2016 (6) TMI 503 - HC - VAT and Sales Tax

Exigibility of output tax - works contract or pure service contract - running Photo Studios - business of processing and supplying of photographs photo prints and photo negatives - consideration of giving of input tax credit admissible against the output tax liability - Held that - the question of liability to pay tax under the provisions of VAT Act 2003 has been determined by the Hon ble Supreme Court finally in the cases of the assessees only now on 30th January 2015. If the claim for input tax credit and other deductions from the gross turn over on account of labour charges etc. could not be made by them during the assessment proceedings which took place while this litigation was pending before the Hon ble Supreme Court the assessees cannot be non-suited to make such claim now if otherwise it is admissible in accordance with the provisions of law. The impugned orders passed by the Assessing Authority do not reflect any such consideration by the Assessing Authority either on the basis of such claims made before the Assessing Authority or not. Therefore while the levy of output tax is sustainable on the said activity now held to be a works contract by the Hon ble Supreme Court the computation of net tax liability under the provisions of the VAT Act 2003 has to be done afresh by the Assessing Authority in accordance with the provisions of the VAT Act 2003. The different claims of input tax credit deduction of labour charges franchise charge exemption from Entry Tax on the purchases of materials etc. require determination of questions of fact based on relevant evidence returns and claims made or to be made by the petitioner. Therefore the cases necessarily call for a remand of the proceedings to the Assessing Authority himself allowing the petitioner to make such claims based on relevant evidence in accordance with law and the respondent Assessing Authority is expected to decide such claims of the petitioner on merits in accordance with law by passing a fresh speaking assessment orders in pursuance of the present remand of case made by this Court. - Petitions allowed by way of remend

Summary

Issues:
1. Interpretation of tax liability under the Karnataka Value Added Tax Act, 2003 for businesses processing and supplying photographs.
2. Validity of Entry 25 of Sixth Schedule of the Act.
3. Assessment of input tax credit and deductions for net VAT liability.
4. Consideration of claims for input tax credit and deductions by the Assessing Authority.

Issue 1: Interpretation of tax liability under the Karnataka Value Added Tax Act, 2003 for businesses processing and supplying photographs:
The petitioners, engaged in processing and supplying photographs, contended that they were not liable to pay tax under the KVAT Act, 2003 as they provided a service with goods being incidental. A Division Bench judgment favoring the assessees was reversed by the Supreme Court, establishing the tax liability. The High Court found the impugned judgment unsustainable and upheld the constitutionality of Entry 25 of Sixth Schedule of the Act, confirming the tax liability.

Issue 2: Validity of Entry 25 of Sixth Schedule of the Act:
The High Court set aside its earlier judgment invalidating Entry 25, stating that the provision was constitutionally valid. The court emphasized that the judgment was erroneous and unsustainable, directing the dismissal of writ petitions challenging the tax imposition under Entry 25.

Issue 3: Assessment of input tax credit and deductions for net VAT liability:
The petitioners sought consideration for input tax credit and deductions for determining the net VAT liability, which the Assessing Authority had not addressed in the assessment orders. The court acknowledged the need for a fresh assessment to compute the net tax liability in accordance with the law, allowing the petitioners to make claims for deductions and input tax credit.

Issue 4: Consideration of claims for input tax credit and deductions by the Assessing Authority:
While the tax liability was established by the Supreme Court, the court directed a remand of the proceedings to the Assessing Authority for the petitioners to make claims for deductions and input tax credit. The Assessing Authority was instructed to pass fresh assessment orders within six months, considering the claims made by the petitioners based on relevant evidence and in accordance with the law. The petitioners were given the liberty to appear before the Assessing Authority to present their claims and evidence.