2022 (5) TMI 469 - HC - VAT and Sales Tax

Input tax credit - breakage of period of business from 1.2.2014 to 26.2.2014 - purchase effected during the period of transition - HELD THAT - Going by Rule 19 of KVAT Rules, her application was filed on 20.2.2014, the Registering authority after cancelling the registration ought to have issued the dealer a notice in Form No.5 B and publish the details in at least two dailies in the State and also in the website of the Commercial Tax Department. Cancellation will be effective only from the date on which the copy of the order is served or from the date of publication of such cancellation. So, at no stretch of imagination, it can be taken into consideration that the closure of business is from 31.12.13 when the application itself is only 20.2.2014. At the most the canellation can be effective only from 26.2.2014, the date on which the fresh registration of the partnership form was allowed. According to him, only six days is the period in which there was no registration either for the erstwhile concerned or the present partnership firm. It is true that the registration once cancelled has to be published in two leading daily newspapers at least and the dealer should be informed as per notice in Form No.5 B. Then only the cancellation of registration shall be effective. The respondent does not have a case that prior to 20.2.2014 such an exercise was done. In the absence of the said exercise, the Tribunal was right in entering into a finding that the respondent is entitled to input tax credit. The legal position emerging out is that the respondent was not having any registration from 20.2.2014 to 26.2.2013 and hence, the finding of the Intelligence Officer as well as the First Appellate Authority was interfered by the Tribunal to that extent. Revision is dismissed.

Summary

Issues:
1. Interpretation of Section 11(4) of the KVAT Act regarding input tax credit eligibility.
2. Validity of cancellation of registration and its effective date as per Rule 17A of the KVAT Rules.

Analysis:
1. Interpretation of Section 11(4) of the KVAT Act:
The revision was filed by the State of Kerala challenging the Tribunal's decision allowing the appeal of the dealer, who sought input tax credit for purchases during a transition period. The Senior Government Pleader argued that as per Section 11(4) of the KVAT Act, an unregistered dealer is not entitled to input tax credit. The dealer had informed about closing the business and registration cancellation, but it was found that the business continued after the cancellation date. The State contended that the Tribunal erred in allowing the appeal against Section 11(4) of the KVAT Act.

2. Validity of cancellation of registration and its effective date:
The respondent's counsel referred to Rule 17A of the KVAT Rules regarding registration and cancellation procedures. The counsel highlighted Rules 19 and 20, emphasizing that cancellation of registration should be effective only after proper notice and publication. The dealer's application for cancellation was dated 20.2.2014, and the registration cancellation should have been effective from the date of service of the order or publication. The Tribunal found that there was a gap of only six days without registration, and the cancellation process was not completed as per the rules. Therefore, the Tribunal concluded that the dealer was eligible for input tax credit during the transition period.

In the final judgment, the Court upheld the Tribunal's decision, stating that the cancellation of registration was not effectively implemented as per the rules, and the dealer was entitled to input tax credit. Although there were discrepancies in the dealer's case, the Tribunal's order was deemed appropriate. The Court dismissed the Revision, emphasizing that the dealer's registration status during the relevant period supported the Tribunal's decision. The judgment clarified that it should not be considered a precedent for future cases.