Case Note & Summary
The appeals arose from reassessment orders passed under the Karnataka Value Added Tax Act, 2003, denying input tax credit to tea and coffee plantation companies on purchases of fertilizers, pesticides, chemicals, agricultural machinery, and other inputs used in cultivation. The appellants, registered dealers engaged in both growing and manufacturing tea/coffee, claimed credit for tax paid on these inputs, asserting that cultivation is an integral part of their business of manufacturing marketable goods. The Assessing Authority rejected the claims, holding that cultivation is an agricultural activity not covered by the definition of 'business' under Section 2(6) of the Act, and that inputs used for cultivation are not purchased 'in the course of business' as required for input tax credit under Section 10(2). This view was based on a clarification issued by the Commissioner under Section 59(4) of the Act and the Supreme Court judgment in Travancore Tea Estates Co. Ltd. v. State of Kerala (1977) 39 STC 1, which distinguished the agricultural activity of growing tea leaves from the business of selling manufactured tea. The single Judge of the High Court upheld the reassessment orders, leading to the present writ appeals. During the hearing, the appellants contended that cultivation and manufacturing form one continuous integrated process, and that the definition of 'business' under Section 2(6) is wide enough to cover incidental activities like cultivation. They relied on various judgments, including Chowgule & Co. Pvt. Ltd. v. Union of India (1981) 1 SCC 653. The respondents maintained that cultivation remains an agricultural pursuit and that the inputs were not used in the course of business but in a distinct agricultural operation. The judgment, however, ends abruptly without recording the final decision of the Division Bench. Only the arguments and the background reasoning are available in the provided text.
Headnote
A) Taxation - Value Added Tax - Input Tax Credit - Karnataka Value Added Tax Act, 2003, Sections 2(6), 2(19), 10(2) - Denial of input tax credit on inputs used for cultivation of tea and coffee by assessees engaged in both cultivation and manufacturing of marketable commodity - Court observed that cultivation is an agricultural activity and does not fall within the definition of 'business' under Section 2(6) of the Act, which requires activity in connection with or incidental to trade, commerce, manufacture, adventure or concern - Inputs used solely in the cultivation process are not purchased in the course of business and therefore not eligible for credit under Section 10(2), relying on Commissioner's clarification under Section 59(4) and Supreme Court precedent in Travancore Tea Estates Co. Ltd. v. State of Kerala (1977) 39 STC 1 (Paras 3, 4, 5.1, 6.1)
Issue of Consideration
Whether assessees engaged in growing tea/coffee plants and manufacturing marketable commodity are entitled to input tax credit on inputs such as fertilizers, chemicals, pesticides, agricultural implements etc., used in the process of growing/cultivation
Law Points
- Input tax credit under Section 10(2) of KVAT Act available only for goods used in course of business as defined in Section 2(6)
- Cultivation of tea/coffee is an agricultural activity not included in business definition
- Goods used solely for cultivation are not inputs for manufacturing process
- Distinction between agricultural produce and business of manufacturing and sale
Case Details
2014 LawText (KAR) (02) 34
W.A.NOS.6586-6633/2012 c/w W.A.No.6634/2012, W.A.No.6657/2012 (T-RES)
Dilip B Bhosale, B Manohar
S S Naganand, Sr. Adv., for Atul K Alur; Smt S Sujatha, AGA
M/s Balanoor Plantations and Industries Ltd., M/s Badra Estates & Industries Ltd., M/s Devon Plantation & Industries Ltd.
State of Karnataka, Commissioner of Commercial Taxes Karnataka, Assistant Commissioner of Commercial Taxes (Audit)
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Nature of Litigation
Writ appeals against single judge's order dismissing writ petitions which challenged reassessment orders denying input tax credit on purchases of inputs used for cultivation of tea and coffee
Remedy Sought
Assessees sought quashing of reassessment orders and consequential demand notices, and a declaration that they are entitled to input tax credit on cultivation inputs
Filing Reason
Assessing Authority denied input tax credit on fertilizers, chemicals, pesticides, agricultural implements etc., holding that cultivation is not 'business' under KVAT Act; this was based on a clarification under Section 59(4) and Supreme Court decision
Previous Decisions
Commissioner of Commercial Taxes issued clarification under Section 59(4) on 22-11-2010; In writ petitions, single Judge upheld denial of credit; assessees then filed intra-court appeals
Issues
Whether assessees engaged in growing tea/coffee plants and manufacturing marketable commodity are entitled to input tax credit on inputs such as fertilizers, chemicals, pesticides, agricultural implements etc., used in the process of growing/cultivation
Submissions/Arguments
Appellants argued that cultivation and manufacture constitute one continuous integrated process, and inputs used in cultivation are purchased in the course of business as defined under Section 2(6), hence eligible for input tax credit under Section 10(2) read with Section 2(19); relied on Supreme Court judgments
Respondents contended that cultivation is an agricultural activity distinct from business, and inputs used for cultivation are not purchased in the course of business; relied on Commissioner's clarification and Travancore Tea Estates (1977) 39 STC 1 (SC)
Judgment Excerpts
the appellants-assessees, who are engaged in growing of tea/coffee plants and so also in manufacturing of tea/coffee as marketable commodity are entitled to take tax credit of inputs such as fertilizers, chemicals, pesticides, agricultural implements etc., used in the process of its growing/cultivation?
AA denied “input tax credit” to the assessees on purchases of fertilizers, chemicals, pesticides, agricultural machinery etc., holding that inputs used for cultivation of tea plants/coffee plants are not eligible for such credit.
cultivation and growth of tea plants cannot be comprehended in the expression ‘in the manufacture of or processing of goods for sale’.
The order of the AA, as a matter of fact, rests on the said clarification.
fertilizers, pesticides, fungicides, chemicals, agricultural machineries, pump sets and other electrical equipments used for growing tea leaves by tea planters cannot at all be regarded as goods used in the course of production of tea meant for sale.
Procedural History
Assessees filed returns claiming input tax credit. Assistant Commissioner denied credit and passed reassessment orders for various tax periods (2005-06 to 2008-09) levying additional tax, interest, penalty. Assessees filed writ petitions challenging reassessment orders. Single Judge dismissed writ petitions. Assessees filed writ appeals. During appeal, assessees sought and obtained permission to amend to challenge Commissioner's clarification dated 22-11-2010. Matters heard together and reserved for judgment.
Acts & Sections
- Karnataka Value Added Tax Act, 2003: 2(1), 2(2), 2(3), 2(6), 2(12), 2(19), 10(2), 10(3), 59(4), Explanation 4(a) to Section 2(12)
