M/S.KTC AUTOMOBILES (P) LTD. v. THE STATE OF KERALA

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON** **FRIDAY, THE 29TH DAY OF JUNE 2018 / 8TH ASHADHA, 1940** ## **O.T.Rev.No.206 of 2015** ## **----------------------------------** **AGAINST THE ORDER IN T.A(VAT) NO.29/2014 DATED 12-01-2015 OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE. [ASSESSMENT YEAR 2008-09]** **-----------------------** **REVISION PETITIONER(S)/APPELLANT/APPELLANT/ASSESSEE:----------------------------------------------------------------------------------------------** **M/S.KTC AUTOMOBILES (P) LTD., YMCA ROAD, KOZHIKODE.** **BY ADV.SMT.K.LATHA.** ## **RESPONDENT(S)/RESPONDENT/RESPONDENT/REVENUE:-** **--------------------------------------------------------------------------------------** **THE STATE OF KERALA, REP. BY SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.** ## **BY SENIOR GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ.** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 29-06-2018, ALONG WITH O.T.REV.NO.207 OF 2015, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **O.T.REV.NO.206 OF 2015** ## **APPENDIX** **REVISION PETITIONER(S)' ANNEXURES:------------------------------------------------------------** ## **ANNEXURE A1** **THE TRUE COPY OF THE ASSESSMENT ORDER ISSUED BY THE ASST. COMMISSIONER, COMMERCIAL TAXES, SPECIAL CIRCLE II, KOZHIKODE TO THE APPELLANT FOR THE YEAR 2008-09 DATED 20.4.2011.** ## **ANNEXURE A2** - **THE TRUE COPY OF THE FIRST APPELLATE ORDER ISSUED BY THE DEPUTY COMMISSIONER (APPEALS) II, COMMERCIAL TAXES, KOZHIKODE TO THE APPELLANT FOR THE YEAR 2008-09 DATED 23.3.2012.** ## **ANNEXURE A3** **THE TRUE COPY OF THE APPEAL MEMORANDUM FOR THE YEAR 2008-09 FILED BY THE APPELLANT BEFORE THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, KOZHIKODE AGAINST THE ANNEXURE A2 APPELLATE ORDER.** ## **ANNEXURE A4** **TRUE COPY OF THE ORDER IN T.A.(VAT) NO.29/2014 ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE DATED 12.01.2015.** **RESPONDENT(S)' ANNEXURES:-** **-----------------------------------------------NIL.** **vku/-** **[ true copy ]** ## K. Vinod Chandran & Ashok Menon, JJ. ------------------------------------------------------- O.T.Rev.Nos.206 & 207 of 2015 ------------------------------------------------------- Dated, this the 29[th] day of June, 2018 ## **ORDER** ## Vinod Chandran, J: The petitioner, a dealer in motor cars and carrying out servicing of vehicles, is before us in the above revisions concerned with the assessments made for the years 2005-06 and 2008-09. The issues which were raised in the year 2005-06 are with respect to the (i) assessment of workshop income as a works contract, (ii) the addition to the turnover of the amounts collected as insurance charges, and (iii) the claim of input tax credit with respect to the discounts obtained by the petitioner from the local dealers amounting to Rs.66,08,180/-. In the year 2008-09, the question is with respect to workshop income, insurance charges and warranty. The questions of law framed with respect to each of the above issues are re-framed as follows:- - (1) Whether the Tribunal was correct in affirming the tax levied on the workshop income, after granting a deduction of 25% of the subject turnover, when the entire income was returned for the purpose of payment of service tax and there was no separate amount shown for paint and spare parts billed separately and tax paid? OTRev.206/2015 & - 2 - 207/2015 - (2) Whether there was any sale of goods with respect to the receipt of insurance charges? - (3) Has not the Tribunal erred in not permitting input tax credit with respect to the deduction granted by the dealers for which tax was paid on purchase? - (4) Has not the Tribunal erred in rejecting the ground raised on warranty relying on the decision of the Honourable Supreme Court in _**(2004) 130 STC 15 [Mohammed Ekram Khan & Sons v. Commissioner of Trade Tax, UP]**_ ? 2. We would first deal with the issue of insurance charges and claim of input tax credit. As far as the insurance charges, there is no clarity as to what was the purpose for which the money was received by the assessee; whether it be commission from the insurance companies for the insurance taken on the sale of cars or the charges received from the customers for enabling such issuance of policies. We do not see either of the authorities have gone into the facts. In such circumstances, we are inclined to remand the issue for a fresh consideration to the Assessing Officer, to verify whether there is any sale of goods involved. OTRev.206/2015 & - 3 - 207/2015 3. Similarly, in the case of input tax credit, we notice the decision of this Court in **(2010) 18 KTR 329 [** _**Cement House v. State of Kerala**_ **],** which found that when there is a sale for a lesser amount than the purchase price and later the deficiency is made good by the supplier, then necessarily, the said amounts have to be included in the turnover for deciding the tax-ability. As a corollary, if the petitioner had purchased goods from dealers paying tax for the entire amounts and later a discount was granted by the local suppliers for which they had not claimed any output tax deduction, then necessarily, the petitioner cannot be denied such input tax credit. We are conscious of the fact that _**Cement House**_ was in quite a distinct grant of discount which we have to notice. 