2019 (2) TMI 549 - HC - VAT and Sales Tax

Non-speaking order - application of the annual ratio of total production/stock transfer value to determine reverse tax - goods are purchased and input claimed/stock transfer effected on a monthly basis - reversal of input tax credit on monthly basis - sub-clause (iv) of rule 39(5) of the Kerala Value Added tax Rules, 2005 - Held that - We do not think that the aforesaid provision would apply especially since it is on audit assessment. However, the general scheme of best judgment assessment, which is indicated from the above provision would be applicable even if it is not an audit assessment - We are of the opinion that the matter has to be re-done by the Assessing Officer (AO) computing the input-tax credit on a monthly basis with reference to the reversal made by the assessee itself on the next month. The Tribunal has not considered the issue at all and there is total lack of application of mind - the matter should be considered by the AO itself - decided against Revenue and in favor of assessee.

Summary

Issues:
1. Whether the order of the Appellate Tribunal is non-speaking and failed to consider contentions properly?
2. Is the application of the annual ratio of total production/stock transfer value to determine reverse tax legal when goods are purchased and input claimed/stock transfer effected monthly?
3. Whether the Assessing Officer correctly computed taxable and non-taxable purchases for the entire period, considering the varying ratio between them monthly?

Analysis:

Issue 1:
The Appellate Tribunal's order was challenged for being non-speaking and not considering contentions properly. The High Court found a lack of application of mind by the Tribunal. While the usual practice would be to refer the matter back to the Tribunal, the High Court decided that the Assessing Officer should reconsider the issue. The High Court ruled in favor of the assessee on this aspect.

Issue 2:
The case involved a manufacturer of tyres and tubes purchasing taxable and non-taxable raw materials. The assessee claimed input-tax credit under the Kerala Value Added Tax Act, 2003. However, due to consignment sales without tax implications, proportionate raw material purchases and tax paid couldn't be claimed as credit. The assessee filed monthly returns for input-tax credit but reversed it the following month for materials sold tax-free. The Assessing Officer computed input-tax credit for the entire year, which the assessee argued was artificial. The High Court held that the computation should be monthly, considering the reversal made by the assessee.

Issue 3:
Regarding the computation of taxable and non-taxable purchases for the entire period, the assessee contended that monthly basis computation was necessary due to varying ratios between taxable and non-taxable purchases each month. The High Court examined a rule allowing best judgment assessment for a year through a single order but concluded that monthly computation was essential. The Court directed the Assessing Officer to recompute input-tax credit monthly based on the reversals made by the assessee. The High Court ruled in favor of the assessee on this issue as well.

In conclusion, the High Court directed the Assessing Officer to recompute the input-tax credit on a monthly basis, considering the reversals made by the assessee. The Court found in favor of the assessee on all issues raised, highlighting the importance of monthly computations in such cases.