No exemption to ‘Cleaning Materials’ u/s 6(7)(b) of KVAT Act: Kerala HC [Read Judgment]

Kerala High Court-Tax Exemption-taxscan

In a recent decision, the Kerala High Court observed that the exemption under section 6(7)(b) of the KVAT Act, 2003 is not available to ‘cleaning materials’ since they are not ‘consumables’ as per the provisions of the said section.The single bench held that, as per the said section, the exemption is available only to the consumable used by the developer or industrial unit or establishments situated in the Special Economic Zone for the purpose of setting up of the unit or use in the manufacture of other goods. Therefore, cleaning material used for the purpose of cleaning the building and other facilities, furniture etc cannot be treated for the above purpose. Hence no exemption is available to such products.

The petitioners are dealers in cleaning material, had claimed exemption from payment of tax on the turnover based on Form No.43 issued by the purchaser.The Department rejected the claim by holding that the said product is not covered under section 6(7)(b) of the KVAT Act.Consequently, the Department initiated penalty and assessment proceedings against the assessee. Being aggrieved, the assessee approached the High Court through Writ petition contending that penalty proceedings are not sustainable since there is no deliberate attempt to evade tax.

Before the High Court, the assessee submitted that the goods in question are exempted under section 6(7)(b) of the Act. Further, the purchasers who issued Form 43 to the assesse are from Special Economic Zoneand therefore, penalty proceedings cannot be initiated against the assessee even if the products are taxable.

Justice A.M Shaffique clarified that, the above products are not entitled to exemption since it is not covered under section 6(7)(b) of the Act.It was observed that “a close reading of the Statute would show that the consumable used by the developer or industrial unit or establishments situated in the Special Economic Zone should be for setting up of the unit or use in the manufacture of other goods. The cleaning material used for the purpose of cleaning the building and other facilities, furniture etc cannot be treated as a consumable used in relation to setting up of the unit or in the manufacture of other goods. Therefore, it is apparent from the Statute itself that the petitioner is not liable for any exemption. The Intelligence Officer had issued notice clearly indicating that the petitioner is not entitled for the exemption. The only ground taken by the petitioner is that Form No.43 has been submitted by the purchaser. It is stated in the impugned order at Exhibit P6 that even in Form No.43 submitted by the dealerit is clearly mentioned as house-keeping materials and house-keeping consumables. Therefore, the Officer had no doubt about the fact that exemption will not apply.”

Regarding the validiity of the penalty proceedings, it was observed that “Referring to the judgments cited by the petitioner would show that penalty was not directed to be imposed in such cases where there is any doubt regarding the liability to pay tax. That is not the situation here. This is an instance where a bare reading of Section 6(7)(b) would clearly indicate that the product supplied by the petitioner is liable to be taxed and no exemption can be claimed at all. That apart, as rightly contended by the learned Government Pleader, the petitioner did not raise any invoice showing the taxable component. If the petitioner had clearly indicated that it is taxable and the purchaser had issued Form No.43 it would have been a different situation. Therefore, this is an instance where the petitioner had acted deliberately in avoiding payment of tax knowing fully well that there is an obligation to pay tax on the said consumables. Under such circumstances, I do not think that any error had been committed by the Intelligence Officer in imposing penalty on the petitioner.”In view of the above findings, the impugned orders were sustained.

Read the full text of the Judgment below.

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