2016 (5) TMI 1358 - HC - VAT and Sales Tax

Works contract - levy of output tax - Held that - If the claim for input tax credit and other deductions from the gross turnover on account of labor charges etc. could not be made by them during the assessment proceedings which took place while this litigation was pending before the Hon ble Supreme Court the assessee cannot be non-suited to make such claim now if otherwise it is admissible in accordance with the provisions of law - while the levy of output tax is sustainable on the said activity now held to be a works contract the computation of net tax liability under the provisions of the VAT Act 2003 has to be done afresh by the Assessing Authority in accordance with the provisions of the VAT Act 2003 - appeal allowed by way o remand.

Summary

Issues:
1. Whether the petitioners are liable to pay tax under the Karnataka Value Added Tax Act, 2003 for their business activities?
2. Whether the Assessing Authority considered the input tax credit and deductions claimed by the petitioners in accordance with the law during the assessment proceedings?

Analysis:
1. The petitioners, engaged in the business of processing and supplying photographs, contended that they were not liable to pay tax under the KVAT Act, 2003 as they provided a service with goods used incidentally. A Division Bench judgment favored the assessees, but the Supreme Court reversed it, upholding the constitutionality of Entry 25 for tax imposition. The petitioners accepted the output tax liability but sought consideration for input tax credit and deductions. The Revenue argued that the input tax credit claims should have been raised during assessment and cannot be considered now. The court held that while the output tax is valid, the Assessing Authority must determine the net tax liability afresh, allowing the petitioners to claim input tax credit and deductions in accordance with the law.

2. The court acknowledged that the petitioners' claims for input tax credit and deductions were not raised during assessment due to their earlier stance of non-liability for tax. However, the court emphasized that the petitioners should not be precluded from making such claims now if admissible under the law. As the Assessing Authority did not consider these claims in the impugned orders, the court directed a remand of the proceedings to allow the petitioners to present evidence for their claims. The Assessing Authority was instructed to pass fresh assessment orders within six months, considering the claims of the petitioners on merits and in accordance with the law.

This detailed analysis of the judgment highlights the issues of tax liability under the KVAT Act, 2003 and the Assessing Authority's obligation to consider input tax credit and deductions claimed by the petitioners, providing a comprehensive understanding of the legal proceedings and the court's decision.