Recent Developments in KVAT and Precautions to be taken ......2014/11/16 · luxury trains, bars & restaurants ) CL-2 (Retail license) CL-4 (Clubs) CL-17 (Bar & restaurant at international

CA S. Venkataramani

16.11.2014

Recent Developments in KVAT

and Precautions to be taken by CAs

Tax Rates

Tax at 5.50% is introduced on sale of liquor (including beer, wine, etc.)

w.e.f 01-03-2014 w.e.f 21-04-2014 Exempt

CL-9 (bars & restaurants in urban areas)

CL-7C / CL-14 / CL-15 (liquor served by KSTDC / ITDC on luxury trains, bars & restaurants )

CL-2 (Retail license)

CL-4 (Clubs) CL-17 (Bar & restaurant at international airport catering to all travelers)

CL-9 (Bar and restaurant in rural areas)

Cl-6A (Star Hotels) CL-18 (Bar & restaurant at international airport catering specifically to international travelers)

CL-11C (retail license issued to government companies)

CL-7 (Lodging Houses) Form II beer bar license LFW-III (Wine tavern / boutique)

Notification II No. FD 21 CSL 2014 dated 28-02-2012 r/w Notification No FD 41 CSL 2014 dated 21-04-2014

Tax Rates - Issues

What is urban area?

The term urban area has not been defined under the Act. However,

Notification II of FD 21 CSL 2014 dated 28.02.2014, refers to the areas

falling under BBMP, city municipal corporation, city municipal council

and the town municipal council or town panchayat.

Whether tax is applicable on sale / distribution by KSBCL?

No. As KSBCL is a government company holding CL-11 license, they are

exempt from payment of tax.

Whether a restaurant serving liquor can opt for payment of tax under

composition scheme?

No. Rule 135(4) of the KVAT Rules, prohibits a dealer selling liquor from

opting to pay tax by way of the composition scheme.

Tax Rates - Issues

Assume, a dealer M/s ABC holding a CL-9 license sub-leases the

said license to say M/s XYZ. What are the tax implications assuming

M/s ABC is not registered?

In Karnataka, all purchases of liquor are routed through KSBCL. Thus,

KSBCL will raise an invoice in the name of M/s ABC. This is because in

the eyes of KSBCL, M/s ABC is still the holder of the said license even

though such license has been sub-leased to M/s XYZ. Further, the

manufacturer of liquor will also raise an invoice in the name of M/s ABC

quoting the TIN of M/s XYZ since M/s ABC is not registered. M/s ABC is

thus required to raise an invoice in the name of M/s XYZ. The question of

payment of taxes on transfer of liquor by M/s ABC to M/s XYZ does not

arise since M/s ABC acts only as a conduit in the entire scheme of

transactions and not as a seller.

Tax Rates - Issues

In the event the tax department litigates the issue on the ground that there is

really a sale in the hands of M/s ABC the only option would be to litigate the

matter on the ground that since the only CL 9 License that he holds being

transferred to M/s XYZ there can, in effect, be no transaction of sale, since he

can no longer run a bar and restaurant in the absence of the said License.

It must be noted that, M/s ABC is liable to pay taxes at the rate of 5.50%, on

the sub-lease of the CL-9 license to M/s XYZ, in terms of entry 34 of the

Third Schedule to the KVAT Act, 2003

Returns

Suitable administrative measures provided for rectification of

mistakes in the returns filed, where such rectification will not have

any tax implication.

A new subsection (5) has been inserted in Section 31, which requires

every registered dealer to file an annual statement (which will be in

addition to the monthly returns) in order to avoid disputes in the

information provided by dealers in the electronic returns.

Returns - Issues

Rectification which does not have any tax implications-Means?

It means, rectifying returns as result of omitting / including those

transactions which have no effect on the quantum of taxes payable /

refundable including input tax credit. In other words inter-state purchases,

stock transfer, etc.,. (Refer para 8 of Circular 12/2014-15 dated 16.08.2014)

What are the procedures to be followed for rectifying such mistakes?

The Commissioner of Commercial taxes has issued a circular No 12 / 2014-

15 dated 16-08-2014 prescribing the procedure to rectify such mistakes

having no tax implication.

Whether revised returns should be filed for such rectification?

No. It is not necessary to file revised returns. The relevant box can be

specifically accessed on the Departmental website.

