2022 (7) TMI 423 - 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 is in the business of sale of food and drinks. It has purchased Sealing Machines, PP Cups etc., from outside the State as equipments and consumables for its business. Assessee is not a dealer of said goods. 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. The assessing authorities trained and well acquainted with the commercial terms, cannot be allowed to take such perverse views. In the instant case, admittedly, respondent is in the business of sale of food and beverages. The goods purchased by the respondent are for running its business. Hence, they cannot be considered as 'goods held in stock' - the view taken by this Court in Anantha Padmanabha Bhat s case is fully applicable for the present case. The question framed by the Revenue is answered in favour of the assessee - This revision petition fails and it is accordingly dismissed.

Summary

Issues:
- Interpretation of eligibility for paying taxes under the composition scheme as per Section 15(1)(c) of the Act.
- Consideration of interstate purchases affecting eligibility for the composition scheme.

Analysis:

Issue 1: Interpretation of eligibility for paying taxes under the composition scheme
The High Court considered whether the Tribunal was correct in allowing the Respondent's appeal and holding them eligible to pay taxes under the composition scheme provided by Section 15(1)(c) of the Act. The Respondent, a Private Limited Company in the food and drinks business, had opted for the composition scheme under the Karnataka Value Added Tax Act, 2003. The Assessing Authority denied the benefit of the composition scheme due to the Respondent's interstate purchase of machinery. The First Appellate Authority upheld this decision, leading to the appeal before the Karnataka Appellate Tribunal, which eventually allowed the appeal. The Revenue challenged this decision, arguing that the Respondent's interstate purchases made them ineligible for the composition scheme. However, the Court, after considering the arguments, held that the Respondent's purchases were for their business activities and not for resale, aligning with a previous judgment regarding the treatment of similar purchases as not constituting 'goods in stock.' Consequently, the Court ruled in favor of the Respondent, upholding their eligibility for the composition scheme.

Issue 2: Consideration of interstate purchases affecting eligibility for the composition scheme
The core dispute revolved around the Respondent's interstate purchases of machinery and consumables for their restaurant business. The Revenue contended that such purchases rendered the Respondent ineligible for the composition scheme under the KVAT Rules. Conversely, the Respondent argued that these purchases were essential for their business operations and should not be categorized as 'goods in stock.' The Court analyzed the nature of the purchases and their intended use by the Respondent, emphasizing that the goods were not for resale but for operational purposes. Drawing parallels with a previous case involving the use of tiles in a restaurant, the Court concluded that the purchases in question did not fall under the category of 'goods in stock.' This reasoning led to the Court ruling in favor of the Respondent, dismissing the Revenue's revision petition and upholding the eligibility of the Respondent for the composition scheme.