2011 (6) TMI 718 - HC - VAT and Sales Tax

Assessment on sale of deep freezers and disallowance of input tax credit claimed under section 11 of the Kerala Value Added Tax Act, 2003 challenged Held that - No merit in the contention of the petitioner that there is no sale of deep freezers to the distributors because in fact it is a sale on deferred payment basis and the cost is recovered at 25 per cent each for the four years from the date of delivery. In our view, the transaction is a pure sale but on credit basis payable in four instalments. The lower authorities including the Tribunal rightly found that the agreement does not reflect the nature of transaction which is nothing but outright sale camouflaging the consideration as deposit, which will be adjusted in four equal instalments in the course of four years. We, therefore, reject this contention raised by the petitioner and uphold the order of the Tribunal. These revision cases are allowed in part by directing the assessing officer to verify the payments received, outright and or deferred by way of deposit or otherwise in respect of the supply of deep freezers by the petitioner, and grant input tax credit subject to the second proviso to section 11(3) of the Act

Summary

Issues:
Challenge to assessment on sale of deep freezers and disallowance of input tax credit under section 11 of the Kerala Value Added Tax Act, 2003.

Assessment on Sale of Deep Freezers:
The petitioner, a company engaged in ice cream manufacturing and sales, claimed that supplying deep freezers to distributors against security deposit did not constitute a sale for assessment purposes. The petitioner also sought input tax credit. However, the first appellate authority and the Tribunal deemed the supply of deep freezers as a sale of capital goods, rejecting both claims. The petitioner argued that ownership of deep freezers remained with them, and any wear and tear charges collected were for recovery purposes over four years. The court found no merit in the petitioner's contention, determining the transaction as a pure sale on credit basis, payable in four instalments. The agreement between the petitioner and distributors indicated a sale on deferred payment basis, leading to the rejection of the petitioner's claim and upholding the Tribunal's decision.

Disallowance of Input Tax Credit:
Regarding the petitioner's claim for input tax credit, the court found the Tribunal's decision unsustainable for multiple reasons. After treating the transaction as an outright sale, the Department could not consider the goods as capital goods under the Act. The deep freezers, used by distributors for ice cream storage, were capital goods for them, not for the petitioner engaged in trading. The Tribunal's view that deep freezers were capital goods and in the negative list was deemed unsustainable. The notification under the Act did not list deep freezers as a disallowed item for input tax credit. Additionally, the second proviso to section 11(3) of the Act disentitled the petitioner from excess input tax credit if the sale was at a discounted price. The court directed the assessing officer to verify payments received for deep freezers and grant input tax credit in accordance with the Act's provisions.

In conclusion, the High Court of Kerala upheld the Tribunal's decision on the assessment of sale of deep freezers, considering it a sale on credit basis. However, the court found the disallowance of input tax credit unsustainable, directing the assessing officer to verify payments and grant input tax credit accordingly, subject to relevant provisions of the Act.