
by a dealer exceeds the output tax payable by
him, the excess amount shall be adjusted or
refunded together with interest, as may be
prescribed."
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In essence, it provides for the adjustment or refund of
input tax when it exceeds the output tax payable by a
dealer. Very significantly, it awards interest on such
excess amount payable to dealer. The underlying principle
of this provision is that when what is exacted is more than
what was liable, the excess has to be refunded, that too
with interest. This is consistent with the constitutional
obligation of a Welfare State, whose taxing power is
regulated under Article 265.
(C)AS TO THE NATURE OF CLAIM FOR INPUT TAX
CREDIT:
(a) There was a heated debate at the Bar as to the
nature of Input Tax Credit: learned AGA Mr.Aditya Vikram
Bhat argued that Input Tax Credit is a concession as
distinguished from a right whereas, learned Sr. Advocate
Mr.Suryanarayana appearing for the Assessee contended
to the contrary. The term 'concession' has been used with
diverse and even contrasting shades of meaning,
depending upon the scheme of the statute. Roughly
concession is ordinarily something between right and
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gratis and that beyond this, the term has no definite
meaning in the law; concession is a legal creature given to
various fact situations, particularly economic ones. Be it a
right or a concession, they are not absolute. If a
concession is enacted by the State, ordinarily it ceases to
be a gratis or privilege. Merely because something is called
as a 'concession' and the claim for that is conditioned, that
per se may not rob elements that usually animate the
right created by law. As already discussed above, sub-
section (5) provides for adjustment or refund of amount
when Input Tax exceeds Output Tax payable. Added, it is
with interest that such adjustment/refund has to be made.
If it was a mere concession, how is that the State is
mandating to pay the interest, whatever be its rate as
may be prescribed by Rules...? Thus, a right is created to
the refund and to that is superadded the right to interest
on the delay brooked in making refund/adjustment.
(b) Grant of concession arguably may involve discretion.
However, it is not Moghul's discretion of granting or
cancelling the firman. The discretion allowed by the
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statute to the holder of a public office, as Lord Halsbury
observed in Sharp v. Wakefield5, is intended to be
exercised according to the rules of reason & justice, not
according to private opinion; according to law and not
humour; it is to be, no arbitrary, vague and fanciful but
legal and regular; it has to be exercised within the limits
to which a reasonable person competent to the discharge
of his office ought to confine himself. Every discretion
ought to be exercised in furtherance of accomplishment of
purpose for which the power is conferred. In other words,
if conditions prescribed by the statute are complied with,
an authority cannot deny the concession with impunity.
Concession in the text & context of the provisions of the
statute, is not a gratis and it cannot be denied if conditions
for availing it are fulfilled subject to all just exceptions.
Such conditions may be as to the form, limitation period or
the like, is beside the point.
(C)AS TO HOW THE COURTS VIEWED THE
CONCEPT OF INPUT TAX CREDIT:
[1891] AC 173 at 179
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(a) Learned AGA in support of his submission that Input
Tax Credit is only a concession, cited GODREJ & BOYCE
MFG. CO. PVT LTD vs. COMMISSIONER OF SALES
TAX6. This case essentially related to Bombay Sales Tax
Act, 1959. At paragraph 9, the following observations
occur:
"In law (apart from Rules 41 and 41A) the
appellant has no legal right to claim set-off of
the purchase tax paid by him on his purchases
within the State from out of the sales tax
payable by him on the sale of the goods
manufactured by him. It is only by virtue of the
said Rules - which, as stated above, are
conceived mainly in the interest of public - that
he is entitled to such set-off. It is really a
concession and an indulgence... We fail to
understand how a valid grievance can be made
in respect of such deduction when the very
extension of the benefit of set-off is itself a
boon or a concession."
(b) The second decision cited by AGA is JAYARAM AND
COMPANY vs. ASSISTANT COMMISSIONER7. The Apex
Court was examining certain provisions of Tamil Nadu
Value Added Tax Act, 2006. Section 19 of the said Act in
substance and to some extent, appears to be in pari
(1992) 3 SCC 624
(2016) 15 SCC 125
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materia inter alia sections 10 & 14 of our 2003 Act, is true.
At paragraphs 11 & 12, it is observed as under:
" From the aforesaid scheme of Section
19 following significant aspects emerge:-
(a) ITC is a form of concession provided by the
Legislature. It is not admissible to all kinds of
sales and certain specified sales are specifically
excluded.
