Bharat Petroleum Corporation Limited vs Additional Commissioner of Commercial Taxes

N. Kumar, J.—This appeal is by the assessee challenging the order passed by the Additional Commissioner of Commercial Taxes, Zone I, Bangalore, who has passed the impugned order invoking his revisional power u/s 64(1) of the Karnataka Value Added Tax Act, 2003 (for short, hereinafter referred to as, "the KVAT Act") setting aside the order passed by the Joint Commissioner of Commercial Taxes (Appeals). The assessee is a registered dealer under the KVAT Act and also under the Central Sales Tax Act, 1956. It is a public sector undertaking engaged in refining crude oil and marketing various petroleum products in India. Their market share is approximately 26 per cent. In Karnataka, they operate depots at Mangalore, Dharwad and Solur. Their operations consist of procurement of various petroleum products from outside Karnataka by way of imports and inter-State purchases and from within Karnataka by way of local purchases. The petroleum products so procured are disposed by way of sale locally or in the course of inter-State trade or commerce and to some extent by way of stock transfer to its own depots located outside Karnataka. One of the major petroleum products dealt by the assessee in the State of Karnataka is liquefied petroleum gas (LPG). The purchase of LPG locally by the assessee is insignificant compared to the quantity of LPG procured by the assessee by way of imports and inter-State purchases put together. Out of the LPG so procured, large quantity of LPG is sold locally within the State of Karnataka and a small insignificant portion is sold in the course of inter-State trade or commerce or stocks transferred to the assessee''s own depots located outside Karnataka. LPG is purchased by the assessee locally from the only one source, i.e., Hindustan Petroleum Corporation Limited (HPCL), Mangalore, who is the marketing agent for Mangalore Refinery and Petrochemicals Limited (MRPL), Mangalore. From out of the local purchases of LPG from HPCL, a very insignificant portion in terms of quantity and value is stock transferred by the assessee to its own depots outside Karnataka. Such stock transfers were very occasional and irregular. The arrangement in respect of stock transfer of LPG purchased from HPCL is dispatched on stock transfer basis to the assessee''s own depots outside Karnataka on the very same day as the date of the purchase. This fact is evident from the separate books of account maintained by the assessee for the purchase and disposal of LPG sources from HPCL. There is also a one-to-one linkage of the tax invoices issued by HPCL with that of the stock transfer notes issued by the assessee. Even in respect of LPG procured by way of imports and inter-State purchases from outside Karnataka, the assessee has maintained separate accounts and the assessee is in a position to establish linkage in relation to the stock transfers made from out of such procurements. The assessee claimed input-tax deduction of Rs. 46,379 only, i.e., 8.5 percent and remitted Rs. 20,013, i.e., four percent input tax relatable to stock transfers from out of the local purchase of LPG from HPCL to the Revenue. The Deputy Commissioner of Commercial Taxes (Audit 31), Bangalore, issued two notices dated March 14, 2008 and May 2, 2008 u/s 39(1) of the Act for the assessment years 2005-06 and 2006-07, respectively, proposing inter alia, to restrict input deduction at four percent which was relatable to stock transfers out of LPG purchased from HPCL as provided u/s 11(a)(5). The assessee replied to the above notices. However, the Deputy Commissioner of Commercial Taxes passed an order dated June 19, 2008 rejecting the claim of the assessee. Subsequently, for the assessment years 2005-06 and 2006-07, he rectified the mistake, which were apparent on the record and passed a modified order u/s 69 on July 11, 2008. Aggrieved by the said orders, the assessee preferred an appeal before the Joint Commissioner of Commercial Taxes. During the course of the appeal, the assessee produced the copies of purchase bills and stock transfer memos before the Joint Commissioner showing the one-to-one correlation not only between the purchase of LPG from HPCL to that of stock transfer of very same goods to its own depots outside the State but also LPG sold locally. After examining the records, an order dated September 27, 2008 came to be passed giving a clear finding that there is one-to-one correlation between the purchase of LPG from M/s. Hindustan Petroleum Corporation Ltd., to that of the stock transfer of very same goods outside the State and therefore, held that the assessee is eligible to claim the benefit of input-tax credit on the local registered dealer purchases of LPG corresponding to those stock transfers in accordance with the provisions of section 11(a)(5) read with section 14 of the Act. He further held that the Deputy Commissioner was not justified in applying the provisions of section 17 of the Act read with rule 131 of the KVAT Rules, 2005 and restricting the input-tax credit and accordingly, the appeal was partly allowed. The Additional Commissioner of Commercial Taxes invoking his power u/s 64(1) of the Act proposed to revise the order passed by the Joint Commissioner on the ground that the same is erroneous and prejudicial to the interest of the Revenue and a notice was issued to the assessee, wherein the assessee appeared before him and opposed the said action. However, he proceeded to pass an order setting aside the order of the Joint Commissioner and restored the order passed by the original authority. Aggrieved by the same, the assessee is before this court.

