ONYX DESIGNS Vs. ASSISTANT COMMISSIONER OF COMMERCIAL TAXES

JUDGEMENT

(1.) The petitioner has challenged the re-assessment orders along with the consequent demand notices issued by respondent No.1 relating to the tax periods 2011-12 and 2012-13.

(2.) The petitioner is a dealer registered under the provisions of the Karnataka Value Added Tax Act, 2003 ('KVAT Act' for short) dealing in the business of trading in bags and gift items. The petitioner availed the credit of input tax paid on the purchases made from the dealers registered in the State of Karnataka in accordance with the provisions of Section 10(2) of the KVAT Act and after deducting the same from the output tax payable, discharged the net tax liability as per Section 10(3) of the KVAT Act. Returns were filed relating to the tax periods 2011-12 and 2012-13 accordingly. Respondent No.1 (prescribed authority) passed the re-assessment orders and issued consequent demand notices. Being aggrieved, the petitioner is before this Court.

(3.) Learned counsel Sri. Rajesh Chander Kumar appearing for the petitioner would submit that the proposition notice dated 23.03.2018 for the tax periods in question came to be issued by respondent No.1 under Section 39(1) read with Sections 36(1) and 72(2) of the KVAT Act. It was alleged that the dealers with whom the petitioner had transacted, had either been de- registered and not filed VAT returns and paid taxes, or they were registered, but not declared sales made to the petitioner or had declared less sales and not paid taxes collected on the sales made to the petitioner. The said notice being ex-facie incorrect with the factual aspects, the petitioner filed its reply contending that the cancellation or registration can only have the prospective effect and not the retrospective effect and thus the purchases being prior to the date of de- registration, the input tax claimed thereof cannot be disallowed. It was further argued that there is no restriction to give input tax credit, if a selling dealer has failed to remit the input tax collected from the purchasing dealer. The learned counsel inviting the attention of this Court to the re-assessment order submitted that despite accepting that the dealer has effected purchases from the dealers who have been registered under the provisions of KVAT Act, while some of them have been subsequently de-registered, others were still filing returns during the assessment years, prescribed authority disallowed the input credit contrary to the provisions of the KVAT Act. Indeed, the prescribed authority has observed that there is no provision in the KVAT Act which restricts the input credit on purchases effected from defaulting dealers, if the input is not restricted, it would lead to loss of revenue to the State. It is the finding of the prescribed authority that when an amount collected by way of tax which is due to the State is not remitted, it leads to loss of revenue to the State's exchequer if input credit is allowed. The prescribed authority exceeded the jurisdiction in arriving at such a finding.