2012 (8) TMI 864 - HC - VAT and Sales Tax

Denial of input tax credit - Held that - As per the definition of the term dealer as extracted above an agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally shall not be deemed to be a dealer within the meaning of the clause. However Explanation 4(b) to section 2(12) makes it clear that where the agriculturist is a company and is selling pepper arecanut cardamom rubber timber wood raw cashew or coffee grown on land cultivated by it personally directly or otherwise such company shall be deemed to be a dealer in respect of turnovers relating to sales of such produce. It is therefore clear that all agriculturists and all agricultural produce are not kept out of the purview of tax as only those agriculturists who sell exclusively agricultural produce grown on land cultivated by them personally are not required to be registered as dealer as they are not deemed to be a dealer within the meaning of the term dealer . Similarly if the agriculturist is a company selling certain specified produce even if such produce is grown on land cultivated by it personally such company is deemed to be a dealer in respect of turnover relating to sales of such produce. Therefore it has to be borne in mind that distinction between agricultural produce and non-agricultural produce is relevant only to a certain extent for the purpose of understanding whether a person engaged in carrying on business of buying selling supplying or distributing goods is a dealer. Petitioners seek to claim deduction of input tax for having purchased agricultural machineries motor car fertilizers and chemicals on the ground that they are purchased by them for use in their business which includes growing of and maintaining tea plantation apart from processing and manufacturing tea. This contention cannot be accepted. Fertilizers and chemicals or for that matter agricultural machineries such as tractors trailers transformers motor car pump sets and electrical goods which are used for tea cultivation cannot be regarded as goods falling within the definition of the term input for the purpose of the business of the petitioners which in the instant case is manufacturing and processing of tea for the sale of which output tax is claimed. The output tax in the instant case is not claimed on the sale of tea leaves on the other hand the output tax is paid on the sale of manufactured tea. Therefore the business of the dealer for the purpose has to be understood confining it to the manufacturing process resulting in production of tea and any transaction in connection therewith or incidental or ancillary to it. Fertilizers pesticides fungicides chemicals used in tea cultivation and the agricultural machineries pump sets and other electrical equipments used for growing tea leaves by the tea planters cannot at all be regarded as goods used in the course of production of tea meant for sale. There is no direct relation between the two - Same logic and reasoning applies to coffee as the cultivation and growing of coffee is distinct from manufacturing/preparing coffee for sale - Decided against assessee.

Issues Involved:
1. Challenge to reassessment orders for various tax periods.
2. Denial of input-tax credit on purchases of fertilizers, chemicals, pesticides, and agricultural machinery.
3. Interpretation of "business" and "input" under the Karnataka Value Added Tax Act, 2003.
4. Whether tea and coffee cultivation is considered an agricultural activity.

Detailed Analysis:

1. Challenge to Reassessment Orders:
The petitions filed by various companies challenged the reassessment orders issued by the Assistant Commissioner of Commercial Taxes for different tax periods. These reassessment orders levied additional tax along with interest and penalties. The companies involved were engaged in the cultivation and processing of coffee and tea, and they questioned the validity of these reassessment orders and the consequent demand notices issued.

2. Denial of Input-Tax Credit:
The Assistant Commissioner of Commercial Taxes denied the input-tax credit to the petitioners on purchases of fertilizers, chemicals, pesticides, and agricultural machinery. The reasoning was that these inputs used for the cultivation of tea and coffee plants were not eligible for input-tax credit under the Act. The Commissioner held that the activity of growing tea does not fall within the meaning of "business" as defined under section 2(6) of the Act, and thus, tax paid on these purchases was not deductible.

3. Interpretation of "Business" and "Input":
The court examined the definitions of "business" and "input" under the Karnataka Value Added Tax Act, 2003. The term "business" includes trade, commerce, manufacture, or any adventure in the nature of trade, commerce, or manufacture. The term "input" means any goods including capital goods purchased by a dealer in the course of his business for resale or for use in the manufacture or processing or packing or storing of other goods or any other use in business. The court concluded that the cultivation of tea and coffee plants does not fall within the definition of "business" for the purpose of claiming input-tax credit.

4. Agricultural Activity:
The court referred to the definition of "agricultural produce or horticultural produce" under section 2(3) of the Act, which explicitly excludes tea from being considered as agricultural produce. The court also referred to previous judgments, including the apex court's decision in Travancore Tea Estates Co. Ltd. v. State of Kerala, which held that the cultivation and growth of tea plants cannot be considered as part of the manufacturing process. The court reiterated that the cultivation of tea and coffee is distinct from the manufacturing process and therefore, inputs used in cultivation do not qualify for input-tax credit.

Conclusion:
The court dismissed the writ petitions, upholding the reassessment orders and the denial of input-tax credit. The court emphasized that the cultivation of tea and coffee plants is not considered "business" under the Act, and thus, inputs used in cultivation are not eligible for input-tax credit. The judgment clarified the distinction between agricultural activities and manufacturing processes for the purposes of tax liability and input-tax credit under the Karnataka Value Added Tax Act, 2003.

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