State of Kerala v. E. Bashair Son and L/H. of Basheer (Late), M/S EMM Traders, Malappuram District

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** ## **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI TUESDAY, THE 25TH DAY OF JUNE 2019 / 4TH ASHADHA, 1941** ## **OT.Rev.No.29 of 2017** **AGAINST THE ORDER IN TA(VAT) NO.3/2016 of KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD DATED 22-02-2016** ## **REVISION PETITIONER/RESPONDENT/REVENUE:** **STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER OF (LAW),COMMERCIAL TAXES, PALAKKAD.** **BY SR.GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN** ## **RESPONDENT/APPELLANT/ASSESSEE:** **E. BASHAIR SON AND L/H. OF BASHEER, (LATE), M/S. EMM TRADERS, MAKKARAPARAMBA, MALAPPURAM DISTRICT, PIN-676507.** **BY ADV. SRI.R.RAMADAS** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 25.06.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** O.T.(Rev) No.29/2017 2 ## **C.K.ABDUL REHIM &** ## **R.NARAYANA PISHARADI, JJ.** ************************** O.T.(Rev) No.29 of 2017 ---------------------------------------------Dated this the 25[th] day of June, 2019 ## **O R D E R** ## **C.K.Abdul Rehim, J** The revenue is in revision against order of the Kerala Valued Added Tax Additional Appellate Tribunal, Palakkad in T.A (VAT) No.3/2016, dated 22.02.2016. The respondent herein is the assessee. 2. Monthly returns filed by the assessee with respect to the period from April 2014 to September 2014, within the assessment year 2014-15, was rejected by the Assessing Authority finding the following irregularities; (1) The dealer has not accounted intra-state purchase made on 05.08.2014. O.T.(Rev) No.29/2017 3 (2) The gross loss of Rs.43,51,555.94/- claimed during the period is false and the trading account produced in support are manipulated with an intention to evade payment of the tax due. 3. Assessment was proposed on best judgment basis by adding the sales turnover with respect to the alleged unaccounted purchases along with an addition of 5% gross profit and equal amount towards probable omission and suppression, and to impose tax on the additional turnover estimated. 4. The assessee objected to the proposal by pointing out that, the father of the family, who was conducting the business, expired on 05.08.2014, due to heart attack. The alleged suppression of purchase made on the day of his death was denied. It was pointed out that, about 500 bags of Cement got damaged because the business remained unattended. So also, about 10,000 kg of TMT Bars got rusted. The remaining stock was sold at a very low price before closing of the business. It is submitted that, all these were truly accounted and was reflected O.T.(Rev) No.29/2017 4 in the returns filed. Therefore the Assessing Authority was requested to make a revisit on the proposal made. 5. Based on the objections, the Assessing Authority had dropped the proposal with respect to assessing purchase turnover allegedly suppressed. The assessee was also given credit with respect to the 200 bags of Cement which got damaged, which was satisfied through inspection conducted. Rest of the proposal was confirmed and a total tax liability along with interest, to the tune of Rs.3,70,972/- was assessed. 6. In the appeal filed by the assessee before the Deputy Commissioner (Appeals), Palakkad, it was found that, rejection of the accounts of the assessee was without collecting any material evidence to substantiate that the assessee had received sale consideration with respect to the goods sold at the reduced rate, at any rate more than what was contained in the sale invoices or books of accounts. Hence it was found that the assumption based on which the sales turnover was calculated by adding 5% profit margin to the purchase value, was not at all correct. The O.T.(Rev) No.29/2017 5 Appellate Authority placed reliance on the decisions of this Court in **KMP Timbers and Saw Mills v. Commissioner Tax Inspector and another [(2012) 50 VST 195 (KER]** and **Classic Members v. State of Kerala [16 KTR 397]** . Reliance was also placed on a Circular of the Government to the extent that assessment on undervaluation should be based on material evidence gathered on enquiry and that no such assessment shall be made only on the basis of the floor rate fixed. However, the first appellate authority found that the goods sold at the subsidized price were locally purchased and that the assessee had claimed credit to input tax based on the purchase value in the previous returns. Therefore it was found that, the assessee is liable to remit back the excess input tax credit availed, as per the 2[nd] proviso to Section 11(3) of the Kerala Value Added Tax Act,2003 (hereinafter referred to as 'the KVAT Act'). It was found that, it is legally compulsory to limit the credit of input tax to the extent of output tax returned by the dealer, up to stoppage of the business. O.T.