The learned senior counsel appearing for the assessee contended that from the material on record, it is clear that the assessee has maintained separate books of accounts. In so far as sale of LPG on stock transfer is concerned, the records such as purchase bills and stock transfer memos, etc., are produced showing one-to-one correlation not only between the LPG purchase from HPCL and thereafter, stock transfer to its own depots outside the State but also LPG sold locally and therefore, section 17 read with rule 131 are not attracted. In fact, circular dated June 20, 2006 issued by the Commissioner of Commercial Taxes clearly applies to the facts of this case and the Appellate Commissioner on a careful consideration of the entire material on record, keeping in mind the legal provisions and the circular had granted the benefit to the assessee which has been erroneously taken away by the revisional authority and therefore, he submits a case for interference is made out.

Per contra, the learned Government Advocate appearing for the Revenue submitted that, when admittedly the assessee is having various types of transactions, section 17 is attracted. Once, section 17 is attracted, the assessee is not entitled to the benefit which he claimed and which was upheld by the Appellate Commissioner. It is in this context, as the order passed by the Joint Commissioner was prejudicial to the interest of the Revenue, the revisional authority rightly interfered with the said order and has set aside the same and therefore, he submits no case for interference is required. If for any reason, the court were to hold that the order passed by the revisional authority is not proper as he has not looked into the accounts, after setting aside the order of the Additional Commissioner, the matter may be remanded back to the Appellate Commissioner or the original authority for fresh consideration in accordance with law.

From the material on record, it is clear that while Deputy Commissioner issued notices proposing to apply section 17 of the Act, the assessee did not produce all the relevant documents before him. It is in the absence of the said documents, the said order came to be passed by the Deputy Commissioner. However, in an appeal, the assessee has produced all the relevant documents. After going through the said documents, this is what the appellate authority has held as follows:

On perusal of the copies of purchase bills, stock transfer memos, hire charges paid to transporters, etc., produced by the appellant for having purchased LPG from M/s. Hindustan Petroleum Corporation Ltd., and thereafter stock transferred outside the State, it is noticed that the appellant after purchasing LPG from M/s. Hindustan Petroleum Corporation Ltd., which is transported in a tanker the same has been diverted to outside the State other than by way of sale which is evident from the tanker number mentioned in the purchase bill raised by M/s. Hindustan Petroleum Corporation Ltd., and also the tanker number mentioned in the stock transfer memos raised by the appellant for dispatching the goods outside the State by way of stock transfer. The period between purchase of LPG from M/s. Hindustan Petroleum Corporation Ltd., and dispatch of the same by way of stock transfer is almost one and the same. Furthermore, for having transported the LPG by engaging the tankers, the appellant has filed returns under the Service Tax Act admitting hire charges paid to the transporters and service tax paid thereon, a copy of which is submitted for record purpose. From perusal of these documents, it is clear that the LPG purchased from M/s. Hindustan Petroleum Corporation Ltd., alone has been stock transferred and therefore the perception of the respondent that there is inter-mixing of locally purchased LPG from M/s. Hindustan Petroleum Corporation Ltd., with the purchases of LPG made from outside the country and outside the State and thereafter stock transferred is found to be incorrect. Since there is one-to-one correlation between the purchase of LPG from M/s. Hindustan Petroleum Corporation Ltd., to that of the stock transfer of very same goods outside the State, the appellant is eligible to claim the benefit of input-tax credit on the local registered dealer purchases of LPG corresponding to those stock transfers in accordance with the provisions of section 11(a)(5) read with section 14 of the KVAT Act, 2003.

