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TMI Blog2015 (8) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... esse or used in manufacturing activity and when said manufactured goods were sold there was liability to pay output tax by assesse – Assesse was entitled to benefit of input tax rebate on total taxable turnover of his business – Tribunal rightly extended benefit of tax rebate. If goods which suffered input tax was despatched outside State or used as input in manufacturing, processing or packing of other taxable goods despatched to place outside State, then, input tax shall not be deducted in calculating net tax – Benefit of deduction of input tax was available only when assesse has paid output tax within State – Therefore, finding of Tribunal that assesse was entitled to benefit of deduction of input tax irrespective of goods being sold within State or outside State was not correct – Decided partially against revenue. - STRP. Nos. 204, STRP. Nos. 217, STRP. Nos. 218, STRP. Nos. 219, STRP. Nos. 220, STRP. Nos. 221, STRP. Nos. 222, STRP. Nos. 223, STRP. Nos. 224 of 2011 - - - Dated:- 17-2-2014 - KUMAR N. AND KUMARASWAMY C. R., JJ. K. S. Patil, High Court Government Pleader, for the petitioner. Sangram S. Kulkarni for the respondent. JUDGEMENT The Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax deduction. The Assessing Authority, after going through the objections filed, modified the proposal by accepting the claim for input tax deduction pertaining to the goods which are used in the inter units, but rejected the claim of input tax deduction pertaining to the goods which are used in carrying out the job work for others and also the claim for input tax deduction on capital goods. The Assessing Authority also did not accept the claim of input tax deduction pertaining to the purchase of electrical and electronic goods which are used not only in the processing of the goods but also used for maintenance of books of accounts, raising of tax invoices etc. Aggrieved by the said order, the assessee preferred an appeal before the Appellate Authority. The Appellate Authority dismissed all the appeals by a common order. Aggrieved by the said order, the assessee preferred an appeal to the Karnataka Appellate Tribunal. 4. The Tribunal, after a careful examination of the entire material on record, after referring to the various provisions of the Act and taking note of the entry in Fifth Schedule, held, the Assessing Authority erred in forming an opinion that the restrictions pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of which the job work was done. In support of his contention, he relies on item 3 of Fifth Schedule of the Act and, therefore, he submits that the Tribunal was in error in interfering with the orders passed by the lower authorities as the authorities have not kept in mind the provision contained in Section 11(5) of the Act which disentitles an assessee from claiming any input tax in respect of the goods which are despatched outside the State and sold outside the State and, therefore, he submits that seen from any angle the impugned order requires to be set aside. 6. Per contra, learned counsel appearing for the assessee submitted that it is not the requirement of law that only when output tax is paid in respect of goods which are manufactured by utilizing consumables for which input tax is paid that a assessee is eligible for input tax deduction. He submits the benefit of input tax deduction is eligible once the consumables are used in the course of business of the assessee and, therefore, he submits that the Tribunal was justified in extending the benefit of rebate of input tax. Insofar as item No.3 of the Fifth Schedule, on which reliance is placed, is concerned, it was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act is the charging section. Section 4 of the Act sets out the basis of levy of tax i.e., the tax is payable on taxable turnover. Section 5 deals with exemption of tax. Section 7 deals with time of sale of goods. Section 9 deals with collection of tax by registered dealers, Governments and statutory authorities. Section 10 defines what is the 'output tax', 'input tax' and 'net tax'. The said section reads as under:- 10. Output tax, input tax and net tax (1) Output tax in relation to any registered dealer means the tax payable under this Act in respect of any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue of a prescribed declaration by such agent. (2) Subject to input tax restrictions specified in Sections 11, 12, 14, 17 and 18, input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods to his agent who purchases such goods on his behalf su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is the labour charges on which the assessee is not liable to pay any output tax. However, he has utilized the consumables in manufacturing the finished product and he has paid input tax on such consumables. But, this business of job work is in the course of his business. Therefore, by virtue of sub-section (2) of Section 10, if he has paid input tax on consumables which is used in the course of his business, though in the course of job work he is not liable to pay any output tax, still in the taxable turnover of the said business, he is entitled to claim deduction of this input tax, however, subject to the restriction specified in Sections 11, 12, 13, 14, 17 and 18 of the Act. Therefore, the argument that as no output tax is payable on this turnover of the job work, the assessee is not entitled to the benefit of input tax rebate cannot be accepted. When the consumables are used in the job work in respect of which no output tax is payable by the assessee or used in the manufacturing activity and used in the manufacturing activity undertaken by the assessee on his own and when the said manufactured goods are sold there is liability to pay output tax by the assessee. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... until output tax is payable on such goods or other goods in which such goods are put to use except when the said goods are exported out of the territory of India; (9) tax paid on goods purchased by a dealer who is required to be registered under the Act, but has failed to register. (b) Input tax shall not be deducted by an agent purchasing or selling goods on behalf of any other person other than a non-resident principal. (c) Input tax shall not be deducted by any dealer executing a works contract, (i) in respect of the amount paid or payable to any sub-contractor as the consideration for execution of part or whole such works contract for him, that is claimed as deduction; and (ii) in respect of the amount actually expended towards labour and other like charges not involving any transfer of property in goods in connection with the execution of works contract, that is claimed as deduction. This section has to be read along with item No.3 of the Fifth Schedule which is in conformity with Section 11(3) of the Act. Section 11 deals with input tax restriction which provides that input tax shall not be deducted in calculating the net tax payable in respect of tax paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y interference. 10. Substantial Question No.3 Section 11(5) of the Act deals with restriction on claim for input tax deduction if any tax is paid on purchase of goods that are despatched outside the State or used as inputs in the manufacture, processing or packing of other taxable goods despatched to a place outside the State, other than as a direct result of sale or purchase in the course of inter-State trade or commerce except as provided in Section 14. In other words, if the goods which has suffered input tax was despatched outside the State or used as input in the manufacturing, processing or packing of other taxable goods despatched to a place outside the State, then, the input tax shall not be deducted in calculating the net tax. In other words, the benefit of deduction of input tax is available only when the assessee has paid output tax within the State. Again, this is a question of fact to be decided on the material on record and then law is to be applied. Therefore, the finding of the Tribunal that the assessee is entitled to the benefit of deduction of input tax irrespective of the goods being sold within the State or outside the State is not correct. To the said ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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