(b) Concession of ITC is available on certain
conditions mentioned in this Section.
(c) One of the most important condition is that
in order to enable the dealer to claim ITC it has
to produce original tax invoice, completed in all
respect, evidencing the amount of input tax.
12. It is a trite law that whenever concession is
given by statute or notification etc. the
conditions thereof are to be strictly complied
with in order to avail such concession. Thus, it
is not the right of the 'dealers' to get the
benefit of ITC but its a concession granted by
virtue of Section
19. As a fortiorari, conditions specified
in Section 10 must be fulfilled..."
(c) The third decision cited by AGA is a Division Bench
decision of Madras High Court in ASSISTANT
COMMISSIONER OF GST & CENTRAL EXCISE vs.
SUTHERLAND GLOBAL SERVICES PRIVATE LIMITED8.
The case essentially involved Central Goods and Services
Tax Act, 2017, Finance Act, 1994, Finance Act, 2016
(2020) 83 GSTR 259
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Central Excise Act, 1944 and CGST Rules, 2017, etc. True
it is that the court at paragraph 55 observed:
"...it is clear that Cenvat credit or input-tax
credit under the GST regime is a concession
and a facility and not a vested right. Even if
one were to rank such a right of Cenvat credit
on the pedestal of a statutory right, even that
right can be curtailed and regulated by
conditions for availing such right..."
(d) The fourth one cited by the learned AGA is a Division
Bench decision of Andhra Pradesh High Court in
THIRUMALAKONDA PLYWOODS vs. ASSISTANT
COMMISSIONER9. This case essentially involved APGST
Act, 2017. Court was examining the validity of section
16(4) of 'APGST/CGST Act, 2017' on the ground that
prescribing conditions for Input Tax Credit such as
limitation period, etc, was foul of Articles 14, 19(1)(g) &
300A of the Constitution. While repelling that contention,
at para 21, it is observed:
"...the said argument has no validity for the
reason, firstly the ITC is a mere
concession/rebate/benefit but not a statutory
or constitutional right... That, by nature ITC is a
concession/rebate/benefit but not a statutory
right has been reiterated in a thicket of
decisions.'
2023 SCC OnLine AP 1476
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(e) Learned Sr. Advocate appearing for the Assessee
pressed into service a decision of a learned Single Judge of
this Court in KIRLOSKAR ELECTRIC COMPANY
LIMITED vs. STATE OF KARNATAKA10. The court was
construing inter alia the provisions of section 10(3) of
2003 Act while examining as to whether the department
was justified in negativing the claim for Input Tax Credit
on the ground that it did not pertain to the same tax
period. While faltering the stand of department, the said
Judge at paragraph 29 observed:
"Thus the claim of credit of input tax is
indefeasible as was the case of CENVAT under
Excise law and such credit of ITC under VAT
law which is equivalent to tax paid in the chain
of sales of the same goods, cannot be denied
on the anvil of machinery provisions or even
provisions relating to time frame which is law of
limitation only bars the remedy rather than
negativing the substantive claims under the
taxing statutes."
Learned AGA is right in contending that the above
observation is too broad to be accepted in the light of
decisions discussed above.
2018 SCC OnLine Kar 2301
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(f) The above observations of the learned Single Judge
in KIRLOSKAR supra, run counter to what is said by Apex
Court in ALD AUTOMOTIVE PRIVATE LIMITED vs.
COMMERCIAL TAX OFFICER11 paragraph 40:
"The alternative submission pressed by
learned Counsel for the appellant was
that Section 19(11) cannot be held to
be mandatory and it is only a directory
provision, noncompliance of which cannot be
ground of denial of Input Tax Credit to the
appellant. The conditions under which Input
Tax Credit is to be given are all
enumerated in Section 19 as noticed
above. The condition under which the
concession and benefit is given is always
to be strictly construed. In event, it is
accepted that there is no time period for
claiming Input Tax Credit as contained in
Section 19(11), the provision become too
flexible and give rise to large number
of difficulties including difficulty in
verification of claim of Input Credit.
Taxing Statutes contains selfcontained
scheme of levy, computation and
collection of tax. The time under which
a return is to be filed for purpose of
assessment of the tax cannot be dependent on
the will of a dealer."
(D) AS TO THE TRUE MEANING OF 'RIGHT' &
'CONCESSION':
(2019) 13 SCC 225
- 24 -
(a) A brief discussion about what is a right and what is a
concession assumes importance because of extreme views
canvassed by the advocates appearing for the parties.
