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TMI Blog2018 (9) TMI 1915X X X X Extracts X X X X X X X X Extracts X X X X ..... ive. - STA NO. 310 to 312/2016 - - - Dated:- 26-9-2018 - SRI. K.P. DINESH (DISIRICT JUDGE MEMBER) AND SRI. K.V. SATHYA PRAKASH (COMMERCIAL TAXES MEMBER) For the Appellant : Sri. Raghavendra Maiya, Advocate For the Respondent : State Representative JUDGMENT SRI. K.V. SATHYA PRAKASH. This appeal is filed under Sec 63 of the KVAT Act 2003 (herein after referred in short as 'the Act') challenging the impugned orders passed by the Joint Commissioner of Commercial Taxes (Appeals), Mangaluru (herein after referred in short as FAA) on 29.12.2015 in No. VAT. AP. 255 and 256/200809 VAT.AP.60 60A/2009-10 dismissing the appeals filed by the appellant upholding the reassessment order dated 11.02.2008 passed under Section 38(1) and 39(1) of the KVAT Act,2003 by the Assistant Commissioner of Commercial Taxes (Audit)-7, DVO, Mangaluru, (herein after referred in short as the AA ) for the years 2005-06, 2006-07 and 2007-08 respectively. 2. The brief facts of the case are as under: 3. Appellant being manufacturer of Bakery products namely Bread, bun, Toast, Rusk, Biscuits, Cakes and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded in haste. The very fact that, FAA has concluded the proceedings in one hearing itself is the testimony of the nature of understanding of the FAA and proceedings. Even the appellant's detailed submission dated 19.08.2009 was not at all looked into and concluded in prejudice by wrongly applying the Rule 131 of the entire transaction of the appellant. 7. Even though the appellant is under the scheme of incentive by the Government of Karnataka on the addition investment on expansion of project in possession of the Entitlement certificate (revised) [under GO C130 SPC 96 dated 15.03.1996 vide Notification No. FD 32 CSL 96(1) dated 15.11.96 and FD 56 CSL 2005(1) dated 18.04.2005] from the JCCT-Admin Mangalore dated 21.08.2014 and the un-availed portion of tax exemption to the tune of ₹ 18,70,533/-, the benefit of the above notification is not bestowed upon the appellant both by the AA and FAA. 8. Further, in the year 2007-08 there was sale of old vehicle on which the AA has levied the tax in-spite of the refutation which the FAA is also not looked into it concluded the proceedings without any base, resulted in appeal before this Tribunal. GR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , subject to the provisions of Section-11. 11. Accordingly, Rule 131 categorically provides for the All input tax directly related to exempt sale then entire input tax is not deductible. Accordingly, all input tax directly relating to taxable sales may be deducted subject to section 1 1 In case the input relates both the apportionment as mandated in section 17 comes into picture wherein it provided that where input tax relating to both sale of taxable goods and exempt goods then the formula has been provided to find out the non-deductible input tax. Non-deductible input tax=(sale of exempt goods+ non taxable transaction)X Total input tax Total Sales Which is nothing but the portion of Total input tax relatable to exempt sale is disallowed irrespective of the fact that the consumption of amount of input consumed for the manufacture of exempted goods. The said formula is operative only when there is un-identifiable input tax envisaged in production of Taxable as well as the nontaxable turnover. That when unidentifiable inputs are there, then only the apportionment comes into picture, the apportionment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of exempt goods is clearly identifiable and there is no doubt in that, since separate books of account is maintained for the taxable goods as well as that for the exempt goods consumption and production. Both the AA and the FAA has totally erred in arriving at the conclusion as to when the said rule 131 is operational. Further, as observed by High Court of Karnataka in the case of M/S. M.K. Agro Tech (P) Ltd, STRP Nos. 774-794 of 2013 while interpreting the said section 17 and Rule 131 it is observed that:- The said section-17, which deals with partial rebate, applies to the goods when the tax paid on purchases is attributable to sale or manufacture of more than one product and out of that, one product is taxable and another product/ goods is non-taxable or exempt from tax. Then applying the Rule 131. Here, we are interpreting the statutory provision where the Legislature has extended the benefit of deduction to assessee. The task of interpretation of a statutotory provision is an attempt to discover the intention of the Legislature from the language used. If strict ZiteraZ construction leads to an absurd result i.e, result not intended to be sub-serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying Rule 131. Even in the case of M/S. Indian Oil Corporation Ltd Vs State of Karnataka STRP No. 312/2012 and 81-127/2014, the Hon'ble High Court of Karnataka took broader view that; The condition envisaged in sub pule 131 (3) of KVAT Act 2005 that all the input tax paid on LPG-Industrial and Non domestic purchased from local registered dealer directly related to