(Prayer: This RFA is filed Under Section 96 read with Order 41 Rule 1 of CPC against the judgment and decree dated 10.08.2018 passed in O.S.No.992/2015 on the file of Senior Civil Judge and JMFC, Anekal, dismissing the suit for recovery of money.)
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1. This appeal is filed challenging the judgment and decree of dismissal dated 10.08.2018 passed in O.S.No.992/2015 on the file of the Senior Civil Judge and J.M.F.C at Anekal which has been filed for recovery of Rs.10,12,696/- with interest at 18% per annum.
2. The parties are referred to as per their original rankings before the Trial Court to avoid confusion and for the convenience of the Court.
3. The factual matrix of the case is that the plaintiff is a private limited company incorporated under the Companies Act. The plaintiff is a manufacturer of Air Filters of different grades and supply the same all over India and outside India also. The plaintiff had purchased their input materials from the defendant from time to time and has paid the total consideration including the VAT. It is contended that on the strength of the payments, the plaintiff has taken credit of VAT in their books of accounts as per the VAT procedure and Act and have filed their returns with the Department of Commercial Taxes. On filing their returns quoting the purchase and tax having been paid with the defendant, the plaintiff was surprised to receive proposition notice under Section 39(1) of the Karnataka Value Added Tax Act, 2003 ('the Act' for short), wherein the department of Commercial Taxes have stated that the tax paid by the plaintiff and collected by the defendant has not been remitted to the Commercial Tax Department. Accordingly, the VAT Department have denied the credit of Rs.4,65,593/- for the period April, 2008 to March, 2009 and further a sum of Rs.5,42,103/- for the period April, 2009 to March, 2010 on the ground that the defendant has failed in paying the tax collected from the plaintiff and so also, the defendant has not filed VAT- 100 Returns.
4. The defendant having failed to fulfill the statutory obligations casted upon them as per the statutory provisions of Karnataka Sales Tax Act and VAT Rules in not depositing the money, whereby denying the credit of the said amount to the plaintiff amounts to fraud. In this regard, the plaintiff got issued the letter dated 25.12.2014 and also notice dated 11.03.2015 and demanded the defendant to make good the said amount. Inspite of the defendant having received the letter and notice, the defendant has failed to either provide the details of making good the amount to the Department nor they have paid the amount to the plaintiff. The defendant, in all is due to a sum of Rs.10,07,696/- and the Sales Tax Department has got every right to recover the same from the person i.e., the plaintiff, who have taken credit of the same. In view of the fact that the VAT credit having been denied and a proposition order having been passed, the plaintiff demanded the recovery of the aforesaid amount from the defendant. When the defendant failed to make good the loss caused to the plaintiff, without any other alternative has filed the suit for recovery of money. On filing the suit, the Trial Court was pleased to issue notice to the defendant and the defendant, after receipt of the suit summons did not choose to appear before the Court and was placed ex-parte.
5. The Trial Court has recorded the evidence of the Senior Executive Officer of the plaintiff as P.W.1 and got marked the documents Ex.P1 to P9.
6. The plaintiff contended that the Trial Court after considering the material available on record has committed an error in dismissing the suit on the ground that there is no cause of action for the plaintiff to file the suit.
7. It is further contended that the Trial Court has committed an error in not considering the pleadings and the evidence and failed to note that Exs.P1 and P3 are the final orders of assessment of the tax paid by the plaintiff to the VAT Department. The Trial Court has totally misconstrued the demand and has erroneously come to the conclusion that there is no cause of action for the suit. It is also contended that the trial Judge has failed to take note of the fact that the said amount is due from the defendant. The trial Judge also failed to take note of the fact that a letter was addressed by the plaintiff to the defendant and also caused a legal notice and no reply was given and even the defendant also failed to respond to the suit summons issued to them.
8. The Trial Court failed to take note of the fact that the plaintiff on purchase of the material has paid the consideration with VAT (tax) to the defendant. The defendant having failed to comply with the statutory requirement in paying the tax to the Department, the demand notice was issued to the plaintiff. The Trial Court has totally misconstrued in taking note of the proposition of tax law. Hence, it requires interference of this Court.
9. The learned counsel appearing for the appellant in his argument vehemently brought to the notice of this Court Ex.P1 and would contend that the defendant has collected tax from the assessee company and failed to make payment of tax to the Department within the next calendar month. The selling dealers have retained the VAT collected by them legitimately payable to the Department. Ex.P1 dated 20.12.2014 is clear that proposition notice under Section 39(1) of the Act was issued and served on the dealer company providing seven days to file objections, if any, for the restriction of ITC claim during the assessment periods. It is further observed that the dealer company has not filed any reply till date and confirmed the proposals made in the proposition notice dated 04.12.2014 since, the dealer has not replied to the notice. The Trial Judge failed to consider Exs.P1, P2 and P3 and has erroneously come to the conclusion that no cause of action arose to file the suit, since the plaintiff has not paid the tax to the Department. The Trial Court has also erroneously made an observation in para-10 of the judgment that, mere notice as per Ex.P4 from the Department would not give rise to any cause of action to file the present suit. The Trial Court also erroneously observed that the plaintiff-company has not placed any material to show that it has paid the VAT amount to the Department which was due by the defendant. It is erroneously observed that the cause of action would arise only after the plaintiff pays the tax amount to the Department or the concerned Department has collected the tax after initiating the appropriate proceedings and the plaintiff can sue only after payment of tax to the Department which ought to have been paid by the defendant. The very approach of the Trial Court is erroneous.
10. Learned counsel for the appellant, in his argument vehemently contend that Section 38 of the Act is relevant with regard to assessment of tax and when the tax has been paid while purchasing the materials from the defendant-company, the Trial Court ought to have decreed the suit against the defendant and hence, it requires interference of this Court.
