2015 (12) TMI 1867 - HC - VAT and Sales Tax

Input tax credit - tax paid at the time of purchase of goods from their suppliers - whether amounts offered by way of discount through credit notes issued by the supplier of the goods, at a point in time subsequent to the sale of the goods to the petitioners, can be added to the sales turnover of the petitioners' by invoking the provisions of explanation VII to the definition of turnover under Section 2(iii) of the KVAT Act? - HELD THAT - The essence of the scheme is that, whenever tax is paid by a dealer at the time of purchase of goods, he is entitled to take credit of the tax so paid and to set off the said tax amount against the output tax to be paid by him at the time when he sells the product. A variation of the input tax credit availed by him is called for only in a situation where, it is found that the tax paid by the supplier of the goods, of which credit was taken by the petitioner as input tax credit, is subsequently reduced on account of a refund granted to the supplier, of the tax initially paid by him. It follows that, in the absence of any claim for refund of tax paid by the supplier, the input tax claimed by the petitioners cannot be varied or modified, save in the situations mentioned in Section 11 of the KVAT Act, such as, for instance, where the goods in question are sold at a price lower than that at which they were purchased or when the goods are sold at a subsidised rate. On a perusal of the notices and assessment orders that are impugned in these writ petitions, it is found that the assessing authorities have not examined the issue as required. The assessment orders impugned in these writ petitions are therefore vitiated by a non-application of mind and is therefore quashed. The respondent assessing authorities in all these writ petitions, are directed, to complete the assessment proceedings, initiated against the petitioners through the notices issued to them under Section 25(1) of the Act, by taking note of the observations in this judgment, and after granting the petitioners an opportunity of being heard in the matter. Petition disposed off.

Summary

Issues Involved:
- Availment of input tax credit by dealers
- Addition of discount amounts to sales turnover under Explanation VII to Section 2(iii) of the KVAT Act

Issue 1: Availment of input tax credit by dealers
The writ petitions involved a common issue related to the availment of input tax credit by dealers under the KVAT Act. The petitioners, registered dealers trading in Cement, paid tax at the time of purchase from suppliers and availed input tax credit. The assessment authorities raised demands based on contentions that the input tax credit should be reversed if goods were sold at a lower price or if discount amounts received later were not considered. The judgment emphasized that input tax credit can only be varied in specific situations, such as when the supplier refunds tax or goods are sold at a lower price. The court clarified that without a refund claim by the supplier, input tax credit claimed by dealers cannot be modified. The judgment highlighted the importance of Section 11 of the KVAT Act in determining the input tax credit and set off against output tax at the time of sale.

Issue 2: Addition of discount amounts to sales turnover
The second issue in the writ petitions revolved around whether discount amounts received by dealers through credit notes should be added to their sales turnover under Explanation VII to Section 2(iii) of the KVAT Act. The assessment orders raised demands based on the premise that if goods were sold at prices lower than the purchase price, discount amounts should be added to the sales turnover. However, the impact of discounts on input tax credit availed by dealers was not considered. The judgment outlined three scenarios for assessing authorities to consider: restricting input tax credit based on output tax paid, enhancing sales turnover if discounts are part of the sale price balance, and maintaining input tax credit if discounts are not towards the balance of the sale price. The court directed assessing authorities to reevaluate the cases, considering the principles outlined in the judgment and granting petitioners a fair hearing. The assessment orders were quashed due to a lack of proper examination and non-application of relevant principles, emphasizing the need for a thorough assessment process.

In conclusion, the judgment provided clarity on the issues of input tax credit availment and the addition of discount amounts to sales turnover under the KVAT Act. It highlighted the importance of statutory provisions and principles in determining tax liabilities for dealers. The court's directions aimed to ensure a fair assessment process for the petitioners, emphasizing the need for assessing authorities to consider all relevant factors and provide a proper opportunity for petitioners to present their case.