4. In _**Cement House**_ what was considered was a sale price lower than the purchase price, being recouped by the supplier/manufacturer, in which event the sale turnover has to include the discount amount also for taxation. The case of the petitioner is that the supplier had granted a discount to them, after their purchase and the sale effected by them was above the original purchase price; even without the discount. In such circumstances going by the decision in _**Priya Agencies v. CTO (A.A.)**_ **[(2008) 14 VST 293 (Ker.)]** the supplier has to give a certificate that they have OTRev.206/2015 & - 4 - 207/2015 not claimed any output tax deduction. Surely the petitioner will have to produce the certificate from the purchaser showing no output tax deduction having been claimed. When considering input tax credit, claimed within the time provided and in accordance with the statute, the State should get the tax for the ultimate price for which the goods are sold. In the circumstance of _**Cement House**_ the ultimate sale price includes the discount offered by the manufacturer/supplier; for whatever reason. One of which would be; the market conditions, when the supplier/manufacturer would not want to loose a reliable dealer. In the instant case, as the pleadings go, the assessee has paid the tax on its purchase and later a discount was granted by the seller. If the tax paid on sale, to the assessee by the supplier is fully paid to the State and no deduction on output tax is claimed by the supplier, for reason of and to the extent of the discount, then the assessee is entitled to the input tax credit for the tax paid on its purchase, when the ultimate sale is above the purchase price. Subject only to the certificate being produced as declared in _**Priya Agencies.**_ We hence, remand the above issue also for fresh consideration. The assessee would be entitled to produce evidence to establish the aspect pointed out by us. OTRev.206/2015 & - 5 - 207/2015 5. The major demand raised is on the workshop income for all the years. For the year 2005-06, the workshop income shown by the assessee in the profit and loss account is Rs.2,70,32,559.08. As against this income shown, the sale of goods indicated was only with respect to paint coming to Rs.13,29,001.95. In the year 2008-09, the workshop income shown was Rs.4,85,80,143.00 and there was a sale shown of paints at Rs.26,43,760/-. The reasoning of the Assessing Officer was that the said sale shown of paints, is grossly inadequate looking at the income from workshop and there would always be sale of spare parts, oils and filters, involved in the service and repair of a vehicle. The assessee's contention was that the total turnover for each of the years was more than Rs.78 crores in 2005-06 and more than Rs.139 crores in 2008-09 which takes in the component of sale of goods in its entirety. However, the assessee has not produced any break up of the sale of vehicles and sale of spare parts, which may have to be looked into before workshop income is assessed as a works contract with 25% deduction granted. The sale of vehicles is the major portion of the turnover of the assessee and only a split-up would show whether the assessee has included the sale of goods also as a service element. OTRev.206/2015 & - 6 - 207/2015 6. The learned Counsel for the assessee had also pointed out that the entire workshop income was assessed to service tax and the assessee had paid the said amounts. Here, we have to notice that, mere payment of service tax voluntarily cannot absolve the liability of the assessee. When there is any sale of goods, which turnover has also been included as “service” in the returns filed under the Finance Act, 1994; that alone cannot absolve the liability from the tax effect on sale of goods. Hence, mere payment of service tax would not absolve the liability and the assessing officer will have to look at the precise transaction to proceed further. The Assessing Officer will have to look into the break up of the sales of vehicles and spare parts and decide with reference to the total income from workshop. If the sale of spare parts in proportion is commensurate with the workshop income, then necessarily the assessment will have to be re-done. We, hence, remand the said issue also for consideration by the Assessing Officer. 7. With respect to the warranty income, we are of the opinion that the said issue is covered by the decision of the Hon'ble Supreme Court in _**Mohammed Ekram Khan & Sons**_ . We, hence, answer the question on warranty against the assessee and in OTRev.206/2015 & - 7 - 207/2015 ## favour of the Revenue. 8. All the other questions raised are left open, since we have remanded the matter for consideration by the Assessing Officer. The revisions are partly allowed, with the above remand. Parties are left to suffer their respective costs. Sd/K.Vinod Chandran Judge Sd/Ashok Menon Judge vku/- [ true copy ]