2022 (7) TMI 416 - HC - VAT and Sales Tax

Eligibility to pay taxes under the scheme of composition - purchase of machinery in the course of interstate trade for use in business activity of the Respondent - Section 15(1) (c) of KVAT Act, 2003 - HELD THAT - Undisputed facts of the case are, respondent owns a stone crushing unit. He has bought stone crushing machinery from outside the State by giving C-Form. His main business is not dealing in stone crushing equipments. In the case of SRI. ANANTHA PADMANABHA BHAT VERSUS COMMISSIONER OF COMMERCIAL TAXES IN KARNATAKA, BENGALURU AND COMMERCIAL TAX OFFICER (AUDIT) , BENGALURU 2016 (7) TMI 546 - KARNATAKA HIGH COURT , rightly relied upon by the KAT, this Court has held that the vitrified tiles used in the restaurant owned by the assessee therein were not sold by him in the regular course of business but they were used for the flooring of the restaurant where it was held that When so fixed in the floor, the Vitrified Tiles of-course became the part of the immovable property, and it is beyond the common sense and basic commercial prudence to even comprehend that the Vitrified Tiles fixed on the floor of the restaurant could be treated by an assessing authority as the 'goods in stock' dealt with by the assessee or sold in the course of regular course of business. The assessing authorities trained and well acquainted with the commercial terms, cannot be allowed to take such perverse views. In the instant case, it would be incongruous to construe the capital equipments purchased by the assessee for stone crushing as goods in stock . The question framed by the Revenue is answered in favour of the assessee - This revision petition fails and it is accordingly dismissed.

Summary

Issues:
1. Eligibility of the respondent to pay taxes under the composition scheme despite purchasing machinery from outside the State.
2. Interpretation of Section 15(1)(d) of the KVAT Act regarding the benefit of composition for the respondent.

Analysis:
1. The case involves a revision petition by the Revenue challenging the Karnataka Appellate Tribunal's decision allowing the respondent to pay taxes under the composition scheme despite purchasing machinery from outside the State. The key question of law was whether the respondent, engaged in stone crushing activity, was eligible for composition under Section 15(1)(d) of the KVAT Act, considering the purchase of machinery in interstate trade for business use.

2. The Assessing Authority initially granted the benefit of composition to the respondent for certain assessment years. However, upon discovering the purchase of machinery using Form-C declaration, reassessment orders were passed denying the composition benefit. The First Appellate Authority upheld this decision, leading to the respondent's appeal to the Karnataka Appellate Tribunal, which ruled in favor of the respondent, prompting the Revenue's revision petition.

3. The Revenue argued that as per Rule 135(1) & (2) of the KVAT Rules, a dealer making interstate purchases is ineligible for composition. The Assessing Authority and First Appellate Authority correctly denied composition benefits based on this rule. The Karnataka Appellate Tribunal's decision was criticized for erroneously treating the machinery as capital equipment, making the composition benefit inapplicable to the respondent.

4. In response, the respondent contended that the machinery purchased was essential for stone crushing, constituting capital equipment eligible for composition under Section 15(1)(d) of the KVAT Act. The Court considered the nature of the respondent's business and the purpose of the machinery in question to determine eligibility for the composition scheme.

5. The Court referred to a previous case involving vitrified tiles used in a restaurant, where it was established that items integral to the immovable property were not considered goods in stock for business purposes. Applying this reasoning, the Court found that the machinery purchased by the respondent for stone crushing should not be classified as goods in stock, supporting the respondent's eligibility for composition benefits.

6. Ultimately, the Court agreed with the Karnataka Appellate Tribunal's decision, ruling in favor of the respondent and dismissing the Revenue's revision petition. The judgment highlighted the specific business context and purpose of the machinery to justify the respondent's entitlement to pay taxes under the composition scheme.