2022 (7) TMI 422 - HC - VAT and Sales Tax

Eligibility for payment of tax under Composition Scheme - denial of benefit of composition scheme on the ground that respondent had made interstate purchases - business of sale of bakery items - purchase of bakery machinery, its parts and aluminum trays from outside the State - HELD THAT - Respondent is not engaged in the business of sale of machinery. In the case of Shri. Anantha Padmanabha Bhat 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. In the instant case, admittedly, respondent is engaged in sale of bakery items. The goods purchased by the respondent are for preparing the bakery items. Hence, they cannot be considered as 'goods held in stock'. The questions framed by the Revenue are answered in favour of the assessee - revision petition dismissed.

Summary

Issues:
1. Eligibility of the respondent to pay taxes under the composition scheme despite interstate purchases.
2. Dismissal of cross-appeals by the Appellate Tribunal.

Eligibility for Composition Scheme:
The respondent, a bakery product seller, opted for the composition scheme under Section 15(1) of the KVAT Act. Re-assessment orders were passed denying the composition scheme benefit due to interstate purchases. The First Appellate Authority upheld the denial but granted input tax credit. The Karnataka Appellate Tribunal (KAT) allowed the respondent's appeals and dismissed the Revenue's cross-appeals. The Revenue argued that interstate purchases disqualify the respondent from the composition scheme under Rule 135(1) & (2) of the KVAT Rules. They contended that the KAT erred in considering the goods as not 'goods in stock.' However, the respondent argued that the purchases were for restaurant machinery, not bakery product sales, citing a previous court ruling. The High Court agreed with the respondent, emphasizing that the goods were not 'goods in stock' as per the Anantha Padmanabha Bhat case.

Dismissal of Cross-Appeals:
The Revenue contended that the KAT's decision was legally unsustainable due to the nature of the purchases and the erroneous consideration of the goods. However, the respondent successfully argued that the purchases were not for resale but for restaurant use, aligning with the precedent set in the Anantha Padmanabha Bhat case. The High Court concurred with the respondent's position, ruling in favor of the assessee and dismissing the revision petition. The judgment highlighted the distinct purpose of the purchases and their categorization as not 'goods in stock,' leading to the dismissal of the Revenue's claims.

In conclusion, the High Court upheld the KAT's decision, emphasizing the specific nature of the purchases and their intended use, which aligned with the Anantha Padmanabha Bhat case precedent. The judgment clarified that the purchases for restaurant machinery did not qualify as 'goods in stock,' rendering the respondent eligible for the composition scheme despite interstate acquisitions.