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IN THE HIGH COURT OF KARNATAKA
AT BANGALORE
Dated this the 30th day of May, 2013
PRESENT
THE HON’BLE MR JUSTICE D V SHYLENDRA KUMAR
AND
THE HON’BLE MRS JUSTICE B S INDRAKALA
STA Nos. 59 of 2009 & 75-85 of 2013 C/w
STA Nos. 60 of 2009 & 86-96 of 2013
BETWEEN:
M/S INFINITE BUILDERS AND DEVELOPERS NO.6, GM PEARL, I STAGE, I PHASE, BTM LAYOUT, BANGALORE – 560 068 (BY ITS PROPRIETOR MR GULAM MUSTAFA AGED ABOUT 37 YEARS) … COMMON APPELLANT
[By Sri G Sarangan, Sr. Counsel for Sri T N Keshava Murthy, Adv.]
AND:
THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES ZONE II, GANDHINAGAR BANGALORE – 560 009 … COMMON RESPONDENT
[By Sri T K Vedamurthy, AGA]
2
STA NOs 59 OF 2009 & 75-85 OF 2013 ARE FILED UNDER SECTION 66 (1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER DATED: 16.03.2009 PASSED IN NO. SMR/KST/DVO-II/CR-58 TO 94/08-09, T-823/08-09 ON THE FILE OF THE ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-II, GANDHINAGAR, BANGALORE, SETTING ASIDE THE RULING OF THE ADVANCE RULING AUTHORITY AND ETC.,
STA NOs 60 OF 2009 & 86-96 OF 2013 ARE FILED UNDER SECTION 66 (1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER DATED: 16.03.2009 PASSED IN NO. SMR/KST/DVO-II/CR-58 TO 94/08-09, T-823/08-09 ON THE FILE OF THE ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-II, GANDHINAGAR, BANGALORE, SETTING ASIDE THE RULING OF THE ADVANCE RULING AUTHORITY AND ETC.,
THESE APPEALS COMING ON FOR HEARING, THIS DAY, SHYLENDRA KUMAR J., DELIVERED THE FOLLOWING:
J U D G M E N T
The assessee is a registered dealer under the
provisions of Karnataka Value Added Tax Act, 2003 [for
short, the Act]. The assessee claims to be carrying on
the activity of land developer and builder and selling
constructed buildings to purchasers through a tripartite
agreements entered into amongst the assessee, owner of
the land and the purchasers. The assessee had carried
on such activity during the years 2005-06 and 2006-07
3
i.e. for the period from 1-4-2005 to 31-3-2006 and 1-4-
2006 to 31-3-2007.
2. Under the scheme of the Act, monthly returns of the
turnover is required to be filed by the registered dealers
and in so far as the year 2005-06 is concerned, the
assessee, though had filed such monthly returns, had
claimed its tax liability as nil for all the 12 months. The
assessee has filed nil returns even for the period April to
November, 2006.
3. The assessee, though had taxable turnover during
this period, has taken the stand that in the wake of the
law laid down by this court in the case of MITTAL
INVESTMENT CORPORATION vs ADDITIONAL
COMMISSIONER OF COMMERCIAL TAXES [(2011) 121
STC 14] was under the impression that such transfer of
constructed buildings is not one attracting tax, under the
Act. The assessee pleaded ignorance of the reversal of
this view taken by this court by the Supreme Court in the
4
case of K RAHEJA DEVELOPMENT CORPORATION vs
STATE OF KARNATAKA [(2005) 141 STC 298], as per
the judgment dated 5-5-2005 and claims to have
blissfully filed return indicating nil tax liability upto the
period mentioned above.
4. The legal position was otherwise and there was
liability for the payment of tax in respect of the
transaction in the nature of work contract not only in
terms of Section 12(1) of the Act, but also the law as
understood on analogous provision relating to liability of
a dealer in respect of value of the goods involved in
transfer of goods in the execution of works contract.
5. Be that as it may, the assessee’s premises had been
inspected by the intelligence wing of the commercial taxes
department on 25-3-2006. It transpires that the
intelligence wing noticed that the assessee was not paying
any tax by filing incorrect nil tax liability return and on
being apprised, it further transpires, the assessee
5
admitted its liability and it paid some amount viz.,
tentatively a sum of Rs 5.00 lakh on 29-3-2006 itself etc.
