2013 (9) TMI 1021 - HC - VAT and Sales Tax

Whether the tax amount will be deducted under Rule 3(2)(h) to arrive at a taxable turnover only when the tax amount is collected separately in the invoice. - Whether Section 9 provides for collection of taxes separately in the invoice.

Summary

Issues: Interpretation of tax deduction rules under Karnataka Value Added Tax Act, 2003.

Issue 1: Interpretation of Section 9 of the Karnataka Value Added Tax Act, 2003 and Rule 29(h) of Karnataka Value Added Tax Rules, 2005 regarding tax collection and deduction.

The petitioner argued that Rule 3(2)(h) does not require tax to be charged and collected separately for seeking deduction to avoid double taxation. However, the authorities noted that invoices did not specify tax details separately, making the claim unacceptable. Section 9 mandates registered dealers to collect tax separately at prescribed rates, and failure to do so disqualifies seeking deduction. The Karnataka Appellate Tribunal (KAT) emphasized the need for transparency in tax incidence and disallowed deduction for taxes not separately collected in invoices.

Issue 2: Application of VAT Act provisions on tax invoicing and deduction eligibility.

The KAT analyzed Section 9 of the VAT Act, emphasizing tax collection at prescribed rates for accountability. It clarified that VAT Act does not allow bifurcation of tax from the sale price for determining taxable turnover unless taxes are separately collected. Unlike the CST Act, the VAT Act does not provide for bifurcation, as VAT operates under multipoint taxation to prevent cascading effects. The Act requires explicit tax details in invoices to maintain the VAT chain.

Conclusion:

The High Court dismissed the revision petitions, upholding the KAT's decision and rejecting the petitioner's claim for deduction under Rule 3(2)(h). It emphasized that penal provisions for incorrect tax invoices do not entitle dealers to seek deductions without complying with tax collection requirements. The judgment underscores the importance of adhering to tax collection rules and transparency in invoicing for VAT compliance.