Learned AGA said that Input Tax Credit is only a
concession whereas, Assessee's counsel asserted that it is
an indefeasible right. AGA, to drive home his point, drew
our attention mainly to section 11 of the Act read with
Rule 38 of Karnataka Value Added Tax Rules, 2005 which
injuncts against grant of Input Tax Credit subject to
exceptions, conditions, forms and limitations. Section
35(1) read with Rule 38 would be again adverted to infra.
Per contra, Assessee's lawyer stressed Article 262 of the
Constitution to the effect that what is paid in excess of tax
cannot be retained by the State. He also re-read section
10(5) which according to him, is a legislative injunction to
the government, to refund or adjust excess input tax with
interest.
(b) There is a brief explanation in Salmond's
Jurisprudence12 as to what 'right' means:
Twelfth Edition Fitzgerald
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"...that in the strict sense, a duty is something
owed by one person to another.
Correspondingly, the latter has a right against
the former... To ascribe a right to one person is
to imply that some other person is under a
corresponding duty. But the term 'right' like
'duty' can be used in a wider sense. To say that
a man has a right to something is roughly to
say that it is right for him to obtain it. That
may entail that others ought to provide him
with it, or that they ought not to prevent him
from getting it, or merely that it would not be
wrong for him to get it. What exactly is being
claimed by the assertion that he has a right is
not always clear..."
Hohfeld13 points out that the genesis of 'right (stricto
sensu)' lies in the 'corresponding duty'. R.W.M.Dias14
asserts that every claim (his equivalent for 'right') implies
the existence of a correlative duty since it has no content
apart from the duty. Salmond15 drives home the point with
a touch of an artist when he says 'there can be no right
without a corresponding duty any more than there can be
a husband without a wife'.
(c) The meaning of 'concession' as occurring in the
conventional English dictionary does not much come to our
Fundamental legal conceptions, pg.510, 7th Edition,
Jurisprudence, 5th Edition, Pg.24
Supra, pg.232
- 26 -
aid. This apart, it is tritely said that laws are not the slaves
of dictionaries. However, that does not dispense with the
duty to derive meaning from the statutes and decisions
interpreting the statutes, although principles applicable to
them may be bit variable. Justice Oliver Wendell Holmes in
TOWNE vs. EISNER16 observed:
"A word is not a crystal, transparent and
unchanged; it is the skin of a living thought and
may vary greatly in colour and content
according to the circumstances and time in
which it is used..."
(d) As to what Apex Court said about the meaning of
concession and its invocation:
(i) In INDIAN ALUMINIUM COMPANY LIMITED vs.
THANE MUNICIPAL CORPN17, it is observed as under:
"However, a concession has to be availed at the
time when it was available and in the manner
prescribed. The common dictionary meaning of
the word "concession" is the act of yielding or
conceding as a demand or argument,
something conceded; usually implying a
demand, claim, or request, "a thing yielded", "a
grant".
In the Dictionary of English Law by Earl Jowitt,
the meaning of "concession" is given as under:
245 US 418
1992 Supp.(1) SCC 480, paras 5, 6
- 27 -
"Concession, a grant by a central or local public
authority to a private person or private persons
for the utilisation or working of lands, an
industry, a railway waterworks, etc."
The expressions "rebate" and "concession" in
the commercial parlance have the same
concept..."
(ii) In COMMISSIONER OF CUSTOMS vs. DILIP
KUMAR18, the following observations occur:
"The law is well settled that a person who
claims exemption or concession has to establish
that he is entitled to that exemption or
concession. A provision providing for an
exemption, concession or exception, as the
case may be, has to be construed strictly
with certain exceptions depending upon the
settings on which the provision has been
placed in the statute and the object and
purpose to be achieved. If exemption is
available on complying with certain conditions,
the conditions have to be complied with.
The mandatory requirements of those
conditions must be obeyed or fulfilled
exactly, thought at times, some latitude can
be shown, if there is failure to comply
with some requirements which are
directory in nature, the noncompliance of
which would not affect the essence or
substance of the notification granting
exemption."
