2019 (7) TMI 160 - HC - VAT and Sales Tax

Reversal of input credit u/s 11(7) and (8) of the KVAT Act - sales at discounted price/subsidized price - suppression of purchase made was denied by assessee holding that these occured on the day of death of his father as the business remained unattended - case of assessee is that all these were truly accounted and was reflected in the returns filed - Section 11(3) of the KVAT Act - interpretation of the term 'subsidized price' used in the 2nd proviso to Section 11(3). HELD THAT - Section 11(3) of the KVAT Act provides that, input tax credit shall be allowed to a registered dealer in respect of a returned period against the output tax payable by him for such period and the dealer shall pay to the Government the balance of output tax in excess of the input tax credited in the manner prescribed. On the facts of the case, the assessee closed down the business after selling the stock of goods at a reduced price. The intend and purport of the 2nd proviso introduced to Section 11(3) is to restrain the assessee from claiming input tax credit over and above the output tax collected. That is why it is insisted that the claim of input tax credit shall not exceed the output tax payable, in case the goods are sold at subsidized price. The interpretation given by the Tribunal that the word 'subsidized price' contained in the second proviso to Section 11(3) can only be construed as a sale in which the Government have provided subsidy to support the price, cannot be accepted as a correct interpretation. The term 'subsidized price' used in the 2nd proviso to Section 11(3) will carry within it any sale made by the dealer at a subsidized price below the purchase value of such goods - we are of the opinion that the assessee in the case is not entitled to claim input tax credit over and above the output tax returned with respect to the goods sold at the reduced price. The question raised in this regard is answered in favour of the revenue and against the assessee. The impugned order passed by the Tribunal to the extent it held that the assessee is entitled for input tax credit demanded beyond the limit of output tax conceded is hereby set aside - revision petition allowed.

Summary

Issues:
Assessment based on irregularities in monthly returns filed by the assessee, rejection of accounts by the Assessing Authority, applicability of input tax credit, interpretation of subsidized sale, liability for reverse tax on damaged goods, challenge against levy of interest.

Analysis:
The judgment delivered by the High Court of Kerala pertains to a revision petition filed by the Revenue against the order of the Kerala Valued Added Tax Additional Appellate Tribunal. The case involved the rejection of monthly returns filed by the assessee due to irregularities, including unaccounted intra-state purchases and false gross loss claims. The Assessing Authority proposed an assessment based on best judgment, which was objected to by the assessee citing the death of the family head and damage to stock. The proposal was partially dropped, and a tax liability was assessed. In the appeal before the Deputy Commissioner (Appeals), it was found that the rejection of accounts lacked evidence, and the calculation of sales turnover was incorrect. The Appellate Authority emphasized the necessity of material evidence for assessment and limited input tax credit to output tax returned by the dealer.

The Deputy Commissioner of Appeals reworked the assessment, considering the liability for reverse tax on damaged goods and reduced the tax liability. The second appeal before the Tribunal focused on the interpretation of subsidized sale and the allowance of input tax credit. The Tribunal held that the 2nd proviso to Section 11(3) was not applicable as the sale was discounted, not subsidized. The Tribunal also denied input tax credit for damaged goods and interest levy challenge. In the revision petition, the Revenue challenged the Tribunal's interpretation of subsidized sale and input tax credit limit.

The High Court analyzed Section 11(3) of the KVAT Act and the 2nd proviso, emphasizing that input tax credit should not exceed output tax payable in case of goods sold at a subsidized price. The Court disagreed with the Tribunal's narrow interpretation of subsidized price, stating that any sale made at a price below the purchase value qualifies. Consequently, the Court ruled in favor of the Revenue, disallowing input tax credit beyond the output tax for goods sold at a reduced price. The revision petition was allowed, setting aside the Tribunal's order, and directing the assessing authority to recompute the calculations and issue a revised demand within one month.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the legal interpretation applied by the High Court of Kerala, ultimately resolving the dispute in favor of the Revenue regarding input tax credit limits for goods sold at a reduced price.