(Rev) No.29/2017 6 8. In the case of damaged goods, value of which is returned at Rs.62,000/-, it was found that, the dealer is liable to remit the reverse tax under Section 11(7) and (8) of the KVAT Act. Therefore the Deputy Commissioner of Appeals reworked the assessment and brought down the liability to Rs.3,12,201/-, along with interest. 9. In the second appeal filed before the Tribunal by the assessee, it was found that, the 2[nd] proviso to Section 11(3) of the Act is not applicable in the case at hand, because the assessee had made only a 'discounted sale' and that he has not sold the goods by way of subsidized sale. For arriving at such a conclusion the Tribunal had relied upon the dictionary meaning of the word 'subsidy', which is termed as; grant from a Government/Society, aid to support prices etc. The Tribunal had also relied on a judgment of this Court in **Madras Fertilisers** **Ltd. v. Assistant Commissioner of Agricultural Income Tax and Sales Tax : 1994 (2) KLT 820.** In the said ruling it was held that the subsidy was paid for the benefit of the public to O.T.(Rev) No.29/2017 7 keep the prices at a reasonable level and at the same time to ensure a reasonable return of investments to the units. It is not a consideration for the sale effected by them and therefore it is not related to any particular transaction of sale. Hence, it was held that the amount of subsidy could not constitute turn over and is not sustainable under the KGST Act. 10. With respect to the damaged goods which was left under unsaleable conditions, the Tribunal found that no input tax credit can be allowed. The challenge against levy of interest was also declined by the Tribunal. 11. In the present revision petition, the Revenue is challenging the findings of the Tribunal to the extent it said that, the limit of input tax credit cannot be imposed on the sales made at reduced price. It is contended that the interpretation given by the Tribunal with respect to the term 'subsidized sale' contained in the 2[nd] proviso to Section 11(3) cannot be sustained legally. 12. Heard learned Government Pleader appearing for the revision petition as well as Sri.Ramdas, learned Counsel O.T.(Rev) No.29/2017 8 appearing for the respondent/assessee. Section 11(3) of the KVAT Act provides that, input tax credit shall be allowed to a registered dealer in respect of a returned period against the output tax payable by him for such period and the dealer shall pay to the Government the balance of output tax in excess of the input tax credited in the manner prescribed. The 2[nd] proviso to Sub Section (3) reads as follows: _“Provided also that where any goods purchased in the State are subsequently sold at subsidized price the input tax liable under the sub Section in respect of such goods shall not exceed the output tax payable on such goods.”_ 13. On the facts of the case, the assessee closed down the business after selling the stock of goods at a reduced price. The intend and purport of the 2[nd] proviso introduced to Section 11(3) is to restrain the assessee from claiming input tax credit over and above the output tax collected. That is why it is insisted that the claim of input tax credit shall not exceed the output tax payable, in case the goods are sold at subsidized price. The interpretation O.T.(Rev) No.29/2017 9 given by the Tribunal that the word 'subsidized price' contained in the second proviso to Section 11(3) can only be construed as a sale in which the Government have provided subsidy to support the price, cannot be accepted as a correct interpretation. We are of the considered opinion that the term 'subsidized price' used in the 2[nd] proviso to Section 11(3) will carry within it any sale made by the dealer at a subsidized price below the purchase value of such goods. Therefore, we are of the opinion that the assessee in the case is not entitled to claim input tax credit over and above the output tax returned with respect to the goods sold at the reduced price. The question raised in this regard is answered in favour of the revenue and against the assessee. 14. Hence the above revision petition is hereby allowed. The impugned order passed by the Tribunal to the extent it held that the assessee is entitled for input tax credit demanded beyond the limit of output tax conceded is hereby set aside. The assessing authority will recompute the calculations accordingly and shall issue revised demand. The needful in this regard shall O.T.(Rev) No.29/2017 10 be taken by the assessing authority within one month from the date of receipt of a copy of this judgment. (sd/-) **C.K.ABDUL REHIM, JUDGE** (sd/-) **R.NARAYANA PISHARADI, JUDGE** jsr O.T.(Rev) No.29/2017 11 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **ANNEXURE A** **TRUE COPY OF THE PROCEEDINGS OF THE COMMERCIAL TAX OFFICER, PERINTHALMANNA DATED 30.03.2015.** **ANNEXURE B TRUE COPY OF THE ORDER OF THE ASSISTANT COMMISSIONER (APPEALS), COMMERCIAL TAXES, PALAKKAD DATED 26.10.2015.** **ANNEXURE C CERTIFIED COPY OF THE KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD, DATED 22.02.2016.** ## **RESPONDENT'S EXHIBITS: NIL** TRUE COPY PS TO JUDGE