From a holistic reading of all these cases, we gather an
impression that meaning of the word 'concession' is not
(2018) 9 SCC 1, para 50
- 28 -
static, and it oscillates between gratis on the one extreme
and right in the other, leaning more towards the latter,
depending upon the text, context, subject matter and
intent of the statute, wherein it occurs. When the courts
said that Input Tax Credit is a concession, certainly they
did not mean that it is a gratis, in the sense that its denial
is absolutely non-justiciable. True it is, there are some
observations: "Input Tax Credit is not a statutory right but
only a concession." To us, this appears to be on one side
of the spectrum. A learned Single Judge in KIRLOSKAR
supra observed '...the claim of credit of input tax is
indefeasible...'. At its core, this is merely another instance
of hyperbole, albeit one that manifests on the other side of
the spectrum. Truth oscillates between these two and
where the pendulum stop depends upon the text, context
& policy content of the statute concerned.
(e) In our considered view, the inner voice of a slew of
decisions cited at the Bar which mention that Input Tax
Credit is only a concession is that: An Assessee cannot
claim Input Tax Credit unless the conditions prescribed by
- 29 -
the statute are strictly complied with. To put it differently,
Input Tax Credit is not unconditional or unqualified, since it
is made available as an exception to the general rule that
no input tax deduction would be granted, as said in section
11 of the Act read with Rule 38 of 2005 Rules. This accords
with the constitutional mandate enacted in Article 265, as
broadly construed by the Apex Court. If tax cannot be
levied and collected except with the authority of law, then
as a corollary of this, any excess exaction also cannot be
retained by the State subject to exceptions such as unjust
enrichment, delay & latches, non-compliance of mandatory
form, etc. It is more so because section 10(5) mandates
refund/adjustment of excess of Input Tax Credit that too
with interest.
(f) Merit and legality of a proposition like the above can
be better understood by contemplating the consequences
of the contra. With all this in mind, we ask ourselves now:
'Despite strict compliance of all conditions, can the claim
for Input Tax Credit be denied to the Assessee...?' Answer
has to be a big 'NO'. Reasons for this are not far to seek:
- 30 -
firtly, what is payable is net tax; net tax is arrived at by
deducting Input Tax by Output Tax. Secondly, Article 265
does not permit exaction of any money than what the
statute authorizes. Thirdly, denial of Input Tax may
eventually result into double taxation. Fourthly, section
10(5) provides for refund of Input Tax coupled with
interest. Fifthly, ours is a constitutionally ordained Welfare
State and therefore, its action should accord with fairness
standards obtaining in the realm. Lastly, an argument to
the contrary would spurn at right, at law, at reason. It was
St. Augustine (354 AD - 430 AD) who said 'Without
justice, what else is the State but a great band of
robbers.'19
(E) AS TO SUBSTANTIVE PROVISIONS
OVERRIDING THE MACHINERY PROVISIONS:
(a) Mr.Suryanarayana placing reliance on SONAL
APPAREL PRIVATE LIMITED vs. STATE OF
KARNATAKA20 and KIRLOSKAR supra, contended that
section 10 broadly providing for adjustment/refund of
City of God
2016 SCC OnLine Kar 9410
- 31 -
excess Input Tax Credit, is substantive in nature subject to
exceptions/conditions enlisted inter alia in sections 11 to
18 of 2003 Act; therefore, section 35 read with Rule 38 of
2005 Rules being machinery provisions cannot override the
substantive ones. As a broad proposition, this is attractive.
Learned AGA in his inimitable style contended in variance.
He tells that Input Tax Credit being only a concession,
avails to a dealer as an exception and subject to
compliance with conditions like format & limitation period.
Let us examine these provisions.
(b) In the light of our above observation, Input Tax
Credit is not a gratis, it is a kind of concession in a limited
sense and that it would avail if all the conditions prescribed
for that are strictly complied with. Section 35 of the Act
was heavily banked upon by the learned AGA to resist the
claim of Input Tax Credit. Sub-sections (1), (3) & (4) of
this section being relevant are reproduced:
"(1) Subject to sub-sections (2) to (4), every
registered dealer, and the Central Government,
a State Government, a statutory body and a
local authority liable to pay tax collected under
sub-section (2) of Section 9, shall furnish a
- 32 -
return in such form and manner, including
electronic methods, and shall pay the tax due
on such return within twenty days or fifteen
days after the end of the preceding month or
any other tax period as may be prescribed.
(3) Subject to such terms and conditions as
may be specified, the prescribed authority may
require any registered dealer.-
(a) to furnish a return for such periods, or
(b) to furnish separate branch returns where
the registered dealer has more than one place
of business.
