Maratt Plantations (P) Ltd. v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **MONDAY, THE 08TH DAY OF JUNE 2020 / 18TH JYAISHTA, 1942** **O.T.Rev.No.101 OF 2016** **AGAINST THE ORDER IN TA(VAT) No.92/2015 DATED 30-12-2015 OF VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD. [ASSESSMENT YEAR 2008-09 (KVAT)]** ## **REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE:** **MARATT PLANTATIONS (P) LTD. MAMPAD P.O., MALAPPURAM DISTRICT, PIN 676542, REP. BY ITS MANAGING DIRECTOR – M.K.MARATTUKALAM** **BY ADV. SRI.M.KRISHNAKUMAR** ## **RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:** **STATE OF KERALA, REPRESENTED BY ASSISTANT COMMISSIONER (KVAT), SPECIAL CIRCLE, MALAPPURAM.** **BY SENIOR GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ.** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 08.06.2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **- 2 -** **O.T.Rev.101/2016** **“C.R.”** **K. Vinod Chandran & T.R.Ravi, JJ. ---------------------------------O.T.Rev.No.101 of 2016 ---------------------------------Dated, this the 08[th] day of June, 2020** ## **ORDER** **Vinod Chandran, J.** **The revision petitioner is a dealer in rubber and allied products. In the year 2008-09, with which the present revision is concerned, the revision petitioner claimed input tax credit for the tax paid under Section 6(2) of the Kerala Value Added Tax Act, 2003 ['KVAT Act' for short]; for reason of the inter-State sale of the revision petitioner having been taxed under the Central Sales Tax Act, 1956 ['CST Act' for short].** **2. The learned Counsel for the assessee contends that the tax due under Section 8(1) and (2) of the CST Act was exempted by the State Government as per Annexure-A notification dated 31.07.2008. Subsequently, realizing that from 2007 no exemption of tax under sub-section (2) of Section 8 could be granted, the Government brought out another notification dated 30.11.2011 produced as Annexure-E. The said notification, in effect resulted in cancellation of the exemption granted earlier. The** **- 3 -** **O.T.Rev.101/2016** **Government, hence, brought out a clarification as per Annexure-G dated 05.10.2013. It was clarified that input tax would be available insofar as the transaction under sub-section (2) of Section 8.** **3. The following questions of law arise from the** **order of the Tribunal, as stated by the learned Counsel for the revision petitioner:** - **(i) Whether the Tribunal was correct in having declined the prayer for input tax credit, when the entire tax on inter-State sale was paid by the assessee and had not the Tribunal erred in not having noticed Annexure-G notification?** - **(ii) Whether the Assessing Officer ought to have invoked the provision under Section 22 of the KVAT Act and is not the re-opening of assessment under Section 25 bad in law?** - **(iii) Has not the authorities below erred in applying Section 11(5)(n) of the KVAT Act when the provision specifically applies only in cases of an exemption being granted under the KVAT Act?** **4. The learned Senior Government Pleader would** **argue that the notifications referred to in the revision are not at all relevant, since the assessee is claiming input tax credit for the purchases made of rubber from unregistered dealers, which was converted into centrifuged latex and sold to dealers outside the State, for which** **- 4 -** **O.T.Rev.101/2016** **later transaction exemption is available which has also been granted by the Assessing Officer. In that context, there could be no input tax claimed which, in the nature of the provisions, is in fact a claim of special rebate under Section 12 of the KVAT Act.** **5. As was noticed, the assessee purchases rubber, converts into centrifuged latex and sells it within the State and inter-State. Annexure-A notification provided for exemption from tax payable under sub-sections (1) and (2) of Section 8 of the CST Act. The said notification came out in 2008. An amendment brought to the CST Act earlier in 2007 took away the exemption under sub-section (2) of Section 8; as earlier conferred under sub-section (5) of Section 8. Realizing this, the Government brought out Annexure-E. Thus, the transactions falling under sub-section (2) were said to be not coming within the purview of the exemption. The transactions under sub-section (1), i.e., goods sold to a registered dealer which purchase is intended for re-sale or manufacture, processing of goods, or the specific categories mentioned in sub-clause (b) of Section 8(3) or being packing materials under sub-clause (c), continued to be exempted. Realizing the hardship caused to the dealers, the State** **- 5 -** **O.T.Rev.101/2016** **also brought out Annexure-G notification which permitted input tax credit to such transactions carried out by dealers under sub-section (2) of Section 8 which was wrongly understood to be exempt by virtue of the notification issued by the State.