2021 (7) TMI 389 - HC - VAT and Sales Tax

Validity of reassessment order passed u/s 39(2) of the Karnataka Value Added Tax - barred by limitation or not - HELD THAT - In the instant case, during the Assessment Year 2005-06, the respondent who is a registered dealer under the Act, had sold arecanut to M/s. M.K.Traders, Allahabad and had received 'C' Form. However, subsequently, on an enquiry made by the U.P. Trade Tax Authority, registration of the aforesaid M.K.Traders was cancelled w.e.f. 25.04.2006. Thereafter, a communication was sent on 30.07.2014 by the Joint Commissioner of Commercial Taxes, Faizabad, U.P., by which the Assessing Authority was informed that 'C' Form produced by the purchasing dealer namely M/s.M.K.Traders have been found to be invalid and accordingly, a request was made to reject 'C' Form. Thereupon, after a period of eight years, a proposition notice dated 20.10.2014 was issued to the respondent. The respondent filed objection to the same on 29.12.2014 and eventually an order of re-assessment was passed on 31.01.2015 - The initiation of proceeding of re assessment is clearly barred by limitation as the case of respondent is governed by Section 46(1) of the Act and since the initiation of proceeding of re-assessment itself was beyond a period of eight years, the proceeding has to be held to be barred by limitation in view of the period of limitation prescribed under Section 46(1) of the Act. It is pertinent to note that Section 40(2) of the Act applies to a case of a dealer who is unregistered and who has not paid taxes and has fraudulently failed to pay tax which results in punishment under Section 79 of the Act - the condition precedent for invocation of Section 40(2) of the Act have not been fulfilled in the case of the respondent and hence, the aforesaid provision does not apply to the case of the respondent. Whether Section 39(2) of the Act has to be read independently? - HELD THAT - In Section 39(2) of the Act, the expression re assessment has been used and Section 40(1) of the Act refers to Section 39 of the Act. Therefore, Sections 39 and 40 of the Act have to be read in conjunction with each other and cannot be read in isolation. The substantial question of law is answered against the petitioner and in favour of the respondent - Petition dismissed.

Summary

Issues:
1. Interpretation of Section 39(2) and Section 40 of the Karnataka Value Added Tax Act, 2003 regarding the limitation period for re-assessment.
2. Application of the limitation period to a case involving the rejection of 'C' Form and subsequent re-assessment.
3. Consideration of the provisions of Section 40(2) in relation to the case of an unregistered dealer.

Analysis:
1. The judgment dealt with the interpretation of Section 39(2) and Section 40 of the Act concerning the limitation period for re-assessment. Section 39(2) allows for re-assessment based on new evidence or if turnover has escaped assessment, while Section 40 provides a general limitation period of five years, extendable to eight years in specific cases. The court emphasized the need to read both sections in conjunction to determine the applicability of the limitation period.

2. In the case under consideration, the respondent, a registered dealer, sold arecanut to a dealer whose registration was later canceled. After eight years, the Assessing Authority initiated re-assessment following the invalidation of the 'C' Form. The court found that the initiation of re-assessment beyond the eight-year limit rendered the proceeding time-barred under Section 46(1) of the Act. The court clarified that Section 40(2), applicable to unregistered dealers evading tax, did not apply to the respondent's case, as the conditions were not met.

3. The court rejected the argument that Section 39(2) should be read independently, emphasizing the interconnected nature of Sections 39 and 40. It concluded that both sections must be considered together and not in isolation. Ultimately, the court ruled against the petitioner, upholding the respondent's contention that the re-assessment was indeed barred by limitation. Consequently, the court dismissed the petition, finding no merit in the petitioner's arguments.

In summary, the judgment analyzed the provisions of Section 39(2) and Section 40 of the Act to determine the limitation period for re-assessment in a case involving the rejection of 'C' Form. It clarified the application of the limitation period to registered dealers and highlighted the need to interpret the relevant sections in conjunction. The court's decision favored the respondent, holding the re-assessment as time-barred and dismissing the petition accordingly.