TVS MOTORS COMPANY LIMITED Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) The appellant-assessee filed these appeals challenging the order dated 20th August 2011 passed by the Additional Commissioner of Commercial Taxes in exercise of its revisional power under Section 64(1) of the Karnataka Value Added Tax Act, 2003 (for short the 'KVAT Act') whereby the Revisional Authority had set aside the order passed by the Joint Commissioner of Commercial Taxes (Appeals) II, Bangalore (hereinafter referred to as 'the First Appellate Authority' for short) dated 28-8-2010 while confirming the order passed by the Assessing Authority for the assessment period 01-04- 2005 to 31-03- 2009.

(2.) The appellant is a Limited Company incorporated under the Companies Act, 1953 and registered both under the KVAT Act, 2003 and CST Act, 1956, engaged in the manufacture and sale of two wheeler vehicles and its spare parts having its manufacturing unit at Mysore. For the purpose of assessment under the KVAT Act 2003, the returns was filed in Form VAT-100 and also under the CST Act. The Assistant Commissioner of Commercial Taxes visited the business premises on 21-1-2010 and conducted audit of accounts for the tax period 1-4-2005 to 31-3-2009. During the time of audit of accounts, the Auditing Officer noticed certain discrepancies. The assessee-company has supplied food and non-alcoholic beverages to its employees and guests on subsidized rates for a valuable consideration through the Canteen run by the company. The amount so received for the supply of food and drink amounts to sale of goods and taxable at the rate of 12.5%. However, the assessee-company failed to declare the above taxable sale turnover of food and drinks and also failed to discharge the tax liability with VAT Form 100 for the period from 1-4-2005 to 31-3-2009. Accordingly, a proposition notice was issued under Section 39(1) of the KVAT Act on 06-04-2010 and 12-04-2010 calling upon the assessee to file their written objections along with documentary evidence. The assessee-company filed written objection to the proposed re-assessment notice and contended that as per the Factories Act, 1956 the assessee-company has to provide Canteen facility to its employees. In the Canteen operated in the Factory premises at Mysore, the food is prepared for supplying to their own employees making use of rice, vegetables, snacks, milk etc. The expenditure of this account is fully borne by the assessee-company. The employees are not charged the "sale price" of the food supplied to them. In view of the judgment of State of Madras V/S M/s.Gannon Dunkerley and Company, 1958 9 STC 353, supply of food and beverages cannot be treated as sale. The Assessing Officer after considering the objections held that there is a sale of goods and transfer of goods from one legal person to another legal person, it may be for cash or deferred payment or other valuable consideration which includes sale. Hence, the assessee is liable to pay tax. Accordingly re-assessed the tax for the period from 1-4-2005 to 31-3-2009 and issued demand notice by its re-assessment order dated 29-4-2010.

(3.) The assessee being aggrieved by the re-assessment order dated 29-4-2010 preferred an appeal before the First Appellate Authority contending that the order passed by the Assessing Authority is contrary to law. The Canteen in a Factory is a welfare measure that was required under the Factories Act. The Canteen is an amenity provided to the employees and it can, by no stretch of imagination, be considered as a business or sale under the Act. The food supplied at the Canteen did not constitute sale under Section 2(29) of the KVAT Act as there was no absolute transfer of property in the form of food items. The First Appellate Authority after considering the matter in detail and relying upon the judgment of the Hon'ble Supreme Court in the case of M/S VISHNU AGENCIES PVT. LTD. v/s CTO, 1978 42 STC 31, THE COMMISSIONER OF SALES TAXES, M.P. v/s HUKUMCHAND MILLS, 2005 139 STC 1 , by its order dated 28-8-2010, allowed the appeal and set aside the order passed by the Assistant Commissioner of Commercial Taxes and further held that the supply of food and beverages by the assessee to its employees was essentially amenities and an incident of contract of service entered into between the parties does not constitute the taxable turnover and issued a direction to the Assessing Authority to revise the demand notice. On scrutiny of the order passed by the First Appellate Authority, the Additional Commissioner of Commercial Taxes found that the decision of the First Appellate Authority is erroneous and prejudicial to the interest of the Government revenue for the period 1-4-2005 to 31-3-2009. Accordingly, issued notice under Section 64(1) of the KVAT Act for suo-motu revision of the order passed by the First Appellate Authority on 20th June 2011.