2024 (7) TMI 298 - HC - VAT and Sales Tax

Credit of advance tax paid under Circular No.50/2006 to any amount paid in excess of 4% - stock-transfer of timber from one branch to another - HELD THAT - A reading of the Circular will clearly indicate that the Circular was intended to ensure that there is no evasion of tax in respect of the goods specified in that Circular by collecting an advance tax at different rates for different goods as specified in the Circular at the Border Check Posts. It is thus clear that the tax collected in terms of the Circular is only an advance tax, which could be adjusted against the actual tax payable by a dealer while completing the assessment for the particular year. In the facts of the present case, it is not disputed that there was no taxable transaction entered into by the petitioner, and the goods in question had only been stock transferred to the Branch Office of the petitioner at Pollachi. Section 13 of the KVAT Act deals with the refund of input tax credit in the case of export or inter-State sale. A combined reading of the provisions of Circular No. 50/2006 and the definition of input tax in Section 2 (xxiii) of the KVAT Act indicates that the tax paid in terms of Circular No. 50/2006 cannot assume the character of input tax. Therefore, the provisions of Section 13 of the KVAT Act, on which the reliance was placed by the Officer to deny the claim for credit of the entire tax paid by the petitioner in respect of goods brought into the State and thereafter stock-transferred to Pollachi, will not apply in the facts and circumstances of the case. Ext. P3 order, to the extent it denies credit to the entirety of the tax paid by the petitioner in terms of Circular No. 50/2006 and in respect of goods stock-transferred to Pollachi, cannot be sustained in law. It is declared that the petitioner will be entitled to the credit for the entire amount paid in terms of Circular No. 50/2006 for the goods in question which were stock- transferred to its Branch Office in Pollachi. Petition allowed.

Summary

Issues:
Challenge to restriction of credit under KVAT Act for stock-transfer of timber from one branch to another.

Analysis:
The petitioner, a registered dealer under the KVAT Act and CST Act, imported and sold Pincoda Timber. The petitioner transferred timber from Feroke to Pollachi, and the advance tax credit was restricted to any amount paid in excess of 4% under Circular No. 50/2006. The petitioner challenged this restriction under Section 13 of the KVAT Act, contending that the tax paid was advance tax, not input tax credit. The officer justified the restriction under Section 13, leading to the petitioner's writ petition.

The petitioner argued that the tax paid under Circular No. 50/2006 was advance tax collected to prevent tax evasion, not a tax on sale/purchase. The Circular specified tax rates for different goods at Border Check Posts. The Court noted that the tax collected was only an advance tax, adjustable against actual tax payable during assessment. As there was no taxable transaction, the goods were only stock-transferred, not sold. Section 13 of the KVAT Act dealt with input tax credit for exports or inter-State sales, not advance tax.

The Court examined Circular No. 50/2006 and Section 13 of the KVAT Act, concluding that the tax paid under the Circular did not qualify as input tax. Therefore, the officer's reliance on Section 13 to deny credit for the entire tax paid on stock-transferred goods was deemed incorrect. The Court held that the petitioner was entitled to credit for the full amount paid under Circular No. 50/2006 for the stock-transferred goods to Pollachi.

In the final decision, the Court allowed the writ petition, declaring that the petitioner should receive credit for the entire amount paid under Circular No. 50/2006 for the stock-transferred goods. The Court directed the competent officer to issue fresh orders considering the judgment's declaration.