2021 (3) TMI 10 - HC - VAT and Sales Tax

Validity of reversal of order of the First Appellate Court on the basis of facts and circumstances of the case - whether the reversal was justified particularly on the ground that the assessee did not file a revised return under Section 35(4) of the KVAT Act, 2003 - HELD THAT - Powers under Section 64 of the Act can be invoked only if the order is erroneous insofar as it is prejudicial to the interest of the revenue. Thus, twin conditions are required to be satisfied for invoking the powers under Section 64 of the Act viz., that the order sought to be revised is erroneous insofar as it is prejudicial to the interest of the revenue. However, from perusal of the impugned order dated 08.06.2015, it is evident that the Additional Commissioner of Commercial Taxes has not recorded a finding that the order passed by the Joint Commissioner of Commercial Taxes is erroneous insofar as it is prejudicial to the interest of the revenue. The Joint Commissioner of Commercial Taxes has acted like an Appellate Authority while passing the impugned order dated 08.06.2015. The condition precedent for invocation of power under Section 64 (1) of the Act having not been satisfied, the impugned order cannot be sustained in the eye of law. In the result, the order dated 08.06.2015 passed by the Additional Commissioner of Commercial Taxes is hereby quashed - the substantial questions of law are answered in favour of the appellant and against the respondents.

Summary

Issues:
1. Revision of order by the Additional Commissioner of Commercial Taxes
2. Justification for reversing the order based on facts and circumstances
3. Reversal of order due to non-filing of revised return under Section 35(4) of the KVAT Act, 2003

Analysis:

Issue 1: Revision of order by the Additional Commissioner of Commercial Taxes
The appellant filed a Sales Tax Appeal against the order passed by the Additional Commissioner of Commercial Taxes, which set aside the order passed by the Joint Commissioner of Commercial Taxes and restored the re-assessment orders for the tax periods of 01.04.2008 to 31.03.2009 and 01.04.2009 to 31.03.2010. The appellant challenged this revision, leading to the substantial questions of law regarding the justification for such revision.

Issue 2: Justification for reversing the order based on facts and circumstances
The appellant, a partnership firm engaged in residential projects, faced challenges regarding the eligibility of input tax credit and deduction of payments made to subcontractors. The Commercial Tax Officer revised the assessment, levying tax under the composition scheme at 4% and imposing interest and penalties. The Joint Commissioner partly allowed the appeals, setting aside the tax, interest, and penalty. However, the Additional Commissioner reviewed this order, reinstating the re-assessment orders, leading to the appeal.

Issue 3: Reversal of order due to non-filing of revised return under Section 35(4) of the KVAT Act, 2003
The appellant argued against the sustainability of the Additional Commissioner's order, emphasizing that the first Appellate Authority's order was not erroneous or prejudicial to revenue interests. The appellant contended that the power under Section 64(1) of the Act was wrongly invoked based on the non-filing of revised returns. The appellant highlighted that the first Appellate Authority correctly computed tax liability, benefiting from input tax credit and deductions, citing relevant legal precedents to support their position.

Judgment:
Upon review, the High Court found that the Additional Commissioner did not establish that the order by the Joint Commissioner was erroneous and prejudicial to revenue interests, a prerequisite for invoking powers under Section 64 of the Act. As such, the High Court quashed the order of the Additional Commissioner of Commercial Taxes, ruling in favor of the appellant on the substantial questions of law. Consequently, the appeal was allowed, and the order of the Additional Commissioner was set aside.