2010 (7) TMI 932 - HC - VAT and Sales Tax

Input tax credit on the purchase of pesticides, manure, fertilizers and chemicals used for growing the tea claimed Held that - The second respondent has proceeded on the fallacy that the petitioner s tea growing is an agricultural activity. The implications of the petitioner not being an agriculturist and the tea not being agricultural or horticultural produce for the purpose of the said Act are not examined by the second respondent. What is required to be considered by respondent No. 2 is the entitlement or otherwise based on the petitioner s registration as a dealer under the said Act, when the petitioner is not an agriculturist and tea is not an agricultural or horticultural produce. This aspect of the matter has to be examined and thereafter fresh orders are to be passed by respondent No. 2.

Summary

Issues:
Claim of input tax credit on purchase of pesticides, manure, fertilizers, and chemicals for tea cultivation under Karnataka Value Added Tax Act, 2003.

Analysis:
The petitioner, a partnership firm engaged in tea cultivation and manufacturing, sought clarification on claiming input tax set-off for purchases related to tea plants. The impugned order by respondent No. 2 denied the deduction of tax paid on inputs from output tax on commercial tea sale, leading to the petition.

The petitioner's counsel argued that the Act excludes tea from agricultural produce, making tea growers ineligible for agriculturist status. Reference was made to specific Act provisions and legal fiction created, emphasizing the petitioner's entitlement to tax credit as a registered dealer.

Contrary to the petitioner's stance, the Government Pleader contended that as inputs were for agricultural operations, no tax credit should be granted. Citing Act definitions and the Supreme Court's judgment in a similar case, it was argued that the impugned order was valid.

The Court noted the fallacy in considering tea growing as agriculture and the reliance on the Supreme Court's judgment under a different tax law. It highlighted the need to assess the petitioner's status as a dealer and tea's classification under the Act, directing a fresh examination by respondent No. 2.

Consequently, the impugned order was quashed, emphasizing the need for a fresh decision by respondent No. 2. The petitioner was instructed to appear before respondent No. 2 for further consideration under the Act, independent of previous decisions. The case was disposed of without costs.

In conclusion, the judgment addressed the dispute over input tax credit for tea cultivation inputs, clarifying legal interpretations, and directing a reevaluation based on the petitioner's dealer status and tea's classification under the Act.