2023 (9) TMI 445 - HC - VAT and Sales Tax

Disallowance of ITC - various inputs purchased locally and interstate and used by the petitioner in the manufacture of PVC pipes - Case of petitioner is that the input tax credit was availed only in respect of the raw materials purchased locally and the said raw materials were entirely consumed in the manufacture of that quantity of PVC pipes that were sold within the State - HELD THAT - As rightly pointed out by the learned Government Pleader, the consistent finding of the First Appellate Authority and the Tribunal is that no records/accounts were produced by the petitioner before them to substantiate the contention that no input tax credit was availed on the tax paid on raw materials/inputs purchased from outside the State and further that the said inputs were used exclusively for the manufacture of that quantity of PVC pipes which were eventually stock transferred outside the State. In the absence of a clear bifurcation in the accounts between the two streams of supply of PVC pipes, namely, (1) through stock transfer outside the State and (2) through sale within the State, the authorities below cannot be faulted for having disallowed input tax credit proportionate to the quantity of PVC pipes that were stock transferred to outside the State. The O.T.Revisions are therefore disposed by answering the questions of law raised in favour of the revenue and against the assessee.

Summary

Issues:
The legality of disallowing input tax credit on various inputs purchased locally and interstate used in the manufacture of PVC pipes sold within and outside the State.

Summary:
The High Court of Kerala considered two O.T. Revisions concerning the assessment years 2012-2013 and 2013-2014, both revolving around the legality of disallowing input tax credit claimed by the petitioner on inputs used in manufacturing PVC pipes. The petitioner claimed input tax credit only on locally purchased raw materials, not on interstate purchases used in manufacturing. The main contention was that the entire input tax credit claimed pertained to local purchases used in manufacturing PVC pipes sold within the State or transferred outside.

The authorities found that the petitioner lacked clear accounts to demonstrate that the input tax credit claimed solely related to local purchases used in manufacturing PVC pipes for local sale. They presumed that a portion of the claim fell under the third proviso to Section 11(3) of the Kerala Value Added Tax Act, disallowing that part of the input tax credit.

The petitioner argued that they had maintained separate accounts for PVC pipes sold within the State and those stock transferred outside, proving that input tax credit was not availed on interstate purchases used for stock transfers. However, the Government Pleader contended that no accounts or work sheets were produced before the authorities to substantiate this claim, despite a mention in a pre-assessment notice.

The High Court upheld the Tribunal's orders, stating that the authorities were justified in disallowing input tax credit as the petitioner failed to provide clear accounts segregating input tax credit between PVC pipes sold within the State and those stock transferred outside. Without this clear bifurcation, the disallowance of input tax credit proportionate to the stock transferred outside the State was deemed appropriate. The questions of law were answered in favor of the revenue and against the assessee, disposing of the O.T. Revisions accordingly.