6. A second inspection of the premises of the assessee
took place on 20-12-2006 by the assistant commissioner
of commercial taxes and the assistant commissioner also
noticed that the assessee had continued to file nil tax
liability returns even up to that date. As a consequence,
the matter was followed up departmentally and deputy
commissioner of the audit wing visited the premises of the
assessee with prior permission and after completing
necessary formalities for the purpose of verifying the need
for reopening the assessment of the assessee, as the
assessee had till then filed nil returns. This was done on
13-11-2007 and this was followed up by issue of
reassessment notice under Section 39(1) of the Act on 29-
1-2008. Just two days prior to the audit and verification
of the books of account, the assessee had filed what it
claims as revised returns for each month of the period
6
from April 2006 to November, 2006. The assessee did
not file any revised returns for the period April 2005 to
March 2006, which was earlier filed as nil tax liability
return and continued to remain same.
7. The assessing officer concluded the reassessment
for the years 2005-06 and 2006-07 and determined the
tax liability for each of the month during these periods.
In the process, the assessing officer rejected the claim of
the assessee in respect of input tax rebate as per its
revised returns filed during the period April to November
2006. In the wake of filing of false or incorrect returns
and not meeting its tax liability in time, the assessing
officer also proceeded to levy penalty under Section 72(2)
of the Act and interest under Section 36 of the Act for the
months in question and 20 different reassessment orders
had been passed on 29-1-2008. The assessing officer
opined that the assessee having not filed its returns
within time, but on the other hand having filed incorrect
7
and false returns, and having not corrected on its own a
mistake which it had committed by not filing revised
returns within the statutorily permitted period in terms of
Section 35(4) of the Act and a claim towards input tax
credit being enabled only in respect of the assessees who
have filed returns either as per Section 35(1) or Section
35(2) of the Act and that having not been done, held that
the assessee was not entitled to claim any input tax credit
for the periods in question and concluded the assessment
by way of best judgment and levying penalty and interest,
as referred to above.
8. The assessee being aggrieved by these orders,
preferred appeals under Section 62(6) of the Act to the
joint commissioner of commercial axes. The assessee’s
contention found favour with the appellate commissioner.
The appellate commissioner took the view that the
assessee though had not produced the list of registered
dealers from whom it had made purchases and had paid
8
tax on such purchases and though it had not produced
the invoices evidencing the same before the assessing
officer, opined that the relief of input tax credit or rebate
as provided for in terms of the provisions of Section 10(4)
of the Act can be given even otherwise and proceeded to
accept not only the list of registered dealers from whom
the assessee claimed it had made purchases during the
periods in question but also the invoices said to have
been issued by those selling dealers and substituted itself
for the assessing officer for the purpose of Section 10(4) of
the Act and proceeded to determine the tax liability by
giving credit to the input tax as claimed by the assessee
and proportionately reduced the penalty and interest, as
the total tax liability of the assessee gets reduced in view
of the exercise undertaken by the appellate commissioner.
9. The revisional authority [additional commissioner of
commercial taxes] noticed that the orders passed by the
appellate authority is not only erroneous but detrimental
9
to the interest of the revenue and exercising powers under
Section 64(1) of the Act, issued show cause notices to the
assessee indicating that the order passed by the appellate
commissioner is not sustainable; that it is erroneous and
prejudicial to the revenue and liable to be set aside, and
called upon the assessee to show cause as to why the
same should not be set aside and the assessment order
restored, as per common notice dated 2-1-2009.
10. The assessee responded by filing its detailed
objections to the proposal, claimed that the assessee, in
fact, was entitled to input tax credit and filing of return in
time or not filing return of turnover in terms of Section 35
of the Act cannot deprive the assessee of its right for
claiming input tax credit in terms of the provisions of
Section 10 of the Act; that the appellate commissioner
had rightly modified the assessment orders passed by the
original authority; that the levy of penalty and interest is
also not justified; that the appellate commissioner was
10
well within its competence and jurisdiction for acting to
give relief of input tax credit to the assessee even for the
period April 2005 to March 2006, notwithstanding the
assessee having not filed any revised returns or not
claiming on its own any input tax credit for determination
of the tax liability, but the appellate commissioner having
noted the position in the books of accounts, has rightly
given the input tax credit etc. Several other objections
were also put forth opposing the proposal for revising the
appellate order and for restoration of the assessment
orders.
11. The matter was elaborately heard before the
revisional authority and the revisional authority after
exhaustive examination of the factual background,
reassessment orders, order of the appellate commissioner
and the relevant case law, opined that the assessee was
not entitled to the input tax credit for the period from
April 2005 to November 2006 and set aside the order of
11
the appellate commissioner for the months covering this
period and restored the orders passed by the assessing
officer.