Returns - Issues

Does the Act prescribe any time limit for such rectification?

No time limit has been prescribed under the Circular.

What is the form notified for the purpose of the annual statement?

No form has been prescribed till date.

What is the due date for filing the same?

No due date has been prescribed till date.

In case of differences between the monthly return and the annual

statement, what is the course of action?

Since no procedures or forms are prescribed in respect of annual statements

no corrective action can be taken. However, such differences shall be

incorporated in the Form VAT 240.

Returns – Issues… Whether taxes remitted short can be paid along with the annual

statement?

Generally Yes

Whether unclaimed input taxes can be declared and claimed in the

annual return?

Generally Yes

Is the annual statement a substitute for the Form VAT 240? If not, do both

the statements have to be filed?

The annual return may not be a substitute for Form VAT 240. Thus, both

annual return and Form VAT 240 have to be filed.

Whether the VAT Auditor should verify the annual statement and

comment on the same for the purpose of Form VAT 240?

No

Section 63 of the KVAT Act, 2003 has been amended to provide that a

single appeal may be preferred before the Tribunal for the year as a

whole against orders of assessment or re-assessment passed by the

First Appellant Authority, instead of filing appeals for each of the

month.

What is meant by second appeal?

Appeal before the KAT

Whether, this amendment is applicable to second appeal before JCCT

(Appeals )?

No.

Appeals & Issues

Penalty

A proviso to Section 72(1) of the KVAT Act, 2003 has been inserted to

provide that no penalty shall be payable, for failure to furnish a

return for any tax period, by a dealer who is not liable to get himself

registered and who is also not liable to pay any tax for such tax

period, if he makes an application for cancellation of his certificate of

registration.

Download - Form C / Form F

The Department of Commercial Taxes, Karnataka has issued Circular

No.12/2014-15, dated 16.08.2014 with regard to the procedure to

download declaration in Form C / F where the dealer had failed to

declare / wrongly declared the relevant inter-State purchase/ stock

transfers in the monthly return in Form VAT 100..

Auto Generation - Form C

The Department of Commercial Taxes, Karnataka has prescribed the

procedure for auto-generation of declarations in Form Cs

(electronically) for the quarter ending 30.06.2014 and onwards. The

procedure is contained in Notification No.CCW/CR.8/2013-14,

dated 09.09.2014.

All registered dealers will be eligible for this facility for inter-State

purchases effected on / after 01.04.2014.

Auto Generation - Form C - Issues

In case of a dealer, whose annual turnover is less than the minimum

prescribed for uploading of purchases and sales, is it sufficient to

only upload the details of inter-state purchase for the limited

purpose of generating Form C?

Yes. It is sufficient to only upload the details of inter-state purchase for the

limited purpose of generating Form C.

Inter-State purchase against form C – invoice is accounted in

subsequent months – whether Form C can be generated?

The Commissioner vide Circular 12/2014-15 dated 16.08.2014 has clarified

that Form C can be generated for the tax period pertaining to the invoice

date.

Auto Generation - Form C – Issues…

Form C generated with incorrect details – what is the course of

action?

In case Form C generated is incorrect or incomplete for any reasons, the

dealer is required to apply in writing for cancellation of the same with the

concerned LVO/VSO and also submit such Form C along with the written

request. Additionally, an undertaking is to be filed to the effect that the

selling dealer of the other State has not submitted the said declaration in

Form C and has not claimed the concessional rate of tax.

Whether after generation of Form C, the dealer can file revised return

for the period to which such Form C pertains to?

No. Once Form Cs are generated, the dealer is not permitted to make

changed in the value declared in the monthly returns.

E-Upass

The Department of Commercial Taxes, Karnataka has issued

Notification No: CCW/CR44/2013-14 dated 29-04-2014 with regard

to furnishing of details in respect of purchases, sales and receipt /

despatch of goods otherwise than by way of purchase/sales (i.e.

stock transfer) electronically. This would be effective immediately

commencing from the tax period May, 2014 for all those dealers

whose total turnover is Rs. 50 lakhs or more.

E-Upass – Issues

The procedure for uploading the details of purchases and sales is

mandatory to all the registered dealers?

It is mandatory only for those dealers who annual turnover exceeds Rs. 50

lakhs. It is also mandatory for those dealers who intend to generate Form C.

What is the procedure to upload details of E1 sales?

