Suma Oil Agencies vs The Additional Commissioner of Commercial Taxes

B. Manohar, J.—This sales tax appeal is by the assessee, being aggrieved by the order dated 4-12-2009 made in No. SMR/KVAT/DVO-3/CR-76/T-841/2009-10 passed by the Additional Commissioner of Commercial Taxes, Zone-II, Bangalore (hereinafter referred to as ''the Revisional Authority'' for short) invoking revisional power u/s 64(1) of the Karnataka Value Added Tax Act, 2003 (for short, ''the K.V.A.T. Act'') setting aside the order dated 28-5-2009 passed by the Joint Commissioner of Commercial Taxes (Appeals-III), Bangalore (hereinafter referred to as the ''First Appellate Authority'' for short) for the assessment year April 2005 to March 2006. The appellant is a dealer registered under the provisions of K.V.A.T. Act and Central Sales Tax Act, 1956 engaged in the business of trading in edible oils and also engaged in packing and marketing of the edible oil of Soyabean and Palmolein Oil. In the course of business, the appellant purchased edible oil both from the registered dealers situated within the State and also from the dealers situated outside the State of Karnataka.

The appellant filed returns in Form V.A.T. 100 of the Karnataka Value Added Tax Rules, 2005, for the period from April 2005 to March 2006 declaring total turnover and the tax payable and also availed deduction of input tax credit in respect of purchase of oil, rebate on purchase of capital goods, i.e. goods vehicle and claimed deduction of input tax in respect of capital goods.

The business premises of the appellant was inspected by the D.C.C.T. (Audit-51) oh 23-1-2007 for the purpose of verification of books of account for the said tax period. At the time of audit, Siddalingappa, the person in-charge of the business was present and produced the books of account. The Chartered Accountant also produced the books for verification. On verification of the books of account for the period of April 2005 to March 2006, the Assessing Authority noticed that the assessee effected local purchase of edible oil from 17 dealers and availed input tax credit. Out of 17 dealers, a dealer by name M/s. Healthy Life Agro Foods, Bangalore is not the registered dealer. On verification of TIN number of M/s. Healthy Life Agro Foods, Bangalore, it was found to be invalid and they are not the registered dealer borne on the file of any local V.A.T. Office either at Bangalore or in any other place. The assessee had purchased the edible oil to an extent of Rs. 1,26,28,900/- for the said period and availed input tax credit. Since the assessee had purchased the edible oil from an unregistered dealer, the assessee is not eligible to avail input tax credit. Further the assessee had availed rebate on purchase of the goods vehicle for transportation of the edible oil. As per Section 11(a)(3) of the Act, the assessee is not entitled for the said rebate. Though the assessee has not filed Form V.A.T. 100 in respect of some of the other capital goods purchased, the assessee claimed input tax deduction which is contrary to law. In view of that the Assessing Authority issued proposition notice on 5-6-2008 calling upon the assessee to show cause as to why the input tax rebate claimed by the assessee shall not be rejected. The appellant filed detailed objections to the said proposition notice. The Assessing Authority after considering the objections raised by the assessee passed the reassessment order u/s 39(1) of the Act on 27-1-2009 and also imposed penalty and interest and issued demand notice. Immediately after the order of reassessment, the assessee filed an application u/s 69(1) of the K.V.A.T. Act for rectification of the reassessment order. The Assessing Authority by its endorsement dated 19-3-2009 rejected the said application. The appellant being aggrieved by the order passed by the Assessing Authority u/s 39(1) of the Act preferred an appeal before the First Appellate Authority challenging the same on various grounds. The First Appellate Authority after considering the contentions raised by the appellant by its order dated 28th May, 2009 allowed the appeal and held that the appellant is entitled for deduction of input tax and issued direction to the Assessing Authority to allow the input tax credit claimed by the appellant and to recompute the tax. The said order of First Appellate Authority came to be reviewed before the Additional Commissioner of Commercial Taxes, The Additional Commissioner on examination found that the order passed by the First Appellate Authority is erroneous and prejudicial to the interest of the Revenue. Accordingly issued notice u/s 64(1) of the K.V.A.T. Act to revise the order passed by the First Appellate Authority.