12. However, in so far as the months of December 2006
to March 2007, the assessing officer though had denied
input tax credit to the assessee for the reason that the
assessee had not produced the list of registered dealers
and invoices and the appellate commissioner had taken a
common view in respect of this period also viz., that the
assessee is entitled for such input tax credit on the basis
of the material placed before the assessing officer, the
revisional authority, nevertheless, has not disturbed this
order of the appellate commissioner giving input tax
credit for the period December 2006 to March 2007 and
that is the reason as to why though the orders are
common, both by the appellate commissioner and the
revisional authority for the entire period from April 2005
to March 2007, the subject matter of these appeals by the
12
assessee is confined to the liability relating to the tax
period from April 2005 to November 2006, and arguments
addressed accordingly.
13. The stand of the appellant-assessee is again as
contended before the appellate commissioner and the
revisional authority; that input tax credit is given to an
assessee as a matter of substantive right in determination
of tax liability of the assessee; that it is not any benefit or
concession given to an assessee; that assuming that the
assessee had not filed either its returns or revised returns
strictly in compliance with the requirement of Section 35
of the Act, Section 10 of the Act, under which the input
tax credit is claimed or allowed, having not made any
reference to the provisions of Section 35 of the Act i.e.
provision relating to filing of returns, a non-compliance
with the requirement of Section 35 of the Act cannot come
in the way of allowing input tax credit to an assessee who
13
has actually paid such tax under the provisions of Section
10 of the Act.
14. The matter was taken up for hearing and we have
heard Sri G Sarangan, learned senior counsel along with
Sri T N Keshava Murthy, for the appellant-assessee and
Sri T K Vedamurthy, learned AGA, appearing for the
respondent-revenue.
15. Learned counsel for the appellant-assessee took us
through the scheme and the object of the Act and the
scheme of determination of tax liability under the Act,
with its difference between the output tax and input tax
i.e. tax liability being determined by giving input credit
from output tax liability and therefore the input tax credit
is an essential ingredient of the determination of tax
liability and in this regard have also referred to the
definition of ‘tax invoice’ in Section 2(32) of the Act, ‘tax
turnover’ in Section 2(34) and also the charging Section 4
of the Act, scheme of the determination of tax liability as
14
indicated in Section 10 of the Act, as to either Section 10
not making any reference in Section 35 or Section 35 not
referring to Section 10, by reading these statutory
provisions and the provisions of Section 38(2),
particularly the provision enabling passing of best
judgement orders on the failure of the assessee to file
returns, sub-sections (3) and (4) of Section 38 of the Act
and the factum of the assessee having filed revised
returns though belatedly as on 12-1-2007 covering the
period from April 2006 to November, 2006.
16. What is urged is that these returns though belated
were before the assessing officer prior to passing of the
best judgement orders which were passed on 29-1-2008.
Submission is that when the assessing officer had placed
reliance on the books of accounts of the assessee for the
purpose of passing of best judgement assessment orders,
the assessing officer could not have ignored the entries
relating to the input tax credit earned by the assessee, in
15
the sense that the books did reveal that the assessee
having made purchases and having paid tax on such
purchases for the periods in question and therefore
submits that the assessing officer could not have ignored
this relevant material while passing best judgement
assessment orders.
17. A good number of authorities are relied upon to
contend that in a circumstance where an assessee is
acting in a bona fide manner and has not indulged in
acting in a deliberate suppression or evasion, levy of
penalty and interest is not warranted. Reliance is also
placed on a Single Judge decision of this court in the case
of INDIA HERITAGE FOUNDATION vs STATE OF
KARNATAKA [(2008) 18 VST 376 (KARN] to submit that
even a belated return should be looked into and acted
upon. Reliance is also placed on the judgment of a
Division Bench of this court in the case of STATE OF
KARNATAKA vs K BOND POLYMERS [2012 (73) KLJ
16
429], to submit that this court has taken the view that
even in a matter of considering the claim for refund, the
authorities should not adopt a too technical an approach
and that when the assessee has, in fact, earned the input
tax credit and when it is part of the scheme of
determination of tax liability, that should not be denied to
the assessee only based on technicalities such as filing
delayed return or not filing of material particulars of the
same before the assessing officer, though so contemplated
under the statutory provisions.
18. It is also urged that the first appellate authority
could not have remanded the matter to the assessing
officer for examination of these facts yet again and as
such acted upon on its own and nothing wrong in it.
