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2017 DIGILAW 1245 (KAR)

Niwara Builders v. State Of Karnataka

2017-09-08

H.B.PRABHAKARA SASTRY, L.NARAYANA SWAMY

body2017
ORDER : 1. The summary of the case of the appellant is that, the appellant is a proprietary concern and is engaged in the business of construction of buildings under the name and style of ‘M/s. Niwara Builders’ in Belagavi. Under the Karnataka Value Added Tax Act, 2003 (henceforth for brevity called as ‘the Act’), the petitioner concern was registered with effect from 17.05.2007. The Prescribed Authority (for brevity referred to as ‘P.A.’) initiated proceedings under Section 38(5) of the Act and issued a protective assessment, for a sum of Rs.54,39,866/- for the tax period of the year 2005-06 and a sum of Rs.22,17,593/- for the tax period of the year 2006-07. The said order was challenged by the petitioner before the First Appellate Authority, which is the Joint Commissioner of Commercial Taxes (Appeals), Belagavi Division, Belagavi (for brevity referred to as ‘FAA’). The said authority vide its order dated 16.05.2013 passed under Section 62 (6) of the Act, dismissed the appeal. The said order was challenged by the petitioner herein before the Karnataka Appellate Tribunal at Bengaluru in STA Nos.1758/2013 and 1823 to 1845/2013. The Tribunal by its Judgment dated 18.12.2013, dismissed the appeals on merit. Being aggrieved by the said common Judgment of the KAT dated 18.12.2013, the petitioner has filed this Sales Tax Revision Petition under Section 65 (1) of the Act. 2. In its memorandum of revision petition, the petitioner has taken a contention that, after initiation of proceeding by the concerned authorities, it has made a payment of a sum of Rs.19,65,018/-as demanded by the notice under Section 82 of the Act and further payments of a sum of Rs.3,00,000/-, Rs.5,00,000/-, Rs.4,00,000/-and Rs.4,63,709/- and a sum of Rs.5,00,000/-, thus in total amounting to Rs.41,28,727/-. Therefore, issuance of protective assessment under Section 38 (5) of the Act is arbitrary and not sustainable. The petitioner has specifically contended that under Section 38 (5) of the Act, the protective assessment can be issued only if the prescribed authority has reasons to believe that such dealer would fail to pay any tax, penalty or interest so assessed or imposed or payable. There was no reason whatsoever for the lower authorities to believe that the petitioner would fail to pay the taxes, penalties or interests’ so assessed or imposed. With this, it has prayed for setting aside the Common Judgment dated 18.12.2013 challenged under these revision petitions. 3. There was no reason whatsoever for the lower authorities to believe that the petitioner would fail to pay the taxes, penalties or interests’ so assessed or imposed. With this, it has prayed for setting aside the Common Judgment dated 18.12.2013 challenged under these revision petitions. 3. The respondent is being represented by Additional Government Advocate. The matter was admitted on 01.06.2015 and the following substantial question of law was framed for consideration; “Whether the authority was justified in invoking the provision of Section 38 (5) when a notice under Section 82 of the Karnataka Value Added Tax Act has already been issued?” 4. Heard arguments from both side. 5. The learned counsel for the petitioner in his arguments reiterated the contention taken up by the petitioner in his revision petition contending that there was no reason for the prescribed authority to believe that the petitioner would fail to pay any tax, penalty or interest, as such, issuing protective assessment under Section 38 (5) (a) of the Act was bad in the eye of law. 6. The learned Additional Government Advocate in his argument submitted that even though the petitioner was carrying on business in construction and sale of buildings and apartments since the year 2001-02, it did not register itself under the Act till 17.05.2007. He further submitted that, in spite of issuance of notice under Section 82 of the Act and also protective assessment under Section 38 (5) of the Act, the petitioner has neither paid the tax, penalty and interest demanded nor filed its assessment for the year 2005-06 and 2006-07. As such there was reasons to the prescribed authority to believe that the petitioner would fail to pay any tax, penalty or interest so assessed, as such, there is justification in issuance of the protective assessment under Section 38(5)(a) of the Act. 7. It is not in dispute that the petitioner was registered under the Act on 17.05.2007. According to the