2015 (1) TMI 1311 - HC - VAT and Sales Tax

Imposition of penalty under Sub-section (7) of Section 22 of the Act - the assessment made under Sub-section (1) of Section 25 of the Act - presumptive taxation - eligibilty for input tax credit by virtue of the amendment made to Sub-section (5) of Section 6 of the Act by the Finance Act of 2011 - no concealment of turnover - no willful disobedience of the provisions of the Act - Held that - A reading of Paragraph 385 of the Budget Speech 2014-15 makes it abundantly clear that presumptive tax is made available to small dealers subject to certain conditions and in case of violation of any of such conditions such dealers will be assessed for payment of tax as a normal dealer and they have to pay tax accordingly. As the presumptive tax dealers find it difficult to obtain input tax credit and special rebate while assessments are initiated denying their presumptive status the Government felt the need to amend the existing provisions in the Act which was given effect by inserting Section 25C to the Act with effect from 1/4/2005 by the Kerala Finance Act 2014. Going by Section 25C of the Act in any assessment or other proceeding initiated by the assessing authority denying the eligibility of a dealer to pay presumptive tax for the violation of conditions enumerated in sub-section (5) of section 6 such dealer shall be granted input tax credit or special rebate as the case may be. In our view Section 25C of the Act will not in any manner absolve any dealer paying presumptive tax against whom any assessment or other proceeding are initiated by the assessing authority denying the eligibility to pay presumptive tax for the violation of conditions enumerated in sub-section (5) of section 6 from being assessed for payment of tax as a normal dealer or from imposing any penalty under Sub-section (7) of Section 22 of the Act. It only enables such dealers to claim input tax credit on the turnover in excess of 60 lakh rupees or to claim special rebate as the case may be. The appeals filed by the assessee before the Tribunal ended in dismissal by orders dated 28/2/2014. On receiving the assent of the Governor to the Kerala Finance Bill 2014 the Kerala Finance Act 2014 was published in the Kerala Gazette on 23/7/2014 and Section 25C to the Act came into force with effect from 1/4/2005. In such circumstances we are of the considered view that the entitlement of the assessee for input tax credit for the period in dispute on the turnover in excess of 60 lakh rupees requires to be considered by the assessing authority in terms of Section 25C of the Act. For the limited purpose of considering the entitlement of the assessee for input tax credit for the period in dispute on the turnover in excess of 60 lakh rupees the matters are remanded to the assessing authority who shall pass appropriate orders with notice to the assessee and after giving the assessee a reasonable opportunity to produce materials if any in support of its claim for input tax credit - appeal allowed by way of remand.

Summary

Issues Involved:
1. Imposition of penalty under Sub-section (7) of Section 22 of the Kerala Value Added Tax Act, 2005.
2. Assessment made under Sub-section (1) of Section 25 of the Kerala Value Added Tax Act, 2005.
3. Eligibility for input tax credit under the 6th proviso to Sub-section (5) of Section 6 of the Kerala Value Added Tax Act, 2005.
4. Application of Section 25C of the Kerala Value Added Tax Act, 2005, inserted by the Kerala Finance Act, 2014.

Detailed Analysis:

1. Imposition of Penalty under Sub-section (7) of Section 22 of the Act:
The assessee, a dealer paying presumptive tax under Sub-section (5) of Section 6 of the Act, failed to intimate the assessing authority when its turnover exceeded Rs. 60 lakh for the assessment year 2011-12. Consequently, the assessing authority imposed a penalty under Sub-section (7) of Section 22, which mandates that if the tax paid is less than the amount liable, the dealer must pay the difference along with thrice the amount of such difference as a penalty. The court upheld the penalty, stating that the dealer's failure to switch to regular tax rates and inform the authority was not a mere procedural irregularity but a clear violation of statutory provisions.

2. Assessment under Sub-section (1) of Section 25 of the Act:
The assessment for the years 2011-12 and 2012-13 was conducted under Sub-section (1) of Section 25 due to the dealer's failure to report the exceeded turnover and switch to regular tax rates. The court confirmed the assessment orders, rejecting the assessee's contention that it was eligible for input tax credit and that there was no willful disobedience of the Act's provisions.

3. Eligibility for Input Tax Credit:
The assessee claimed eligibility for input tax credit under the 6th proviso to Sub-section (5) of Section 6, inserted by the Kerala Finance Act, 2011. However, the court held that compliance with the statutory requirements under Sub-rule (7) of Rule 12 of the Kerala Value Added Tax Rules, 2005, is a prerequisite for claiming input tax credit. The dealer must submit an application in Form No.25A along with supporting documents to the assessing authority. Since the assessee did not follow this procedure, the claim for input tax credit was rejected.

4. Application of Section 25C of the Act:
Section 25C, inserted by the Kerala Finance Act, 2014, provides that dealers denied presumptive tax status for violating conditions under Sub-section (5) of Section 6 are eligible for input tax credit or special rebate. The court noted that this provision does not absolve the dealer from being assessed as a normal dealer or from penalties under Sub-section (7) of Section 22. However, the court remanded the matter to the assessing authority to consider the assessee's entitlement for input tax credit for the period in dispute under Section 25C, with a direction to pass appropriate orders within four months.

Conclusion:
The court disposed of the revision petitions, confirming the findings of the authorities below on the issues of penalty and assessment. It remanded the matter to the assessing authority for reconsideration of the assessee's entitlement to input tax credit for the disputed period, which may result in a revision of the penalty imposed. All other questions of law raised by the assessee were found against them.