2009 (4) TMI 867 - HC - VAT and Sales Tax

Reopening of assessment - Held that - With regard to the assessment the revisional authority was justified in opining that the assessing authority had erred in assessing the assessee at lower turnover and therefore he directed the assessing authority to issue revised demand notice as indicated in the proposition notice of the revisional authority. It is also found that the assessee did not dispute the said proposal except as to the liability in terms of the alleged agency agreement. The authority was also justified in saying that there is violation of section 12B(1) for having transacted the business in taxable goods without registration and payment of taxes. Imposition of penalty equally applies to deemed registered dealer also. Therefore, the authorities were justified in imposing penalty as well. As a matter of fact, throughout the proceedings, at no point of time the applicability of any of the above provisions was questioned by the assessee. The only dispute was with regard to alleged agency agreement by contending that Prabhath Granite Pvt. Ltd., has transacted the business on behalf of the appellant-assessee. The revisional authority was justified in holding that the so-called agency agreement is a created and got-up document for the purpose of evading payment of tax and penalty. We do not find any good ground to interfere with the orders of the revisional authority. Appeal dismissed.

Issues Involved:
1. Estimation of turnover and tax rate.
2. Validity of the agency agreement between the appellant and Prabhath Granite Pvt. Ltd.
3. Jurisdiction and procedure of the revisional authority.
4. Legitimacy of the penalty imposed under section 12(4)(b) of the Karnataka Sales Tax Act.
5. Compliance with procedural requirements for show-cause notices.

Issue-wise Detailed Analysis:

1. Estimation of Turnover and Tax Rate:
The Deputy Commissioner of Commercial Taxes estimated the appellant's turnover for the assessment year 2004-05 at Rs. 16,86,245, with a tax rate of 12%. This estimation was based on an investigation and inspection report from the Joint Commissioner of Commercial Taxes (Vigilance), Bangalore. The best judgment assessment was conducted after considering the necessary expenditures. The appellate authority later challenged this estimation, arguing that the assessing authority should have initiated proceedings under section 12A instead of section 12(3) of the Karnataka Sales Tax Act. The appellate authority also criticized the assessing authority for basing the sales turnover on probable expenses rather than concrete evidence.

2. Validity of the Agency Agreement:
The appellant contended that Prabhath Granite Pvt. Ltd. was its agent, responsible for extracting and selling granite blocks. The agency agreement, which was not initially presented to the assessing or appellate authorities, was produced during the revision stage. The revisional authority found this agreement to be a created document aimed at evading tax. The agreement's terms indicated that Prabhath Granite Pvt. Ltd. had exclusive rights to procure orders and sell the granite, suggesting a sale rather than an agency relationship. The revisional authority concluded that the appellant was the first seller of the granite blocks and was liable for the tax.

3. Jurisdiction and Procedure of the Revisional Authority:
The revisional authority issued a notice under section 22A(1) of the Karnataka Sales Tax Act, proposing to revise the appellate order on grounds of it being erroneous and prejudicial to the revenue's interest. The appellant argued that the revisional authority overstepped its jurisdiction by re-assessing the turnover without proposing it in the notice. However, the revisional authority justified its actions by stating that the appellant had not maintained proper accounts and had failed to register under the KST Act. The revisional authority deemed the appellant a registered dealer under section 10B and held that section 12(3) read with section 18(3) was applicable, not section 12A, as there was no original assessment to reassess.

4. Legitimacy of the Penalty Imposed:
The revisional authority upheld the penalty imposed under section 12(4)(b) of the Act, stating that the appellant transacted in taxable goods without registration and payment of taxes, violating section 12B(1). The penalty was deemed applicable to deemed registered dealers as well. The appellate authority's order to set aside the penalty was overturned, with the revisional authority emphasizing the appellant's failure to comply with tax obligations and the creation of the agency agreement to evade tax.

5. Compliance with Procedural Requirements for Show-Cause Notices:
The appellant relied on a precedent (Shankar Construction Co. v. Additional Commissioner of Commercial Taxes) to argue that the show-cause notice issued by the revisional authority was invalid as it prejudged the issue. However, the court found that the notice merely stated the reasons for reopening the appellate order and provided the appellant an opportunity to file objections. The revisional authority's notice was deemed compliant with procedural requirements, as it indicated the reasons for revision without concluding the matter prematurely.

Conclusion:
The appeal was dismissed, with the court upholding the revisional authority's findings. The appellant's contentions regarding the agency agreement, procedural errors, and penalty imposition were rejected. The court affirmed that the appellant was liable for the assessed turnover and tax, and the penalty imposed was justified.

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