IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF JULY, 2019 BEFORE THE HON’BLE MRS.JUSTICE S.SUJATHA WRIT PETITION No.56516/2017 c/w W.P.No.56517/2017, W.P.No.56518/2017 AND W.P.No.56519/2017 (T – RES) BETWEEN:
M/s CANARA INTERLOCK & DESIGNER TILES, PLAT No.413/A, INDUSTRIAL AREA, BAIKAMPADY, MANGALURU-575001 REP. BY ITS MANAGING PARTNER SHRI ADIL ABDUL KHADER …PETITIONER (COMMON) (BY SRI ANIL KUMAR B., ADV.) AND:
1. STATE OF KARNATAKA THORUGH ITS PRINCIPAL SECRETARY FINANCE DEPARTMENT VIDHANA SOUDHA, BANGALORE-560 001 2. THE COMMISSIONER OF COMMERCIAL TAXES IN KARNATKA "VANIJYA THERIGE KARYALAYA" GANDHINAGAR, BANGALORE-560 009 3. THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (AUDIT-7) D.V.O., 4TH FLOOR, VANIJYA THERIGE BHAVAN, MAIDAN ROAD, MANGALURU-575001. …RESPONDENTS (COMMON) (BY SRI T.K.VEDAMURTHY, AGA.) WRIT PETITION No.56516/2017 IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 08.08.2017 PASSED BY RESPONDENT NO.3 VIDE ANNEXURE-A TO THE WRIT PETITION.
WRIT PETITION No.56517/2017 IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 08.08.2017 PASSED BY RESPONDENT NO.3 VIDE ANNEXURE-A TO THE WRIT PETITION.
WRIT PETITION No.56518/2017 IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER No.223304398.01 DATED 08.08.2017 PASSED BY RESPONDENT NO.3 VIDE ANNEXURE-A TO THE WRIT PETITION.
WRIT PETITION No.56519/2017 IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 08.08.2017 PASSED BY RESPONDENT NO.3 VIDE ANNEXURE-A TO THE WRIT PETITION.
THESE PETITIONS HAVING BEEN HEARD AND RESERVED, ARE COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE COURT PASSED THE FOLLOWING:
O R D E R These petitions involving similar and akin issues, have been considered together and disposed of by this common order.
2. The petitioner in these petitions has challenged the re-assessment orders passed by respondent No.3 under Sections 39(2), 72(2) and 36(1) of the Karnataka Value Added Tax Act, 2003 as well as consequential notices of demand issued by respondent No.3.
3. The petitioner is a partnership firm engaged in the activities of manufacture and sale of cement bricks and paver bricks. The petitioner is registered under the provisions of the Karnataka Value Added Tax Act, 2003 (‘KVAT Act’ for short) and Central Sales Tax Act, 1956 (‘CST Act’ for short). The re-assessment under Section 39(1) of the KVAT Act was carried out for the relevant tax periods and the same was concluded levying VAT on bricks at 5%/5.5%. Subsequently, proceedings under Section 39(2) of the KVAT Act were initiated to bring the paver bricks under the Residuary Entry to be taxed at 14%/14.5%. After providing an opportunity of hearing and considering the objections filed by the petitioner to the proposition notices issued, orders were passed under Section 39(2) of the KVAT Act confirming the proposals made in the proposition notices and notices of demand were issued accordingly. Being aggrieved by the same, the petitioner is before this Court.
4. Learned counsel for the petitioner referring to the judgment of the Hon’ble Apex Court in the case of M/s. H.H. Cement Products etc., vs. Assistant Commissioner, VAT Mangalore and Others etc., in Special Leave to Appeal (C) C.C.Nos.21214- 21225/2016 submitted that liberty being provided to the assessee therein to file statutory appeal before the statutory authorities and the observation that the order of this Court would not come in the way of the statutory authorities to take an independent view, the judgment of the Division Bench in W.A.No.5798/2011 and connected matters (D.D.23.03.2016) is no longer a good law. Secondly, it was argued that during the relevant tax periods, the scope of Section 39(2) of the KVAT Act inasmuch as any further evidence coming to the notice of the prescribed authority ought not to have been enlarged. There was no further evidence which had come to the notice of the Assessing Authority after making the re-assessment order under sub-section [1] of Section 39 of the KVAT Act. It is primarily based on the order of this Hon’ble Court in H.H. Cement Products, supra, the proceedings under Section 39(2) of the KVAT Act were invoked. Period of limitation for re- assessment under Section 39 as provided under Section 40 is five years after end of the prescribed tax period. Hence, the orders impugned passed under Section 39(2) of the KVAT Act deserve to be set aside.
5. Learned counsel for the petitioner has placed reliance on the following judgments:
1. M/s. Amma Construction India Pvt. Ltd., vs. The Assistant Commissioner of Commercial Taxes and others;
2. Dy. Commissioner of Income Tax and Ors. vs. M/s. Simplex Concrete Piles (India) Limited;
3. M/s Kotak Mahindra Prime Limited vs. The State of Karnataka and others.
6. Learned Additional Government Advocate appearing for the revenue referring to Section 41 of the KVAT Act relating to the power of rectification of assessment or re-assessment submitted that the Assessing Authority is empowered to rectify such assessment or re-assessment or order and determine the tax payable by the dealer in accordance with such judgment or order at any time within a period of three years from the date of such judgment or order. The orders impugned though refer to Section 39(2) of the KVAT Act, the source of power to give effect to the judgment of the Hon’ble Apex Court is available under Section 41 of the KVAT Act. Hence, re-assessment proceedings impugned herein cannot be held to be unjustifiable.
