STATE OF GUJARAT KAIRAVI STEEL

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1 [2015] 86 VST 141 (Guj) [IN THE GUJARAT HIGH COURT] STATE OF GUJARAT V. KAIRAVI STEEL A. J. DESAI AND A. G. URAIZEE JJ. July 17, 2015 HF Assessee, including dealer (Registered or Unregistered) VALUE ADDED TAX INTEREST PENALTY DEALER PAYING EXCESS INPUT TAX LEVY OF INTEREST AND PENALTY NOT JUSTIFIED GUJARAT VALUE ADDED TAX ACT, 2003 (1 OF 2005), SS. 11, 12, 13 GUJARAT VALUE ADDED TAX RULES, 2006, R. 15. The respondent-dealer traded in iron and steel products and scrap thereof. For the assessment year , the assessing officer raised a total demand of Rs. 38,13,740 including tax, interest and penalty disallowing input-tax credit on purchases. The Deputy Commissioner dismissed the appeal filed by the dealer. The Tribunal held that since the dealer had already paid excess input tax the levy of interest and penalty was contrary to the provisions of law. On appeal: Held, dismissing the appeal, that the order of the Tribunal was justified. State of Gujarat v. Cosmos International Ltd. [2015] 5 VST-OL 1 (Guj) followed. State of Gujarat v. Cosmos International Ltd. [2015] 5 VST-OL 1 (Guj) (paras 3 and 5) referred to. Tax Appeal No. 448 of 2015 with Civil Application (OJ) No. 494 of decided on July 17, 2015 Ms. Vacha Desai, Additional Government Pleader, for the appellant. Uchit N Sheth for the respondent. Cases referred to : State of Gujarat v. Cosmos International Ltd. [2015] 5 VST-OL 1 (Guj) followed State of Gujarat v. Cosmos International Ltd. [2015] 5 VST-OL 1 (Guj) Referred to The order of the court was made by ORDER 1 A. J. DESAI J. By way of the present appeal filed under section 78 of the Gujarat Value Added Tax Act, 2003, the Commissioner of Commercial Tax 1. Oral. Page No: 141

2 has challenged the judgment and order dated October 15, 2014 passed by the Gujarat Value Added Tax Tribunal, Ahmedabad, in Second Appeal No. 685 of 2014, by which it has been held that the respondent-assessee cannot be held to pay the interest and penalty on the tax levied since the assessee has already paid excess input-tax credit. The brief facts of the case arise from the record are as under: 2.1. That the respondent is proprietary concerned, which is duly registered under the Gujarat Value Added Tax Act, The business of the respondent is of trading of iron and steel product and scrap thereof. The respondent was regularly maintaining the books of account of business and was making the payment of tax under the VAT Act and used to file returns in accordance with the Act. The respondent submitted its returns for the assessment year of and produced relevant documents along with the returns. The assessing officer by passing assessment order made the total demand of Rs. 38,13,740 including tax demand of Rs. 7,96,791, interest of Rs. 6,45,538 and penalty of Rs. 23,71,441 disallowing the demand raised by the assessee by way of input-tax credit on the purchases made from M/s. Nova Shipping Pvt. Ltd. The said decision was challenged by the assessee by way of filing first appeal under section 73 of the Act before the Deputy Commissioner of Commercial Tax, Ahmedabad. By way of the order dated May 2, 2014, the Deputy Commissioner of Commercial Tax, Ahmedabad, dismissed the appeal filed by the assessee. The order passed by the assessing officer as well as the order passed by the Deputy Commissioner of Commercial Tax, Ahmedabad, confirming the order the assessing officer were challenged by the assessee by way of filing Second Appeal No. 685 of 2014 before the Gujarat Value Added Tax Tribunal, Ahmedabad. By judgment and order dated October 15, 2014, the Gujarat Value Added Tax Tribunal, Ahmedabad, partly allowed the appeal and held the since the assessee has already paid excess input tax levied, interest as well as penalty was contrary to the provisions of law as well as the decision of the Tribunal in case of Cosmos International Ltd. v. State of Gujarat. Hence this appeal. The learned Additional Government Pleader Ms. Vacha Desai fairly conceded that the decision delivered by the Tribunal in case of Cosmos International Ltd. v. State of Gujarat was challenged by the State of Gujarat by way of Tax Appeal No. 857 of 2013 (State of Gujarat v. Cosmos International Ltd. [2015] 5 VST-OL 1 (Guj)). The said tax appeal has been finally heard and decided by the Division Bench of this court along with allied matters and the view taken by the Tribunal with regard to granting deduction of excess input tax levied and if the assessee is entitled to pay the Page No: 142 additional tax and the same is adjusted from the excess credit, there should be no levy of interest and penalty from the assessee. On the other hand, learned advocate Mr. Uchit Sheth appeared for the respondent and states that he has already filed his appearance on behalf of the respondent-assessee. Learned advocate would submit that in view of the decision delivered by the Co-ordinate Bench of this court, there is no need to interfere with the present appeal. Heard learned Additional Government Pleader Ms. Vacha Desai and learned advocate Mr. Uchit Sheth. Perused the impugned judgment and order passed by the Gujarat Value Added Tax Tribunal, Ahmedabad as well