19. On the other hand, Sri. Vedamurthy, learned
Government Pleader appearing on behalf of the
respondents would strongly defend the order passed by
the Commissioner exercising revisional jurisdiction to
17
reverse the order passed by the appellate authority –
Joint Commissioner of Commercial Taxes, Bangalore.
20. Mr. Vedamurthy has also taken us through the
scheme of the Karnataka Value Added Tax Act, 2003 and
has in particular drawn our attention to the sequence of
events starting from 25.03.2006 and during this
inspection by the Intelligence Wing of the Department, it
had been noticed that the appellant had filed returns
indicating ‘Nil’ tax liability for the period from April 2005
up to the date and points out that the appellant in fact
did not dispute the liability and paid some provisional
amount towards tax liability, but nevertheless, did not file
revised returns; that the second inspection was
conducted on 20.12.2006 by the Assistant Commissioner
of the Department and it was yet again noticed that the
tax liability in terms of the turnover had not been
disclosed in the returns, but on the other hand, the
assessee had continued to file ‘Nil’ returns; that in fact it
18
was only on 12.1.2007 the assessee purported to file
revised returns only for the period from May 2006 to
December 2006 and no revised returns for the earlier
period was filed though the assessee was aware of and
had admitted the tax liability; that the returns were in
fact filed only one day prior to the Deputy Commissioner
going through the books of accounts of the assessee after
following necessary procedure as a consequence of which
notice under section 39 of the Act was issued for
reopening of the assessee’s assessments for the period
from 1.4.2005 up to the date.
21. In this background, what is submitted is that the
assessee in fact never filed revised returns for the earlier
period even after the inspection and ‘Nil’ returns
remained so up to the month of April 2006; that even for
the subsequent months, returns filed were not true and
correct, but grossly under stated in the turnover; that the
assessee never acted with any bonafides for disclosing the
19
true and correct turnover of his business so also taxable
turnover.
22. Mr. Vedamurthy would submit that while it is no
doubt the manner of availment of input credit by
deducting the same against the output tax liability is
provided for under section 10 of the Act, but the assessee
has not complied with the requirements of section 10 of
the Act also, particularly, by not giving full or proper
particulars for the purpose of claiming input tax credit
and to get it reduced from the total tax liability.
23. Our specific attention is drawn to sub-section [4] of
section 10 of the Act which mandates that unless a dealer
while filing returns and claiming deduction towards input
tax as tax invoices, debit notes or credit notes in relation
to sale and evidence of the input tax is based by enclosing
the tax invoices issued by the serving dealer in favour of
the assessee, the mandatory requirement which is not
followed and not complied with by the assessee, the
20
assessee cannot get the benefit of deduction of input
credit is the submission of Sri. T K Vedamurthy.
24. In this regard, Sri. T K Vedamurthy has also taken
us through the provisions of sections 35, 36, 37, 38, 39
and 40 of the Act and particularly section 40 of the Act
providing for the period of limitation. With reference to
the period of limitation, what is submitted is that the
period of limitation stipulated under the Act operates both
against the revenue and against the assessee and the
assessment not concluded within the permitted period
gets time barred and likewise an assessee not complying
the requisite compliances within the stipulated time also
loses the benefit of such compliance as stipulated in the
Act and within time.
25. Mr Vedamurthy has also drawn our attention to
Rule 37 of the Karnataka Value Added Tax Rules, 2005
[for short, the Rules], providing for the tax period for the
purpose of filing of returns and Rule 38 indicating the
21
manner of filing returns with particulars and proof of the
input tax credit etc. With reference to these statutory
provisions, what is very emphatically urged by Mr
VedamMurthy is that under the scheme of the Act, only
manner of claiming credit for the input credit is by filing
returns and as permitted in law; that in a return the
assessee cannot put forth claim for input credit as that is
not what is contemplated under the Act. Submission is
that if the assessee does not put forth a claim for
deduction of input tax credit while computing the tax
liability as indicated in the return filed by the assessee, it
cannot be claimed independently, as it has to be done by
determining the tax liability.
26. It is also submitted that under the scheme of the
Act, the dealer himself is given liberty to determine his tax
liability and indicate that in the returns by claiming
appropriate rebate or deductions and the liability
indicating the return is taken to be a deemed assessment,
22
unless it is found by the revenue that the registered
dealer has either failed to file a return or has not acted in
response to a notice issued in terms of sub-section 2 of
Section 38 of the Act, the terms of the best judgment can
be resorted to. It is therefore submitted that where the
assessee-dealer justifies the confidence reposed by
disclosing true particulars of his turnover, output tax
and input tax, it amounts to compliance on the part of
registered dealer in the requirements of the enactment,
but where it is found that tax liability as disclosed falls
short of the tax liability, it has to be determined following
the best judgment assessment.
