Appellant held entitled for deduction of input tax in purchase of capital goods.

Facts in Brief:

1. This Sales Tax Appeal is by the assessee, being aggrieved by the order dated 04-12-2009 made in No.SMR/KVAT/DVO-3/CR-76/T-841/2009-10 passed by the Addl. Commissioner of Commercial Taxes, Zone-II, Bangalore invoking revisional power under Section 64(1) of the Karnataka Value Added Tax, 2003 setting aside the order dated 28-5-2009 passed by the Joint Commissioner of Commercial Taxes (Appeals)-III, Bangalore for the assessment year April 2005 to March 2006.

2. The appellant is a dealer registered under the provisions of KVAT Act and CST Act 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.

3. The appellant filed returns in Form No.100 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.

4. The business premises of the appellant was inspected by the DCCT (Audit-51) on 23-01-2007 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.

5. On verification of the books of account for the period 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 VAT 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.

6. 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 No.100 in respect of some of the other capital goods purchased, the assessee claimed input tax deduction which is contrary to law.

7. 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 under Section 39(1) of the Act on 27-01-2009 and also imposed penalty and interest and issued demand notice. Immediately after the order of reassessment, the assessee filed an application under Section 69(1) of the KVAT Act for rectification of the reassessment order.

8. The Assessing Authority by its endorsement dated 19-03-2009 rejected the said application. The appellant being aggrieved by the order passed by the Assessing Authority under Section 39(1) of the Act preferred an appeal before the First Appellate Authority challenging the same on various grounds.

9. 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 re- compute the tax.

10. 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 under Section 64(1) of the KVAT Act to revise the order passed by the First Appellate Authority.

11. 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 28-05-2009 passed by the First Appellate Authority and restored the order dated 27-01-2009 passed by the Assessing Authority and directed the Assessing Authority to issue revised demand notice.

On appeal HC held,

12. 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.

13. The assessee had purchased edible oil both from domestic market so also from outside Karnataka State and was paying Tax separately under CST 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.

14. 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 reported in 2009 (67) KLJ 161 in the case of CANARA OVERSEAS LIMITED, BANGALORE v/s STATE OF KARNATAKA relied upon by the advocate appearing for the respondent is not applicable to the facts of the present case.

15. 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 VAT 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.

16. 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.

17. Accordingly, the appeal is allowed in part. The order 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.

Case Reference - M/S.Suma Oil Agencies vs The Addl. Commissioner .