2010 (11) TMI 886 - HC - VAT and Sales Tax

A combined reading of all these provisions would not leave anybody in doubt that the officer of the Commercial Taxes who had to do the reassessment has to be expressly authorised either by the Government or by the Commissioner. Such an authorisation has to be express not implied automatic or consequential. Note Nos. 15 and 16 and the communication dated July 27 2009 also do not come to the rescue of the respondents for sustaining the impugned reassessment order. The perusal of note Nos. 15 and 16 does not reveal any authorisation much less the express authorisation in favour of respondent No. 2 to do the reassessment. Similarly the communication dated July 27 2009 extracted hereinabove is again in respect of audit assigned and that too by the Additional Commissioner of Commercial Taxes. Despite the best endeavours made by Sri Shivayogiswamy he is not in a position to lay hands on any document which is issued by the Government or the Commissioner of Commercial Taxes giving authorisation to respondent No. 2.The plain reading of the meaning of the two terms audit and assessment clearly shows that audit is only a part of assessment process

Issues Involved:
1. Jurisdiction and authorization of the reassessment order.
2. Tax rate applicability on iron and steel.
3. Consideration of various components in the execution of works contracts.

Detailed Analysis:

Issue 1: Jurisdiction and Authorization of the Reassessment Order

The petitioner challenged the reassessment order dated October 25, 2010, and the consequent demand notice dated October 26, 2010, under section 39(1) of the Karnataka Value Added Tax Act, 2003 (VAT Act). The petitioner argued that the reassessment order was passed without legal authority and jurisdiction, as Respondent No. 2 lacked authorization to perform the reassessment. The petitioner relied on a previous court decision in Model Bucket and Attachments Private Limited v. Deputy Commissioner of Commercial Taxes, which held that only an officer authorized by the Commissioner could make reassessments.

In response, the learned High Court Government Pleader produced an assignment note and a letter from the Additional Commissioner of Commercial Taxes, indicating that Respondent No. 2 was assigned the reassessment task. However, the court noted that under section 39(1) of the VAT Act and related provisions, the reassessment must be expressly authorized by the Government or the Commissioner. The court found no evidence of such express authorization for Respondent No. 2, leading to the conclusion that the reassessment order was not valid.

Issue 2: Tax Rate Applicability on Iron and Steel

The petitioner contended that the tax on iron and steel should be levied at 4% instead of 12.5%, as applied by Respondent No. 2. The petitioner supported this argument by referencing the court's decision in Nagarjuna Construction Company Limited v. State of Karnataka, which held that steel and steel products used in civil works or other works contracts do not lose their nature or form and should not be subjected to higher tax rates as they are already taxed under the CST Act.

Issue 3: Consideration of Various Components in the Execution of Works Contracts

The petitioner argued that various components used in the execution of works contracts were not considered separately. Specifically, in some projects, the petitioner only constructed the compound and sold immovable properties, which should not be subject to sales tax as they do not involve the sale of goods. The petitioner contended that the imposition of sales tax in such cases was unwarranted.

Court's Conclusion on Authorization and Reassessment:

The court examined the relevant provisions of the VAT Act and the Karnataka Value Added Tax Rules, 2005, emphasizing that reassessment must be conducted by an officer expressly authorized by the Government or the Commissioner. The court found that the printout and communications produced did not constitute express authorization for Respondent No. 2 to conduct the reassessment. The court also clarified the distinction between "audit" and "assessment," noting that audit is only a part of the assessment process and does not equate to reassessment authority.

In summary, the court concluded that the reassessment order was invalid due to the lack of proper authorization for Respondent No. 2. The court did not find sufficient grounds to address the other contentions regarding tax rates and the consideration of various components in the execution of works contracts, as the primary issue of authorization rendered the reassessment order void.

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