taxable sales of LPG and thus rendered the formula rendered in 131 (3) inapplicable . Further it is submitted that the Commissioner of Commercial Taxes Circular No. 13/2006-07 which is binding on the subordinates of the department mutatis mutandis which categorically emphasizes the said fact that where input tax is clearly identifiable direct nexus the rule 131 is not operational the relevant para of the said circular is reproduced here in below; (9) It may be noted that in many cases the deductible input tax is identifiable even if the dealers transactions are many and attract partial rebating. It would be cause of the fact that the dealers concerned have maintained classified and detailed accounts indicating the purchase, use and disposal of every input purchased by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been sold within the State and in the course of inter-state trade as well as transferred to places outside the state for sale on consignment basis there. In such a case the partial rebating formula would have to be adopted for the period from September to December, 2005 and the correct deductible input tax should be declared by the unit in the return filed by it for the month of December 2005 and any input tax availed in excess should be repaid. The returns filed for the months from September to November 2005 in that case, would be provisional. However, as noted earlier if such unit has maintained classified and detailed account of its purchases of inputs, manufacture and disposal of outputs, and consequently, the deductible input tax is identifiable, then recourse to the partial rebating formula would not be necessary. In the above para it has been categorically laid down the manner in which the books to be maintained, in the same sprit the accounts were kept by the appellant which both AA and FAA are in conformity of the fact, however they failed miserably to understand the spirit and intention of the law and legislature. In the above said para it has been laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alse observation in her order. Further, both the AA and the FAA are unaware of the CCT's Circular (Supra) on this issue which categorically states in para 9 that; Dealers concerned have maintained classified and detailed accounts indicating the purchase, use and disposal of every input purchased by them. In such cases, the dealers may claim partial input tax rebate based on their books of account. This does not require any permission from the Commissioner. Further, in such cases, the partial rebating formula provided in Rule 131 should not be applied without any justifiable reason. .It may also be noted that the apportionment formula prescribed in Rule 131(3) is a general formula and may not fit all cases. Therefore, cases in which its application does not give the correct amount of input tax rebate available to the dealer. Further in para 10 it has been categorically laid down that; However, as noted earlier if such unit has maintained classified and detailed account of its purchases of inputs, manufacture and disposal of outputs, and consequently, the deductible input tax is identifiable, then recourse to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempted goods and rejected the input tax on goods used in the manufacture of the exempted goods, which is not considered by the AA as well as FAA in-spite of appraising the fact as above and even the quoting of the above judicial pronouncements did not change the opinion. Even the fact that, appraising the FAA that the these judgments are binding in nature on the AA FAA as they are sub-ordinate authorities to the jurisdictional High Court of Karnataka, as settled by the Division Bench of the Hon ble High Court of Karnataka in the case of Sri Durga Distillery, Koup v the Commissioner of Commercial Taxes, Bangaluru, (2001) 122 STC 171 (Kar). Besides, the law settled in the case of Indo National Limited v Commissioner of Commercial Taxes, A.P., Hyderabad, (2004) 136 STC 586 Essar Shipping Ports Logistics Ltd. V C.T.O.(FAC), Chennai, (2010) 30 VST 366 (Mad) didn't help any way in the ultimate outcome of the judicial proceedings. 15. It is further submitted that in the year 2007-08, AA has levied tax on sale of old vehicles which even FAA failed take not of the jurisdictional High Court of Karnataka Division bench's decision in the case of M/S. Vasavi Woo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le others like savouries are taxable. As per section 1 the input tax is restricted as follows, (a) Input tax shall not be deducted in calculating the net tax payable, in respect of: (1) tax paid on purchases attributable to sale or manufacture, processing or packing or storage of exempted goods exempted under Section 5, except when such goods are sold in the course of export out of the territory of India; The above restriction is applicable to the facts of the case. There is no dispatch of any goods not as a result of sale. Hence there is no application of other restrictions like 1 1(a)(5) or 1 1 (a)(6) of the Act and also the provisions of section 14. The quantum of input tax which cannot be deducted while arriving at the NET TAX payable under section 10(3) is to be calculated as per section 17 of the Act, which reads as follows, 17. Partial rebate.