(4) If any dealer having furnished a return
under this Act, other than a return furnished
under sub-section (3) of Section 38, discovers
any omission or incorrect statement therein,
other than as a result of an inspection or
receipt of any other information or evidence by
the prescribed authority, (a) he shall furnish a
revised return within the time prescribed for
filing the return for the succeeding tax period;
and (b) he shall furnish a revised return any
time thereafter but within six months from the
end of the relevant tax period, if so permitted
by the prescribed authority."
(c) Sub-section (1) of section 35 mandates filing of
Return in prescribed form & manner and paying of tax due
on such Return within a specified period. Sub-section (3)
empowers the prescribed authority to call for a Return for
specific periods or insist upon separate Returns qua the
business branches of the dealer. Sub-section (4) enables
- 33 -
the dealer to file Revised Return within a prescribed period
if he discovers any omission or incorrect statement in the
Return already filed. Section 38 provides for self-
assessment/deemed assessment based on the Return
filed, subject to exceptions. Section 39 provides for re-
assessment of tax when the Return filed by the dealer
understates the correct tax liability.
(d) Sub-section (2)(e) of section 39 of the Act which is
much pressed into service by both the sides reads:
"Where after making a re-assessment under
this Section,
(e) any deductions or exemptions have been
wrongly allowed in respect thereof, the
prescribed authority may, notwithstanding the
fact that whole or part of such escaped
turnover was already before the said authority
at the time of re-assessment, proceed to make
any further re-assessments in addition to such
earlier re-assessment."
Respondent's is a case of re-assessment, is not in dispute.
Mr.Suryanarayana submitted that under the applicable
provisions of the Act, it is the duty of the Assessing
Authority to assess the correct tax liability and collect it.
When there is a mistake, whether the dealer has furnished
- 34 -
Revised Return or not, the authority has to rectify the
same, though it works detrimental to the State Exchequer.
Learned AGA per contra stressed literal interpretation of
sub-section (2)(e) of section 39 to contend that the duty
to rectify mistake arises only when it proves advantageous
to the State Exchequer. This literal interpretation of
learned AGA is difficult to countenance. As already
mentioned above, if the Assessing Authority while
undertaking the re-assessment, discovers deductions or
exemptions that are wrongly allowed, he has to rectify the
same even if it enures to the benefit of the dealer. Such a
duty becomes more onerous when a representation is
given by the dealer. There is no escape from this duty
when deductions & exemptions have to be worked out on
the basis of statutory notifications that have the character
of subordinate legislation. A sectarian interpretation cannot
be placed on a provision like this on the ground that
whatever amount otherwise due to a dealer, lying at the
hands of the State would be used for the public at large.
Object is laudable, but legally impermissible.
- 35 -
(F)AS TO ABSENCE OF CLAIM FOR INPUT TAX
CREDIT IN RETURN/REVISED RETURN:
(a) As a matter of norm, Input Tax Credit cannot be
availed unless the conditions are complied with. As already
mentioned above, section 35 of 2003 Act read with Rule 38
of 2005 Rules gives full particulars to be furnished in the
Return/Revised Return in Form VAT 100. Rule 38(1) which
learned AGA relied upon strongly, has the following text:
"Every registered dealer shall submit a monthly
return, containing particulars of net values of
sales, purchases and other transactions,
including input and output tax claimed or
collected and net tax relating to all of his places
of business, and accompanied by proof of full
payment of any tax due, to the jurisdictional
Local VAT officer or VAT sub-officer in Form
VAT 100 within twenty days after the end of
the relevant tax period."
Relevant part of prescribed Form VAT 100 namely
paragraphs 4.1, 4.2, 4.3 & 4.9 reads as under:
4.1 Output tax payable (Refer Box No. 8.3)
4.2 Brought forward credit of/excess payment made
during previous month/quarter (Refer Box
No.4.10)
4.3 Input Tax Credit (Refer Box No.11)
4.9 Refund
- 36 -
[Other columns not being much relevant, are not
reproduced.]
