1988 (9) TMI 328 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the Deputy Commissioner to revise assessments.
2. Classification of "gold-thread" (jari) under Entry 49 of the Second Schedule versus Section 5(1) of the Karnataka Sales Tax Act, 1957.
3. Consistency in tax treatment of gold-thread by the department.
4. Validity of notices issued based on audit objections.

Detailed Analysis:

1. Jurisdiction of the Deputy Commissioner to Revise Assessments:

The primary issue is whether the Deputy Commissioner of Commercial Taxes had the jurisdiction to revise the assessment orders under Section 21(4) of the Karnataka Sales Tax Act, 1957. The petitioners argued that there was no material for the Deputy Commissioner to invoke revisional jurisdiction on the assumption that they dealt with imitation jari and not gold-thread. The court noted that the Deputy Commissioner did not record any reason or bring any other information or material warranting the revision of the assessments. The court held that the notices issued by the Deputy Commissioner were based solely on audit objections raised by the Accountant-General and not on any independent satisfaction regarding the legality or propriety of the assessment orders. Therefore, the court concluded that the Deputy Commissioner lacked the jurisdiction to revise the assessments, and the notices were quashed on this ground.

2. Classification of "Gold-Thread" (Jari) under Entry 49 of the Second Schedule versus Section 5(1) of the Karnataka Sales Tax Act, 1957:

The court examined whether the turnover of the petitioners in gold-thread for the years 1982-83 and 1983-84 should be taxed under Entry 49 of the Second Schedule or under Section 5(1) of the Act. The petitioners contended that gold-thread is understood in common parlance as jari or jarthari and is known in the trade as "kalabattu," which may include both pure and art gold-thread. The court found that the consistent view taken by the appellate authorities under the Act was that the turnover in gold-thread should be taxed under Entry 49 of the Second Schedule. The court also noted that the subsequent amendment to Entry 49, effective from August 1, 1985, included all kinds of jari, indicating the legislature's intention to tax all types of imitation jari from that date. Therefore, the court concluded that prior to the amendment, only gold-thread or jari was taxable under Entry 49, and not any other kind of imitation jari.

3. Consistency in Tax Treatment of Gold-Thread by the Department:

The petitioners argued that their turnover in gold-thread had consistently been taxed under Entry 49 from 1957 to 1985. The court observed that the assertion made by the petitioners was not controverted by the department. The court also referred to several orders made by the Deputy Commissioner of Commercial Taxes (Appeals), which upheld the assessments made under Entry 49 for dealers in gold-thread. The court emphasized that the department had accepted the consistent view taken by the appellate authorities and had not challenged those orders. Therefore, the court held that the consistent tax treatment of gold-thread under Entry 49 should not be revised without any compelling reason, which was lacking in this case.

4. Validity of Notices Issued Based on Audit Objections:

The court examined the validity of the notices issued by the Deputy Commissioner based on audit objections raised by the Accountant-General. The court noted that the only ground for proposing the revision was the audit objections, and the Deputy Commissioner had not recorded any independent reason for revising the assessments. The court held that the Accountant-General is not the competent authority to clothe the Deputy Commissioner with jurisdiction to revise the assessments. The court concluded that the notices issued by the Deputy Commissioner were invalid as they did not contain any reason of their own or any fresh material justifying the revision.

Conclusion:

The court allowed the writ petitions and quashed the notices issued by the Deputy Commissioner of Commercial Taxes under Section 21(4) of the Karnataka Sales Tax Act, 1957. The court held that the Deputy Commissioner lacked jurisdiction to revise the assessments, the turnover in gold-thread should be taxed under Entry 49 of the Second Schedule, the consistent tax treatment of gold-thread should not be revised without compelling reason, and the notices issued based on audit objections were invalid.