2023 (11) TMI 816 - HC - VAT and Sales Tax

Eligibility for input tax credit - exemption of inter-state sales from tax - HELD THAT - Since the statutory provisions under the KVAT Act restrict the availment of input tax credit to only such situations where tax is payable on outward sales and there is a prohibition against availment of input tax credit in situations where the outward inter-state sale is exempted, the issuance of the exemption notification by the State Government under Section 8(5) of the CST Act must be seen as bringing into operation the prohibition under the 3rd proviso to Section 11(3) in respect of input tax credit and the 3rd proviso to Section 12(1) in the case of special rebate - the question really is not whether the petitioners had an option to avail the exemption envisaged in the notifications or not; rather, the point is that by virtue of the notifications aforementioned, the inter-state sale of rubber had to be seen as exempted for the purposes of the 3rd proviso to Section 11(3) and the 3rd proviso to Section 12(1) of the KVAT Act. The petitioners were therefore not entitled to avail input tax credit of the tax paid on purchases of rubber within the State so long as Annexures-I and II notifications were in force and operational. The amendments to the said notifications in 2019, with retrospective effect, only enable those who had paid CST in terms of Section 8(1) of the CST Act to adjust the said payments towards the demands served on them consequent to the disallowance of the input tax credit/special rebate availed by them. The impugned order of the Tribunal which grants the petitioners the limited relief aforesaid does not require modification or interdiction - Revisions are therefore disposed by answering the questions of law raised therein against the assessees and in favour of the Revenue.

Summary

Issues involved:
The judgment deals with assessments under the Kerala Value Added Tax Act/Central Sales Tax Act for the years 2009-10, 2010-11, 2011-12, and 2012-13. The main issues revolve around the entitlement of input tax credit under the KVAT Act, specifically in relation to the exemption notifications issued by the State Government under the CST Act.

Assessment of Input Tax Credit:
The petitioners, dealers of rubber, purchased raw rubber within the State and sold it both locally and in inter-state transactions. The Assessing Officer disallowed input tax credit and special rebate availed by the petitioners, citing notifications exempting natural rubber from CST under the KVAT Act. Despite the petitioners paying CST on inter-state sales, the Assessing Authority rejected their claim for input tax credit based on the exemption notifications.

Appeals and Tribunal Decision:
The petitioners appealed to the First Appellate Authority and then to the Appellate Tribunal, arguing that subsequent clarifications made the exemption notifications optional and retroactively applicable. The Appellate Tribunal agreed with the petitioners, allowing them to adjust CST amounts paid on inter-state sales against the demands raised due to disallowed input tax credit.

Contentions and Questions of Law:
The petitioners contended that the exemption notifications were optional and should not affect their entitlement to input tax credit under the KVAT Act. They raised specific questions challenging the Tribunal's decision based on the interpretation of the notifications and relevant statutory provisions.

Court Decision:
After considering the arguments, the Court found that the exemption notifications operated to restrict input tax credit under the KVAT Act in cases of exempted inter-state sales. The Court held that the notifications made the inter-state sale of rubber exempted for the purposes of input tax credit and special rebate provisions. The amendments in 2019 allowed those who paid CST to adjust the payments against demands due to disallowed credit. Consequently, the Court ruled against the petitioners and in favor of the Revenue, upholding the Tribunal's decision.

Conclusion:
The Court dismissed the O.T. Revisions, affirming that the exemption notifications impacted the availability of input tax credit under the KVAT Act for inter-state sales of rubber. The judgment clarified the interplay between the notifications and statutory provisions, emphasizing the restrictions imposed by the notifications on input tax credit entitlement.