(b) It is a specific case of the Revenue that unless claim
is made for Input Tax Credit in the Return, a dealer cannot
grieve against disallowance; learned AGA hastened to add
that, if there was a mistake in the Return, nothing
prevented the dealer from filing a Revised Return, of
course within the prescribed period of limitation. In
support of this, he relied upon the following decisions:
(i) In CENTUM supra, a Coordinate Bench at paragraph
11 observed as under:
"Sub-section (1) of Section 35 provides for
furnishing a return in such form and manner
and for payment of tax due on such return
within 20 days or 15 days after the end of the
preceding month or any other tax period as
may be prescribed. Therefore, the statute
provides the period within which a return is to
be filed under Section 35(1), i.e., within 20
days or 15 days after the end of the preceding
month. Sub-section (2) mandates that the tax
on any sale or purchase of goods declared in a
return furnished shall become payable within
20 days or 15 days as prescribed in sub-section
(1) of Section 35 without the assessee waiting
for a notice for payment of such tax. Sub-
section (4) of Section 35 provides for filing of a
revised return if the assessee discovers any
omission or incorrect statement in the returns
filed under Section 35(1) of the Act. At the
- 37 -
relevant point of time such a revised return had
to be filed within 6 months from the end of the
relevant tax period. Therefore, the statute
provides for filing of a return, claiming input
tax rebate within the period prescribed in law.
If in the return filed there is any omission or
incorrect statement, a provision is made for
filing of a revised return within the time
prescribed. If the returns are not filed within
the said period, then the assessee would not be
entitled to the benefit of setting off output tax
against the input tax."
(ii) In NANDI CONSTRUCTIONS vs. STATE OF
KARNATAKA21, another Coordinate Bench has observed:
"The main issue to be decided by this Court is
as to whether the petitioner can be granted
benefit over and above that what has been
claimed in the returns filed by the assessee for
the relevant tax periods. Admittedly, the claim
of the petitioner, in its returns filed for the
relevant tax periods, was at 45% towards land
cost. Though Assessing Officer allowed only
40%, the first appellate authority granted the
benefit of 45% towards land cost. The question
now to be decided is whether unless a claim is
made by the assessee in its return (and without
the same being revised or modified by filing a
revised return), any benefit beyond the benefit
claimed in the return can be considered and
allowed by the authorities. In our view the
answer would be a clear No...."
2015 SCC OnLine Kar 9757, paras 6 & 7
- 38 -
This decision in turn referred to Centum Industries
supra, and INFINITE BUILDERS & DEVELOPERS vs.
ADDITIONAL CCT22.
(c) In the above decisions, it is apparent that no claim
for Input Tax Credit was made in the Return, nor any
Revised Return was furnished. Limitation period as
prescribed by law is also discussed for filing of Return or
Revised Return. However, Mr.Suryanarayana is right in
telling us that the case of his client is markedly different
from the fact matrix of those decisions inasmuch as Input
Tax Credit was specifically claimed in the Returns filed in
time. Since the matter went for re-assessment, the
Assessee before closure of the said process had sent the
letters for rectifying the mistake by recomputing the tax
rates as specified in the extant Notifications. Had the case
of Assessee been one of deemed assessment, it would
have been altogether a different scenario. We need not
reiterate that a case is an authority for the proposition that
it lays down in a given fact matrix and not for all that
(2013) 76 Kar.L.J 390
- 39 -
which logically follows from what has been so laid down
vide Lord Halsbury in QUINN vs. LEATHEM23.
(d) The Tribunal although inarticulately has rightly
granted relief to the Assessee, since it is not the case of
Revenue that he has perpetrated any act of fraud,
fabrication or the like. Mistake of the Assessee has been
rightly termed as bona fide. That apart, mistake is not of
fact but of law in the sense the rates of tax on the
admitted fact position were required to be ascertained
from the extant notifications, which can be treated as a
piece of delegated legislation. Had the issue been of fact,
arguably our view would have been different. After all, law
is not pleaded, but facts are, unless law itself requires
otherwise. The Tribunal appears to have operated with this
approach and the same cannot be faltered.
(e) The vehement submission of learned AGA that Rule
38 read with Form VAT 100 requires that in order to claim
Input Tax Credit, it should be stated in the Return or at
least in Revised Return. We have already reproduced Rule
(1901) UKHL 2
- 40 -
38 and relevant part of Form VAT 100. Now, let us see
another important provision namely Rule 130A of 2005
Rules introduced w.e.f. 1.4.2007. It provides for certain
benefits by way of refund or deduction of tax to dealers
inter alia having units of business in Special Economic
Zones. Sub-Rule (3) being relevant is reproduced:
"The registered dealer claiming refund or
deduction under this rule shall, claim refund or
seek adjustment of tax paid on the goods
purchased by him towards any output tax
payable by him, in the return made under Rule
38 along with a statement giving the details of
each purchase made by him and the purpose
for which it was purchased."
