Tax Law; M. Mohammed Haji Vs. State [Kerala High Court, 04-12-2012]

Kerala Value Added Tax Act, 2003 – Section 11(12) – Suppressed Purchases – Claim of input tax credit – Doctrine of substantial compliance – The tax sufferance proved by invoice, the quantum determinable from the books of accounts etc., are the essence of the claim for the benefit conferred by the Section in availing input tax credit.

Input Tax

2012 (3) KLT SN 17 (C.No.19) : ILR 2012 (4) Ker. 87


Thottathil B Radhakrishnan & K. Vinod Chandran, JJ

O.T.Rev No. 37 of 2012


Dated this the 4th day of June, 2012

M. Mohammed Haji Vs. State of Kerala



K. Vinod Chandran, J

Revision petitioner is an assessee engaged in the business of Cement dealership and having registration under the

Kerala Value Added Tax Act

(hereinafter referred to as the Act). For the year 2007-08 the dealer had filed returns and on finding that certain purchases of Cement from the Malabar Cements has not been reflected in the returns; the books of accounts were called for and examined. On scrutiny of the books of accounts it was revealed that cement purchases from April to August 2007 totaling about Rs.3,39,015/- was suppressed from the books of accounts. In the circumstances, notice was issued contemplating best judgment assessment and after considering the objections of the dealer the proposals in the notice were confirmed. Assessment was completed making an addition of unaccounted purchase with Gross Profit estimate at the rate of 2% and a further addition of 10% of the total turnover, including that returned and unaccounted for probable omissions and suppressions.

2. The dealer filed appeal against Annexure-A order which was disposed of by Annexure B. Though the rejection of Books of accounts as also additions were confirmed, the first appellate authority thought it fit to direct the Assessing Officer to grant input tax credit with respect to the suppressed purchases since they were from a registered dealer namely M/s. Malabar Cements India Limited; a Government of Kerala undertaking. The State aggrieved by the grant of input tax credit was before the Tribunal and the Tribunal by AnnexureC order reversed the order of the first appellate authority and restored the order of the assessing officer dis-entitling the revision petitioner to claim and avail of input tax credit on the suppressed turn over. The above decision was anchored on the ratio of two decisions of this Court as also the provisions of the Kerala Value Added Tax Act.

3. The revision petitioner is before this court raising the following questions of law:-

1. Whether on the facts and circumstances of the case the Appellate Tribunal was correct in law in reversing the 1st Appellate Order and confirming the denial of input tax credit made in Annexure A order on the purchases, particularly considering the fact that the entire purchases are made only from M/s. Malabar Cements India Limited, after payment of tax and the purchases are supported with tax suffered invoices issued by the supplier?

2. Whether on the facts and circumstances of the case the Annexure A and C orders of the Authorities below to the extent it demands levy of tax on the estimated turnover without giving input tax credit on the purchases supported with proper invoice is arbitrary and illegal?

4. The revision petitioner does not dispute the actual suppression. The plea of the revision petitioner is to the effect that the omission to account the said transaction was due to a wrong advice that, if the delivery is made directly to the ultimate consumer; no further tax has to be paid by the dealer and hence there was no reason why the same should be accounted. The said contention would go against the very concept of Value Added Tax and is only to be rejected. Further while considering the contention put forward by the dealer, the Assessing Officer has categorically found that the very same defect occurred in the previous year and was pointed out by the audit officer and the assessment was completed in the said year also resorting to best judgment. The further contention is to the effect that since the purchases were made from a Government Company, tax was suffered and this entitles the revision petitioner to claim input tax credit. The Act does not provide for any credit of input tax automatically on the purchases being proved to be made from a Government Company.

5. Tribunal has relied on a judgment of a Division Bench of this Court in OT Rev.76 of 2010 dated 6.7.2011 in M/s. Venus Marketing v. State of Kerala. The Division bench, regarding the claim of input tax credit observed as follows:

“We are further of the view that benefits like input tax credit should be made available to dealers conforming to statutory provisions in regard to maintenance of accounts, filing of returns and remittance of tax and eligibility for input tax credit is not a matter to be considered when suppression is detected. The department should be slow to grant concessions and benefits like input tax credit for dealers who are involved in tax evasion and benefit should be given strictly in accordance with the provisions of the Act and Rules”

We are in respectful agreement with the above Division Bench judgment.

6. Value Added Tax structure sought to ameliorate the grievances against the multiplicity of taxes and the cascading tax-burden and has the ultimate goal of augmenting revenue growth by making the procedure simple and more transparent. The scheme of the Act postulates self assessment under Section 21 by filing of returns as per Section 20. The system of self assessment postulates the trust reposed on the assessee promoting and ensuring compliance rather than avoidance and evasion. It provides for best judgment assessment in the context of non filing of returns or filing defective returns (Section 22) or on audit in the contingencies provided under Section 24 or while assessment of escaped turnover is made under Section 25. The input tax credit, provided by Section 11 of the Act is available in respect of a return period against the output tax payable by the dealer for such period as per Sub Section 3. The 4th proviso to Sub Section 3 also provides that the dealer claiming input tax credit while charging taxes under Section 11 on his turnover of goods should grant deduction in respect of the tax paid under the Act, failing which the input tax credit would be disallowed. We also notice the further provision in Sub Section (5)(n) that in the absence of tax invoice in the prescribed form evidencing the sufferance of tax no input tax credit shall be allowed. It would also be relevant to take note of Sub Section (12) of Section 11 which reads thus:-

“S.11(12): A registered dealer who intends to claim input tax credit under this section shall, for the purpose of determining the amount of input tax credit, maintain the accounts and such other records as may be prescribed, in respect of purchases, supplies and sales effected by him in the State.”

Maintenance of accounts and records for the purpose of determining quantum of input tax credit does not contemplate mere procedural maintenance. The quantum or amount of input tax should be determinable from the books of accounts. A dealer who has failed to account the purchases has suppressed the same from the books of accounts and consequently is dis-entitled from claiming any such credit despite the suppressed purchases having suffered tax.

7. A Constitution Bench of the Supreme Court in