2017 (10) TMI 1102 - HC - VAT and Sales Tax

Validity of protective assessment - Section 38(5) of the Act - KVAT Act - case of petitioner is that u/s 38(5) of the Act, the protective assessment can be issued only if the prescribed authority has reasons to believe that such dealer would fail to pay any tax, penalty or interest so assessed or imposed or payable. There was no reason whatsoever for the lower authorities to believe that the petitioner would fail to pay the taxes, penalties or interests so assessed or imposed - Whether the authority was justified in invoking the provision of section 38(5) when a notice under Section 82 of the Karnataka Value Added Tax Act has already been issued? Held that - section 82 of KVAT Act does not give any inference that there is any prohibition for initiating action under section 38(5) of the Act, once a notice under section 82 of the Act is issued - Further, it is also not the case of the petitioner that the proceedings under section 82 of the Act has been concluded with respect to the relevant years 2005-06, 2006-07, 2007-08 and 2008-09. Thus, nothing has prevented the prescribed authority to initiate action under section 38 of the Act, provided the essential of the said section are met with. The opinion expressed by the Apex Court in Larsen & Toubro Ltd. (supra) cannot be considered as an excuse for the dealer under the Act for non payment of his tax periodically. In the absence of any specific direction or stay order allowing him to desist or delay from making payment of tax, merely because of an opinion to refer a matter to a larger Bench by the Hon ble Apex Court cannot be taken as reasonable excuse for the dealer for non-payment of the tax which is a revenue to the State, at the appropriate time. As such, the petitioner since had no valid reasons for non-payment of tax. The prescribed authority had every reason to believe that the petitioner would fail to pay any tax, penalty or interest so assessed or payable by him. In this regard, the prescribed authority in its order under section 38(5) of the Act dated 11.11.2011 has given a detailed reasoning as to what made it to arrive at a belief that the petitioner would fail to pay the taxes, penalties and interests that are legally payable. We do not find any reason to disbelieve or reject those reasonings given by the prescribed authority. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Validity of protective assessment under Section 38(5) of the Karnataka Value Added Tax Act, 2003.
2. Whether the issuance of notice under Section 82 precludes action under Section 38(5).
3. Justification for the prescribed authority's belief that the petitioner would fail to pay taxes, penalties, or interest.

Issue-wise Detailed Analysis:

1. Validity of Protective Assessment under Section 38(5) of the Karnataka Value Added Tax Act, 2003:

The petitioner, a proprietary concern engaged in the construction of buildings, was registered under the Karnataka Value Added Tax Act, 2003 from 17-05-2007. The prescribed authority initiated proceedings under Section 38(5) of the Act and issued a protective assessment for the tax periods of 2005-06 and 2006-07, amounting to ?54,39,866 and ?22,17,593 respectively. The petitioner challenged this order before the First Appellate Authority (FAA) and subsequently before the Karnataka Appellate Tribunal (KAT), both of which dismissed the appeals. The petitioner then filed a Sales Tax Revision Petition under Section 65(1) of the Act, contending that the issuance of the protective assessment was arbitrary and not sustainable as they had already made substantial payments totaling ?41,28,727.

2. Whether the Issuance of Notice under Section 82 Precludes Action under Section 38(5):

The petitioner argued that the issuance of a notice under Section 82 should preclude the prescribed authority from initiating action under Section 38(5). However, the court noted that Section 82 deals with the compounding of offenses and does not prohibit the initiation of action under Section 38(5). The court emphasized that the proceedings under Section 82 had not reached finality, and thus, the prescribed authority was not precluded from taking action under Section 38(5).

3. Justification for the Prescribed Authority's Belief that the Petitioner Would Fail to Pay Taxes, Penalties, or Interest:

The court examined whether the prescribed authority had sufficient reason to believe that the petitioner would fail to pay the assessed taxes, penalties, or interest. The petitioner argued that they had made substantial payments and provided details of their immovable properties and PAN particulars, which should negate any belief that they would fail to pay. However, the court found that the petitioner had not registered under the Act until 17.05.2007, despite being in business since 2001-02, and had not filed returns for the relevant periods. The court also noted that the petitioner had not paid the entire assessed amount, with a significant portion still outstanding.

The court referenced the case of K. Raheja Development Corporation v. State of Karnataka, where the Supreme Court held that the construction and sale of flats by a developer amounted to a 'works contract' liable to tax. The court concluded that the prescribed authority had valid reasons to believe that the petitioner would fail to pay the taxes, penalties, or interest, given their history of non-compliance and partial payments.

Conclusion:

The court dismissed the petitions, upholding the protective assessment issued under Section 38(5) of the Karnataka Value Added Tax Act, 2003. The court found that the prescribed authority had sufficient grounds to believe that the petitioner would fail to pay the assessed amounts and that the issuance of a notice under Section 82 did not preclude action under Section 38(5). The court also noted that the petitioner had not provided a valid reason for their delayed registration and non-payment of taxes.