2015 (5) TMI 1028 - HC - VAT and Sales Tax

Entitlement for input tax credit under the KVAT Act - Reduction in contract amount to the extent of input-tax credit - Petitioner purchased the materials on payment of tax and issued invoices, the statutory right available under the KVAT Act is to collect the entire tax from the purchaser but Board refused to pay the tax paid by the petitioner to his sellers - Held that - even if the entire tax component was paid to the petitioner, the petitioner would have been liable only for payment of tax at four per cent. To the Government, on the value addition at his hands, since, the returns would have claimed the input-tax credit, being the tax paid by him to his seller, which his seller would be liable to pay to the Government. The clause , does not indicate waiver of the amount paid as input-tax credit, as agreed by the Board. The Board had specifically made a condition that the tax payable to the Government would be paid by the Board itself and not paid to the petitioner herein. This was to ensure that the tax component would definitely go to the Government. VAT as applicable under the KVAT Act, being the net tax after input tax credit, that alone would be the liability of the petitioner to the Government, which is paid by the Board. Otherwise, if the amounts already paid by the petitioner to his seller is also paid to the Government, then the very scheme of VAT would be put in jeopardy since then, for the first sale, the Government would get four per cent tax twice on the sale to the petitioner and also on his subsequent sale to the Board. In such circumstance, the input-tax credit available to the petitioner would have to be paid by the purchaser of the petitioner, i.e., the Board. Therefore, since the Board definitely comes within the purview of article 12 and the terms of the contract are clear, the tax component which is available to the petitioner by way of input-tax credit would be paid by the Board to the petitioner. - Decided in favour of petitioner

Summary

Issues:
Reduction in contract amount due to input tax credit under the Kerala Value Added Tax Act (KVAT) 2003.

Analysis:
1. The petitioner is aggrieved by the reduction in the contract amount due to the input tax credit, which the petitioner claims as a statutory right under the KVAT Act. The petitioner contends that the reduction of Rs. 1,91,435 is related to the tax paid on purchases from other dealers, for which input tax credit is claimed under the Act.

2. The Board refused to pay the tax paid by the petitioner to his sellers, citing specific terms and conditions of the contract. The petitioner argues that despite being entitled to input tax credit under the KVAT Act, the Board should still pay the amount to the petitioner as the ultimate purchaser under the contract.

3. The petitioner asserts that the concept of input tax credit is to prevent double taxation and that the Board should pay the entire tax amount, including the input tax credit claimed by the petitioner. The petitioner maintains that the statutory right under the KVAT Act is to collect the entire tax from the purchaser, which in this case is the Board.

4. The standing counsel for the Board argues that the terms of payment are governed by the specific contract, which prohibits the petitioner from recovering the tax already paid and claimed as input tax credit. The Board contends that the petitioner agreed to concede the amount of input tax credit as per the contract terms.

5. The Court examines the specific clause in the contract and finds that while the Board is liable to pay the entire tax amount based on actual invoices, it has made provisions to remit the tax directly to the Government. The Court emphasizes the importance of input tax credit in the value addition regime introduced by the KVAT Act.

6. The invoices submitted by the petitioner show the tax calculations and input tax credit claimed. The Court notes that the Board declined the input tax credit claimed by the petitioner, which would have resulted in the petitioner being liable for only the tax on value addition at his hands.

7. The Court clarifies that the clause in the contract does not indicate a waiver of the input tax credit claimed by the petitioner. It emphasizes that the tax payable to the Government should be paid by the Board to avoid double taxation under the VAT scheme.

8. In light of the clear terms of the contract and absence of factual disputes, the Court exercises jurisdiction under Article 226 of the Constitution of India. It directs the Board to pay the input tax credit amount to the petitioner within three months, failing which, interest at 10% would be due.

9. The writ petition is allowed with the above directions, ensuring that the petitioner receives the input tax credit as per the statutory provisions of the KVAT Act.