2016 (1) TMI 468 - HC - VAT and Sales Tax

Benefit of refund of tax paid on purchase of inputs as Special Economic Zone Developer - Karnataka Value Added Tax Act, 2003 (KVAT) - Held that - Respondent-assessee is a developer of Special Economic Zone at Rachenahalli as per the permission granted by the Government of India. As per the policy of the Government of India, the assessee is eligible for refund of tax paid on purchases from the local dealers for the purpose of development, operation or maintenance of the processing area in a Special Economic Zone. In order to give the said benefit to those SEZ developers, sub-section (2) of Section 20 of the KVAT Act has been inserted to the Act, by Act No.6/2007 and Rule 130A has been inserted vide notification dated 26-07-2007, which was given effect to from 01-04-2007. There is some delay in claiming refund of input tax because of many reasons. The refund of input tax cannot be denied on the ground of belated claim. A reading of Section 20(2), which is a beneficial legislation, makes it very clear that the developer of Special Economic Zone or an Unit located in any Special Economic Zone is entitled for the refund of input tax credit or deduction from the output tax payable by such dealer. Section 20(2) does not contemplate any period within which, such developer shall claim refund of input tax. Further, Rule 130A which was inserted w.e.f. 1-4-2007 also does not contemplate the period within which the developer shall claim the refund of input tax. Section 35 cannot control Section 20(2). The benefit of beneficial legislation has to be extended to the SEZ dealers. The technicalities shall not come in the way of giving some reliefs. Hence, Section 20(2) has a over-riding effect against Section 35 of the Act. The Tribunal, after examining the matter, has given the relief. We find no infirmity or irregularity in the said find. - assessee is entitled for refund of input tax credit. The appellant has not made out a case to interfere with the same. The substantial questions of law framed are held against the Revenue - Decided against Revenue.

Summary

Issues Involved:

1. Time limit for claiming input tax credit.
2. Interpretation of Section 20(2) versus Section 35(4) of the KVAT Act.
3. Compliance with mandatory requirements of the KVAT Act for SEZ units.

Issue-Wise Detailed Analysis:

1. Time Limit for Claiming Input Tax Credit:

The primary issue revolves around whether there is a time limit prescribed under the Karnataka Value Added Tax Act (KVAT Act) for claiming input tax credit. The Revenue argued that Section 35(1) of the KVAT Act mandates that every registered dealer must furnish a return within 20 days after the end of the preceding month or any other tax period as prescribed. Additionally, Section 35(4) allows for revised returns to be filed within six months if any omission or incorrect statement is discovered. The Revenue contended that the assessee's claim for input tax credit was inordinately delayed and beyond the six-month period, thus should not be allowed.

On the other hand, the respondent-assessee argued that Section 20(2) of the KVAT Act, which provides for refund of tax paid on inputs by SEZ developers, does not prescribe any specific time limit for claiming such refunds. The Tribunal supported this view, stating that there is no express provision in the KVAT Act or its Rules that mandates claiming input tax credit in the same month the tax invoice is raised by the seller.

2. Interpretation of Section 20(2) versus Section 35(4) of the KVAT Act:

The Revenue's position was that Section 35(4) of the KVAT Act, which allows for revised returns within six months, should control the provisions of Section 20(2). They argued that the Tribunal's interpretation that there is no time limit for claiming input tax credit under Section 20(2) was contrary to law.

The respondent-assessee contended that Section 20(2) is a special provision designed to encourage the development of Special Economic Zones (SEZs) by providing tax benefits. They argued that Section 20(2) is a standalone provision and is not controlled by Section 35(4). The Tribunal agreed with this interpretation, emphasizing that Section 20(2) and Rule 130A are beneficial legislations aimed at promoting SEZ development and should not be restricted by the general provisions of Section 35.

3. Compliance with Mandatory Requirements of the KVAT Act for SEZ Units:

The Revenue questioned whether the SEZ unit, as a dealer, could avail the benefit of input tax without adhering to the mandatory requirements of the KVAT Act. They argued that the assessee failed to comply with the prescribed timelines for filing returns and claiming input tax credit, which should disqualify them from receiving the tax benefits.

The Tribunal, however, found that the assessee had provided a reasonable explanation for the delay in claiming input tax credit. The delay was attributed to the time required for verifying and processing bills, which involved certification by engineers and other formalities. The Tribunal held that such procedural delays should not deprive the assessee of the benefits intended by the beneficial provisions of Section 20(2). They emphasized that Section 20(2) does not specify a time limit for claiming refunds, and thus, the assessee's claims should be honored.

Conclusion:

The High Court upheld the Tribunal's decision, emphasizing that Section 20(2) of the KVAT Act, which provides for tax refunds to SEZ developers, is a beneficial provision that should not be unduly restricted by the general provisions of Section 35. The Court found no infirmity or irregularity in the Tribunal's interpretation and application of the law. Consequently, the revision petitions filed by the Revenue were dismissed, and the assessee was entitled to the refund of input tax credit as claimed.