- Where a registered dealer deducting input tax. (1) makes sales of taxable goods and goods exempt under Section 5, or (2) in addition to the sales of taxable goods or the sales referred to in clause (1), dispatches taxable goods or goods exempted under Section 5 outside the State not as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxable goodS would be the aggregate of the amounts specified in clauses (b), (c), (d), (e) and (f) of sub-rule (1) of rule 3 relating to sale of goods other than those exempt under section 5 which are not sold in the course of export out of the territory of India; and those sold in the course of import into the territory of India and (b) total sales means total turnover less.- (i) the amount specified in clause (a) of sub-rule (1) of rule 3, and (ii) the deductions specified in clause (e) of sub-rule (2) of rule 3. iii) ------ iv) ------ v) ------ (5) Where in the case of any dealer, the Commissioner is of the opinion that the application of the formula prescribed under clause (3) does not give the correct amount of deductible input tax, he may direct the dealer to adopt a special formula as he may specify. As could be seen from the above, in clause 1, if the quantum of input tax is directly connected to the exempt goods, then such input tax becomes Non- Deductible Input Tax for the purpose of arriving at Net Tax u/ s 10(3) of the Act. Clause 2 is a corollary of clause (a) which means, all the input tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ye of the law. The appellant also submits that the Commissioner has clearly clarified the method and the circumstances for application of the formula. It is submitted that the Commissioner of Commercial Taxes Circular No. 13/2006-07 which is binding on the subordinates of the department mutatis mutandis which categorically emphasizes the said fact that where input tax is clearly identifiable that the Rule 131 is not operational. The relevant para of the said circular is reproduced here in below; (9) It may be noted that in many cases the deductible input tax is identifiable even if the dealers transactions are many and attract partial rebating. It would be cause of the fact that the dealers concerned have maintained classified and detailed accounts indicating the purchase, use and disposal of every input purchased by them. In such cases, the dealers may claim partial input tax rebate based on their books of account. This does not require any permission from the Commissioner. Further, in such cases, the partial rebating formula provided in Rule 131 should not be applied without any justifiable reason. It may also be noted that the apportionment formula prescribed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Division Bench of Hon'ble High Court of Karnataka in the case of M/S. Kwality Biscuits (P) Ltd Vs State of Karnataka (2012) 53 VST 66: 23. The Hon'ble High Court first set out the relevant provisions of KST Act, 1957 and thereafter proceeded to deal with the question in the case of M/S. Kwality Biscuits (P) Ltd., namely, whether there was sale of intellectual property by M/S. Kwality Biscuits (P) Ltd so as to be liable to payment of sales tax under KST Act, 1957 and passed the judgment as under: Quote: Held, that the dealer was the owner of the intellectual property, rights, trade marks, designs and copy rights. In order to sell its goods, it used this intellectual property. Therefore, these trade marks or designs could not be sold in the course of business. Admittedly, the dealer was not in the business of selling and buying these intellectual property rights. These intellectual property rights were acquired by the dealer over a period of time by hard work. They were not goods in which the dealer traded in the course of its business. Therefore, it was not possible to hold that either the dealer was in the business of selling and buying int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax under the Act. In that view of the matter, the levy of tax on the sale of discarded goods totally in a sum of ₹ 1,06,612 is without authority of law........ In view of the above position of law the levy of tax on the sale of old vehicles cannot be sustained. Therefore point no.2 is answered in the Negative. 25. POINT No.3: As per the determination made in point No-I above, we pass the following, ORDER 1. The appeals in STA Nos. 310 to 312/2016 are allowed. 2. The restriction of input tax that is NDIT for all the three years 2005-06, 2006-07 and 2007-08 as per the appellants admission is restored and the NDIT calculated by the AA as per formula under rule 131(3) as confirmed by the FAA is set aside. Other issues are not altered. 3. The AA shall issue revised demand notice accordingly. 4. The original copy of this judgment shall be placed in STA.No.310/2016 and copy thereof in STA.No.311/2016 and STA No.312/2016. 5. The Registrar of the Tribunal is directed to comply with Regulation 53(b) of Chapter-IX of Karnataka Appellate Tribunal Regulations 1979 by communicating this o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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