2015 (3) TMI 1198 - HC - VAT and Sales Tax

Input tax credit - The notice dated January 9, 2015 was issued on the ground that the appellant had not claimed input-tax rebate in form VAT-100 and therefore, the input-tax claim was proposed to be disallowed. - Karnataka Value Added Tax Act, 2003 (KVAT) - Held that - Since we have already held that the assessing officer had not applied his mind judiciously and did not consider the audit report and account books which had admittedly been filed by the assessee, we allow these appeals as well as the writ petitions and quash the orders passed by the assessing authority for the relevant assessment periods and remand the matter to the assessing authority for fresh decision, in accordance with law, after considering the reply of the appellant, the papers and other documents submitted by the appellant along with the reply, as well as the relevant documents filed with form VAT-240 and form VAT-100. - Decided in favor of petitioner.

Summary

Issues Involved:
1. Disallowance of input-tax rebate and labour charges deduction under the Karnataka Value Added Tax Act, 2003.
2. Application of rule 3(2)(m) of the Karnataka Value Added Tax Rules, 2005.
3. Violation of principles of natural justice in the assessment process.
4. Availability of alternate remedy through appeal under section 62(1) of the Act.

Issue 1: Disallowance of Input-Tax Rebate and Labour Charges Deduction:
The appellant, engaged in construction and supply, received notices for the tax periods April 2007 to March 2008 and April 2008 to March 2009 under section 52(1) of the Act. The notices proposed disallowing input-tax rebate and allowing only 30% of labour charges deduction. The appellant challenged these orders through writ petitions, which were dismissed primarily due to the availability of an alternate remedy through appeal. The appellant contended that the audit report submitted in form VAT-240 should have entitled them to the benefit of rule 3(2) of the Rules of 2005, and clause (m) of the rules was not applicable. The assessing officer's failure to consider the audit report and accounts of the appellant was deemed a violation of natural justice.

Issue 2: Application of Rule 3(2)(m) of the Karnataka Value Added Tax Rules, 2005:
The appellant argued that the assessing officer erred in applying clause (m) of rule 3(2) without justifying its application when the audit report was submitted and not rejected. The court found that the officer's reliance on clause (m) without due consideration of the audit report and accounts was a clear error and a violation of natural justice.

Issue 3: Violation of Principles of Natural Justice in the Assessment Process:
The court held that the assessing officer's failure to consider the audit report and accounts submitted by the appellant, despite admitting their submission, amounted to a violation of natural justice. Merely granting an opportunity to reply without considering the documents filed by the appellant was deemed insufficient. The court emphasized that proper consideration and appreciation of the appellant's submissions were essential in the assessment process to avoid such violations.

Issue 4: Availability of Alternate Remedy Through Appeal:
While the respondents argued that the appellant should have pursued the alternate remedy of filing an appeal under section 62(1) of the Act, the court disagreed. Given the assessing officer's failure to judiciously consider the audit report and documents, relegating the appellant to the appeal process was deemed unjustified. The court set aside the order dismissing the writ petition and allowed the appeals, quashing the previous orders and remanding the matter for fresh decision by the assessing authority.

In conclusion, the court found in favor of the appellant, emphasizing the importance of proper consideration of submitted documents and adherence to principles of natural justice in tax assessments.