The appellant-assessee filed objections to the said notice and reiterated the contentions taken before the First Appellate Authority. The Revisional Authority after considering the matter in detail, by its order dated 4-12-2009 revised the order dated 28-5-2009 passed by the First Appellate Authority and restored the order dated 27-1-2009 passed by the Assessing Authority and directed the Assessing Authority to issue revised demand notice. Being aggrieved by the said order the appellant has filed this appeal.

In the appeal, the following questions of law have been framed for consideration:

(i) Whether the respondent is justified in denying the registered dealer purchases effected by the appellant from M/s. Healthy Life Agro Foods and thus rejecting the input tax claim made by the appellant in accordance with Section 10 of the Act?

(ii) Whether the respondent is justified in denying the input tax claim on the ''goods vehicle'' purchased by the appellant and used in the business, by ignoring the definition in Section 2(7) and the intention of Section 12 of the Act?

(iii) Whether the respondent is justified in denying the input tax claim made by the appellant on the purchase of capital goods without appreciating the evidences furnished before the authorities below?

Sri K.M. Shivayogiswamy learned Counsel appearing for the appellant contended that the order passed by the Revisional Authority is contrary to law. Appellant is the bona fide purchaser of edible oil in the local markets. In respect of the edible oil purchased from M/s. Healthy Life Agro Foods, Bangalore, the respondent refused to extend the benefit of input tax credit solely on the ground that the TIN number of the said dealer fed into the V.S.T. Soft MIS maintained in the office is incorrect. On the other hand, the appellant has produced tax invoices issued by the registered dealers. The reasoning given by the respondent to disallow the benefit of input tax credit on purchase made from the aforesaid dealer is contrary to the provision of Section 10(4) of the K.V.A.T. Act. The appellant has not only produced the tax invoices, but also produced the copies of the delivery notes issued in Form V.A.T. 515. At no point of time, the respondent has suspected the existence of the said selling dealer. In the invoice, the selling dealer had mentioned the full address and TIN number. There is sufficient compliance with the provision of Section 10(4) of the K.V.A.T. Act inasmuch as the appellant has made every effort at their disposal to prove that M/s. Healthy Life Agro Foods is a genuine dealer and the transactions are genuine. The assessee has fulfilled the burden cast upon them u/s 70 of the K.V.A.T. Act. It is for the Assessing Authority to find out the correctness of TIN number of the selling dealer and it is not for the appellant to prove that the selling dealer had, in fact, paid the tax as a first seller. When once the appellant has produced the acceptable evidence to show that they had purchased the goods from the person who is liable to pay tax, it would be appropriate on the part of the Assessing Authority to accept such evidence unless he comes to a conclusion by other positive proof that the seller dealer is not liable to pay tax on the concerned goods. Further, the appellant has purchased a canter fitted with tanker in which the taxable goods are transported during the course of business. Sub-section (7) of Section 2 of the K.V.A.T. Act defines the ''''Capital Goods'' which includes cold storage plant and similar plant, machinery, goods vehicles, equipments, moulds, tools and jigs used in the course of business other than for sale. Section 12 contemplates deduction of input tax in respect of the capital goods. Hence, the order passed by the Assessing Authority in denying the input tax in respect of the goods vehicle and other capital goods is contrary to law and sought for allowing the appeal.