27. Mr Vedamurthy would also submit that the returns
that was filed by the assessee were all found not true or
proper and therefore, there was need for reopening of the
assessment and on such reopening, the liability was
determined in terms of the provisions of the Act and it
23
was found that the liability was much more than what
had been disclosed or claimed by the dealer.
28. Learned Government Advocate would submit that
the assessing officer was fully justified in denying the
input tax deductions, as information and material had
not been placed before the assessing authority in the
return filed.
29. It is also submitted by the learned Government
Advocate that there is absolutely no bona fides on the
part of the dealer in continuing to file nil returns even
after the inspection and awareness on the part of the
dealer about his tax liability. It is therefore submitted
that as the true and correct tax liability was determined
only by reopening, the assessing officer was also justified
in levying penalty and interest, as assessee had not acted
with bona fides and had not disclosed true particulars of
his turnover.
24
30. Mr Vedamurthy has placed reliance on a judgment
of a Division Bench of this court rendered in the case of
M/S TOTAL ENVIRONMENT BUILDING SYSTEMS PVT.
LTD. vs THE DEPUTY COMMISSIONER OF
COMMERCIAL TAXES (W.A.3481-3492/2009 disposed of
on 7.10.2009) wherein it has been categorically held that
even in matters where a doubt is raised as regards to the
correctness of the earlier decision by the Supreme court
and the matter is referred to a Larger Bench, the law that
Supreme court had declared earlier prevails, to submit
that the law as it had been declared by Supreme Court in
the case of K RAHEJA DEVELOPMENT CORPORATION
[supra] holding that the turnover of a dealer relating to
construction activities, in the transfer of property
pursuant to a contract is liable to tax insofar as value of
the goods involved in the execution of the works contract
is concerned. It is therefore urged that there is absolutely
no bona fides on the part of the appellant/assessee in
25
claiming that it was under the bona fide impression that
there was no tax liability.
31. Mr Vedamurthy would also place reliance on a
Division bench decision of High Court of Jharkhand at
Ranchi in the case of BHARAT COAL PRODUCT vs
STATE OF JHARKHAND AND OTHERS ((2006) 146 STC
102) to the effect that the Assessing Officer is justified in
acting on the earlier return, if a revised return filed does
not disclose the basis and is not supported by particulars
and material facts and evidence etc. It is therefore
submitted that Assessing Officer was justified in not
acting upon a claim for deduction of input tax, as neither
particulars of the registered dealer had been furnished by
the assessee nor proof of payment of tax to the registered
dealers.
32. Specific attention is drawn to sub-section 4 of
Section 45 of the Act to submit that a revised return to be
filed by an assessee after furnishing a return under the
26
Act should be voluntary and discovered by the assessee
himself to be acted upon by the assessing officer and not
in pursuance of any inspection and discovery by the
authorities about the short filing on the part of the
assessee. It is also pointed out that the time limit that
has to be adhered to and the longer period of 6 months
for filing a revised return will be available only if so
permitted by the prescribed authority and not otherwise.
33. It is therefore submitted that the first appellate
authority had acted erroneously and without jurisdiction
by virtually re-writing the provisions of Section 10(4) of
the Act read with Section 35(4) of the Act; that the first
appellate authority has acted contrary to the statutory
provisions in allowing the appeals and the order also
being prejudice to the interest of the revenue, the
commissioner was justified in revising the orders which
were both erroneous and prejudicial to the revenue and in
27
restoring the order of the assessing officer to the extent
indicated in the order of the commissioner.
34. It is in this background of such submissions and
the statutory provisions, these appeals are required to be
examined.
35. Section 4 of the Act which creates the liability to tax
provides the rates of tax. Insofar as the present situation
is concerned, it is governed by Section 4(1)(c) of the Act,
which reads as under:
4. Liability to tax and rates thereof:-
(1) Every dealer who is or is required to be registered as specified in Section 22 and 24, shall be liable to pay tax, on his taxable turnover,
xxx
(c) in respect of transfer of property in
goods (whether as goods or in some other form) involved in the execution of works contract specified in column (2) of the Sixth Schedule, subject to
Sections 14 and 15 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates specified in the
28
corresponding entries in column (3) of the said schedule.