petitioner, on 13.11.2008, the Assistant Commissioner of Commercial Taxes Enforcement–1, Belagavi, visited its business premises and verified business documents and also recorded statement from the representatives of the petitioner. On 12.06.2009, the said authority issued a notice under Section 82 of the Act for the years 2005-06, 2006-07, 2007-08 and 2008-09. On 22.09.2009, the petitioner submitted a reply to the said notice. On 12.06.2009, the said authority issued a notice under Section 82 of the Act for the years 2005-06, 2006-07, 2007-08 and 2008-09. On 22.09.2009, the petitioner submitted a reply to the said notice. On 06.01.2010, the said authority issued a notice under Section 38 (5) of the Act for the years 2005-06, 2006-07, 2007-08 and 2008-09. 8. In response to the said notice, it is stated that the petitioner appeared before the authority and also made small portions of the payment of the tax, amounting to Rs.3,00,000/- + Rs.5,00,000/-= Rs.8,00,000/-. The Assistant Commissioner of Commercial Taxes Enforcement–1, Belagavi, on 11.11.2011 passed an order under Section 38(5) of the Act. It is interesting to note that the petitioner has not taken a specific contention before the authority that, since a notice under Section 82 of the Act was earlier issued, the authorities precluded from issuing protective assessment under Section 38 (5) of the Act. Section 82 of the Act reads as below: “82.Compounding offences (1) Where any dealer has committed an offence under sub-section (1) of Section 77 or Section 70, the prescribed authority may, on admission by such dealer in writing and upon his option to compound at any time prior to the commencement of the court proceedings relating thereto, compound such offence and order the dealer to pay such sum of money as specified by the prescribed authority, which shall not exceed the amount of the fine prescribed for the offence, in addition to any tax and interest due. (2) Furnishing of a cheque or any order instrument towards payment of a sum by any such dealer shall be deemed to be an application for compounding the offence. (3)Where the prescribed authority compounds an offence under this Section, the order referred to in sub-section (1) – (a) Shall be in writing and specify the offence committed, the sum of money to be paid and the due date for the payment; and (b) Shall be served on the dealer who committed the offence; and (c) Shall be final and not subject to any appeal, and (d) May be enforced in the same manner as a decree of a court for the payment of the amount stated in the order. (4) When the prescribed authority compounds an offence under this Section, the dealer concerned shall not be liable to prosecution in respect of such offence or to any further penalty under this Section and such dealer shall not appeal against the said proceedings.” 9. A reading of the above section does not give any inference that there is any prohibition for initiating action under Section 38(5) of the Act, once a notice under Section 82 of the Act is issued. Further, it is also not the case of the petitioner that the proceedings under Section 82 of the Act has been concluded with respect to the relevant years 2005-06, 2006-07, 2007-08 and 2008-09. Thus nothing has prevented the prescribed authority to initiate action under Section 38 of the Act, provided the essential of the said section are met with. 10. Section 38 of the Act deals with the assessment of the Tax. The relevant portion of the said section for the case on hand is Section 38(5), which reads as below: “38. Assessment of tax (1) ……… (2) ……… (3) ……… (4) ……… (5) (a) The prescribed authority on any evidence showing a liability to tax coming to its notice 5[may with the previous permission of his Joint Commissioner or Additional Commissioner] 6[issue] a protective assessment in the case of a dealer registered under this Act or a dealer liable to be registered under this Act, if the prescribed authority has reason to believe that such dealer will fail to pay any tax, penalty or interest or assessed 7[or imposed or payable] and such tax, penalty or interest shall become payable forthwith. (b) On any applicable made within thirty days from the date of receipt of such protective assessment by the dealer or on his own motion within thirty days from the date of issue of such protective assessment, if the Joint Commissioner or Additional Commissioner considers that any protective assessment issued is erroneous, he may after giving the dealer concerned an opportunity of being heard and after making such enquiry as he deems necessary, pass such order thereon as the circumstances of the case may justify]”. 