On the other hand Sri T.K. Vedamurthy, learned Government Pleader appearing for the respondent argued in support of the order passed by the Revisional Authority and contended that, to avail the benefit u/s 10(4) of the Act, the appellant has to purchase the goods from the registered dealers. No material has been produced to show that M/s. Healthy Life Agro Foods, Bangalore is a registered dealer. The records maintained by the respondent clearly disclose that the said M/s. Healthy Life Agro Foods, Bangalore is not a registered dealer. The TIN number mentioned in the tax invoice is an invalid number. In view of that, the respondent has denied input tax in respect of the purchase of edible oil made from M/s. Healthy Life Agro Foods, Bangalore. Further, reading of Section 11 of the K.V.A.T. Act makes it very clear that input tax shall not be deducted in calculating the net tax payable in respect of the tax paid on purchase of the capital goods. In the instant case, the appellant has purchased the goods vehicle as per Section 11 and they are not entitled to deduction in respect of purchase of capital goods. Apart from using the said goods vehicle for transportation of edible oil, they are using the said vehicle for hire purpose. Further, the appellant has not filed Form V.A.T. 100 in respect of some of the capital goods purchased. In the absence of filing declaration in Form V.A.T. 100, the appellant is not entitled for any deduction. The Revisional Authority after considering the matter in detail revised the order passed by the First Appellate Authority and the same does not warrant interference of this Court. Hence sought for dismissal of the appeal.

We have carefully considered the arguments addressed by the learned Counsel for the parties and perused the relevant records.

The records clearly disclose that the appellant had filed returns in Form V.A.T. 100 for the period from April 2005 to March 2006 declaring the turnover and also claimed deduction towards input tax credit. The business premises of the appellant was visited by the D.C.C.T. (Audit-51) for the purpose of verification of the books of account and found that the appellant is trading in edible oil and effected purchases both locally and also outside the State. During the course of audit, it was noticed that out of 17 dealers from whom the appellant had purchased the edible oil, one of the dealers by name M/s. Healthy Life Agro Foods, Bangalore had furnished the wrong TIN number which was not tallying. Accordingly, verification was made on NIC-VAT SOFT and the TIN number furnished was found to be invalid. The TIN No. bearing 29020450710 was not allotted to any of the dealers and the same is not in existence. The said seller dealer is not a registered dealer borne on the file of any local V.A.T. Office either in Bangalore or in any other place. The assessee had purchased edible oil to an extent of Rs. 40,54,553/-, Rs. 38,80,495/-, Rs. 46,93,852/- for the month of January to March 2006 respectively totaling Rs. 1,26,28,900/-. The seller dealer has also not deposited the tax collected. Hence, Assessing Authority as well as Revisional Authority held that the appellant is not entitled for any deduction towards the input tax credit claimed by him in respect of the purchase made from M/s. Healthy Life Agro Foods, Bangalore. This Court on 9-12-2011 directed the Government Advocate to produce the records in respect of M/s. Healthy Life Agro Foods, Bangalore bearing TIN No. 29020450710. Pursuant to the said direction, the\\ Government Advocate made available the records and also the communication received from the Assistant Commissioner of Commercial Taxes, LVO-050, Bangalore dated 3-8-2012 which reads as under:

Sub.: Report regarding TIN No. 29020450710 of M/s. Healthy Life Agro Foods, Bangalore.

With reference to the above, this is to inform you that no dealer is registered in this Office by TIN No. 29020450710. E-filing system shows that this is not a valid TIN number. The TIN No. 29020450710 is not in existence and not a valid one and not registered anywhere in Karnataka. The copy of the computer print out is enclosed for kind reference.

Further this Court by its order dated 13-2-2014 gave an opportunity to the appellant to produce the registration certificate of M/s. Healthy Life Agro Foods, Bangalore issued under Rule 9(1) of the K.V.A.T. Rules. However, the Advocate for appellant produced the registration certificate of "HEALTHY LIFE, and others of HEALTHY LIFE" registered on 19-2-2014 bearing TIN No. 29640450710. Hence it is clear that for the assessment year 2005-2006 the TIN number of M/s. Healthy Life Agro Foods, Bangalore was not in existence. Only on 19-2-2014, the HEALTHY LIFE, and others of HEALTHY LIFE was registered under the Act with different TIN number. Hence, the appellant-dealer has failed to establish that the selling dealer M/s. Healthy Life Agro Foods, Bangalore is a bona fide register dealer borne on the file of any local V.A.T. Office. Section 70 of the Act casts burden on the appellant to prove that any transaction of the dealer for the purposes of payment of tax or assessment of tax or any claim to input tax under the Act. However, the appellate has not discharged the burden cast upon it by producing necessary documents. Hence appellant is not entitled for input tax credit in respect of edible oil purchased from M/s. Healthy Life Agro Foods, Bangalore.