The text of this Rule is markedly different from that of Rule
38 in providing that the claim for refund or adjustment of
tax paid, has to be stated in the Return itself. If Rule 38 as
sought to be interpreted by the learned AGA requires claim
for Input Tax Credit to be made in the Return itself, then
where was the need for introducing Rule 130A (3) by way
of amendment ? It would be superfluous. This is where the
maxim expressio unius est exclusio alterius becomes
invocable: the expression of one thing is the exclusion of
another.
- 41 -
(G) AS TO WHAT IS CONSPICUOUSLY LACKING IN
THE RULINGS CITED ON BEHALF OF REVENUE:
(a) Learned AGA Mr.Aditya Vikram Bhat in support of his
contention that no claim for Input Tax Credit can be
entertained unless made in the Return or in the Revised
Return, heavily banked upon four important decisions
rendered by different Coordinate Benches of this Court.
They are (i) M/s Centum Industries, (ii) Nandi
Constructions, (iii) Infinite Builders & Developers & (iv)
MANASA ELECTRICALS COMPANY vs. STATE OF
KARNATAKA24.
(b) We very carefully perused these decisions which
consistently suggest, if not hold that in the absence of
claim being made in the Return, amended Return or
Revised Return, Input Tax Credit can be denied. This broad
proposition is structured keeping in view inter alia sections
10, 11, 14, 35, 38 & 39 of 2003 Act read with Rule 38 and
Form VAT 100 of 2005 Rules. However, reference to Rule
130A which is on the Rule book since April 2007 is
2016 SCC OnLine Kar 9412
- 42 -
conspicuously absent. As already observed above, the text
of this Rule is markedly different from that of Rule 38. Had
this significant Rule been adverted to in the said decisions,
it would have certainly had impact on the breadth of their
ratio. How this particular Rule of significance remained
unmindful, is beside the point. "Is" outweighs "ought".
(c) Salmond's Jurisprudence25 observes:
"...a decision passes sub silentio, in the
technical sense that has come to be attached to
that phrase, when the particular point of law
involved in the decision is not perceived by the
court or present to its mind. The court may
consciously decide in favour of one party
because of point A, which it considers and
pronounces upon. It may be shown, however,
that logically the court should not have decided
in favour of the particular party unless it also
decided point B in his favour; but point B was
not argued or considered by the court..."
VII. OUR ANSWERS TO THE QUESTIONS OF LAW
FRAMED BY US:
[1] We answer the first question as to the nature of
Input Tax Credit to the effect that although it is a
concession, the claim for it cannot be denied when all
conditions stipulated by law are complied with . In
Fitzgerald, Tenth Edition, page 158
- 43 -
other words, wrongful denial of Input Tax Credit is
justiciable.
[2] We answer the second question conditionally as
under:
(i) Ordinarily, the claim for Input Tax Credit has to
be made in the Return or Revised Return only. A claim
otherwise is an exception and bona fide of the same has to
be demonstrated.
(ii) However, when underclaim is made in the
Return/Revised Return due to bona fide mistake of
adopting inapplicable rates of tax only, it is permissible to
seek rectification by making a representation provided that
the foundational fact matrix is already available in the
Return/Revised Return.
(iii) Further, no rectification whatsoever can be
sought for, once the assessment/reassessment
proceedings are concluded or that the limitation period
otherwise has expired.
[3] We answer the third question as to the
invocability of section 39 of 2003 Act as under:
(i) If the Assessee during the course of re-
assessment proceedings makes a claim for Input Tax
Credit, the same cannot be disallowed only on the ground
that the claim of the Assessee is disadvantageous to the
State Exchequer.
- 44 -
(ii) If the reassessed tax is more than what is
payable, then the same has to be recovered from the
Assessee along with admissible interest/penalty; as a
corollary of this, what is paid is more than what is payable
on reassessment, then the claim for Input Tax Credit has
to be favoured if that is made before the conclusion of re-
assessment proceedings.
In the above circumstances, these petitions being
devoid of merits, are liable to be dismissed and
accordingly, they are, costs having been made easy.
Before parting with the papers, we place on record
our deep appreciation for the assistance rendered by
Research Assistant Mr.Raghunandan K.S.
Sd/-
(KRISHNA S DIXIT)
JUDGE
Sd/-
(G BASAVARAJA)
JUDGE
Snb, cbc
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