2019 (12) TMI 734 - HC - VAT and Sales Tax

Input tax credit - Interpretation of Statute - Sections 10 3 and 10 4 of the Karnataka Value Added Tax Act, 2003 - availment of input tax credit by the registered dealer based on the annual audit statement of accounts filed in Form VAT 240 notwithstanding no claim made in the return of turnover filed under Section 35 of the Act - Whether the registered dealer is entitled to claim input tax credit under the provisions of the Act on the basis of audit statement in Form VAT 240 sans making such claim in the monthly returns? HELD THAT - The registered dealer is liable to furnish a return in the Form and manner prescribed and shall pay the tax due on such return within 20 days/15 days after the end of the preceding month or any other tax period as may be prescribed. The tax on any sale or purchase of goods declared in return furnished becomes payable at the expiry of the period of 20 days/15 days without requiring issue of a notice for payment of such tax. The registered dealer is entitled to furnish a revised return within six months from the end of the relevant tax period. It is the deemed assessment based on the return filed by every registered dealer under Section 35 of the Act except in certain cases where the commissioner may notify. The Cognate Bench of this Court in the case of Kirloskar Electricity Co. Ltd., V/s. State of Karnataka and Another, 2018 (2) TMI 524 - KARNATAKA HIGH COURT , while considering the denial of input tax credit on the premise that the registered dealer has not claimed such input tax credit in that particular period i.e., input tax credit restricted/denied to the registered dealers merely on the ground that sale invoice on the basis of which input tax credit claimed was pertaining to a month or a period prior to the relevant tax period has held that the claim of credit of input tax is indefeasible as was the case of CENVAT under Excise Law and such credit of ITC under VAT law which is equivalent to tax paid in the chain of sales of the same goods, cannot be denied on the anvil of machinery provisions. It is held that the input tax credit cannot be denied only because input tax credit claim is not made in respect of sale invoices which are not pertaining to same tax period, nor it can be denied on the ground that such claim is not made immediately in the month or months following the month of purchase of goods in question. Filing of returns is sine-qua-non to determine the net tax liability under Section 10 3 after deducting the input tax from the output tax. Section 10 4 plays an important role in calculating the amount of net tax to be paid or refunded wherein it is categorically specified that a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 and is with the registered dealer taking the deduction at the time, any return in respect of the sale is furnished, except paid under Sub-section 2 of Section 3 i.e., from an unregistered dealer. Return is the basis on which the computation of tax liability has to be made including the input tax credit in terms of Section 10 3 and Section 10 4 . It is not in dispute that no input tax credit has been claimed by the petitioners in any of the return filed during the relevant tax periods, merely on the audited statements filed by the Chartered Accountant/Cost Accountant/Tax Practitioner, no input tax credit can be allowed. If such an argument if accepted, filing of monthly returns would be an empty formality making the provisions of Section 35 to 56 as well as Section 72 of the Act redundant. It is apparent that all the registered dealers are not required to file such Form VAT 240 but only depending on the total turnover for the year, Form VAT 240 has to be filed. In cases where no such VAT 240 is filed, it would certainly result in discrimination if VAT 240 has to be accepted as the basis for determining the input tax credit. VAT Form 240 cannot replace the return . The registered dealers are not permitted to claim the input tax credit on the basis of the VAT Form 240 without filing the return. When the statutory provision mandates compliance in a particular manner, it should be done in that particular way alone not by any other method. Petition dismissed.

Summary

Issues Involved:
1. Challenge to the orders passed by the Additional Commissioner of Commercial Taxes and the prescribed authority under the Karnataka Value Added Tax Act, 2003.
2. Interpretation of Sections 10(3) and 10(4) of the Karnataka Value Added Tax Act, 2003 regarding the availment of input tax credit based on the annual audit statement in Form VAT 240.
3. Whether the registered dealer is entitled to claim input tax credit on the basis of the audit statement in Form VAT 240 without making such a claim in the monthly returns.

Detailed Analysis:

1. Challenge to the Orders:
The petitioner challenged various orders passed by the Additional Commissioner of Commercial Taxes and the prescribed authority under the Karnataka Value Added Tax Act, 2003. The orders pertained to reassessment and rectification for different assessment years.

2. Interpretation of Sections 10(3) and 10(4) of the Act:
The core dispute revolved around the interpretation of Sections 10(3) and 10(4) of the Karnataka Value Added Tax Act, 2003 regarding the availment of input tax credit. The petitioners argued that input tax credit could be claimed based on the annual audit statement in Form VAT 240, even if no claim was made in the monthly returns filed under Section 35 of the Act. They contended that as long as they possessed tax invoices issued in accordance with Section 29 at the time of filing the returns, there was no mandatory requirement for claiming the input tax credit in the return of turnover filed.

3. Entitlement to Claim Input Tax Credit:
The court examined whether the registered dealer is entitled to claim input tax credit under the provisions of the Act on the basis of the audit statement in Form VAT 240 without making such a claim in the monthly returns. The court noted that under the scheme of the Act, Section 35 provides for furnishing the return, and Section 38 deals with the assessment of tax. The court emphasized that the return is the basis for computing the tax liability, including the input tax credit in terms of Sections 10(3) and 10(4).

The court referred to the amendment to Section 10(3) and noted that the amendment suggested strict compliance with all the provisions of the Act to claim the input tax credit. The court held that the input tax credit cannot be claimed based on the audit statement in Form VAT 240 without making a claim in the returns filed during the relevant tax periods. The court stated that allowing such a claim would make the filing of monthly returns an empty formality and render the provisions of Section 35 to 56 and Section 72 of the Act redundant.

The court also referred to various judgments, including the case of Kirloskar Electricity Co. Ltd. and Sonal Apparel Private Limited, which dealt with the claim of input tax credit. However, the court distinguished these cases by noting that in those cases, the claim of input tax credit was made in the subsequent months/belatedly in the returns filed, whereas in the present case, no such claim was made in the monthly returns.

The court concluded that the substantive provision of the Act, Section 10(3), has to be read harmoniously with the procedural provision of filing the return under Section 35. Filing of returns within the prescribed time is mandatory, and input tax credit can only be claimed based on the returns filed. The court dismissed the writ petitions, holding that no input tax credit can be availed independent of the claim in the returns merely by filing Form VAT 240.

Conclusion:
The court dismissed the writ petitions, holding that the registered dealer cannot claim input tax credit based on the audit statement in Form VAT 240 without making such a claim in the monthly returns filed under Section 35 of the Karnataka Value Added Tax Act, 2003. The court emphasized the importance of filing returns within the prescribed time and complying with the provisions of the Act to claim input tax credit.