11. A reading of the above section would go to show that though the prescribed authority is empowered to issue a protective assessment but before issuing such an assessment, the following essentials are to be satisfied. 11. A reading of the above section would go to show that though the prescribed authority is empowered to issue a protective assessment but before issuing such an assessment, the following essentials are to be satisfied. (i) He should have some evidence showing a liability to tax coming to its notice, (ii) He may have to require previous permission of his Joint Commissioner or Addl. Commissioner to issue a protective assessment, (iii) The assessee with respect to whom the protective assessment is issued must be a dealer registered under the Act or he must be a dealer liable to be registered under this Act and lastly, (iv) The authority should have reason to believe that such dealer will fail to pay any tax, penalty or interest so assessed or imposed or payable. 12. In the case on hand, the petitioner does not dispute that before invoking the provision of Section 38(5) of the Act, the concerned authority had perused the records available with them and also as submitted by the assessee during the earlier proceedings consequent to inspection of business premises of the assessee by the predecessor in office of the authority. The petitioner also does not dispute that the issuance of the protective assessment under Section 38(5)(a) of the Act was by the competent authority only. Furthermore, it is also not in dispute that the petitioner was liable to be registered under the Act, immediately after the Act came into force, however it got itself registered only on 17.05.2007. As such, it is a dealer which was liable to be registered and subsequently registered under the Act. It is only the last ingredient of the Section i.e. “authority should have reason to believe that such dealer would fail to pay any tax………” is seriously being disputed by the petitioner herein. 13. According to the learned counsel for the petitioner, the prescribed authority had no reason to arrive to such a belief and that there were no materials to arrive at such a belief. In that regard, he also relied upon a Judgment of Hon’ble Apex Court in Binani Industries Ltd., Kerala Vs. Assistant Commissioner of Commercial Taxes, VI Circle, Bengaluru, reported in LAWS (SC) 2007-4-13. In that case, with respect to Section 5(c) of the Karnataka Sales Tax Act, 1957, this Court had held that the Circular No.31/1999-2000 dated 23.10.1999 was valid and Circular No.5/1996-97 dated 12.04.1996 was inoperative. Assistant Commissioner of Commercial Taxes, VI Circle, Bengaluru, reported in LAWS (SC) 2007-4-13. In that case, with respect to Section 5(c) of the Karnataka Sales Tax Act, 1957, this Court had held that the Circular No.31/1999-2000 dated 23.10.1999 was valid and Circular No.5/1996-97 dated 12.04.1996 was inoperative. Section 5(c) of the Act was observed to be dealing with levy of tax on transfer of right to use the goods which was treated as a transfer for the purpose of levy of the sales tax within the State. Noticing that re-assessment proceedings were initiated in the said case and / or action in terms of Section 21 for revision was initiated and also that both those actions were related to completed assessment, the Hon’ble Apex Court held that the question of re-opening the assessment by mere change of opinion was entirely impermissible. It is submitted that the said observation was made in a case falling under the Karnataka Sales Tax Act, 1957, whereas, the case on hand is with respect to the Karnataka Value Added Tax, 2003. Apart from that, it is also to be noticed that as observed above, the proceeding under Section 82 of the Act had not reached its finality. As already observed, mere issuance of a notice under Section 82 of the Act cannot be taken as precluding the prescribed authority from initiating any proceeding under Section 38(5) of the Act. As such, the Judgment relied upon by the learned counsel for the petitioner wound not enure to his benefit. 