The nature of work carried on by the assessee is not in
doubt and it is a works contract relating to sale of
apartments involving construction of buildings etc.
36. Section 10 of the Act which spells out as to what is
output tax, input tax and net tax, virtually provides the
manner of determination of tax liability under the Act.
Section 10 reads as under:
10. Output tax, input tax and net tax:–
(1) Output tax in relation to any
registered dealer means the tax payable under this Act in respect of
any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue
of a prescribed declaration by such agent.
(2) Subject to input tax restrictions
specified in Sections 11, 12, 14, (17 and 18), input tax in relation to any
registered dealer means the tax
29
collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods
to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases.
(3) Subject to input tax restrictions
specified in Sections 11, 12, 14, 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible
by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of (this Act).
(4) For the purpose of calculating the
amount of net tax to be paid or refunded, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 or Section
30 and is with the registered dealer taking the deduction at the time any return in respect of the sale is furnished, except such tax paid under sub-section (2) of Section 3.
(5) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, where under sub-section
30
(3) the input tax deductible by a dealer exceeds the output tax payable by him, the excess amount shall be adjusted or refunded
together with interest, as may be prescribed.
37. Sub-section 4 of Section 10 mandates that for the
purpose of calculating the net tax to be paid or refunded,
no deduction for input tax will be made unless tax
invoices, debit note, credit note in relation to a sale has
been issued in accordance with Section 29 or Section 30
of the Act and is with the registered dealer taking the
deduction at the time any return in respect of sale is
furnished etc.
38. Section 35 speaks of returns under the scheme of
voluntary assessment as embedded hereunder, “As a
return filed by the assessee within the prescribed time
and in the manner provided is deemed to be the
assessment.” This read with Section 38 provides for a
deeming of the return as the assessment.
31
39. Section 39 of the Act provides for reassessment of
tax and Section 40 for limitation of assessment. Rule 38
specifies the scheme of monthly return in respect of
assessee whose tax period is monthly. Rule 37 says that
tax period is entirely depending on the turnover. In the
present case, there is no dispute that in so far as the
assessee is concerned, it is a calendar month. Rule 38
provides for furnishing of monthly returns and the
manner of furnishing the same.
40. Even as submitted by the learned counsel for the
appellant and also the learned Government Advocate, the
value added tax is virtually a tax on addition made to the
cost which goes into the hands of a dealer as the assessee
in the normal course and if he complies with all the
mandatory provisions of the Act will be given input rebate
in respect of taxes which he has already paid at the time
of purchase through a registered dealer and therefore,
can claim adjustment in respect of his tax liability and
32
therefore, tax liability is described as net tax i.e. output
tax minus input tax and registered dealer is so enabled to
collect what is known as output tax from his purchasers.
41. The scheme of the Act does indicate that a dealer
virtually stands in the position of the State for the
purpose of claiming credit to the input tax from the
output tax. When once an assessee has deducted the
amount of input tax from the output tax the remainder,
which is the net tax, is bound to be paid by the dealer as
the assessee is enabled to retain the tax he has himself
paid earlier to his selling registered dealer. It is in this
background the Act has provided for certain statutory
and mandatory requirement as is found in Sections 10
and 35 of the Act. The manner of claiming input tax,
rebate or credit is therefore regulated by the statutory
provisions. The requirements are that the assessee who
filed the returns at the first instance for claiming any
input tax rebate or reduction should disclose the same in
33
the returns filed with full particulars of registered dealer
from whom purchases are effected by the assessee.
Dealers’ names are to be furnished along with return and
proof of payment of tax in the form of invoices issued by
the selling registered dealers should also accompany the
same.
42. In the present case, it is not in dispute that all the
requirements were not fulfilled by the assessee for the
period involved in the appeals viz., from April 2005 to
March 2006 – subject matter of appeals in STA 59/2009 -
and from April 2006 upto November 2006 – the subject
matter of appeals in STA 60/2011.