11. Having heard the arguments of learned counsel for the appellant and the respondent though served with notice unrepresented, this Court has to re- appreciate the material available on record and on re- appreciation of the same, the point that arises for consideration before this Court is:
"(1) Whether the Trial Court has committed an error in dismissing the suit in coming to the conclusion that there is no cause of action for the plaintiff to sue the defendant ?
(2) What Order?
12. Point No.1: Having heard the learned counsel for the appellant, considering the material available on record and also on perusal of the plaint, it is clear that the plaintiff has sought for recovery of VAT paid to the defendant by the plaintiff while purchasing the materials from the defendant. The plaintiff mainly relies upon Exs.P1 to P4 to recover the said amount from the defendant.
13. On perusal of Ex.P1, no doubt, an order has been passed under Section 39(1) of the Act. While passing the said order, the Assistant Commissioner of Commercial Taxes, Audit-4.6, DVO-4, Koramangala, Bengaluru, dated 20.12.2014, in page No.2, discussed with regard to the transactions between the plaintiff and defendant. It is observed that the dealer i.e., the defendant has collected the taxes from the assessee- Company i.e., the plaintiff and failed to make payment of taxes to the Department within the next calendar month, such of those purchase transactions are bogus and not genuine business transactions. It is also observed that the selling dealers have retained the VAT collected with themselves legitimately payable to the Department. It is further observed that the details of input tax availed by assessee-Company is incorrect and the ITC is liable for restrictions which will be disallowed as per the provisions of the Act. The details are furnished in the order itself.
14. The plaintiff also relied upon the document Ex.P2 dated 20.12.2014. Based on the order at Ex.P1, 'notice of demand of tax assessed' was issued and called upon the assessee-Company (plaintiff) to remit the amount to the Government as per Ex.P2. The other document relied upon by the plaintiff is dated 07.03.2015, which is marked as Ex.P3 and in this order also similar observations are made and thereafter demand notice was issued vide Ex.P4. On perusal of Exs.P1 to P4, it is clear that an order has been passed under Section 39(1) of the Act and demand is also made against the plaintiff since the selling dealer has not paid the tax, which has been collected. There is no dispute with regard to the order and also the demand.
15. It is the case of the plaintiff that the plaintiff has paid the tax at the time of purchase from the defendant and the defendant in turn did not pay the tax. No doubt, the documents Exs.P7 and P8 disclose that a notice was issued against the defendant and so also one more letter was addressed i.e., Ex.P6 against the defendant with regard to the proposition notice for non-payment of VAT. The defendant also did not respond to the letter and legal notice - Exs.P6 and P7 and also did not contest the suit before the Trial Court.
16. Having perused the material available on record i.e., the plaint averments and also the documents-Exs.P1 to P4, no doubt an order has been passed by the Commercial Tax Department and demand notices were also issued in terms of Exs.P2 and P4. The plaintiff has not placed any material before the Court in pursuance of Exs.P2 and P4, the amount has been again paid in favour of Commercial Tax Department by the plaintiff. No such document is placed before the Court for having paid the VAT amount in favour of the Department when the defendant did not pay the tax in favour of the Department, which has been collected. Hence, I do not find any error committed by the Trial Court in coming to the conclusion that no cause of action arises to institute the suit against the defendant for recovery of the amount of tax which has been paid in favour of the defendant. If the amount has been paid by the plaintiff in favour of the defendant in terms of Exs.P2 and P4, then the cause of action would have arisen to the plaintiff to sue the defendant. Hence, the Trial Court has not committed any error in coming to the conclusion that mere demand made by the Department against the plaintiff cannot raise any cause of action to institute the suit against the defendant. It is also pertinent to note that in Exs.P1 and P3, the Department while passing the order made an observation that the purchase made by the assessee- Company paid the tax, but such of those purchase transactions are bogus and not genuine business transactions. The same goes against the assessee- Company and further observed that the details of input tax availed by the assessee-Company is incorrect and when such an observation has been made and when the assessee-Company has not placed any semblance of material before this Court for having again paid the tax which has not been paid by the defendant, no cause of action arises for the plaintiff to recover the same from the defendant.
17. No doubt, the learned counsel has brought to my notice Sections 38 and 39 of the Act and Section 38 of the said Act is in respect of assessment of tax and no dispute with regard to assessment of tax and also passing of an order under Section 39 of the Act.
18. This Court has already observed that in terms of Exs.P2 and P4, there was a demand and having paid the tax again in terms of Exs.P2 and P4 insofar as non-payment of the tax by the defendant, if any paymen
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t is made, then automatically, the plaintiff would get the cause of action to institute the suit against the defendant and no such material is placed for having paid the amount in terms of demand made as per Exs.P2 and P4. When such being the case, I do not find any error committed by the Trial Judge in appreciating the material available on record. The judgment of the Trial Court in observing the impugned judgment in paragraph No.10 that, mere notice as per Ex.P4 from the Department would not arise any cause of action to the present suit is not erroneous. It is further observed that the plaintiff-Company has not placed any materials to show that it has paid the VAT amount to the Department which was due by the defendant. Further observation is that the plaintiff can sue only after it has paid the tax to the Government which ought to have been paid by the defendant is not an erroneous one. In the absence of any material on record for having paid the tax again by the plaintiff, I am of the opinion that the Trial Judge has not committed any error and the conclusion arrived by the Trial Court that there is no cause of action for the suit is not erroneous. Hence, I answer point No.1 as 'Negative'. 19. Point No.2: In view of the discussions made above, I pass the following: ORDER The appeal is dismissed. The office is directed to transmit the Trial Court records, forthwith.