Inclusion Of ‘Electricity’ In 1st Schedule Of KVAT Act Does Not Imply Tax Liability: Rules Kerala HC

While giving relief to Srinivasa Builders (petitioner), the Kerala High Court ruled that even if the Revenue's contention asserting that electrical energy is encompassed within the 1st Schedule of the Kerala Value Added Tax Act (KVAT Act), is accepted, the inclusion of electricity in the 1st Schedule did not entail any tax liability.

A Single Judge Bench of Justice Anu Sivaraman observed that "Therefore, even if the contention of the revenue that electrical energy is included in the 1st Schedule is accepted, there would be no element of escaped assessment since the inclusion of electricity is in the 1st Schedule and no tax is payable. Therefore, the charge against the petitioner could, at best, be one of filing of an incorrect return and not of suppression of taxable turnover or attempt to evade tax."

Senior Advocate K. Srikumar appeared for the Petitioner, where Advocate T.R Rajan appeared for the Respondent.

The brief facts of the case were that the petitioner, a registered partnership firm in Hyderabad, sought approvals to install a windmill in Ramakkalmedu, Kerala. They entered a supply agreement with Vestas Technology India Limited at Rs. 4,09,01,000. The petitioner argued that 'electricity' does not fall under the definition of 'goods' as per Section 2(xx) of the KVAT Act. Due to this, they submitted nil returns despite being registered under KVAT Act for windmill installation in 2008-09. However, the Revenue's stance was that Commercial Tax Check Post declarations indicated undisclosed interstate purchases not recorded in their documents. They contended that since the registration was for selling electrical energy, filing a nil return did not comply with the Act and Rules. They highlighted that there was no provision to exclude total turnover even if goods were exempted from tax.

After considering the submission, the Bench noted that even if the Revenue's argument that electrical energy is covered by the 1st Schedule is accepted, there wouldn't be any case of escaped assessment as electricity's inclusion in the 1st Schedule doesn't attract any tax liability.

Hence, the petitioner's alleged offense would be limited to filing an inaccurate return, rather than hiding taxable turnover or intentionally evading taxes, added the Bench.

The Bench further noted that it was evident that a single windmill, in a knocked down state, had been transported into Kerala using three separate vehicles under a single bill or invoice.

The Bench found that KSEB also confirmed that one windmill was operational in Ramakkalmedu and was generating electrical energy supplied to them.

Accordingly, the Bench concluded that the order, which did not fulfill the requirements outlined in Section 25(1) of the KVAT Act, was entirely unsustainable.

Cause Title: Srinivasa Builders v. The Commercial Tax Officer and Ors.

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