2025 (3) TMI 561 - HC - VAT / Sales Tax

Wrongful denial of Input tax credit - Grant of deduction of Input Tax Credit at the rate admissible in law although what was claimed in the Returns filed by him was less than that - HELD THAT - Ordinarily the claim for Input Tax Credit has to be made in the Return or Revised Return only. A claim otherwise is an exception and bona fide of the same has to be demonstrated - However when underclaim is made in the Return/Revised Return due to bona fide mistake of adopting inapplicable rates of tax only it is permissible to seek rectification by making a representation provided that the foundational fact matrix is already available in the Return/Revised Return - Further no rectification whatsoever can be sought for once the assessment/reassessment proceedings are concluded or that the limitation period otherwise has expired. Whether a claim for ITC can be rectified under Section 39 of the 2003 Act even if it is disadvantageous to the State Exchequer? - HELD THAT - If the Assessee during the course of reassessment proceedings makes a claim for Input Tax Credit the same cannot be disallowed only on the ground that the claim of the Assessee is disadvantageous to the State Exchequer - If the reassessed tax is more than what is payable then the same has to be recovered from the Assessee along with admissible interest/penalty; as a corollary of this what is paid is more than what is payable on reassessment then the claim for Input Tax Credit has to be favoured if that is made before the conclusion of reassessment proceedings. Conclusion - Claims for ITC rectification must be made before reassessment proceedings conclude or the limitation period expires. Petition dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this case were:

(1) Whether Input Tax Credit (ITC) under the Karnataka Value Added Tax Act, 2003 ("2003 Act") is a concession or a right, and what implications arise from its classification.

(2) Whether a claim for ITC must be made in the original or revised tax return to be entertained.

(3) Whether a claim for ITC can be rectified under Section 39 of the 2003 Act even if it is disadvantageous to the State Exchequer.

(4) Whether there is a limitation period for claiming ITC.

2. ISSUE-WISE DETAILED ANALYSIS

(A) Nature of Input Tax Credit: Concession or Right?

The Court analyzed the nature of ITC, considering it as a concession rather than an absolute right. However, it emphasized that wrongful denial of ITC is justiciable when statutory conditions are met. The Court referenced several precedents, such as GODREJ & BOYCE MFG. CO. PVT LTD vs. COMMISSIONER OF SALES TAX and JAYARAM AND COMPANY vs. ASSISTANT COMMISSIONER, which characterized ITC as a concession contingent on compliance with statutory conditions. The Court concluded that ITC, while a concession, cannot be denied if all statutory conditions are satisfied.

(B) Requirement of Claiming ITC in Returns

The Court examined whether ITC claims must be made in the original or revised returns. Under Section 35 of the 2003 Act and Rule 38 of the Karnataka Value Added Tax Rules, 2005, claims are typically required to be included in returns. However, the Court noted exceptions where bona fide mistakes in tax rates could be rectified through representation, provided foundational facts were present in the return. The Court distinguished this case from precedents like CENTUM INDUSTRIES and NANDI CONSTRUCTIONS, where no claim was made in the returns.

(C) Rectification under Section 39 of the 2003 Act

The Court considered whether ITC claims could be rectified under Section 39 during reassessment, even if disadvantageous to the State. It determined that claims should not be disallowed solely because they disadvantage the State Exchequer. The Court emphasized the duty of authorities to assess correct tax liabilities, aligning with the statutory duty to rectify mistakes, even if it benefits the dealer.

(D) Limitation Period for Claiming ITC

The Court addressed the limitation period for claiming ITC, noting that claims must be made within the prescribed period unless reassessment proceedings are ongoing. The Court highlighted that claims for rectification must be made before the conclusion of reassessment proceedings or expiration of the limitation period.

3. SIGNIFICANT HOLDINGS

The Court established several core principles:

- Although ITC is a concession, it cannot be denied if statutory conditions are met, making wrongful denial justiciable.

- Ordinarily, ITC claims must be made in the return or revised return. Exceptions exist for bona fide mistakes in tax rates, provided foundational facts are present in the return.

- During reassessment, ITC claims cannot be disallowed solely because they disadvantage the State Exchequer. Authorities have a duty to rectify mistakes and assess correct tax liabilities.

- Claims for ITC rectification must be made before reassessment proceedings conclude or the limitation period expires.

The petitions were dismissed, with the Court finding no merit in the State's arguments.

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