At, High Court of Karnataka
By, THE HONOURABLE MR. JUSTICE ALOK ARADHE & THE HONOURABLE MR. JUSTICE NATARAJ RANGASWAMY
For the Appellant: M.D. Radhika Shriranjini, Advocate. For the Respondents: Jeevan J. Neeralgi, AGA.
(Prayer: This S.T.A. is filed Under Sec.66(1) of the Karnataka Value Added Tax Act, 2003 against the order dated 8.6.2015 passed in No.ZAC-1/MYS/KVAT/SMR-09/2014-15 on the file of the Addl. Commissioner of Commercial Taxes, Zone-1 Bengaluru, restoring the order dated 30.6.2010 passed by the Commercial Tax Officer (ENF)-14, South Zone Bengaluru being the prescribed authority, and setting aside the order dated 14.3.2011 followed by rectification order dated 22.8.2011 of FAA.)
Alok Aradhe, J.
1. This Sales Tax Appeal filed under Section 66(1) of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as 'the Act' for short) has been filed by the appellant against order dated 08.06.2015 passed by the Additional Commissioner of Commercial Taxes, by which the Additional Commissioner of Commercial Taxes has set aside the order passed by the Joint Commissioner of Commercial Taxes dated 14.03.2011 and has restored the orders of re-assessment passed by the adjudicating authority dated 30.06.2010. The tax periods in question pertain to 01.4.2008 to 31.3.2009 and 01.04.2009 to 31.03.2010. The appeal was admitted by a bench of this court vide order dated 29.06.2018 on the following substantial questions of law:
(i) Whether the revisional authority was justified in reversing the order of the First Appellate Court on the basis of facts and circumstances of the case?
(ii) Whether the revisional authority was justified in reversing the order, particularly on the ground that the assessee did not file a revised return under Section 35(4) of the KVAT Act, 2003?
2. Facts leading to filing of this appeal briefly stated are that appellant is a partnership firm engaged in development of residential projects based on a joint development agreement entered into with the land owner. The appellant formed the residential layout by laying roads, sewage lines, water lines etc and sold the residential layout to various customers and sale deed has been registered transferring the document of title. After registration of the sale deed, the appellant entered into construction agreement with buyer for constructing villas/ residential units. The entire construction activity was undertaken by engaging a sub contractor who charged Value Added Tax on the appellant. The appellant filed its return under the provisions of the Act after adjusting turnover pertaining to sub contractor. The department after inspection proceeded against the appellant on the ground that Value Added Tax paid on the purchase of material for formation of the road, laying sewerage lines, pipelines etc is not eligible for input tax credit. The respondents also disallowed the deduction of payment made by the appellant to the sub contractor from the total turnover on the ground that the appellant has not produced any documentary evidence. It was also stated that appellant has not deducted Tax at Source on purchase of sand, stone, timber, ply wood etc. The appellant filed objections to the proposal made in the notice and stated that the amount collected for civic amenities is not exigible to Value Added Tax as predominant object is to sell residential layouts.
3. The Commercial Tax Officer revised the orders of assessment for the period from the period from 01.04.2008 to 31.03.2009 and 01.04.2009 to 31.03.2010 by order dated 30.06.2010 and levied the tax on estimated contract receipts at the rate of 4% under the composition scheme and levied interest and penalty on the turnovers. The assessee thereupon filed an appeal before the Joint Commissioner of Commercial Taxes who by an order dated 14.03.2011 partly allowed the appeals and set aside the order of assessment levying tax, interest and penalty. In pursuance of the aforesaid order, a revised demand notice dated 22.08.2011 was issued. The Additional Commissioner of Commercial Taxes initiated proceedings under Section 64(1) of the Act to review the order of the Joint Commissioner of Commercial Taxes and set aside the order dated 14.03.2011 passed by the Joint Commissioner of Commercial Taxes and restored the re- assessment orders holding that the appellant is not a works contractor and tax has to be paid under the composition scheme at the rate of 4%. In the aforesaid factual background, this appeal has been filed.
4. Learned counsel for the appellant submitted that the order passed by the Additional Commissioner is not sustainable in law and the second Revisional Authority erred in law in revising the order passed by the first Appellate Authority. It is further submitted that the order passed by the first Appellate Authority is neither erroneous nor prejudicial to the interest of the revenue. It is further submitted that the power under Section 64(1) of the Act has wrongly been invoked only the ground of non filing of revised returns and the second appellate authority failed to appreciate that once tax is levied by the authority prescribed, there is no discovery of any omission or error by the appellant and therefore, the question of filing the revised return does not arise. It is further submitted that the second Appellate Authority ought to have appreciated that the first Appellate Authority rightly recomputed the tax liability by extending the benefit of input tax credit and deduction of payments made to sub contractors in accordance with law and same therefore, cannot be treated either as erroneous or prejudicial to the interest of the revenue. In support of aforesaid submissions, reliance has been placed on decisions in COMMISSIONER OF INCOME TAX AND ANOTHR VS. D.G.GOPALA GOWDA, ITA NO.1422/2006 DATED 05.03.2013, M/S INFINITE BUILDERS AND DEVELOPERS VS. THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES ZONE II, STA No.59/2009 dated 30.05.2013.
5. On the other hand, learned Additional Government Advocate submitted that the order passed by the Additional Commissioner is just and legal and the provisions of Section 64(1) of the Act have been rightly invoked as the appellant failed to file the revised return as provided under Section35(4) of the Act. It is further submitted that the matter requires some factual adjudication therefore, the same may be remitted to the second Appellate Authority viz., Additional Commissioner of Commercial Taxes.
6. We have considered the submissions made by learned counsel for the parties and have perused the record. Powers under Section 64 of the Act can be invoked only if the order is erroneous insofar as it is prejudicial to the interest of the revenue. Thus, twin conditions are required to be satisfied for invoking the powers under Section 64 of the Act viz., that the order sought to be revised is erroneous insofar as it is prejudicial to the interest of the revenue. However, from perusal of the impugned order dated 08.06.2015, it is evident that the Additional Commissioner of Commercia
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l Taxes has not recorded a finding that the order passed by the Joint Commissioner of Commercial Taxes is erroneous insofar as it is prejudicial to the interest of the revenue. The Joint Commissioner of Commercial Taxes has acted like an Appellate Authority while passing the impugned order dated 08.06.2015. The condition precedent for invocation of power under Section 64 (1) of the Act having not been satisfied, the impugned order cannot be sustained in the eye of law. For the aforementioned reasons, the substantial questions of law are answered in favour of the appellant and against the respondents. In the result, the order dated 08.06.2015 passed by the Additional Commissioner of Commercial Taxes is hereby quashed. In the result, appeal is allowed.