In the current scenario, there is no facility to upload details of E1 sales.

Whether the details of purchase / sales should be uploaded prior to

filing of returns?

There is no specific order prescribed for filing details of purchase / sales.

Thus, details of purchase / sales may be uploaded prior to filing of returns.

E-Upass – Issues…

What is the due date for uploading the details of purchase / sales?

The details of purchase / details must be uploaded within the 20th of each tax

period.

What are the consequences for not complying with the uploading of

details of purchases and sales?

In case of dealers who are required to upload the relevant details and who

are not complying with the same, generation of declaration in relevant

forms viz, C, F, H, etc. will not be possible. The Department has also

cautioned the dealers that there will strong measures to ensure compliance

of the same which may include blocking of access to file the necessary

monthly returns in Form VAT 100.

E-Upass – Issues…

Whether uploading of purchase and sales details is with reference to

generation of statutory forms only? Does it have any impact on

claiming of ITC by the dealers on local purchases?

The input tax credit uploaded along with the details of purchases should

match with input tax credit as declared in the returns.

Larsen & Toubro (65 VST 1) The Larger Bench of the Hon’ble Supreme Court (three member Bench)

on 26.09.2013 delivered a landmark decision in the case of Larsen &

Toubro Vs State of Karnataka (65 VST 1) approving the decision of the

Supreme Court in the case of K. Raheja Development Corporation and

others (141 STC 298) on the question relating to applicability and levy of

sales tax / works contract tax on contracts involving construction / sale

of residential apartments.

Three conditions must be satisfied for levy of tax on goods deemed to

have been sold under a works contract (i) there must be a works contract,

(ii) goods should have been involved in the execution of a works contract

and (iii) the property in those goods must be transferred to a third party

either as goods or in some other form. If the developer has received or is

entitled to receive valuable consideration, the above three things are fully

met.

Larsen & Toubro (65 VST 1) contd..

The activity of construction would be a works contract only from the

stage the developer enters into a contract with the flat purchaser. The

value addition made to the goods transferred after the agreement can

only be made chargeable to tax by the State.

Even if the dominant intention of the contract is not to transfer the

property in goods and rather it is rendering of service or the ultimate

transaction is transfer of immovable property, tax may be levied on the

materials used in such contract if such contract otherwise has elements of

works contract.

Taxing the sale of goods element in a works contract is permissible even

after incorporation of goods, provided tax is directed to the value of

goods and does not purport to tax the transfer of immovable property.


The value of the goods which can constitute the measure for the levy of

the tax has to be the value of the goods at the time of incorporation of the

goods in works even though property passes as between the developer

and the flat purchaser after incorporation of goods.

The label of payment is not decisive but the factum of payment is

Where a contract comprises of both - a works contract and a transfer of

immovable property, such contract does not denude it of its character as

works contract.


In the development agreement between the owner of the land and the

developer, direct monetary consideration may not be involved but such

agreement cannot be seen in isolation to the terms contained therein and

following development agreement, the agreement in the nature of the

tripartite agreement between the owner of the land, the developer and

the flat purchaser where under the developer has undertaken to

construct for the flat purchaser for monetary consideration. Seen thus,

there is nothing wrong if the transaction is treated as a composite

contract comprising of both a works contract and a transfer of immovable

property and levy sales tax on the value of material involved in execution

of works contract.

L & T Ltd - Issues

► Would the judgement be applicable only for the parties thereto or would

it be applicable to all?

The judgement of the Larger Bench of the Honourable Supreme Court would be

applicable to all dealers in the country (registered or unregistered) who have

executed any works contract in the nature of construction and sale of residential /

commercial / any other structures.

► Would the ratio of this judgement be applicable for computation of

service tax?

The ratio of judgment in my view would be applicable for the services classified as

“works contract” and cannot be made applicable to the transactions classified as

construction of residential complex services.

L & T Ltd - Issues

► What would be the implications if the flat purchaser only books the flat

but does not pay any instalments after that?

The value of works which is executed after the date of the said „agreement to sell‟

would be liable to tax as works contract – irrespective of whether or not the flat

purchaser pays the instalments.

► What would be the implications if only the booking advance is received

and the agreement to sell is not entered into, subsequently?