Further, it was noticed by the auditing authority that the appellant has purchased capital goods in the form of goods vehicle i.e. a canter fitted with tanker for transportation of edible oil from one place to another which are taxable goods. The appellant claimed tax rebate stating that the said tanker is being used in the course of business. u/s 12 of the K.V.A.T. Act, the appellant is entitled for the deduction of input tax in respect of capital goods. Section 2(7) defines ''the Capital Goods'', which reads as under:

(7) "Capital Goods" for the purposes of Section 12 means plant, including cold storage and similar plant, machinery, goods vehicles, equipments, moulds, tools and jigs, and used in the course of business other than for sale.

Section 2(19) defines ''input'' which reads as under:

(19) "Input" means any goods including capital goods purchased by a dealer in the course of his business for re-sale or for use in the manufacture or processing or packing or storing of other goods or any other use in business.

Section 12 speaks about deduction of input tax in respect of capital goods which is used in the business of sale of any goods in the course of export out of the territory of India and in the case of any other dealer in respect of purchase of capital goods wholly or partly for use in business of taxable goods. Rule 133 of the K.V.A.T. Rules provides that no deduction of input tax shall be allowed where the use of capital goods relates wholly to the sale of exempt goods. Clause (b) of the above rule provides that where the capital goods used for sale of taxable goods wholly or partly the dealer shall be eligible for rebate on such capital goods. The cumulative reading of the above provisions make it clear that when the dealer purchased the capital goods for the purpose of his business, he is entitled for deduction of input tax under the Act. The language employed in the definition of ''Capital Goods'' makes it clear that deduction of input tax shall always be allowed in respect of purchase of capital goods for the use of business wholly or partly for use in the business of taxable goods. Further reading of definition of ''input'' makes it very clear that any capital goods purchased by a dealer in the course of his business for re-sale or for use in the manufacture or processing or packing or storing of other goods or any other use in business.

In the instant case, the records clearly disclose that the assessee had purchased a canter fitted with the tanker for the transportation of edible oil which is taxable goods from one place to another. The assessee had purchased edible oil both from domestic market so also from outside Karnataka State and was paying tax separately under C.S.T. Act, 1956. The purchase of goods vehicle is a capital goods purchased for the purpose of business. Section 12 of the Act, provides for deduction of input tax in respect of the capital goods. Hence, we are of the view that the appellant is entitled for deduction of input tax in respect of purchase of a canter fitted with tanker. The judgment in the case of Canara Overseas Limited, Bangalore v. State of Karnataka 2009(67) Kar. L.J. 161 (HC) (DB) relied upon by the Advocate appearing for the respondent is not applicable to the facts of the present case.

In respect of purchase of other capital goods is concerned, the Assessing Authority has disallowed the input tax on the ground that no such claim is made by the appellant by filing Form V.A.T. 100 and the purchases were not supported by relevant records. The dealer should have claimed input tax deduction in the returns itself along with necessary documents. Hence, the appellant is not entitled for claiming deduction of input tax in respect of the said capital goods. Accordingly, the appellant is entitled for the relief only insofar as the purchase of capital goods i.e. canter fitted with tanker and the claim of the appellant in respect of edible oil and other capital goods the appellant is not entitled for any relief. Hence, the first and third questions of law are held against the appellant and the second question of law is held in favour of the appellant. Accordingly, the appeal is allowed in part. The order dated 4-12-2009 passed by the Revisional Authority is modified. The appellant is entitled for deduction of input tax only in respect of purchase of capital goods i.e. canter fitted with tanker. In all other respects, the appeal stands dismissed.