2018 (2) TMI 773 - HC - VAT and Sales Tax

Input tax credit - Section 10(3) of the KVAT Act, 2003 - Held that - the controversy involved in these writ petitions is squarely covered by a decision of this Court in Kirloskar Electric Co. Ltd. And Others Versus The State of Karnataka 2018 (2) TMI 524 - KARNATAKA HIGH COURT , where it was held that the machinery provisions cannot be allowed to override and defeat the substantive claim of the Input Tax Credits under Section 10(3) of the KVAT Act, 2003, which without any restriction of the time frame, allowed such deduction or credit of the ITC against the OPT liability of the Dealer in question - petition allowed.

Issues Involved:
1. Claim of Input Tax Credit (ITC) under Section 10(3) of the KVAT Act, 2003.
2. Interpretation of amendments to Section 10(3) of the KVAT Act in 2015 and 2016.
3. Validity of the impugned assessment/re-assessment orders.
4. Judicial and hierarchical discipline among Assessing Authorities of the Respondent Department.

Detailed Analysis:

1. Claim of Input Tax Credit (ITC) under Section 10(3) of the KVAT Act, 2003:
The court noted that the controversy in the present writ petitions is covered by a previous decision in the case of Kirloskar Electric Company Limited Vs. State of Karnataka. The Division Bench in Centum Industries Private Limited case had disallowed the ITC claim due to a belated claim beyond a reasonable period of six months. The court emphasized that the substantive provisions of Section 10(3) of the KVAT Act, 2003 did not impose a restrictive time frame for claiming ITC. The court held that the Respondent Department's interpretation was unnecessarily restrictive and contrary to the VAT law's concept and the unrestricted language of Section 10(3).

2. Interpretation of amendments to Section 10(3) of the KVAT Act in 2015 and 2016:
The court acknowledged the amendments to Section 10(3) in 2015 and 2016, which allowed ITC claims for a tax period of five months prior to the tax period in which ITC is claimed. However, since the assessments in question were prior to these amendments, the court did not consider their effect on the current cases. The court noted that the amendments were intended to facilitate ITC claims, not restrict them.

3. Validity of the impugned assessment/re-assessment orders:
The court found the impugned assessment/re-assessment orders, which disallowed ITC claims on the basis of monthly tax periods, to be illegal and unsustainable. The court held that the machinery provisions of filing returns under Section 35 of the KVAT Act could not override the substantive provisions of Section 10(3). The court quashed the impugned orders and restored the matters to the Assessing Authorities for fresh orders in accordance with the law as interpreted.

4. Judicial and hierarchical discipline among Assessing Authorities of the Respondent Department:
The court expressed concern over the tendency of the Assessing Authorities to pass orders contrary to judicial interpretations of Section 10(3) of the KVAT Act. The court directed the Commissioner of Commercial Taxes to issue a circular in terms of the judgments favoring assessees to avoid further litigation. The court warned that any further contrary views by the Authorities might invite contempt proceedings.

Conclusion:
The writ petitions were disposed of in favor of the petitioners. The impugned orders were quashed, and the matters were restored to the Assessing Authorities for fresh orders. The court directed the issuance of a circular to ensure compliance with judicial interpretations and warned of contempt proceedings for non-compliance. If other issues arise, the petitioner may file a regular appeal under Section 62 of the KVAT Act within four weeks, which will be disposed of without objections on the question of limitation. No costs were awarded.

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