Input Tax Credit is a Substantive Right which can’t be denied merely by Invoking Some Machinery Provisions: Karnataka HC [Read Judgment]

While considering a bunch of writ petitions from traders, the Karnataka High Court has held that the input tax credit is a substantive right and the department cannot deny the same to the traders merely by invoking some mechanical grounds or flimsy technical error or even on ground of limitation.

In the instant case, the petitioners claimed input tax credit paid by them on purchases effected by them against the output tax liability in respect of the sales made. Such claim was made in the relevant tax period. However, the Revenue rejected the claim by observing that ITC was deductible only in the particular ‘tax period’ in which the invoices of the selling dealer were raised, and the accumulated VAT ITC available in the various months preceding the ‘tax period’ in question, could not be used by way of ITC against the Output Tax for the ‘tax period’ of a particular month. Subsequently, re-assessments were initiated against the petitioners.

While disposing the writ petitions, Justice Vineeth Kothari said that the substantive provision of Section 10(3) of the KVAT Act does not provide for any restriction on claiming input tax credit against the output tax paid in a particular tax period to determine the net tax payable for that tax period and therefore there is no justification whatsoever to accept such an interpretation put forth by the counsels for the Respondent State.

“Such contentions had not only been negatived and with great respects, rightly so by the Single Judge in the case of Sonal Apparel Private Limitedcase, but this Court is of the considered opinion that the Respondent Department is taking an unnecessarily distorted view of the observations made by the Division Bench of this Court in the case of Centum Industries Private Limited, where the Division Bench while disallowed the said claim of ITC made at a belated stage and observed simply as an obiter that the claim of ITC should relate to the tax period in question. The Division Bench never said that the ITC Invoice or Sale Invoice should also be pertaining to the same tax period, in which the credit of such ITC is claimed by the Dealer,” the Court said.

Before concluding, the Court further added that “this Court is of the further opinion that despite more than one judgment interpreting the provisions of Section 10(3) of the KVAT Act, 2003, in favour of the assessees, the tendency on the part of the Assessing Authorities of the Respondent Department to still keep on passing the orders contrary to these judgments is in utter disregard of the judicial and hierarchical discipline which they are bound to observe and it may also amount to a deliberate disobedience on their part and may invite contempt action and therefore to prevent any such further unnecessary litigation on this issue, at the behest of the different Authorities of the Department taking a contrary view, it is directed that the Head of the Respondent Department, namely, the Commissioner of Commercial Taxes shall issue a Circular in terms of the various judgments of this Court in favour of assessees, for being followed by the Authorities through out the State to avoid any further multiplicity of litigation before this Court and Appellate Forums. Therefore, such a Circular shall be issued by the Respondent Commissioner of Commercial Taxes and the Respondent – Departmental Authorities, including the Appellate Authorities under the Act are cautioned that now onwards if any contrary view is found to be taken by such Authorities of the Department on aforesaid issue, this Court would initiate suo motu contempt proceedings against the Commissioner of Commercial Taxes as well as the concerned Authorities of the Respondent Department.”