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2021 (7) TMI 304 - HC - VAT and Sales TaxReopening of assessment - Assessment of escaped turnover - tax assessed at lower rate - enhancement of tax liability by invoking Section 12A of the Karnataka Sales Tax Act, 1957 - Misclassification of taxable turnover - HELD THAT - Admittedly, in the instant case, the Assessing Authority had formed an opinion that the tax has been assessed at a rate lower than the rate at which it is assessable. From the perusal of the order of the Assessing Officer, it is evident that the Assessing Officer was of the opinion that tax has been levied at the rate of 4% and 5% on certain items i.e., telephone instrument and at the rate of 14% on networking instruments, whereas, the networking equipments are taxable under Entry 4 of Part E of 2nd Schedule to the Act at the rate of 12% for the month of April and May and for a period of 13% from June to March. Thus, the condition precedent for invocation of power under Section 12A of the Act has been fulfilled. The Assessing Authority while passing an order of re-assessment has granted concession to the petitioner in the rate of tax. It is evident that on initiation of the re assessment, the assessment proceedings are re-opened and initial order of assessment does not survive and the effect of re-opening of the assessment is to vacate or set aside initial order of assessment and to substitute in its place the order made on re-assessment and the result of re-opening of the assessment is that a fresh order of assessment has to be made. Thus, the Assessing Authority has passed a fresh order of assessment after completion of the re-assessment proceeding, however, the aforesaid aspect of the matter has not been appreciated by Joint Commissioner of Commercial Taxes and the tribunal and it has been held that in recourse to Section 12A of the Act can only be taken for enhancement of the tax liability. The orders passed by the Joint Commissioner of Commercial Taxes and the tribunal have decided the question of law mainly with regard to scope and ambit of Section 12A of the Act erroneously, the same therefore, cannot be sustained in the eye of law - Petition allowed.
Issues:
1. Interpretation of Section 12A of the Karnataka Sales Tax Act, 1957 for assessment of escaped turnover. 2. Validity of the order passed by the Karnataka Appellate Tribunal in relation to Assessment Year 2003-04. 3. Application of power under Section 12A of the Act for enhancing tax liability. Analysis: Issue 1: Interpretation of Section 12A of the Act The petition challenged the judgment of the Karnataka Appellate Tribunal regarding the invocation of power under Section 12A of the Karnataka Sales Tax Act, 1957. The Assessing Authority invoked Section 12A for re-assessment, believing that the turnover was under-assessed or assessed at a lower rate. The petitioner contended that the power under Section 12A includes dealing with the rate of tax. The Supreme Court's decisions in various cases were cited to support the argument that re-assessment involves a fresh assessment, and the initial assessment is replaced by the re-assessment. The condition precedent for invoking power under Section 12A was met in this case, as the Assessing Authority found the tax rate for certain items to be lower than the applicable rate, leading to the conclusion that the power under Section 12A was appropriately exercised. Issue 2: Validity of the Tribunal's Order The Karnataka Appellate Tribunal had affirmed the order passed by the Joint Commissioner of Commercial Taxes, holding that Section 12A could only be used to enhance tax liability. However, the High Court found that the Tribunal's decision was erroneous as it did not consider the full scope of re-assessment proceedings. The High Court highlighted that re-assessment opens up the entire assessment process, and a fresh order must be made, as per Supreme Court and division bench precedents. The Tribunal's failure to appreciate this aspect led to a flawed interpretation of the law, resulting in the quashing of the orders dated 21.07.2012 and 30.11.2015. Issue 3: Application of Section 12A for Enhancing Tax Liability The Additional Government Advocate argued that the petitioner did not challenge the original assessment order and that deduction in the rate of interest was impermissible under Section 12A. The High Court, however, clarified that the Assessing Authority correctly invoked Section 12A as the tax rate was found to be lower than the prescribed rate. The Court emphasized that re-assessment involves a comprehensive review of the entire assessment, not just the escaped turnover, as supported by legal precedents. The High Court's decision to quash the orders affirmed the proper application of Section 12A in this case. In conclusion, the High Court allowed the petition, emphasizing the correct interpretation and application of Section 12A for re-assessment purposes, overturning the Tribunal's decision and affirming the Assessing Authority's actions in this matter.
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