2016 (12) TMI 629 - HC - VAT and Sales Tax

Input tax credit - presumptive tax - unaccounted purchases - Evasion of tax - suppression of facts - Section 25(1) of the KVAT - Held that - primarily Section 25C of the Act will not apply in an instance where the presumptive dealer suppresses his turnover. The learned counsel for the petitioners however submits that even in an instance where there is suppression of turnover by a presumptive dealer, a Division Bench of this Court in Mooken Devassy & Co., 2016 (12) TMI 463 - KERALA HIGH COURT observed that if the turnover assessed does not exceed ₹ 60 lakhs, the dealer is entitled for the benefit of payment of presumptive tax. If such a rationale is adopted, the petitioners in the present cases are also entitled for benefit of input tax credit. Section 25C applies only if the assessing authority had denied the eligibility of the dealer to pay presumptive tax for the violation of conditions enumerated in sub section (5) of Section 6. Unless such a finding is made by the assessing authority in the assessment order that the petitioners have violated any of the conditions enumerated in Section 6(5), none of the petitioners are entitled for the benefit of Section 25C. In other words, a finding by the assessing authority that the dealer has violated the conditions in Section 6(5) is a precondition for claiming input tax credit under Section 25C. Penalty proceedings u/s 22(7) of the Act - Held that - it is an independent provision in respect of dealers paying tax under Section 6(5) and if it is found that amount of tax if any paid is less than the amount of tax which he is liable to pay, then the assessing authority has jurisdiction to direct the dealer to pay difference of tax between the amount of tax already paid and that fixed in such proceedings together with thrice the amount of such difference as penalty. Having regard to the aforesaid discussion, I do not think that the petitioners are entitled to get any relief in the above writ petitions. Petitions disposed off - The assessing Officer is directed to make a fresh assessment giving the benefit of payment of tax at presumptive rate - decided partly in favor of petitioner-assessee.

Issues Involved:
1. Validity of reopening assessments under Section 25(1) of the KVAT Act.
2. Applicability of input tax credit under Section 25C of the KVAT Act.
3. Legitimacy of penalty orders under Section 22(7) of the KVAT Act.
4. Conditions under Section 6(5) of the KVAT Act and their interpretation.

Detailed Analysis:

1. Validity of Reopening Assessments under Section 25(1) of the KVAT Act:
The petitioners challenged the reopening of assessments under Section 25(1) of the KVAT Act, arguing that once returns were accepted and finalized, there was no justification for reopening. The court noted that the assessments were reopened due to alleged suppression of purchase turnover, which justified the reopening under Section 25(1). The counter affidavit by the respondent supported this by stating that the proceedings were in accordance with law due to clear suppression of purchase turnover.

2. Applicability of Input Tax Credit under Section 25C of the KVAT Act:
The petitioners contended that they were entitled to input tax credit under Section 25C, which was introduced by the Finance Act 2014 with retrospective effect from 01.04.2005. The court examined various judgments to interpret Section 25C. It concluded that Section 25C applies only if the assessing authority denies the eligibility to pay presumptive tax for violating conditions under Section 6(5). Since suppression of turnover does not fall under the conditions enumerated in Section 6(5), the court held that Section 25C does not apply to cases of suppressed turnover.

3. Legitimacy of Penalty Orders under Section 22(7) of the KVAT Act:
The petitioners also challenged the penalty orders issued under Section 22(7). The court referred to previous judgments, particularly the Division Bench decision in Keltron Employees Cooperative Society v. State of Kerala, which upheld the imposition of penalties under Section 22(7) for dealers paying tax under Section 6(5) if the tax paid was less than the tax liability. The court found no reason to interfere with the penalty orders, except in specific instances where the turnover was below the prescribed limit.

4. Conditions under Section 6(5) of the KVAT Act and Their Interpretation:
The court analyzed the conditions under Section 6(5) and concluded that suppression of turnover does not fall within the conditions specified in clauses (a) to (f). Therefore, the benefit of input tax credit under the proviso to Section 6(5) or Section 25C could not be extended to dealers who suppressed turnover. The court emphasized that a finding by the assessing authority of a violation of conditions under Section 6(5) is a prerequisite for claiming input tax credit under Section 25C.

Conclusion:
The court dismissed most of the writ petitions, upholding the assessment and penalty orders, except in W.P.(C) No.38920/2015, where the turnover for the year 2010-11 was below ?60 lakhs. In this case, the court allowed the petition partly, setting aside the relevant assessment and penalty orders and directing a fresh assessment at the presumptive rate. The other writ petitions were dismissed, affirming the assessments and penalties imposed by the authorities.

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