2010 (8) TMI 851 - HC - VAT and Sales Tax

Whether the assessee is not entitled to the exemption claimed and consequently liable for penalties levied under section 72(2) and 72(3) of the Karnataka Value Added Tax Act, 2003? Held that - It is brought to our notice that a beneficial circular has been issued by the Commissioner, how the question of penalty is to be imposed in the case of default especially keeping in mind, the change in the law and the jurisdiction, which came in the way of the assessee understanding the effect of change in law. Certainly, the assessing authority will take notice of the directions issued by the Commissioner to tide over the situation during this interregnum period while passing the final orders. In so far as penalty is concerned, the learned single judge in the afore said writ petition has already quashed the findings recorded by both the authorities and remitted the matter back to the assessing authority for fresh consideration. It is unfortunate that the Tribunal has not noticed the said order of the learned single judge. Therefore, confirming the penalty as on the date of the order was passed is erroneous, illegal and without juris diction. Therefore, that portion of the order of the Tribunal is liable to be set aside and accordingly, it is set aside. Appeal allowed in part.

Summary

Issues:
Challenge to order of Karnataka Appellate Tribunal denying exemption claimed under KVAT Act, 2003 and upholding penalties under sections 72(2) and 72(3).

Analysis:
The assessee, a registered dealer with two units, challenged the order rejecting exemption on sales to 100% export-oriented units under KVAT Act, 2003. Assessing officer levied penalties under sections 72(2) and 72(3) for incorrect returns. Appellate authorities upheld the decision, leading to revisions before the High Court.

The High Court noted that the exemption under the previous Sales Tax Act was not extended to the KVAT Act, making tax collection mandatory from April 1, 2005. The authorities correctly interpreted the Act, denying the assessee's claim for exemption. The court upheld this finding based on statutory provisions and rejected interference.

Regarding penalties, the court emphasized the necessity of providing an opportunity to the dealer before imposing penalties under section 72(2). The High Court quashed the penalty portion of the order, directing it to be treated as a proposition notice for the assessee to file objections. The matter was remitted back to the assessing authority for fresh consideration in line with the directions issued by a single judge.

A beneficial circular by the Commissioner guided the imposition of penalties during the transitional period due to changes in the law. The assessing authority was directed to consider this circular while making final decisions. The High Court set aside the Tribunal's decision affirming the penalty, as it failed to acknowledge the single judge's order, deeming it erroneous, illegal, and lacking jurisdiction.

In conclusion, the High Court partially allowed the revision petitions, setting aside the penalty order and remitting the matter to the assessing authority for fresh disposal as per the directions of the single judge. The rest of the order remained undisturbed, with each party bearing their own costs.