Allowed

Pipe Distributors v. Commercial Tax Officer

Kerala HC11 Oct 2013WA/2703/2007

Case brief

AI extract

What is this about?

The Kerala High Court allowed an appeal challenging the disallowance of a sales return claim. The court held that while Form No.9 advises mutual exchange of debit and credit notes, it is not a statutory mandate to maintain debit notes. The assessing authority cannot insist on debit notes where only a credit note is issued for returned goods.

What did the court decide?

Appellant and assessment order allowed; Exhibit P4 set aside. Assessing authority to re-do assessment within six months without insisting on debit notes.

Pipe Distributors Vs Commercial Tax Officer — Writ and Judicial Review | Kerala HC (2013)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT: THE HONOURABLE THE CHIEF JUSTICE DR. MANJULA CHELLUR

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& THE HONOURABLE MR. JUSTRICE A.M.SHAFFIQUE

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DATED THE 11TH DECEMBER, 2013/20TH AGRAHAYANA 1035

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WA.No. 2703 of 2007 ( ) ------------------------

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AGAINST THE JUDGMENT IN WP(C) 26867/2007 of HIGH COURT OF KERALA DATED 18-10-2007

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APPELLANT/PETITIONER:

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PIPE DISTRIBUTORS, 37/3464 DESABHIMANI JUNCTION, N.H.ROAD, KALOOR P.O. ERNAKULAM DISTRICT, REPRESENTED BY PARTNER AJITH BHASKAR.

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BY ADVS.SRI.VIJAYAN. K.U. SRI.K.N.SREEKUMARAN

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RESPONDENTS/RESPONDENTS:

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COMMERCIAL TAX OFFICER, KVAT-III CIRCLE, ERNAKULAM.

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COMMERCIAL TAX OFFICER(AA), COMMERCIAL TAXES, ERNAKULAM.

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THE SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT THIRUVANANTHAPURAM.

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BY SR. GOVERNMENT PLEADER SHAIJ RAJ

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THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 11.12.2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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MANJULA CHELLUR, C.J. & A.M.SHAFFIQUE, J.

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---------------------------------------------------W.A. No. 2703 of 2007

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--------------------------------------------------Dated this the 11^th December,2013

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Shaffique, J.

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The petitioner in the writ petition is the appellant. The writ petition is filed challenging Ext.P4, an order passed by the Commercial Tax Officer completing the assessment of the petitioner for fourteen months from May 2005 to June 2006 after rejecting the returns submitted by the petitioner.

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The main challenge of the petitioner is that

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the claim for sales return for the aforesaid period has been disallowed on the ground that the

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W.A. No. 2703 of 2007

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petitioner firm did not produce the debit notes corresponding to the credit notes as provided under S. 41 (1) of the Kerala Value Added Tax Act, 2003 (KVAT) and Rule 59 of the KVAT Rules. It is the contention of the petitioner that the statutory provision does not anywhere indicate that the selling dealer should maintain the debit notes, as the selling dealer's obligation is only to provide the credit notes. Though there is a note appended to Form No.9 stating that the corresponding debit note also should be obtained, according to the petitioner, the said 'Note' is ultra vires Section 41 of the KVAT Act and that the marginal note cannot be treated as a provision which decides the rights of the parties. The learned Single Judge on a consideration of the factual circumstances involved

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W.A. No. 2703 of 2007

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in the matter came to a finding that the 'note' appended to Form No. 9 which states that the seller and buyer should exchange credit note/debit note mutually has to be treated as part of the Rules and therefore Form No.9 is intra vires Section 41 of the Act. It is further found that the 'Note' forming part of Form No.9 in the Rules is not used for the purpose of supplanting Section 41 of the Act and that the 'Note' is in consonance with the requirement of Section 41 of the Act.

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The learned counsel for the appellant relies on S. 41 of the Act and Rule 59 along with Form No.9 to indicate that the Note to Form No.9 is ultra vires to S. 41 of the Act.

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Section 41 of the Act reads as under

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“Credit notes and debit notes.- (1)

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W.A. No. 2703 of 2007

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Where subsequent to any sale of taxable goods effected by a dealer the purchaser has returned the goods covered by the tax invoice fully or partly, within the period permitted by this Act or the Rules made thereunder, the dealer effecting the sale shall issue, forthwith, to the purchaser a credit note containing such particulars as may be prescribed.

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(2) Where a tax invoice or a bill of sale has been issued as per the provisions of this Act or the Rules made thereunder and the tax payable in respect of the sale is more than the amount shown as tax charged in such tax invoice or sale bill, as the case may be, the dealer making such sale shall issue to the purchaser a debit note containing such particulars

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W.A. No. 2703 of 2007

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as may be prescribed”.

