2025 (4) TMI 750 - HC - VAT / Sales Tax

Disallowance of claim of deduction towards sub-contractors for the lack of producing certificates mandated under Rule 3(2)(i-1) of KVAT Rules 2005 - absence of particulars of tax collected - invocation of powers of suo moto revision under section 64 of the Act - levy of tax on receipt for land cost i.e. immovable property which does not constitute consideration for works contract under Composition Scheme of KVAT - reopening of assessment proceedings by invoking revisional powers under section 64 of the Act - HELD THAT - With respect to exemption claimed on sub-contractor payment of Rs. 75, 63, 738/- the reassessment order itself had disallowed the same. Added there is no material to show that the turnover was different from the one declared by the Assessee and the same turnover has been used by both the authorities. In respect of URD purchases that were disallowed the Assessee had filed its reply specifically stating that there was no URD purchase. The re-assessment order though does not in so many words give any finding but does not deny or disallow the claim of Assessee. Therefore question of error or prejudice does not arise. It hardly needs to be stated that the change of opinion cannot be a ground for invoking suo moto revisional powers vide COMMISSIONER OF INCOME-TAX. VERSUS. JAIN CONSTRUCTION CO. 2012 (11) TMI 1071 - RAJASTHAN HIGH COURT . In the instant case when all the documents were already submitted by the Assessee at the time of reassessment what the revisional authority has done is nothing but a mere change of opinion which is impermissible - What is contemplated by the statute is that the former agreement for sale of land would not be a subject matter of the tax and the aggregate of works contracts agreements only would be taken into account as they represent the total consideration for the works contract. Further in terms of section 15 (4) of the Act the only item that is excluded is input tax credit as composition schemes are normally done to tax turnover without input tax as a simple alternative to regular tax payments. Composition schemes cannot be converted into a scheme to tax turnovers not falling within the legislative competence. In the instant case obviously there is no JDA inasmuch as the Assessee himself has undertaken construction activity on his own land as recorded in the reassessment order dated 25.09.2019. Further documents for purchase of land and the entire set of agreement to sell and agreement for construction along with copy of invoices were produced at the time of reassessment - The assessment proceedings for the period 2015-16 has attained finality under comprehensive Karasamadhana Scheme 2019 (CKSS 2019) the same cannot be reopened by invoking revisional powers in terms of Section 64 of the Act. Conclusion - i) VAT cannot be levied on immovable property. ii) Finalized assessments under the Karasamadhana Scheme cannot be reopened. The questions of law framed in these appeals are answered in favour of the Assessee and against the Revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

a. Whether the Respondent No.1 was justified in invoking powers of suo moto revision under section 64 of the Karnataka Value Added Tax Act, 2003 (KVAT Act), in the absence of satisfying the requisite conditions.

b. Whether levying tax on the receipt for land cost under the Composition Scheme of the KVAT Act is sustainable.

c. Whether the assessment proceedings for the periods 2014-15 and 2015-16, which have attained finality under the Karasamadhana Scheme, 2019, can be reopened by invoking revisional powers under section 64 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

a. Invocation of Suo Moto Revision Powers under Section 64

- Legal Framework and Precedents: Section 64 of the KVAT Act allows for suo moto revision by the authorities, provided the order is erroneous and prejudicial to the interest of the Revenue. The Court referenced the precedent set in CIT vs. Chemsworth (P) Ltd., which requires the satisfaction of these twin conditions.

- Court's Interpretation and Reasoning: The Court found that the orders subjected to suo moto revision were neither erroneous in law nor prejudicial to the Revenue. The prescribed authority had verified all documents and accepted the turnover excluding the land value, which is not exigible to VAT.

- Key Evidence and Findings: The reassessment order had already disallowed certain claims, and there was no evidence of error or prejudice to the Revenue.

- Application of Law to Facts: The Court held that the change of opinion is not a valid ground for revisional powers, as established in CIT vs. JAIN Construction Co.

- Treatment of Competing Arguments: The Revenue's justification for the impugned orders was rejected as the orders were based on an incorrect premise of including land cost.

- Conclusions: The invocation of revisional powers was deemed unjustified as the conditions for such powers were not met.

b. Levying Tax on Land Cost

- Legal Framework and Precedents: Article 366 (29A) (b) of the Constitution and the precedent in Larsen & Toubro vs. State Of Karnataka clarify that immovable properties cannot be taxed under VAT.

- Court's Interpretation and Reasoning: The Court emphasized that VAT is levied on the sale or transfer of goods, not on immovable property. The impugned orders erroneously included land cost in the taxable turnover.

- Key Evidence and Findings: The Assessee had separate agreements for land sale and works contract, and the statutory framework does not permit taxing land cost.

- Application of Law to Facts: The Court found that the inclusion of land cost was contrary to the statutory scheme and the legislative competence.

- Treatment of Competing Arguments: The Revenue's argument that the deduction for land cost was impermissible was dismissed based on statutory interpretation and precedents.

- Conclusions: The inclusion of land cost in the taxable turnover under the Composition Scheme was unsustainable.

c. Reopening of Finalized Assessment Proceedings

- Legal Framework and Precedents: The Karasamadhana Scheme, 2019, provided for the waiver of penalties and interest upon payment of tax arrears, finalizing the assessment.

- Court's Interpretation and Reasoning: The Court held that once the assessment is settled under the Scheme, it cannot be reopened under Section 64, as this would contravene the legislative intent and the Scheme's finality.

- Key Evidence and Findings: The Assessee had complied with the Scheme, and the subsequent clarificatory order by the Commissioner was inconsistent with the statutory Scheme.

- Application of Law to Facts: The Court found that the reopening of proceedings was impermissible as it undermined the finality granted by the Scheme.

- Treatment of Competing Arguments: The Revenue's reliance on the Commissioner's clarification was rejected as it contradicted the statutory provisions.

- Conclusions: The reopening of finalized assessments under the Karasamadhana Scheme was unlawful.

3. SIGNIFICANT HOLDINGS

- The Court reaffirmed that VAT cannot be levied on immovable property, as established in Larsen & Toubro vs. State Of Karnataka.

- It emphasized the necessity of satisfying twin conditions for invoking suo moto revision powers, as per CIT vs. Chemsworth (P) Ltd.

- The judgment clarified that finalized assessments under the Karasamadhana Scheme cannot be reopened, reinforcing the Scheme's finality.

- The appeals were allowed, and the impugned orders were set aside, with the Court ruling in favor of the Assessee on all substantial questions of law.