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2016 (2) TMI 1019 - HC - VAT and Sales TaxPhoto printing and processing - whether works contract or service contract - assessment as per entry 25 - entry 25 in Schedule VI to the KST Act in 2004 was once declared unconstitutional, whether the entry can be reintroduced and that too with retrospective effect? - there was no show-cause notice before the rectification order. Hence, though the petitioner is liable to pay on the value of the goods used in the works contract which the petitioner is ready to discharge, the petitioner is aggrieved on the rate at which it is levied, right from the time of the assessment period, which is oppressive and unreasonable - The demand for interest it is claimed is illegal, as at that point of time, the petitioner was under the bona fide impression that since entry 25 of the Sixth Schedule to the KST Act was struck down as being unconstitutional though the provision continued on the statute book, it was inoperative and therefore, had not paid taxes, which was legitimate on the part of the petitioner. Held that - The learned Government Advocate would not deny that no notice was served before passing the rectification order - petition are allowed - decided in favor of petitioner.
Issues:
1. Validity of re-introduction of entry 25 in Schedule VI to the KST Act. 2. Assessment and levy of tax on photo printing and processing charges under the KVAT Act. 3. Rectification order passed under the KVAT Act without prior notice. 4. Alleged oppressive and unreasonable tax levied by the second respondent. 5. Demand for interest and penalties by the second respondent. Issue 1: Validity of re-introduction of entry 25 in Schedule VI to the KST Act The petitioner, a firm engaged in photo printing and processing services, challenged the re-introduction of entry 25 in Schedule VI to the KST Act. The High Court previously declared this amendment as unconstitutional. The Supreme Court, while granting leave, directed no coercive recovery proceedings for assessments made under entry 25. Subsequently, the State re-introduced entry 25 with retrospective effect. The court had earlier held that an unconstitutional provision could not be revived by administrative instructions without re-enactment by the State Legislature. Issue 2: Assessment and levy of tax on photo printing and processing charges under the KVAT Act Following the unconstitutionality of entry 25 under the KST Act, analogous entry 10 under the KVAT Act was claimed for exemption by the petitioner and other dealers. The petitioner filed returns under the KVAT Act for exemption on photo printing charges for 2007-08, which were initially accepted. However, reassessment proceedings were initiated resulting in tax, penalty, and interest being levied on the petitioner. Issue 3: Rectification order passed under the KVAT Act without prior notice The second respondent passed a rectification order under the KVAT Act without serving a prior notice to the petitioner. The petitioner contended that the rectification order was unjust as it did not consider factors like deduction of labour charges and set-off for entry tax paid, leading to an excessive tax liability. Issue 4: Alleged oppressive and unreasonable tax levied by the second respondent The petitioner argued that the tax levied by the second respondent was oppressive and unreasonable, as it was calculated on 100% of the gross receipts for photo printing and processing services. The petitioner highlighted that the State had the power to tax only the value of goods used in works contracts, not the entire turnover. Issue 5: Demand for interest and penalties by the second respondent The petitioner disputed the demand for interest, claiming that they had a legitimate belief that taxes were not payable due to the earlier declaration of entry 25 as unconstitutional. The petitioner sought to set aside the rectification order, emphasizing the lack of prior notice and failure to consider relevant circumstances in levying taxes and imposing demands. In conclusion, the High Court summarily allowed the petitions, quashing the impugned order. However, the respondent was not precluded from issuing a fresh notice of rectification, providing an opportunity for the petitioner to be heard and present material supporting exemptions and benefits before a new order is passed in accordance with the law.
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