2014 (10) TMI 24 - HC - VAT and Sales Tax

Input tax rebate - Rebate in respect of consumables and capital goods used in the manufacture of PCBs - Whether the assessee is entitled to the benefit of input tax deduction credit in respect of consumables as well as capital goods used in the business of manufacturing and job work of PCB - Held that - Insofar as application of section 17(3) of the Karnataka Value Added Tax Act 2003 is concerned, partial rebate is applicable only if the assessee puts to use the inputs purchased for any other purpose other than sale, manufacturing, processing, packing or storing of goods, in addition to use in the course of his business. Therefore, section 17(3) is applicable. Insofar as input tax deduction credit in respect of capital goods is concerned, it was contended slotted angles falls in entry No.5 of 5th schedule in respect of which no rebate is permissible. The argument is, what is purchased by the assessee is slotted angle framework which includes slotted angle gusset plates bolt & nuts. Slotted angle is different from slotted angle framework. Slotted angle framework is used by the assessee to keep his manufactured goods. It is in the nature of capital investment and therefore, he is entitled for the benefit of input tax rebate. As such, it does not fall within entry 5 of 5th schedule. Decided against Revenue.

Summary

Issues:
1. Entitlement to input tax rebate for consumables and capital goods used in manufacturing PCBs.
2. Applicability of section 17(3) of the Karnataka Value Added Tax Act 2003.

Analysis:

Issue 1: Entitlement to Input Tax Rebate for Consumables and Capital Goods
The High Court considered whether the assessee is entitled to input tax deduction credit for consumables and capital goods used in the manufacturing of PCBs. The Court referred to a previous case where it was established that input tax rebate is available when goods suffering input tax are used in the dealer's business, irrespective of the nexus between manufacturing and sale of goods. In the context of job work, where consumables are used, the dealer is liable to pay input tax on these consumables. Even if no output tax is payable on the job work turnover, the dealer is still entitled to claim deduction of input tax paid on consumables used in the business. The Court emphasized that the benefit of input tax rebate is applicable when consumables are used in job work or manufacturing activities, even if no output tax is payable on the job work turnover. Therefore, the assessee was deemed entitled to the benefit of input tax rebate on the total taxable turnover of their business.

Issue 2: Applicability of Section 17(3) of the Karnataka Value Added Tax Act 2003
Regarding the application of section 17(3) of the Karnataka Value Added Tax Act 2003, the Court noted that partial rebate is applicable only if the inputs purchased are used for purposes other than sale, manufacturing, processing, packing, or storing of goods, in addition to their use in the course of the business. The Court held that section 17(3) is applicable in this case. Consequently, the Court answered the substantial question in favor of the assessee and against the revenue.

In conclusion, the High Court dismissed the revision petitions filed by the State against the order of the Karnataka Appellate Tribunal, affirming the entitlement of the assessee to input tax rebate for consumables and capital goods used in the manufacturing of PCBs. The Court clarified the application of relevant provisions of the Karnataka Value Added Tax Act 2003, emphasizing the eligibility of the assessee for input tax deduction credit and rejecting the arguments raised by the revenue against such entitlement.