The transaction would attain the characteristic of a works contract only at the

time when the „agreement to sell‟ is entered into – till such time the agreement is

entered into, the amount received merely represents a willingness to enter into a

contract with the developers. This, in my view, would not qualify as „sale‟ or as

„advance for execution of works contract‟.

L & T Ltd - Issues

► What are the implications where the builder has raised a demand note

but the money is not received / is received in subsequent tax periods?

„Taxable turnover of works contracts‟ would be the value of works done during

the relevant tax period/s and not merely the receipt of monies from the flat

purchasers

► What are the factors for distinguishing a works contract with a sale

simplicitor? Should substance of the transaction be overlooked?

On fulfilling the three conditions as specified in para 101 of the judgment viz.,

- There must be a works contract

- There must be goods which are involved in the execution of the works contract

- The property in such goods should be transferred to the customer – whether in

the same form or in some other form

► In a JDA, can it be said that the ownership / property in the unsold units

gets transferred to the land owner?

In my considered view, such transactions cannot be considered as taxable since

they do not envisage monetary consideration which is a pre-requisite to fall

within the definition of the word “sale”.

► The judgement indicates that the value to be taxed is ‘value of goods at

the time of their incorporation into the works contract’ – this is indicative

of purchase method of valuation – this is not prescribed / provided in

law – what could be the implications if this method is adopted?

The purchase method of ascertaining the value of goods used in the execution of

works contract is not prescribed / provided in law.

L & T Ltd – Issues…

► In a case where the agreement to sell is entered into in the course of

construction – but the full consideration is received only after the

construction is complete – what would be the implications?

In my view, once the agreement to sell is entered into with the flat purchaser, the

total construction value of the contract attributable to the work which is executed

after the date of the said „agreement to sell‟ would be liable to tax as works

contract


► The substance of the transaction and the time of transfer of property

appears to have been overlooked in the judgement – does it mean that

contract for manufacture of customized goods and sale thereafter would

now be works contracts – or would they continue to be sale simplicitor?

If a transaction satisfies 3 conditions as stated in para 101 of the judgment and

the developer has received or is entitled to receive a valuable consideration, the

transaction is a works contract


► The SC states that – ‘the value addition made to the goods transferred after the

agreement is entered into with the flat purchaser can only be made chargeable to

tax by the State Government (Para 115 of the judgement)’ – what would be

the implications in respect of goods which have already been

incorporated into the construction but value addition to it takes place

after the contract?

It would be appropriate and reasonable to determine the proportion of the work

done for each of the towers, as may be feasible, based on certificates of work

completed from third parties. This would mean that for all the flats / units sold

during the month, the portion of work completed upto the end of the previous

month could be reckoned as „work completed upto the date of the agreement with

the customer‟.


► How to compute the net tax payable on a sale of flat? Illustration

► Contracts are entered into with the customers throughout the life cycle of

the project – at what stages would regular scheme and composition

scheme be beneficial?

The decision on the type of registration to be sought is dependent on the various

factors. Such factors should be simulated in respect of each case to compute the

effective rate of tax on a project prior to decision making.

► What is the impact on the JDAs? Would the land owner’s share now be

liable to VAT?

In our view, the judgement in the case of L&T would not impact the position on

taxability of the exchange of land and constructed portion between the land owner

and the developer - barter.


► What happens in the event, a flat for which an agreement to sell has been

entered into is subsequently cancelled / surrendered?

In my view, the same would tantamount to a „sales return‟. Subject to the

condition that the same is done within 6 months from the date of entering into

the agreement to sell, the output taxes paid and deductions and input taxes

claimed would have to be reversed.

► What are the implications in case of transfer / exchange of flat – where

the flat purchaser changes the flat?

Taking cognizance of the fact that the customer had already entered into an

agreement to sell originally and it is only a case of transfer / shift from one unit

to another, in my view, reversal / re-credit, as the case may be of the taxes and

deductions would not be required.


► What are the implications in case of assignment of the flat – where the

original flat purchaser assigns the relevant flat to another person for a price –

the builder would normally be a confirming party to such contracts?

From a VAT perspective, assignment of an agreement to sell by the original customer

in favour of another person would not have any implications, meaning the works

contract portion originally ascertained, if any, would remain unaltered.

► How should tax be computed where the complete flat value is received in

advance by the builder?

In my view, once the agreement to sell is entered into with the flat purchaser, the total

construction value of the contract attributable to the work which is executed after the

date of the said „agreement to sell‟ would be liable to tax as works contract –

irrespective of when the flat purchaser pays the consideration.


