State of Karnataka vs Vinyas Innovative Technological Private Limited

N. Kumar, J.—The State has preferred these revision petitions against the order passed by the Karnataka Appellate Tribunal holding that the assessee is entitled to the input tax rebate in respect of consumables and capital goods used in the manufacture of PCBs. The two questions of law which arise for consideration in these petitions are:

"(1) Whether the assessee is entitled to the benefit of input tax deduction credit in respect of consumables as well as capital goods used in the business of manufacturing and job work of PCB?

(2) Whether Section 17(3) of the Karnataka Value Added Tax Act, 2003 is applicable?"

Insofar as the input tax rebate in the course of job work is concerned, the said question arose for consideration in the case of State of Karnataka Vs. Ashok Iron Works Private Limited, , wherein it has been held as under:

"Now, from the wordings of the aforesaid provision, it is clear that the output tax is calculated on the basis of taxable turnover on sale of goods made in the course of business, whereas the benefit of input tax rebate is available when the goods which has suffered input tax are used in the course of the business of the dealer. It has no nexus between the manufacturing of the goods and sale of goods. In the course of a job work, consumables are used. When the dealer purchases these consumables, he is liable to pay input tax. After using the consumables, employing the labour job work is completed and the finished product is delivered to the customer. What the customer pays is the labour charges on which the assessee is not liable to pay any output tax. However, he has utilised the consumables in manufacturing the finished product and he has paid input tax on such consumables. But, this business of job work is in the course of his business. Therefore, by virtue of sub-section (2) of Section 10, if he has paid input tax on consumables which is used in the course of his business, though in the course of job work he is not liable to pay any output tax, still in the taxable turnover of the said business, he is entitled to claim deduction of this input tax, however, subject to the restriction specified in Sections 11, 12, 13, 14, 17 and 18of the Act. Therefore, the argument that as no output tax is payable on this turnover of the job work, the assessee is not entitled to the benefit of input tax rebate cannot be accepted. When the consumables are used in the job work in respect of which no output tax is payable by the assessee are used in the manufacturing activity and used in the manufacturing activity undertaken by the assessee on his own and when the said manufactured goods are sold there is liability to pay output tax by the assessee. The assessee is entitled to the benefit of input tax rebate on the total taxable turnover of his business".

Insofar as application of Section 17(3) of the Karnataka Value Added Tax Act, 2003 is concerned, partial rebate is applicable only if the assessee puts to use the inputs purchased for any other purpose other than sale, manufacturing, processing, packing or storing of goods, in addition to use in the course of his business. Therefore, Section 17(3) is applicable. Accordingly, we answer substantial Question No. (2) in favour of the assessee and against the revenue. Insofar as input tax deduction credit in respect of capital goods is concerned, it was contended slotted angles falls in Entry 5 of Fifth Schedule in respect of which no rebate is permissible. The argument is, what is purchased by the assessee is slotted angle framework which includes slotted angle + gusset plates + bolt and nuts. Slotted angle is different from slotted angle framework. Slotted angle framework is used by the assessee to keep his manufactured goods. It is in the nature of capital investment and therefore, he is entitled for the benefit of input tax rebate. As such, it does not fall within Entry 5 of Fifth Schedule. Accordingly, said question is answered in favour of the assessee and against the revenue.

In view of the above, we do not see any merit in these petitions. Accordingly, the petitions are dismissed.