14. The learned counsel for the petitioner further submitted that after issuance of notices to it, the petitioner has paid a total sum of Rs.41,28,727/- in various fractions. Moreover, it had furnished the details of the immovable properties possessed by its proprietor so also his income tax PAN particulars. As such, there could have been no basis for the prescribed authority to arrive at any belief that the petitioner would fail to pay any tax, penalty or interest. On the contrary, the learned Government Advocate in his arguments submitted that, admittedly the petitioner which was carrying on business in the construction of buildings and sale of apartments since a long-time, was expected to register under the Act immediately after the said Act coming into force from the date 01.04.2005. However, for no valid reasons, the petitioner did not register itself till 17.05.2007. However, for no valid reasons, the petitioner did not register itself till 17.05.2007. Further more, it has not filed any returns for the relevant period till this date. As such, considering the total liability of the tax, the prescribed authority had every reason to believe that the petitioner would fail to pay any tax, penalty or interest so assessed or payable. 15. It is not in dispute that the petitioner was dealing in the business of construction of buildings and sale of apartments since prior to the Act coming into force. The reason given by the learned counsel for the petitioner in his argument for non-registering as a dealer under the Act and non-payment of the tax till the year 2007 was that the question whether the activity of the petitioner would be treated as a works contract was under dispute and under consideration before the larger Bench of Hon’ble Apex Court. In K.Raheja Development Corporation Vs. State of Karnataka reported in 2005 (141) STC 298, the Hon’ble Apex Court was pleased to hold that “the appellants were undertaking to build as developers for the prospective purchasers……... It would be a ‘works contract’”. However, the very same Hon’ble Court subsequently in the case of Larsen and Toubro Limited and another Vs. State of Karnataka and another reported in 2008 (17) VST 460 opined that the Judgment of Division Bench in Raheja’s Case (supra) needs reconsideration by a larger Bench. The Judgment in the said Raheja Case (supra) was referred to a larger Bench and the three learned Judges of Hon’ble Apex Court in their Judgment dated 26.09.2013 in Civil Appeal No.8699/2013 at para No.113 was pleased to observe as below: “We are clearly of the view that the Raheja Development lays down the correct legal position and we approve the same” Thus, it is settled that the work of construction and sale of flats by a developer/builder amounts to ‘works contract’ and liable to tax under the Act. 16. In this background, the opinion expressed by the Apex Court in Larsen and Toubro Limited and another Vs. State of Karnataka and another (supra) cannot be considered as an excuse for the dealer under the Act for non payment of his tax periodically. 16. In this background, the opinion expressed by the Apex Court in Larsen and Toubro Limited and another Vs. State of Karnataka and another (supra) cannot be considered as an excuse for the dealer under the Act for non payment of his tax periodically. In the absence of any specific direction or stay order allowing him to desist or delay from making payment of tax, merely because of an opinion to refer a matter to a larger Bench by the Hon’ble Apex Court cannot be taken as reasonable excuse for the dealer for non-payment of the tax which is a revenue to the State, at the appropriate time. As such, the petitioner since had no valid reasons for non-payment of tax. On the contrary the taxation authorities particularly the prescribed authority in the instant case had every reason to believe that the dealer would fail to pay any tax, penalty or interest. Furthermore, it also cannot be ignored that even after issuance of notice under Section 38(5) of the Act, the petitioner has not paid the tax in its entirety and has not cleared its dues in its entirety. The liability under the protective assessment for the year 2005-06 is Rs.54,39,866/- and for the year 2006-07 it is Rs.22,17,593/-, the total of which is Rs.76,57,459/-. Out of which, even according to the petitioner till date it has paid only a sum of Rs.41,28,727/-. Admittedly, it has not even filed its returns for the relevant years. These facts go to show that the prescribed authority had every reason to believe that the petitioner would fail to pay any tax, penalty or interest so assessed or payable by him. In this regard, the prescribed authority in its order under Section 38(5) of the Act dated 11.11.2011 has given a detailed reasoning as to what made it to arrive at a belief that the petitioner would fail to pay the taxes, penalties and interests that are legally payable. We do not find any reason to disbelieve or reject those reasonings given by the Prescribed authority. As such, we proceed to pass the following order: ORDER The petitions are dismissed. No order as to costs.