...

Under the circumstances, I hold that the respondent is not justified in applying the provisions of section 17 of the KVAT Act, 2003 read with rule 131 of the KVAT Rules, 2005 and restricting the input-tax credit accordingly. The respondent is directed to allow the benefit of input-tax credit in respect of local registered dealer purchases of LPG from M/s. Hindustan Petroleum Corporation Ltd., which in turn has been stock transferred outside the State in accordance with the provisions of section 11(a)(5) of the KVAT Act, 2003 read with section 14 of the KVAT Act, 2003.

Therefore, it is clear, it is on the perusal of the copies of the purchase bills, stock transfer issued paid to transporters, taking into consideration the tanker number mentioned in the stock transfer memos, the tanker which transported the goods to the doors of the assessee and without unloading, in the very same tanker the goods got transported by way of stock transfer to its own depots located outside Karnataka, the appellate authority held that there is one-to-one correlation between the purchase of LPG from HPCL to that of the stock transfer of very same goods outside the State. Therefore, it held that the assessee is eligible to claim benefit of input-tax credit on the local registered dealer purchases of LPG corresponding to those stock transfers in accordance with the provisions of section 11(a)(5) read with section 14 of the Act. Therefore, the finding recorded by the appellate authority is purely a question of fact which he recorded after going through the records produced before him. Though the revisional authority has the jurisdiction to interfere with such orders if they are to be prejudicial to the interest of the Revenue but before exercising of that power, the ingredients mentioned in the section are to be satisfied. In para 4. we get the reasons for interference. "That he has verified evidences of local purchases of tax paid LPG and stock transfer of such LPG out side the State and thereby section 11(a)(5) read with section 14 would apply. He has not recorded individual transactions linking with stock transfers/inter purchases/imports outside the State. In the appeal order and there are no such evidences in the appeal records also." If the revisional authority has looked into the very same records which are looked into by the appellate authority and if, he has recorded a finding that there is no one-to-one correlation between the purchase and stock transfer of the very same goods outside the State, then we would not have interfered with the said order passed by the revisional authority. The appellate authority categorically states that he has looked into the copies of purchase bills, stock transfer memos, hire charges and then, records a finding. If it was the requirement of law that in his order he has to record individual transaction in support of his conclusion and if he has not done so, probably again we could not have interfered with the order passed by the revisional authority. When the appellate authority carefully examined the documents produced before him, after verification of the entries therein, records a categorical finding that there is a one-to-one correlation between the purchase and the stock transfer of the very same goods outside the State, now on the ground that he has not recorded in his order each and every transaction, such an order cannot be interfered with by the revisional authority. Therefore, at the threshold the power exercised by the revisional authority on such a ground is contrary to the statutory provisions which confers such powers on him. Therefore, the order cannot be sustained.

From the material on record it is clear that the assessee has got several types of transactions. They have maintained the records recording all these transactions separately. No one has found fault with the records or the manner in which the records are maintained. When once the records are maintained is in accordance with law, its claim on the basis of the entries made in the records which is also in conformity with the circular issued by the Commissioner of Commercial Taxes, the benefit as claimed by the assessee cannot be denied. The law gives him the said benefit. In so far as the request to remand the matter to the authority is concerned, we do not see any reason because the appellate authority has examined all the documents produced before him, looked into the entries and then recorded a categorical finding of fact, which is not shown to be incorrect. Therefore, no cause for remanding the matter and setting aside the finding recorded by the appellate authority is made out. In that view of the matter, the order passed by the revisional authority is illegal and contrary to law. Hence, it is liable to be set aside. Hence, we pass the following:

ORDER

(a) The appeal is allowed.

(b) The impugned order passed by the Additional Commissioner is hereby set aside.

(c) The order passed by the Appellate Commissioner is restored. No costs.