► Where the returns were filed as ‘nil returns’ on the premise that the sale of

flat is sale of immovable property – would the penalty under Section 72(2)

still be payable?

In my view, penalty provision would be invoked and would be applicable in all

cases where the dealers had in the earlier tax period/s filed „nil returns‟ on the

premise that the sale of flat is one of sale of immovable property.

► Where the returns were filed as ‘nil returns’ on the premise that the sale of

flat is sale of immovable property – would interest be payable for the delay

in payment of net tax?

In my view, delay in payment of tax is mandatorily liable for payment of interest at

prescribed rate/s for the period of delay.


► In terms of the SC ruling, work completed upto the date of the agreement

would not be liable to tax – however, where the builders have collected

and remitted taxes even on such portion of the construction value – what

would be the implications – forfeiture and penalties?

The tax collected in excess from each customer should be computed and intimate

the flat owners individually who can thereafter file an application in Form VAT

260 before the Honourable Commissioner of Commercial Taxes for refund of

such excess taxes collected by the developer and remitted to the State

Government.


► In the normal course, builders make inter-State purchases against Form C

– however, to the extent the flats remain unsold and to the extent of work

completed upto the date of the agreement, the SC has ruled that the same

would not be liable to tax – in such circumstances, would this amount to

mis-use of Form C? What would be the implications?

In my view, this would be a matter of litigation and would have to be contested.

► Where approximate taxes have been collected and deposited into Escrow

/ FDs, can the amounts now be transferred into current accounts?

In this scenario the question of tax payable versus excess tax collected needs to

worked out and the balance will have to be deposited in the State treasury which

will ultimately stand forfeited under Section 47 of the KVAT act, 2003.


► Where no taxes have been collected from the customers – based on this

agreement, can taxes now be collected?

In my personal view the developer would not be in a position to collect taxes in

cases where the properties are already registered with the sub registrar.

► How to establish the amount of work completed for each tax period?

Should it be for each flat or for each tower or for each project?

The Law does not stipulate method to ascertain the same.

► Is there any communication / correspondence to the exchanged with the

customers?

The VAT laws or the judgement by itself does not provide for any

communication / correspondence to the exchanged with the customers.


► Should the deductions and credits be reversed at the end of each tax

period to the extent it relates to unsold flats?

Taking cognizance of the Supreme Court Ruling, the work done upto the date of

the agreement would not be liable to tax. Accordingly, it follows that the (i)

deductions (labour and other like charges and the sub contract charges /

payments) and (ii) input tax credits), attributable to such portion of the work

would not qualify for deduction. Thus, such amounts relatable to all the unsold

units should be reversed on a monthly basis.


► What would happen if the deductions and credits are carried forward

and are reversed at the time when the agreement to sell is entered into?

Where the deductions are proposed to be carried forward and reversed only at the

time of entering into the „agreements to sell‟, it could tantamount to a case of

claim and utilisation of ineligible deductions / credits, for the said period (from

the date of claim upto the date of reversal). This would attract consequential

interest and penalties.


► Can the deductions and credits be claimed in full under the contention

that the total construction value is offered to tax (including the amount of

work done upto the date of the agreement to sell)?

Where the developer has offered the full value of the construction contract to tax,

viz., including the non-taxable portion, in our view, it shall be deemed that the

tax is incorrectly or wrongly paid by the developer on a value which his not

liable to tax. Accordingly, where such tax is collected and paid by the developer,

the same would be liable for forfeiture / penal action on the ground that excess

taxes have been collected from flat purchasers.


► With respect to sub contract deductions – it is prescribed that appropriate

proof of payment of tax and disclosure in the return of the sub contractor

should be established - in respect of old contracts where the requisite

documentation was not obtained for all these years, what would be the

alternative remedy?

In the event such documentation are not available, in my view, the developer

would not be eligible to claim the deductions.


► Where the returns were filed as ‘nil returns’ – however, without

prejudice, if the deductions / input credits were availed but not utilised –

on account of computation of ineligible amounts in terms of the SC

judgement – will penalty be payable under Section 72(2) on the premise

that excess input credits / deductions are availed in the returns?

