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2018 (9) TMI 1915 - AT - VAT and Sales TaxValidity of re-assessment order - exemption from output tax - section 5 of the KVAT Act, 2003 - failure to maintain separate books of accounts - applicability of Rule 131 of the KVAT Rules, 2005. Restriction on input tax - HELD THAT - The AA and FAA have not followed the circular instructions properly. Hence there is no reason to doubt the quantum of NDIT applied by the appellant himself for all the three years under appeal. The re-assessment order passed by the AA adopting the formula in a routine manner without taking into the specific facts of the case and rejecting the calculations of the appellant is totally unjustified and not called for and therefore the order of the FAA in dismissing the appeal without following the law and the circular instructions is not maintainable in the eye of law - the question is answered in negative. Levy of tax on sale of used motor vehicles by the appellant - HELD THAT - The levy of tax on sale of the discarded goods was without authority of law - the levy of tax on the sale of old vehicles cannot be sustained - answered in negative.
Issues Involved:
1. Justifiability of the order passed by the AA as upheld by the FAA restricting input tax. 2. Levy of tax on the sale of used motor vehicles by the appellant. 3. Final order determination. Detailed Analysis: Point No. 1: Justifiability of the Order Passed by the AA as Upheld by the FAA Restricting Input Tax The appellant, a manufacturer of bakery products, maintained separate books of accounts for taxable and exempt goods. The AA applied Rule 131 to reject input tax related to exempt goods without considering the specific business context and the appellant's detailed submissions. The FAA upheld this decision without proper examination of the facts and figures, concluding the proceedings hastily. The appellant argued that Rule 131 should not apply as the input tax for exempt goods was clearly identifiable. The appellant cited several judicial precedents, including M/s. M.K. Agro Tech (P) Ltd and Bharat Petroleum Corporation Ltd, which support the non-application of Rule 131 when input tax is identifiable. The Commissioner’s Circular No. 13/2006-07 also emphasized that Rule 131 should not be applied without justifiable reasons when input tax is identifiable. The Tribunal found that the AA and FAA failed to provide cogent reasons for rejecting the appellant's calculations and blindly applied the formula under Rule 131, resulting in unjustifiable restriction of input tax. The Tribunal concluded that the orders of the AA and FAA were not sustainable in law. Point No. 2: Levy of Tax on the Sale of Used Motor Vehicles by the Appellant The AA levied tax on the sale of old vehicles, which the FAA upheld. The appellant contended that this was contrary to the jurisdictional High Court of Karnataka’s decision in M/S. Vasavi Wood Industries Vs. State of Karnataka, which held that occasional sales of a business nature do not constitute regular business activity and hence are not taxable. The Tribunal agreed with the appellant, citing the High Court's judgment that occasional sales, not connected to the regular business and without profit motive, do not attract tax. The Tribunal also referenced similar judgments by the Delhi High Court and the Karnataka High Court in M/S. Kwality Biscuits (P) Ltd and M/S. Ciniplex Pvt. Ltd, supporting the non-taxability of such sales. Point No. 3: Final Order Determination Based on the above determinations, the Tribunal passed the following orders: 1. The appeals in STA Nos. 310 to 312/2016 were allowed. 2. The restriction of input tax (NDIT) for the years 2005-06, 2006-07, and 2007-08 as per the appellant's admission was restored, and the NDIT calculated by the AA under Rule 131(3) as confirmed by the FAA was set aside. 3. The AA was directed to issue a revised demand notice accordingly. 4. The original copy of the judgment was to be placed in STA.No.310/2016, with copies in STA.No.311/2016 and STA No.312/2016. 5. The Registrar of the Tribunal was directed to comply with Regulation 53(b) of Chapter-IX of Karnataka Appellate Tribunal Regulations 1979 by communicating this order to the relevant persons. 6. The office was directed to send back the records to the lower authorities immediately. The judgment was pronounced in the open Court on 26th September 2018.
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