43. The assessee never filed any revised return in
respect of the period from April 2005 to March 2006 nor
claimed any input credit return, but, on the other hand
only filed nil tax liability return. The assessee persisted
and did not file any revised return or anything at all even
after inspection, notice etc. In this view of the matter,
34
there was nothing at all before the assessing authority to
provide any input tax deduction in favour of the assessee
for the entire period from April 2005 to March 2006. So it
is urged by the appellant/assessee that even long after
the expiry of the period in which the revised return could
have been filed, the fact remains that there is no response
by filing any revised returns. In such a position, we are of
the view that the first appellate authority did go out of its
duties and responsibilities and acted out of its
jurisdiction to entertain a claim for deduction of input tax
rebate in favour of the assessee by accepting some
material, purporting it to be based on the books of
accounts and the purchase invoices etc and in granting
reliefs to the assessee. We find, it is a case of the first
appellate authority acting more loyal than the king, even
though a claim had not been put forth by the assessee
through the returns, the first appellate authority has
ventured to allow the appeals and grant relief to the
assessee, contrary to statutory provisions!
35
44. For the period from April 2005 to March 2006, the
order of first appellate authority was clearly erroneous
and definitely prejudicial to the interest of the revenue
and the revisional authority has interfered for restoration
of the original orders for this period. We find nothing
incorrect or erroneous or illegality in acting so and
therefore, appeals relating to these periods are necessarily
to be dismissed i.e. STA 59/09 is dismissed.
45. Insofar as STA 60/09 is concerned, there is slight
variation on the facts, whereas the legal position remains
the same. Though the appeal covers the entire year or
12 calendar months, we are required to examine on the
aspect of not giving input tax credit or rebate only for the
period from April 2006 to November 2006 inasmuch as
the revisional authority has not disturbed the input tax
rebate as given by the appellate authority for the
remaining period. However, it may be relevant only for
36
the purpose of justification of levy of penalty and interest
etc are concerned.
46. Even in regard to this period of April 2006 to
November 2006 is concerned, the factual position is not
very different as it prevailed in the case of returns that
had been submitted by the assessee for the period April
2005 to March 2006. The conduct of the assessee in
filing nil returns for April 2006 to November 2006 can
never be accepted as bona fide, as the assessee, prior to
the filing of the return, had been made aware of the tax
liability and virtually admitted the same and had paid
some provisional amount. Therefore, there is absolutely
no bona fides on the part of the assessee in continuing to
file nil returns even for this period and claiming no tax
liability.
47. The assessee is not a small dealer but with a huge
turnover running to crores of rupees. It is not as though
the assessee could be accepted to be a novice or ignorant
37
dealer or a small businessman who was ignorant of his
responsibility. A return claiming nil tax liability on the
face of it appears to be an obvious attempt on the part of
the assessee to take undue advantage of the due
assessment procedure. The revised returns were filed
only after inspection etc. and therefore, cannot be
accepted as a voluntary return or bona fide return as the
assessee has done it after a good deal of persuasion. It is
not known as to what would have been the conduct of the
assessee if he was not compelled to do so.
48. In the circumstances we find levy of penalty and
interest is fully justified on the difference of tax payable
by the assessee. In fact Section 38(3) of the Act,
reading as under, provides some clue as to this aspect:
38. Assessment of tax:- xxx (3) Where an assessment has been made
under sub-section (2) and the dealer subsequently furnishes a return for the period to which the assessment
38
relates, the prescribed authority may withdraw the assessment but the dealer shall be liable to penalties and interest as applicable.
49. Even when a revised return or a return
subsequently has been made subsequent to passing of
the best judgement order, while the original assessment
can be withdrawn, best judgement assessment cannot be
withdrawn, which, nevertheless does not absolve the
assessee from being levied with penalties and interest and
they shall continue to be so levied and therefore in the
present case there is justification for the levy of penalty
and interest. We are of the opinion that the penalty and
interest levied on the assessee does not call for any
interference in this appeal by us.
50. Insofar as denial of input tax rebate for the period
from April 2006 to November 2006 is concerned, what is
urged on behalf of the assessee is that the revised returns
have been filed within 6 months from June to November
39
2006. This argument virtually admits that for the periods
April and May, they are beyond 6 months. It is therefore
examination is required for the period June-November
2006 for the purpose of entitlement of the assessee for the
input tax. We notice even here that while the assessee
had promptly filed nil returns for this period within the
time stipulations as per the Act, he did not care to file any
revised returns nor had furnished the full particulars of
the purchases made from registered dealers and the proof
thereof. The factual position with regard to the
compliance with the requirements of sub-section 4 of
Section 10 is not forthcoming and though the assessee
had filed revised returns for this period, even the revised
returns did not contain the particulars of the registered
dealer from whom purchases had been made and the
actual tax paid on such purchases in the form of tax
invoices issued by the selling registered dealers.
