2016 (2) TMI 988 - HC - VAT and Sales Tax

Transaction in the course of import or not - Master lease agreements - goods were leased by procuring from the vendors within the State of Karnataka - vendor imported the goods - Benefit of exemption by virtue of Section 5(2) of the Central Sales Tax Act, 1956 - transaction of lease effected during the periods of 2006-07 to 2010-11 - Held that - the requirement for getting exemption is dependent upon inextricable link to the import from the foreign vendor and the customer and further with the end customer and the petitioner. The Tribunal has specifically taken note of the fact that as the link is not established or proved by the petitioner and hence not covered by the exemption clause as envisaged under Section 5(2) of the Act. It cannot be said that the Tribunal was not right in holding that the petitioner is not entitled to exemption under Section 5(2) of the Central Sales Tax Act, 1956. We do not find that the order of the Tribunal deserves to be interfered with. The questions raised are held against the assessee and in favour of the revenue.

Issues Involved:
1. Entitlement to exemption under Section 5(2) of the Central Sales Tax Act, 1956.
2. Validity of re-assessment orders under Section 39(1) of the Karnataka Value Added Tax Act, 2003.
3. Levy of penalty and interest under the Karnataka Value Added Tax Act, 2003.

Detailed Analysis:

1. Entitlement to Exemption under Section 5(2) of the Central Sales Tax Act, 1956:
The petitioner argued that the lease transactions during the periods 2006-07 to 2010-11 were exempt under Section 5(2) of the CST Act, as they were in the course of import. The Tribunal dismissed the appeals, holding that the petitioner is liable to pay tax and no exemption is available under Section 5(2). The Tribunal analyzed the Master Lease Agreement (MLA), Purchase Order (PO), Bill of Entry (BOE), and other documents. It concluded that the transactions were not integrated and thus did not qualify for exemption under Section 5(2). The Tribunal emphasized that the transactions lacked the required "inextricable link" between the import and the lease, which is essential for claiming exemption under Section 5(2).

2. Validity of Re-assessment Orders under Section 39(1) of the Karnataka Value Added Tax Act, 2003:
The second respondent examined the petitioner's books of accounts and records, concluding that the petitioner leased the equipment after importing it from outside India. Consequently, the transactions did not qualify as being in the course of import under Section 5(2) of the CST Act. The re-assessment orders for the periods 2006-07 to 2010-11 were issued, holding the petitioner liable for tax under the KVAT Act. The petitioner's appeals to the Joint Commissioner of Commercial Taxes and subsequently to the Tribunal were dismissed, affirming the re-assessment orders.

3. Levy of Penalty and Interest under the Karnataka Value Added Tax Act, 2003:
The Tribunal upheld the imposition of penalty and interest, noting that the petitioner had not declared taxable sales during the relevant periods. The petitioner admitted to inadvertently not disclosing the turnover and voluntarily paid the output tax along with applicable interest. The Tribunal found that the omissions were not inadvertent mistakes but rather a failure to declare taxable sales, justifying the imposition of penalty under Section 72(2) of the KVAT Act. The Tribunal relied on the Supreme Court decisions in Guljag Industries vs. Commercial Tax Officer and Assistant Commercial Tax Officer vs. Bajaj Electricals Limited to support the imposition of penalty and interest.

Conclusion:
The High Court upheld the Tribunal's findings, concluding that the petitioner is not entitled to exemption under Section 5(2) of the CST Act. The re-assessment orders under Section 39(1) of the KVAT Act were valid, and the imposition of penalty and interest was justified. The petitions were dismissed, affirming the Tribunal's decision.

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