2018 (12) TMI 419 - HC - VAT and Sales Tax

Input tax Credit - credit at the rate at which the assessee paid it on purchases - Whether the Tribunal was right in having allowed the input tax credit to the goods at the rate in which the assessee-respondent purchased it without reference to the rate of tax levied as per the Schedule to the Kerala Value Added Tax Act, 2003? Held that - Admittedly, there was an amendment made bringing paints as a commodity taxable at 20% under a table appended to Section 6(1)(a) of the Kerala Value Added Tax Act, 2003. Obviously, various assessees dealing in similar products had purchased the same at 20% and had sold it also at 20%. Later, the Commissioner had come out with a circular bearing No.43/2006, wherein specific items of paints taxable at 20% were enumerated. Later, a further circular was issued bearing No.52/2006 wherein synthetic enamel paints were excluded. The general purpose of the amendment and the circulars would indicate that what was sought to be taxed at the higher rate were those items which are more expensive and not commonly used. The input tax credit can be only at the rate at which the commodity is taxed as per the Schedule to the Act. If there is tax payment in excess of the rate available in the Schedule, then necessarily such collection to that extent would be forfeited by the State and the person who has paid the said tax would have to claim refund. However, since the confusion created by the departmental circular for certain items, credit allowed to the extent of confusion so created. Decided in favor of Revenue.

Summary

Issues:
1. Interpretation of input tax credit under the Kerala Value Added Tax Act, 2003.
2. Application of tax rates on purchased goods for resale.
3. Refund of excess tax paid under Rule 56 of the Kerala Value Added Tax Rules 2005.

Analysis:
1. The case involved a dealer in paints and related products who purchased goods at a 20% tax rate and resold them at the same rate due to an amendment in the Finance Act 2006. The dispute arose over the input tax credit claimed by the dealer on various commodities, with the Assessing Officer and the first appellate authority denying the credit at the 20% rate. However, the Tribunal allowed the credit, stating that as the State did not lose any tax revenue, the credit should be granted at the rate the assessee paid on purchases.

2. The court noted the amendments bringing paints under a 20% tax rate and the subsequent circulars specifying taxable items. It was emphasized that input tax credit should align with the tax rate specified in the Schedule to the Act. Any excess tax payment beyond the scheduled rate would result in forfeiture by the State, necessitating a refund claim by the taxpayer. The court acknowledged the confusion regarding the tax rate applicable to paints but highlighted that not all commodities dealt with by the assessee fell under the definition of paints. The judgment set aside the Tribunal's decision for commodities not classified as paints, directing a reassessment by the AO within three months.

3. The court recognized the genuine confusion among dealers due to the inclusion of paints under a higher tax rate category. While upholding the State's position on tax rates, the judgment allowed for a nuanced approach considering the specific products involved. The decision aimed to rectify the classification error for certain commodities while ensuring compliance with tax regulations and refund procedures. The outcome balanced legal interpretations with practical implications for the taxpayer, providing clarity on input tax credit eligibility based on the applicable tax rates specified in the legislation.