2015 (8) TMI 792 - HC - VAT and Sales Tax

Net tax payable Rebate on Input tax out of job work receipts to the assessee Tribunal held that Authority erred in forming opinion that restrictions provided in Section 11 of Karnataka Value Added Tax Act, 2003 were applicable and assesse was not entitled for claim of input tax deduction in full as assesse has used major portion of raw-materials and consumables in processing of other goods Whether tax payable on consumables can be taken into consideration in arriving at net tax payable Held that - Benefit of input tax rebate was available when goods which has suffered input tax were used in course of business of dealer By virtue of Section 10(2), if dealer had paid input tax on consumables which were used in course of his business, though he was not liable to pay any output tax, still in taxable turnover of said business, he was entitled to claim deduction of this input tax, however, subject to restriction specified in Sections 11, 12, 13, 14, 17 and 18 When consumables were used in job work in respect of which no output tax was payable by assesse or used in manufacturing activity and when said manufactured goods were sold there was liability to pay output tax by assesse Assesse was entitled to benefit of input tax rebate on total taxable turnover of his business Tribunal rightly extended benefit of tax rebate. If goods which suffered input tax was despatched outside State or used as input in manufacturing, processing or packing of other taxable goods despatched to place outside State, then, input tax shall not be deducted in calculating net tax Benefit of deduction of input tax was available only when assesse has paid output tax within State Therefore, finding of Tribunal that assesse was entitled to benefit of deduction of input tax irrespective of goods being sold within State or outside State was not correct Decided partially against revenue.

Summary

Issues Involved:
1. Eligibility for input tax rebate on consumables used in job work.
2. Deduction of input tax in respect of capital goods.
3. Applicability of Section 11(5) of the Karnataka Value Added Tax Act, 2003, regarding goods dispatched or sold outside the State.

Detailed Analysis:

1. Eligibility for input tax rebate on consumables used in job work:
The court examined whether input tax paid on consumables used in job work, where the assessee only collects labor charges and no output tax is payable, can be deducted from the output tax. The court noted that under Section 10 of the Karnataka Value Added Tax Act, 2003, the definition of 'input tax' includes tax paid on goods used in the course of business. The court held that the assessee is entitled to claim input tax rebate on consumables used in job work as it is part of the business, even if no output tax is payable on the labor charges. The Tribunal's decision to extend the benefit of input tax rebate to the assessee was affirmed.

2. Deduction of input tax in respect of capital goods:
The court considered whether the assessee is entitled to input tax deduction on capital goods under Section 12 of the Act, in light of entry 3 of the Fifth Schedule. Section 11(a)(3) restricts input tax deduction on certain goods unless they are used in manufacturing, processing, packing, or storing goods for sale, or for computing, issuing tax invoices, or storing information. The Tribunal had remanded the matter to the Assessing Authority to determine the usage of these goods and decide on the eligibility for input tax deduction. The court upheld this decision, emphasizing that the benefit of tax deduction depends on the actual use of the goods.

3. Applicability of Section 11(5) of the Act regarding goods dispatched or sold outside the State:
Section 11(5) restricts input tax deduction on goods dispatched outside the State or used as inputs in manufacturing goods dispatched outside the State, except as provided in Section 14. The court clarified that the benefit of input tax deduction is only available when the assessee pays output tax within the State. The Tribunal's finding that the assessee is entitled to input tax deduction regardless of whether the goods are sold within or outside the State was corrected. The matter was remanded to the Tribunal to reassess the eligibility for input tax rebate, considering Sections 14 and 17 of the Act.

Conclusion:
The court dismissed the revision petitions except for the application of Section 11(5) of the Act. The Tribunal was directed to reconsider the input tax rebate eligibility, keeping in mind the court's interpretation of the relevant sections of the Act. The Tribunal must also consider Sections 14 and 17 while deciding on granting or denying the benefit of input tax rebate.