In terms of the judgement of the Hon‟ble Supreme Court, the work executed after

the date of the „agreement to sell‟ would be liable to tax, irrespective of whether or

not the same was declared in the returns of the earlier period/s. Accordingly, the

dealer would also be entitled to claim the credit of input taxes indicated in the

returns filed for the earlier tax period/s. Therefore, in my view, the developer

would not be liable for penalty under Section 72(2) of the Karnataka VAT Act,

2003.


► For each of the audit reports in Form VAT 240 already filed for the earlier

years, what would be the implications – should it be revised or should all

the adjustments be considered in the audit for the year 2013-14?

There being no bar on filing a revised audit report in Form VAT 240 in my view

it is suggested to file a revised report in Form VAT 240 as early as possible based

on the judgment of Honourable Supreme Court.


► The Constitutional Bench of the Honourable Supreme Court has held that

composite contract of manufacture, supply and installation of lifts in

building amounts to works contract. Where, there are two contracts of

purchase of components of lift from a dealer and separate contract for

installation, the same would be 'sale' and 'labour or service' respectively.

Kone Elevators

► What is the basis to differentiate works contract and sale in the light of

the above judgment?

Whether the contract is for works contract or for sale of goods will have to be

decided with reference to the agreement between the parties. The terms of the

agreement would lead to a conclusion whether it is a 'Works Contract„ or not. In

other words, unless the contract is proved to be a 'Works Contract' by virtue of

the terms agreed as between the parties, invocation of Article 366 (29A)(b) of the

Constitution, cannot be made. Alternatively, if the terms of the contract disclose

or lead to a definite conclusion that it is not a 'Works Contract', but one of

outright sale, the same will have to be declared as a 'Sale' attracting the

provisions of the relevant sales tax enactments.

Kone Elevators - Issues

► Can the “dominant nature test" or "overwhelming component test" or "the degree

of labour and service test“ be applied to decide whether the contract is a works

contract or sale?

If the legal fiction introduced by Article 366(29-A)(b) is carried to its logical end, it

follows that even in a single and indivisible works contract there is a deemed sale of the

goods which are involved in the execution of a works contract. Such a deemed sale has all

the incidents of a sale of goods involved in the execution of a works contract where the

contract is divisible into one for sale of goods and the other for supply of labour and

services. Therefore, "the dominant nature test" or "overwhelming component test" or "the

degree of labour and service test" are really not applicable. If the contract is a composite

one which falls under the definition of works contracts as enacted under clause (29A)(b) of

Article 366 of the Constitution, the incidental part as regards labour and service pales into

total insignificance for the purpose of determining the nature of the contract.

Kone Elevators – Issues…

► What are the concepts arising out of this judgment?

- Works contract is an indivisible contract, but, by legal fiction, it is divided into

two parts, one for sale of goods, and the other for supply of labor and services;

- The concept of “dominant nature test” or, for that matter, the “degree of intention

test” or “over whelming component test” for treating a contract as a works

contract is not applicable;

- The term, works contract as used in Article 366(29A) takes within its ambit all

genre of works contracts and is cannot be narrowly construed to cover one species

of contract to provide for labor and service alone;

- Once the characteristics of the works contracts are met in a contract entered into

between the parties, any additional obligation incorporated in the contract would

not change the nature of the contract.

Kone Elevators – Issues…

Centum Industries (80 KLJ 65)

The Honourable High Court of Karnataka has held that the dealer

not putting forth the claim of input tax credit in the return filed for

the relevant period or in the revised return is not entitled to claim

input tax credit for the returns filed for another period after six

months.

The ratio of the judgement in the case of K. Bond Polymers Private

Limited was distinguished by stating that the case related to claim of

refund of input taxes and not for claim of input tax credit, per se.

Centum Industries (80 KLJ 65) - Issues

Whether input tax credit can be claimed by declaring in the return filed

for any other tax period within a period of six months?

With reference to the judgment the input tax credit not claimed in the return

filed for the relevant tax period should be claimed by filing the revised return for

the relevant tax period. Input tax credit declared in a return filed for any other

tax period will be liable for disallowance.

► Input tax credit not claimed during filing of returns determined during

the course of audit – whether the benefit of ITC can be given?

The certificate in Form VAT 240 provides for the option to declare the input tax

credit as determined on the audit. In my view the short claimed input tax credit

can be allowed and declared in Form VAT 240. However, in the light of the

above judgment, the department may deny such input tax credit not duly

declared in the return filed for relevant month.