40
51. As pointed out by the learned Government
Advocate, it is to be noticed that the revised returns were
filed almost several months after the filing of the original
returns and the actual assessment took place after almost
two years after the original inspection and much time gap
was there between filing of the returns and revised
returns and further interval before passing of the
assessment order. The assessee who had appeared before
the assessing authority and represented, did not place
any material or particulars as had been put forth before
the appellate authority at the time of assessment or prior
to the assessment. The assessee had ample opportunity
for making the same. Notwithstanding the assessee had
not fulfilled any compliance of the requirements of the
statutory provisions, the particulars of registered dealers
from whom purchases had been made had not been
furnished, particulars of register etc nor corresponding
tax invoices issued by the registered dealers were
provided, but only a claim statement was made for
41
claiming credit for input tax on purchases said to have
been effected from the dealers. We have already noticed
that insofar as the claim for input tax deduction is
concerned, the Act mandates strict compliance with the
requirements of Section 10 which is reflected in the
return as per Section 35 of the Act. While the argument
of Mr Keshava Murthy, learned counsel for the appellant-
assessee that the revisional authority while has accepted
the stand taken by the appellate authority for treating the
purchases made by the assessee from registered dealers
and unregistered dealers and in fact had accepted the
deduction of liability by the first appellate authority in
terms of Section 3(2) of the Act, it could not have made
any distinction only when it comes to provide input credit
in respect of the very purchases depicted from the
registered dealers.
52. Mr Vedamurthy, learned AGA, would point out that
the liability under Section 3 of the Act is a different
42
liability independent of the liability under Section 4 of the
Act and insofar as Section 4 liability is concerned, the
determination is only in terms of the other provisions,
whereas insofar as Section 3(2) liability is concerned, the
analogy drawn by Mr Keshava Murthy is apt, so far as
input tax rebate is concerned. The Act expressly provides
for statutory compliance, whereas it does not provide so
in respect of determination of Section 3 liability.
53. The Act specifically provides for the manner in
which the extent of purchases made by an assessee from
registered dealer and the claim for corresponding tax
made at the time of purchase can be claimed by
prescribing a specific mode and that is not complied by
the assessee. Therefore, even assuming that the benefit
of reduction of Section 3(2) tax liability as given by the
appellate authority is not disturbed by the revisional
authority, it cannot be a ground for extending such a
43
benefit in respect of input tax rebate either by comparison
or otherwise.
54. Insofar as the argument that the revised return
having been filed within six months and taking cue from
the provisions of Section 38(3) of the Act, the revised
return should be accepted and acted upon is concerned,
we find this provision is not applicable to the present
situation as it arises only in a situation where best
judgment assessment is passed because of non-filing of
the return as for the periods in question which we are
discussing, the assessee had filed nil returns.
55. In so far as Mr Keshava Murthy’s submission that
in a best judgment assessment, where a return is not
accepted and is based on the information as disclosed in
the books of accounts etc., the claim in the returns or
non-claiming in the returns cannot be of much
significance, we find that claim for input tax credit can
only be in specified form and not in a generalised form
44
and therefore, the arguments cannot succeed. We have
discussed this aspect elaborately as above. Therefore, on
comparison of provisions of Section 38(3) of the Act, the
benefit cannot be extended by overlooking the statutory
requirements under Section 10(4) of the Act read with
sub-sections (1) and (4) of Section 35 of the Act.
56. In the circumstances we find that the impugned
order passed by the Commissioner setting aside the
appellate authority’s order for the periods April 2005 to
March 2006 and April 2006 to November, 2006 and
restoring the assessment order cannot be said to be
suffering from any illegality or want of jurisdiction and
therefore, the appeals to that extent are dismissed. The
Judgments relied cannot further the case of the
appellant/assessee, as when a statutory provision
mandates compliance in a particular manner in
examining as to whether the compliance is secured or
otherwise a broad based approach is not called for, more
45
so in tax matters, where the liability is strictly as per the
sections and compliance, both on the part of the revenue
and on the part of the assessee, also should be strictly in
terms of the statutory provisions. An assessee pays
penalty if it violates the statutory provision and likewise
the revenue also loses revenue unless it adheres to the
requirements of the statutory provision. It is for this
reason we are not impressed by the submission on behalf
of the assessee that there was no need for taking a
technical approach or hyper technical approach and if the
appellate authority had taken a pragmatic and plausible
view, the revisional authority should not have disturbed
the same or interfered with the same, is not accepted.
57. Appeals dismissed but costs made even.
Sd/-
JUDGE
Sd/-
JUDGE
*pjk/AN/BRN