** **6. The learned Counsel for the revision petitioner** _**-**_ **has relied on the decision in** _**Hi Tek Traders v. Commercial Tax Officer**_ **[** _**2020 (1) KHC 523**_ **]. Considering the notifications, the learned Single Judge held that the notification insofar as granting exemption for transactions under Section 8(2) of the CST Act suffered from an inherent illegality and there could be no benefit obtained under the said notification despite the same having remained in force for some time till the next notification under Annexure-E came forth. The learned Single Judge also found that in such cases necessarily input tax credit could be claimed by the dealers for the tax paid on purchase, whether under Section 6 or Section 6(2). This does not apply to the revision petitioner for reason of the specific transaction of the revision petitioner.** **7. A reading of the assessment order would indicate that the assessee had claimed a total input tax credit of Rs.15,47,272.50. On verification of the accounts,** **- 6 -** **O.T.Rev.101/2016** **it was revealed that the input tax was with respect to Rs.7,66,293.00 for the purchases made of rubber while the balance Rs.7,86,116.50 pertained to the advance tax paid for the transport of rubber. The advance tax paid was granted deduction under the CST assessment for the very same year which is due to the exemption as available under Annexure-A to transactions under Section 8(1) of the CST Act. The assessee having made sales to the registered dealers and having obtained necessary forms, certifying the transaction to be under sub-section (3) of Section 8, the assessee was liable to tax @ 2% under the CST Act. By Annexure-A notification, that liability was exempted by the State Government, which stood untouched by the subsequent notifications at Annexures E and G. By reason of the exemption, the grant of input tax credit/special rebate in the case of purchases made from registered dealers and unregistered dealers is prohibited. The prohibition is since the purchased goods were used in the manufacture of centrifuged latex sold inter-State and exemption availed. In the light of the above facts, we find that the first question does not arise from the order of the Tribunal. The assessment made denying input tax credit for the purchases for the purpose of manufacturing centrifuged latex sold** **- 7 -** **O.T.Rev.101/2016** **inter-State availing exemption is perfectly in order.** **8. The second question is only to be noticed to be answered against the assessee. Section 25 of the KVAT Act also provides for invocation of the said provision for the purpose of reversing any input tax or special rebate credit which has been wrongly availed of. We answer the said question in favour of the Revenue.** **9. The last question is with respect to Section 11(5)(n) of the KVAT Act which prohibits input tax credit insofar as a dealer who is exempted from payment of tax. The CST Act is an enactment to formulate principles** _**inter alia**_ **for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. It provides for the levy, collection and distribution of taxes, again only in the course of inter-State trade or commerce. Input tax credit as brought in under the KVAT Act ensures that there is no cascading effect of taxes on multiple sales being effected with value addition at each stage. The very claim for input tax credit on the purchases made of rubber is on the ground that the value added product of centrifuged latex has been sold by the assessee on which also tax has been paid, which later liability is under the CST Act. The cascading effect of taxes is avoided** **- 8 -** **O.T.Rev.101/2016** **in the Value Added Tax regime only if the goods suffer tax on every point of sale with or without value addition. The very claim of input tax credit being under Value Added Tax regime and the same being based on the further levy under the CST Act said to have been satisfied by the assessee on the value added product of centrifuged latex, sold inter-State, the assessee cannot claim that the provisions of Section 11 of the KVAT Act would apply only for those transactions covered under the KVAT Act. The assessee being entitled to exemption insofar as the liability under the CST Act, does not suffer any cascading effect on the tax liability. The third question is also answered against the assessee and in favour of the Revenue.** **The revision stands rejected, leaving the parties to suffer their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE** **Sd/T.R.RAVI JUDGE** **Vku/-** **- 9 -** **O.T.Rev.101/2016** ## **APPENDIX** **PETITIONER'S/S ANNEXURES:** **ANNEXURE A TRUE COPY OF THE NOTIFICATION DATED 31.07.2008 ANNEXURE B TRUE COPY OF ANNUAL RETURN FOR THE YEAR 2008-2009 ANNEXURE C TRUE COPY OF THE NOTICE DATED 21.11.2011. ANNEXURE D TRUE COPY OF THE REPLY DATED 06.12.2011 ANNEXURE E TRUE COPY OF THE NOTIFICATION DATED 30.11.2011 ANNEXURE F TRUE COPY OF THE ASSESSMENT ORDER DATED 23.06.2012 ANNEXURE G TRUE COPY OF THE CIRCULAR No.17/2013 DATED 05.10.2013** **ANNEXURE H TRUE COPY OF THE ORDER DATED 28.02.2015 OF THE DEPUTY COMMISSIONER (APPEALS)-1 ANNEXURE I TRUE COPY OF THE APPEAL MEMORANDUM BEFORE THE APPELLATE TRIBUNAL' ANNEXURE J TRUE COPY OF THE ORDER DATED 31.12.2015 OF THE K V A T APPELLATE TRIBUNAL. ANNEXURE K TRUE COPY OF THE DEMAND NOTICE DATED 11.07.2012.** **[TRUE COPY]**