2008 (7) TMI 859 - HC - VAT and Sales Tax

Filing of this nil return - Compounding offences - show-cause notice annexure E to the petitioner giving an opportunity to show cause as to why charge sheet should not be filed against the petitioner, instead of showing cause the petitioner has approached this court raising various legal contentions Held that - In the present set of facts and circumstances,it of the view that annexure E proposition notice is definitely not tenable in law for the reason that in the guise of a proposition notice which in fact is not warranted in terms of section 79 of the Act, the so-called notice seeks to plant information with regard to the liability of the petitioner though such liability is not actually determined by the competent authority in terms of the statutory provisions under the Act. Though it is contended by Smt Niloufer Akbar, learned Additional Government Advocate that it is only a tentative determination or proposal for launch of prosecution, even that is not permitted in law as the determination can only be made by the competent authority and in terms of section 39 of the Act and not by any other mode or means. In such circumstances, it is obvious that the issue of the so-called notice under section 79 read with section 82 of the Act is not proper use of the power under the Act . Thus the proposition notice bearing No. JCCT/INT/Assistant Commissioner-XII/INS-49/06-07 dated April 9, 2007 (copy at annexure E) issued by the third respondent alone is quashed by issue of a writ of certiorari. Writ petition allowed in part.

Summary

Issues Involved:
1. Applicability of the Supreme Court ruling in Raheja's case.
2. Validity of the advance ruling under section 60 of the Karnataka Value Added Tax Act, 2003.
3. Legitimacy of the proposition notice under sections 79 and 82 of the Karnataka Value Added Tax Act, 2003.
4. Proper procedure for determining tax liability under the Karnataka Value Added Tax Act, 2003.

Issue-wise Detailed Analysis:

1. Applicability of the Supreme Court ruling in Raheja's case:
The petitioner contended that the ruling of the Supreme Court in Raheja Development Corporation v. State of Karnataka [2005] 141 STC 298 does not apply to their case due to the peculiar facts involved. However, the court noted that disputed facts are not typically examined in writ jurisdiction and should be assessed by the appropriate authorities. The court emphasized that the ruling of the Supreme Court binds the court, and if the facts are similar to those in the Larsen & Toubro Limited case, the ruling in Raheja's case would apply.

2. Validity of the advance ruling under section 60 of the Karnataka Value Added Tax Act, 2003:
The petitioner argued that the advance ruling was erroneous as it applied the Supreme Court's decision in Raheja's case to their situation. The court, however, found that the advance ruling was consistent with the judgment in the Larsen & Toubro Limited case and did not warrant interference. The court clarified that whether the petitioner's case is identical to Larsen & Toubro Limited's case needs to be examined by the authorities.

3. Legitimacy of the proposition notice under sections 79 and 82 of the Karnataka Value Added Tax Act, 2003:
The petitioner challenged the proposition notice issued under sections 79 and 82, arguing that there was no determined tax liability by a competent authority. The court agreed, stating that the notice was not a proper use of power under the Act. The court highlighted that the determination and quantification of tax liability should be done under section 39 of the Act by a competent authority before any prosecution could be launched. The notice was deemed mischievous and an attempt to create evidence without proper determination.

4. Proper procedure for determining tax liability under the Karnataka Value Added Tax Act, 2003:
The court underscored that the proper procedure for determining tax liability involves filing returns, deemed assessment under section 35, and reassessment proceedings under section 39 if necessary. The court noted that the petitioner had filed a "nil" return, which should have been examined by the assessing authority. The tentative determination in the show-cause notice without proper assessment was found to be improper. The court emphasized that prosecution proceedings should be serious and only initiated with the sanction of the Commissioner after a definite case of fraudulent evasion is established.

Conclusion:
The court quashed the proposition notice dated April 9, 2007, issued by the third respondent, as it was not tenable in law. The authorities were directed to proceed against the petitioner in accordance with the law for determining tax liability based on the Supreme Court's ruling and the judgment in Larsen & Toubro Limited's case. The advance ruling was upheld, and the writ petition was allowed in part to the limited extent indicated.