2015 (5) TMI 595 - HC - VAT and Sales Tax

Denial of exemption claim - contravention or non-observance or non-compliance to the notifications - Held that - The assessee purchased furniture from the seller who is a dealer in furniture. The exemption notification relied upon is in respect of sale of raw materials, component parts and packing materials by the registered dealer to 100% Export Oriented Units. It has no application to the sale or purchase of furniture. The seller acting on the said notification which has no application, had granted exemption of tax to the assessee. He is at fault and primary liability to pay tax is on the seller only. If the case falls under Section 8-A(5)(a) of the Act, the liability could be foisted on the purchaser-assessee. In the instant case, as the notification on which, reliance was placed is not applicable to the furniture, the assessee has not contravened any restrictions or conditions stipulated in the said notification. Because the said notification is not applicable at all. Therefore, the Tribunal was justified in holding that the tax is to be collected by the seller but action to be taken against the assessee for producing the certificate and a notification which has no application insofar as furniture is concerned. Since Section 8-A(5)(a) of the Act is not attracted to the facts of the present case, no liability could be foisted on the assessee. - Decided against Revenue.

Summary

Issues:
1. Liability of tax for contravention or non-observance of notifications by the appellant.
2. Interpretation of notifications regarding tax exemption for specific goods.
3. Determining liability of tax on the seller or purchaser in a transaction.

Issue 1: Liability of tax for contravention or non-observance of notifications by the appellant:
The High Court of Karnataka heard a revision petition challenging an order by the Karnataka Appellate Tribunal. The Tribunal had set aside the tax liability imposed on the appellant for contravention of notifications related to tax exemption. The appellant, engaged in software development, issued a certificate for furniture purchases, leading to tax exemption misuse by the seller. The Tribunal ruled that the liability for tax contravention did not fall on the appellant but on the seller due to taxable sales. The lower authorities' orders were set aside, and directions were given to address the misrepresentation issue.

Issue 2: Interpretation of notifications regarding tax exemption for specific goods:
The Court analyzed whether the notifications allowed the appellant to issue a certificate for furniture purchases. It was clarified that the exemption notification applied to raw materials, not furniture. As the seller wrongly granted tax exemption based on an inapplicable notification, the primary tax liability rested with the seller. The Tribunal correctly held that the appellant did not contravene any notification conditions as the notification did not apply to furniture. Consequently, the liability to pay tax was on the seller, not the appellant.

Issue 3: Determining liability of tax on the seller or purchaser in a transaction:
The Court addressed the question of whether the appellant, as the purchaser, was liable for tax non-payment by the seller. It was established that since the notification did not cover furniture purchases, the appellant did not breach any conditions. As per Section 8-A(5)(a) of the Act, the liability could only be on the purchaser if the notification conditions were violated. Since the notification did not pertain to furniture, the appellant was not liable. The Court ruled in favor of the appellant, dismissing the revision petition filed by the Revenue.

In conclusion, the High Court of Karnataka upheld the Tribunal's decision, ruling that the appellant was not liable for tax contravention as the notifications did not apply to furniture purchases. The primary tax liability was placed on the seller for misusing the exemption. The Court dismissed the Revenue's petition, affirming that the appellant was not at fault for the tax issue in question.