3 as the decision in case of State of Gujarat v. Cosmos International Ltd. [2015] 5 VST-OL 1 (Guj) passed Tax Appeal No. 857 of 2013 by the Division Bench of this court. While considering the aforesaid issue, the relevant provisions of the VAT Act and the Rules, 2006 are required to be referred to and considered which are as under: "11. Tax credit. (1)(a) A registered dealer who has purchased the taxable goods (hereinafter referred to as the 'purchasing dealer') shall be entitled to claim tax credit equal to the amount of, (i) tax collected from the purchasing dealer by a registered dealer from whom he has purchased such goods or the tax payable by the purchasing dealer to a registered dealer who has sold such goods to him during the tax period, or (ii) and (iii)... (b)... (2) to (4)... (5) Notwithstanding anything contained in this Act, tax credit shall not be allowed for purchases, (a) and (d)... (dd) made prior to the date of registration. 12. Tax credit for stock on (31st March, 2006) 12(1) to 12(5) (6) The provisions of section 11 shall apply mutatis mutandis to the tax credit to be availed of under this section. 12(7) If the Commissioner is satisfied that a dealer (a) has claimed tax credit for such stock for which he is not entitled for claiming tax credit as per the provisions of section 11 and sub-sections (3) and (4) of section 12, or Page No: 143 (b) has claimed excess tax credit than what he is entitled to under section 11 or under this section the Commissioner may, after giving the dealer an opportunity of being heard direct him to pay a penalty equal to twice the amount of tax credit so claimed. 13. Net amount of value added tax. The net amount of value added tax for a tax period payable shall be determined after the adjustment of tax credit in the manner as may be prescribed. Gujarat Value Added Tax Rules, 2006: 15. Calculation of tax credit under section 11

15(1) and 15(2)... 15. (3) A registered dealer shall calculate tax credit as per form 201 and such calculation shall be made separately for each tax period. 18. Calculation of tax.

