Assessees Claim For ITC Cannot Be Denied For Being Disadvantageous To State Exchequer: Karnataka HC Clarifies Principles On Input Tax Credit Claims

The Division Bench of Justices Krishna S Dixit and G. Basavaraja observed that ordinarily, the claim for Input Tax Credit has to be made in the Return or Revised Return only. A claim otherwise is an exception and bona fide of the same has to be demonstrated.

The bench further stated that when underclaim is made in the Return/Revised Return due to bona fide mistake of adopting inapplicable rates of tax only, it is permissible to seek rectification by making a representation provided that the foundational fact matrix is already available in the Return/Revised Return.

In this case, the Assessee/department had filed his Returns inter alia claiming Input Tax Credit on purchase of goods which were used in the manufacture and sale/stock-transfer.

The department has challenged the order passed by the Appellate Tribunal where the assessee/respondent he has been granted deduction of Input Tax Credit at the rate admissible in law although what was claimed in the Returns filed by him, was less than that.

The department submitted that as a corollary, grant of benefit cannot exceed the claim specified in the Return. A default in this regard cannot be rewarded. Compliance with the conditions is a must. There is a statutory limitation for making the claim for Input Tax Credit. After all, Input Tax Credit being a concession, cannot be claimed as a matter of right.

The assessee argued that in the scheme of Article 265 of the Constitution of India, State cannot retain money belonging to subjects. Input Tax Credit is not something like gratis, but partakes the character of State liability; therefore, Input Tax Credit is a concession, is misconceived.

The bench stated that if the Assessing Authority while undertaking the re-assessment, discovers deductions or exemptions that are wrongly allowed, he has to rectify the same even if it enures to the benefit of the dealer. Such a duty becomes more onerous when a representation is given by the dealer.

No rectification whatsoever can be sought for, once the assessment/reassessment proceedings are concluded or that the limitation period otherwise has expired, clarified the bench.

The bench further opined that if the reassessed tax is more than what is payable, then the same has to be recovered from the Assessee along with admissible interest/penalty; as a corollary of this, what is paid is more than what is payable on reassessment, then the claim for Input Tax Credit has to be favoured if that is made before the conclusion of reassessment proceedings.

In view of the above, the bench dismissed the petition.

Case Title: The State Of Karnataka v. Tractor And Farm Equipment Limited

Case Number: STRP NO.26 OF 2023

Counsel for Petitioner/ Department: Aditya Vikram Bhat

Counsel for Respondent/ Assessee: Surya Narayana and Tanmayee Rajkumar