REFUND OF EXCESS ‘VAT’ PAID – WHETHER AUDIT IS REQUIRED?

[Mr. M. GOVINDARAJAN]

Section 10 of Karnataka Value Added Tax Act, 2003 (‘Act’ for short) deals with the output tax, input tax and net tax. Section 10(1) of the Act provides that output tax in relation to any registered dealer means the tax payable under this Act in respect of any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue of a prescribed declaration by such agent.

Section 10(2) of the Act provides that subject to input tax restrictions specified in Sections 11, 12, 14, 17 and 18, input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases.

Section 10(3) of the Act provides that subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of this Act.

Section 10(4) of the Act provides that for the purpose of calculating the amount of net tax to be paid or refunded, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 or Section 30 and is with the registered dealer taking the deduction at the time any return in respect of the sale is furnished, except such tax paid under sub-section (2) of Section 3.

Section 10(5)of the Act provides that subject to input tax restrictions specified in Sections 11,12, 14, 17, 18 and 19, where under sub-section (3) the input tax deductible by a dealer exceeds the output tax payable by him, the excess amount shall be adjusted or refunded together with interest, as may be prescribed.

Rule 127 of Karnataka Value Added Tax Rules, 2005 provides for adjustment of tax and Rule 128 of the Rules provides for refund of tax with regard to the excess tax paid. 

In ‘M/s Primacy Industry Limited, Manipal V. Assistant Commissioner of Commercial Taxes, Uduppi and other’ – 2014 (9) TMI 721 - Karnataka High Court the petitioner is engaged in the business of manufacturer of designer wax candle as a 100% Export Oriented Unit.  The petitioner in the present writ petition assailed the endorsement dated 06.11.2013 issued by the first respondent.

During the course of business for the assessment period 2012-13, the petitioner has effected exports to an extent of nearly 95% of the goods manufactured by it.  The petitioner was not liable to pay any value added tax under the provisions of Karnataka Value Added Tax Act, 2003.  The petitioner for the period 2012-13 paid excess tax to the tune of ₹ 119,111,119/-.  The same had been quantified by the Department. Therefore the petitioner filed a claim petition for refund of the excess tax paid by the petitioner. The Department, in response to the refund claim made an endorsement on 06.11.2013 was issued.  Against this endorsement the petitioner filed the present writ petition before the High Court.

The High Court heard both sides.  The High Court found that the petitioner being a 100% EOU would not be liable for payment of tax under this Act insofar as goods exported by it. The Tax is liable to be paid insofar as local sales are concerned. The petitioner contended that the eligibility of the petitioner for refund of the excess input tax paid by it as well as the quantum has been admitted by the Department, the reason for rejection of the refund given for the impugned endorsement that the amount cannot be refunded at this stage is contrary to what is stated in Rule 128.  The Department supported the endorsement with reference to the Statement of Objections.  It has been contended that unless and until the petitioner gives all the details with regard to the claim for refund of the excess input tax, the same cannot be refunded.

The High Court perused the endorsement impugned. It is noted that the reason for refusing to refund the excess input tax is that the assessment for the year 2012-13 would have to be audited. It is only after the audit of the said accounts that the excess tax paid could be refunded. The reason given for the refusal of refund of the excess tax paid by the assessee, in the view of High Court, is not in consonance with the Rules. The quantum of tax to be refunded is also an admitted fact as well as the eligibility of the petitioner to receive refund.

The High Court held that the impugned endorsement is contrary to Rule 126 of the Rules and therefore quashed the endorsement.  The Department agreed before the High Court that within a period of three weeks from the date of receipt of order, the excess input tax credit paid by the petitioner would be refunded. The High Court also held that the petitioner is at  liberty to claim interest on the delayed refund of the excess input.