4 15(1) and 15(2) (3) A registered dealer shall calculate tax credit as per form 201 and such calculation shall be made separately for each tax period. 18. Calculation of tax. (1) The net amount of tax payable under section 13 by a registered dealer, other than the dealer who has been granted permission to pay lump sum tax under sections 14, 14A read with clause (bb) of sub-rule (8) of rule 28, 14B, 14C or 14D shall be determined in form 201. (2) If the amount calculated as per sub-rule (1) has a negative value (a) the same shall be adjusted against tax liability, if any, under the Central Sales Tax Act, 1956 (hereinafter called Central sales tax liability) for the said tax period and the remaining amount of Central sales tax shall be payable: or (b) if there is no Central sales tax liability or if the Central sales tax liability for the said tax period is less than the said negative amount, then no tax under the Act as well as under the Central Act will be payable and the net amount, after adjusting the Central sales tax liability, shall be carried forward to the next tax period of the same year or, as the case may be, the subsequent year." The Division Bench has observed in the relevant portion, which reads as under (pages 14 and 15 in 5 VST-OL): "Section 11 of the VAT Act provides for an input-tax credit admissible and rule 18 of the Rules, 2006 provides for calculation of the input-tax credit. It cannot be disputed that for the purpose of claiming input-tax credit, an assessee/dealer is required to submit its claim in the required format, i.e., in form No. 108 and on that the assessment order is required to be passed and on assessment the input-tax credit Page No: 144 admissible to an assessee/dealer is determined. Once on assessment it is found that dealer is entitled to a particular input-tax credit, in that case, rule 18 of the Rules, 2006 which provides for calculation of tax would come into play. On conjoint reading of section 11 of the VAT Act read with rule 18 of the Rules, 2006, a dealer is entitled to adjust its output tax liability against its admissible input-tax credit in the current year under consideration. Thereafter and after adjusting the input-tax credit against its output tax liability of the current year under consideration, if still there is any input-tax credit available to a dealer/assessee, a dealer is entitled to adjust such balance input-tax credit against its Central sales tax liability of the current year under consideration. If thereafter still there is any input-tax credit in the credit of the assessee/dealer, such balance input-tax credit is required to be carried forward to the next subsequent year and that is the scheme of the VAT Act and the Rules, 2006 more particularly with respect to the input-tax credit. Therefore, merely because while submitting the form and raising the claim of input-tax credit, the assessee had claimed more/excess input-tax credit than admissible, is no ground to deny the assessee/dealer to adjust the admissible input-tax credit (which is held to be admissible only after assessment) against

5 its output tax liability under the VAT Act in the current year under consideration. To deny such input-tax credit in the current year under consideration would be against the provisions of the VAT Act and the Rules, 2006 more particularly section 11 of the VAT Act read with rule 18 of the Rules, It is not in dispute that whatever is claimed by the assessee as input-tax credit by submitting form No. 108 is always subject to the assessment/reassessment and the actual amount of input-tax credit is determined only on assessment by the assessing officer. Only after assessment/reassessment, as the case may be, a final amount of input-tax credit is assessed and determined. Once on assessment or reassessment, as the case may be, a final amount of input-tax credit is assessed and determined, an assessee/dealer is entitled to such input-tax credit and on such input-tax credit the assessee is entitled to adjust such input-tax credit against its output tax liability under the VAT Act of the current year under consideration. Only in a case where the admissible available input-tax credit is less than the output tax liability of the current year under consideration, after permitting to adjust such input-tax credit against its output tax liability of the VAT Act of the current year under consideration, the assessee/dealer is liable to pay the interest on such balance due Page No: 145 amount of output tax liability and on such amount the assessee/dealer is liable to pay the interest as provided under the VAT Act and the Rules, Under the circumstances, while declaring/holding that the appellant is entitled to adjustment of admissible input-tax credit towards its output tax liability of the current year under consideration, the learned Tribunal has rightly observed and held that the assessee is liable to pay interest only on the dues rising on assessment after adjusting the admissible input-tax credit towards its output tax liability." We are in the respectful agreement with the observations made by the Division Bench of this court. The present case is having similar question of law involved, which is already been decided by the Division Bench of this court. Hence, the appeal is meritless and accordingly the same is dismissed. Order in civil application: As the main tax appeal is dismissed today, the civil application does not survive and the same is disposed of accordingly. Page No: 146

State of Karnataka. Transglobal Power Limited

State of Karnataka. Transglobal Power Limited [2015] 77 VST 509 (Kar) [IN THE KARNATAKA HIGH COURT] State of Karnataka V. Transglobal Power Limited KUMAR N. AND MANOHAR B. JJ. October 16,2014 HF Assessee, including dealer (Registered or Unregistered)