7. I have carefully considered the rival submission of the learned counsel appearing for the parties and perused the material on record.
8. Section 39(2) of the KVAT Act during the relevant tax period stood thus:-
“39. Re-assessment of tax:
(2) Where after making a re- assessment under this Section, any further evidence comes to the notice of the prescribed authority, it may make any further reassessments in addition to such earlier reassessment.”
thus:
9. Section 41(1) and (2) of the KVAT Act reads 41. Power of rectification of assessment or re-assessment in certain cases.-
(1) Where any assessment or re- assessment or an order of an appellate authority or a revisional authority other than a court or tribunal, is found to be erroneous in so far as it is prejudicial to the interest of the public revenue by a judgement or an order of any court, then notwithstanding anything contained in this Act, authority concerned may proceed to rectify such assessment or re- assessment or order and determine the tax payable by the dealer in accordance with such judgement or order at any time within a period of three years from the date of such judgement or order.
(2) Where any court makes an order or gives judgement to the effect that any tax assessed under this Act or any other law should have been assessed under a provision of a law different from that under which it was assessed, then in consequence of such order or judgement or to give effect to any finding or direction contained in any such order or judgment, such turnover or part thereof, may be assessed or re-assessed to tax, as the case may be, at any time within five years from the date of such order or judgement, notwithstanding any limitation period which would otherwise be applicable under the law applicable to that assessment or re-assessment.”
10. In the case of M/s Kotak Mahindra, supra, the cognate bench of this Court has observed that the proceedings sought to be re-opened under Section 41 of the KVAT Act are on the basis of the judgment is not permissible. If at all, it is the revisional authority who may be vested with such power. It is indeed so, as the authority had the benefit of the judgment of this Court and could not therefore on the basis of the said judgment, seek to re-open the proceedings on the footing that the re-assessment order was prejudicial to the interest of the revenue. It was revisional authority to have re-opened the said proceedings on any such opinion. In the said case, proceedings were initiated under Section 41(1) of the KVAT ACT to rectify the re- assessment order on the basis of the judgment of this Court in the case of State of Karnataka vs. M/s Centum Industries (P) Limited which was available to the Assessing Authority at the time of passing of the re- assessment order.
11. In the case of M/s. Simplex Concrete, supra, the Hon’ble Apex Court held that at the relevant time, when the assessment order got completed, the law as declared by the jurisdictional High Court, was that the civil construction work carried out by the assessee would be entitled to the benefit of Section 80HH of the Act, which view was squarely reversed by the subsequent judgment of the Hon’ble Apex Court. The subsequent reversal of the legal position by the judgment of the Hon’ble Supreme Court does not authorise the Department to reopen the assessment, which stood closed on the basis of the law, as it stood at the relevant time.
12. This Court in the case of M/s. Amma Construction, supra, held that the Assessing Authority had no jurisdiction to invoke Section 39(2) of the KVAT Act since there was no further evidence which came to the notice of the Assessing Authority.
13. The arguments of the learned counsel for the petitioner that the Division Bench order is not having any binding effect pursuant to the order of the Hon'ble Apex Court cannot be countenanced for the reason that the Division Bench of this Court in the case of State of Karnataka vs. H.H. Cement Products has declared that the paving bricks/blocks would come under the residuary entry exigible to tax at the rate prescribed under Section 4(1)(b)(iii) of the KVAT Act not under Entry - 2 of the Schedule - III. On the challenge made by the assessee against the said judgment, the assessee - M/s. H.H. Cement supra, sought leave of the Court to withdraw the petitions to approach the statutory authorities. The judgment of the Division Bench indeed is not set aside but an observation is made that the said order would not come in the way of statutory authorities to take an independent view based on the evidence produced by the assessee.
14. Even assuming, giving effect to a judgment or order may not explicitly made available under Section 39(2) of the KVAT Act, the source of power to give effect to such order or judgment of the Hon’ble Apex Court is traceable to Section 41 of the KVAT Act.
15. Section 41(1) of the KVAT Act is applicable where the order of re-assessment is found to be erroneous insofar it is prejudicial to the interest of the public revenue by the judgment or order of any Court. ‘The Authority concerned’ mentioned in the said provision relates to Assessing Authority in case of assessment or re-assessment, Appellate Authority in cases of appellate orders, Revisional Authority in cases of revisional orders. The said Authority concerned is empowered to rectify such orders and determine the tax payable by the dealer in accordance with the judgment or order of the Court within a period of three years from the date of such judgment or order. Hence, the Assessing Authority invoking the provision under Section 39(2) of the KVAT Act may not be appropriate, more particularly to give effect to the order of the Hon’ble Apex court dated 18.11.2016. The legal flaw found in the orders impugned does not merely relates to wrong quoting of the provision. In essence invoking of powers under the specific provision has to be made known to the assessee as the powers of re-assessment under Section 39[2] and rectification under Section 41 are exercisable in different fields and providing an opportunity to meet such invocation of Section 41 in particular, is sine-qua-non before passing the orders. Hence, the orders impugned passed under Section 39(2) cannot be sustained. However, the revenue is at liberty to invoke the appropriate proceedings in accordance with law.
16. For the foregoing reasons, the re-assessment orders impugned dated 08.08.2017 at Annexure – A to the writ petitions passed under Section 39(2) of the KVAT Act as well as the consequent notices of demand at Annexure-B to the writ petitions are quashed reserving liberty to the Department to initiate appropriate proceedings in accordance with law.
With the aforesaid observations and directions, the writ petitions stand disposed of.
Sd/- JUDGE PMR