2012 (1) TMI 140 - HC - VAT and Sales Tax

Whether the Tribunal was justified in declining rebate of tax under section 12(1)(a) of the Kerala Value Added Tax Act read with rule 38(5) of the Kerala Value Added Tax Rules on the purchase turnover of old gold ornaments from the tax determined on estimated turnover based on inspection done during the return period August 2006? Held that - Tax paid under sub-section (2) of section 6 or section 12(1)(a) will mean tax paid based on return filed or the tax payable based on assessment made by the officer so that in either case the liability under section 12(1)(a) is net tax liability after providing for rebate on purchase tax. This position is only clarified by the subsequent introduction of rule 38(5) which expressly grants the benefit of rebate on purchase tax payable under section 6(2) to the dealer in the case of assessment made by estimation of turnover. We do not think the Legislature or the Government intended denial of rebate on purchase tax liability under section 6(2) against tax payable by the dealer for any return period. So much so the contention of counsel for the petitioner that the rule is only clarificatory is tenable. We accordingly allow the revision for the limited purpose of granting rebate of tax determined as payable under section 6(2) against the tax payable on the estimated sales turnover for the return period August 2006. Revision is allowed in part by sustaining turnover assessed and confirmed by the Tribunal but by directing the officer to grant rebate of purchase tax as stated above.

Summary

Issues:
1. Eligibility for rebate of purchase tax assessed on estimated turnover.

Analysis:
The judgment of the court addressed the issue of whether the Tribunal was justified in declining rebate of tax under section 12(1)(a) of the Kerala Value Added Tax Act read with rule 38(5) on the purchase turnover of old gold ornaments. The petitioner, a gold dealer, had undergone an inspection in August 2006, revealing a significant suppression of sales. The turnover for the return period was estimated based on the suppression found during the inspection. The assessing officer demanded tax under section 6(2) of the Act to make up for the suppressed purchases, and the petitioner claimed rebate of tax on purchase under section 12(1)(a) read with rule 38(5). The assessing officer declined the rebate, leading to an appeal where the quantum relief and rebate were initially allowed but later reversed by the Tribunal. The petitioner then appealed against the Tribunal's decision.

The controversy centered around the eligibility for rebate of purchase tax assessed on estimated turnover, specifically under section 12(1)(a) and rule 38(5) of the Kerala Value Added Tax Act. The court examined the relevant sections, which provided for special rebating in certain cases and best judgment assessment, respectively. The petitioner was entitled to rebate under section 12(1)(a) by virtue of rule 38(5), which allows for proportionate special rebate to the tax liability fixed on the turnover under section 6(2) when resorting to best judgment assessment. The crux of the matter was the introduction of rule 38(5) by SRO No. 7/2008 with effect from January 2, 2008, leading to a dispute regarding its retrospective application.

After considering both sides, the court interpreted section 12(1)(a) as providing for granting rebate on purchase tax paid under section 6(2) against tax payable on sales turnover. The court highlighted that the section did not explicitly cover situations of best judgment assessment but emphasized that the net tax payable should consider rebate on purchase tax. The court opined that the subsequent introduction of rule 38(5) clarified and expressly granted the benefit of rebate on purchase tax in cases of assessment made by estimating turnover. The court concluded that the rule was clarificatory in nature and intended to ensure the rebate on purchase tax liability against tax payable by the dealer for any return period. Consequently, the court allowed the revision to grant the rebate of tax determined as payable under section 6(2) against the tax payable on the estimated sales turnover for the relevant return period, while sustaining the turnover assessed and confirmed by the Tribunal.