Sales tax Exemption Certificate Being Valid for 7 Years not to be Rescinded Before Eligibility Expires: Karnataka HC [Read Order]

The Karnataka High Court observed that sales tax exemption certificate being valid for 7 years not to be rescinded before the eligibility expires.

The assessee, M/s Aishwarya Fort, a tourism hotel unit is a registered dealer under the Karnataka Value Added Tax Act, 2003 (KVAT). It commenced its business in the year 2001. It is engaged in providing boarding and lodging services to its customers. The Government of Karnataka issued a notification3 dated November 12, 1999 under Section 8-A(1) of the Karnataka Sales Act, 1957 (KST) exempting sale of food articles and beverages by new tourism units. Assessee has obtained Exemption Certificate dated March 25th, 2003 from the Commissioner of Tourism, Govt. of Karnataka, Bengaluru.

The DCCT issued a proposition notice on the ground that after the enactment of the KVAT Act, the exemption granted under the KST Act would apply only to new industrial units and not tourism units. The AO passed a re-assessment order dated April 30, 2011 denying the exemption on the payment of tax on the sale of food and beverages on the ground that there was no exemption notification issued under the KVAT Act.

Jeevan J. Neeralgi, for the Revenue, submitted that the Government of Karnataka vide Notification dated 12.11.1999 granted exemption of the tax payable under the provisions of the KST Act in respect of sale of food and non-alcoholic beverages by new tourism units. The said notification having been issued in exercise of powers conferred under the KST Act, the exemption is restricted to the transactions only during the KST regime.

Opposing the petition, Mallaha Rao, for the Assessee, submitted that there is no express provision under the KVAT Act to deny the benefits granted to the assessee under the KST Act.

A Division Bench observed that “We may further record that even in the notification dated 07.01.2000 it is stated that the discontinuation shall not affect the incentives that have been already offered or committed by the Government until the eligibility of such incentives are completed. The eligibility certificate was valid for 7 years and could not have been rescinded before the period of eligibility expired as it is sovereign assurance.”

“In view of the above discussion, the contention urged by the Revenue that in absence of any specific notification under the KVAT Act, assessee is not entitled for exemption, is untenable” the Bench noted

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