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2023 (1) TMI 341 - HC - VAT and Sales TaxInput tax credit - eligibility of benefit of input tax credit claimed after six months from the date of invoice - Section 10(3) of the K-VAT Act - tax period April 2010 to March 2011 - HELD THAT - The amended After 2015 amendment w.e.f 01.04.2015., provision of Section 10(3) of the KVAT Act clearly provides that the input tax availed by a dealer in a tax period shall be relatable to goods purchased during immediately preceding five tax periods of such tax period and shall be accounted for in accordance with the provisions of KVAT Act. In the connected appeal, M/s Sonal Apparel Pvt Ltd. v. State of Karnataka Ors 2016 (3) TMI 1286 - KARNATAKA HIGH COURT , the assessees have raised a common ground challenging the Section 10(3) of the KVAT Act, as ultra vires the Constitution of India as well as the object and Scheme of the KVAT Act - Hon ble Single Judge held that Section 10(3) of the KVAT Act, prior to its amendment vide the Karnataka Value Added Tax (Amendment) Act, 2015, shall be read down to enable the petitioners to calculate the net tax liability by deducting the input tax paid on its purchases from its output tax liability, irrespective of the month in which the selling dealer raises invoices. It is settled that the input tax credit is an indefeasible right. The main issue is whether the assesses who have filed the returns belatedly are entitled for input credit or not. A plain reading of provision of Section 10(3) of the KVAT Act, 2003, shows that no time limit or restriction is prescribed for availing the input tax credit. In Dai Ichi Karkaria Ltd. 1999 (8) TMI 920 - SUPREME COURT , the Apex court has held that credit is indefeasible. The Modvat credit is similar to the Input Tax Credit in this case. Therefore, no exception can be taken to the view taken by the Hon ble Single Judge that the Input Tax Credit cannot be denied on the anvil of the machinery provisions or the provisions relating to the time frame. The assessees shall be eligible to avail the input tax credit as and when the tax is paid by them, without any limitation of time - Petition allowed.
Issues Involved:
1. Entitlement to input tax credit claimed after six months from the date of invoice. 2. Interpretation of time limits for filing returns and revised returns under Section 35(1) and 35(4) of the K-VAT Act in relation to Section 10(3). 3. Determination of the completion of 'sale' for the purposes of the K-VAT Act. 4. Legitimacy of interest and penalty levied on the petitioner. Detailed Analysis: 1. Entitlement to Input Tax Credit Claimed After Six Months from the Date of Invoice: The primary issue concerns whether the petitioner is entitled to input tax credit (ITC) claimed after six months from the date of the invoice under Section 10(3) of the K-VAT Act. The Tribunal had held that the petitioner is not entitled to ITC claimed beyond this period. The petitioner argued that the K-VAT Act does not prescribe any time limit for availing ITC and that the credit should be available as soon as the tax is paid on eligible purchases. The Tribunal's decision was based on the amendment to Section 10(3) by the Karnataka Value Added Tax (Amendment) Act, 2015, which it held to be clarificatory and thus retrospective. However, the court noted that the amendment explicitly stated to have effect only from April 1, 2015. 2. Interpretation of Time Limits for Filing Returns and Revised Returns: The Tribunal held that the time limits for filing returns and revised returns under Section 35(1) and 35(4) of the K-VAT Act should be read into Section 10(3) for availing ITC. The petitioner contended that prior to April 1, 2015, Section 10(3) did not prescribe any specific time limit for availing ITC. The court examined various precedents, including the Supreme Court's decision in Eicher Motors Ltd. v. UOI, which established that credit under similar tax schemes is indefeasible and should not be denied due to delay in claiming. The court also referenced the Kirloskar Electric Co. Ltd. case, which supported the view that ITC claims should not be restricted by the timing of the invoice issuance. 3. Determination of the Completion of 'Sale': The Tribunal held that for the purposes of the K-VAT Act, 'sale' is deemed to be completed when the invoice is issued by the selling dealer, not when the goods are accepted by the petitioner after quality testing. The petitioner argued that 'sale' should be considered complete only after the goods pass quality control tests, aligning with the Sale of Goods Act, 1930. The court did not find sufficient grounds to overturn the Tribunal's interpretation, emphasizing the need for consistency in tax periods and the importance of timely tax compliance. 4. Legitimacy of Interest and Penalty: The Tribunal did not set aside the interest and penalty levied on the petitioner, directing the prescribed authority to examine any blameworthy conduct before invoking Section 72(2) of the Act for penalty purposes. The petitioner argued that the delay in availing ITC should not attract penalties, especially given the lack of explicit time limits in the pre-amendment period. The court found that interest should be recomputed based on the observations made and directed the assessing authority to issue a revised demand notice accordingly. Conclusion: The court held that the assessee is entitled to avail ITC without any time limitation, aligning with the principle that ITC is an indefeasible right. The Tribunal's interpretation of the amended Section 10(3) as retrospective was incorrect, and the amendment applies only from April 1, 2015. Consequently, the questions were answered in favor of the assessee, and the appeal was allowed, with the court directing a reassessment of interest and penalties based on the revised understanding of the law.
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