Centum Industries (80 KLJ 65) - Issues

A dealer declaring purchases and input tax thereon in the details of

purchases uploaded – failed to declare in the return – whether

entitled to claim input tax credit?

Input tax credit declared in the details of purchases uploaded but not in the

return filed for the relevant month is liable for disallowance.

Time Tech India P Ltd., STA No. 40/2010

The Honourable High Court of Karnataka has set aside the penalty

levied under Section 53(12) for not carrying the delivery note during

the movement of goods on account of stock transfer on the grounds

that the dealer during the movement was carrying all the documents

to establish that the movement was on account of stock transfer.

Whether in lieu of delivery note the dealer can carry the documents

authenticating the purpose of movement?

In case of goods which are notified, the dealer should mandatorily carry the

delivery note in the Form e-Sugam even though certain other documents are

available.

TVS Motors Co., Ltd., 49/2011 to 26-28/2012

Supply of food and drink to the employees at nominal value qualifies

as incidental or ancillary business to the main business of the

assessee of manufacture and sale of two wheelers. As such

Honourable High Court of Karnataka has held that such a

transaction of supply of food at nominal value is a sale and is liable

to tax.

In such a scenario whether , the assessee can claim ITC of VAT paid

on purchase of food materials and can set-off such ITC against the

output tax payable on supply of food?

Yes.

TVS Motors 49/2011 to 26-28/2012…

Whether the dealer is entitled to upload the details of sale of food

articles and purchases in relation to such sales – (e-Upass)?

Yes.

Whether, the such a dealer can seek separate registration in relation

to running of canteen in the premises of factory?

Yes. He may also opt for payment of tax under composition scheme for

running canteen.

Manyata Promoters (P) Ltd (STA 2570 to 2576/2012)

The rejection of the application claiming refund of input tax credit of

VAT paid on purchases was set-aside by Honourable High Court of

Karnataka and held that the time limit of six months as prescribed

under Section 35(4) is not applicable for filing an application for

refund of input tax credit.

The reliance placed by the Revenue on the judgment of the

Honourable High Court in the case of Infinite Builders and

Developers (76 KLJ 390) was rejected since the facts were relating to

non claiming of input tax credit. Accordingly, it was held that facts

and circumstances of this case was distinct and different from

Infinite Builders case and consequently the said case would not be

applicable.

Whether the decision in the Centum’s case have any bearing on the

decision passed in this judgment?

The judgment in the Centum‟s case relates to claim of ITC with respect to

the monthly tax period. Whereas the judgment in the case of Manyata

relates to refund if ITC which has already been claimed.

Whether the decision is applicable only for claiming refund of input

tax credit by an SEZ developer or SEZ unit? Or the ratio of the

decision can also be applied for claiming input tax credit?

The ratio of the above decision is applicable only to SEZ Developer / Unit.

Thus the question of it applying to other categories of dealers does not arise.


Whether the decision is applicable only for claiming refund of input

tax credit by an SEZ developer or SEZ unit? Or the ratio of the

decision in case of other dealers claiming refund input tax credit?

Yes. The decision can be relied on by any dealer claiming refund of input

tax.

Is there any provision under KVAT law to deny the benefit of input

tax credit or refund of input tax credit?

No. A close reading of the relevant provisions indicate that there is no

specific statutory provision under the Act to deny the benefit of input tax

credit / refund of input tax on the basis of time limit.


Whether section 20 overrides only Section 35 or every statutory

provision of the Act?

Yes. Section 20 of the Act has overriding powers on every other statutory

provisions of the Act. This is because, Section 51 of the SEZ Act, 2005

provides for the SEZ Act to have overriding effect on any other law for the

time being in force.


Honourable High Court of Karnataka has held that the dealer

engaged in the development and sale of software is entitled toclaim

the deduction of VAT paid on purchase of work-stations.

Does the ratio of the above decision apply to a manufacturer and can

he take credit of the tax paid on purchase of workstations?

The ratio of the above decision applies to a manufacturer for the limited

purpose of identifying whether workstations are furniture or not. Even

though such workstations are not “furniture”, they are liable to be classified

in terms of Entry 3 to the Fifth Schedule-”Electronics & Accessories”. No

input tax credit can be claimed since the workstations are not resold nor

used in manufacture.

Infosys Technologies (STRP 7/2001)

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