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Rule 59 of KVAT Rules reads as under”

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“Credit notes and debit notes:- The credit note and debit note specified in section 41 shall be in Form No.9, bear separate consecutive serial numbers and shall contain the following details-

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(1) Nature of the document (whether debit note/credit note)

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(2) Date of issue:

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(3) Name and address of the selling dealer (With registration number)

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(4) Name and address of the buying dealer (With registration number if any)

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(5) Number and date of the invoice in relation to which the credit note or debit note is issued.

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(6) Amount credited or debited.

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W.A. No. 2703 of 2007

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(7) Tax due on the amount credited or debited.

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The dealer issuing the credit note shall claim deduction in respect of turnover and output tax relating to such credit note in the month in which such credit note is issued, provided it is within the time limit prescribed and the deduction is in the same year in which the related sale was made. Where the sales return is after the expiry of the year in which the sale was made, the dealer shall claim such deduction in the last month of the year in which the sale, in relation to which such credit note is issued, was effected. Deduction under section 41 will be allowed only in respect of credit notes which contain the above details”.

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W.A. No. 2703 of 2007

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The Note to Form No. 9 reads as under:

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“1. Every debit will have equivalent credit and vice versa. 2. Every credit note would bear corresponding debit note and vice versa 3. Seller and Buyer will exchange credit/debit notes mutually. 4. Time limit as per Rules apply to only sales/purchase return”.

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The learned counsel for the appellant also

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brought to our notice that Rule 59 has been amended with effect from 28.4.2007 incorporating the following proviso,” “provided that credit note claim shall be supported by debit note and vice versa”. On a bare reading of S. 41, we are of the view that there is a clear distinction between Ss.41 (1) and 41(2). As per S. 41(1) the obligation of the selling dealer is to provide to the purchaser a

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W.A. No. 2703 of 2007

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credit note containing the particulars as prescribed, when the goods are returned by the purchaser. Sub-section (2) of S. 41 indicates a different

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purpose by which if the tax payable in respect of the sale is more than the amount shown as tax charged in the bill or invoice, the selling dealer shall issue to the purchaser the debit note containing such particulars as may be prescribed. Rule 59 provides the manner in which credit notes shall be prepared. The first proviso has been added only on 28.4.2007 and uring the assessment year with reference to the above case, the said provision was not available. The wordings used in Rule 59 that the debit and credit note prescribed in S. 41, apparently indicates the credit note in S. 41 (1) and debit note in S.41(2). The Rule does not

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W.A. No. 2703 of 2007

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provide that the selling dealer shall maintain the

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debit note issued by the purchasing dealer for return of goods. However, in Form No.9, the note alone states that the credit note and debit note shall be exchanged between the parties.

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The first question to be considered is whether the compliance of the particulars of 'note' is a statutory requirement. It is needless to state that the Form No.9 forms part of the Rules as the same is incorporated and clearly indicated in Rule 59 that the credit note/debit note has to be prepared in the said form. But it is relevant to note that the 'note' is a general instruction, and it cannot be stated to be a mandate by which if there is non-compliance, the dealer can be found fault with. It is only an instruction given to the

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W.A. No. 2703 of 2007

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dealer and one cannot find fault with the dealer if

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they don't mutually exchange the credit note/debit note. This is apparently clear on a bare reading of the statutory provision under S. 41(1). In fact the legislature later thought of providing such a provision in the Rules, which according to the learned counsel for the appellant was incorporated with effect from 28.4.2007 in the form of the

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proviso. The very fact that a proviso has been incorporated itself would indicate that there was some lacuna in the Rules which has now been taken care of. Though the 'note' can be treated as an instruction to the seller/purchaser, the 'note' cannot be taken as a mandate on the selling dealer to maintain debit note. Of course with effect from 28.4.2007 such a mandate is available.

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W.A. No. 2703 of 2007

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Under these circumstances, we are of the

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view that the assessing officer ought not to have insisted on the debit note from the purchasing dealer to correspond to the credit note issued by the selling dealer and ought to have verified the correctness of the credit note by other methods. In the aforesaid circumstances, we are of the view that appeal is liable to be allowed and the judgment of the learned Single Judge is liable to be set aside.

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The Writ Appeal is allowed. Exhibit P4 order of assessment is set aside. The assessing authority shall re-do the assessment for the assessment year in question without insisting on the debit notes as indicated in the assessment orders. He shall seek other information from the assessee to

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W.A. No. 2703 of 2007

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substantiate the claim made in the credit note.

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The entire exercise shall be done within six months from the date of receipt of a copy of this judgment.

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Sd/-

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MANJULA CHELLUR, CHIEF JUSTICE

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Sd/- A.M.SHAFFIQUE, JUDGE

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rka

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/true copy/

Pipe Distributors v. Commercial Tax Officer

Case brief

What is this about?

What did the court decide?

Pipe Distributors v. Commercial Tax Officer

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

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