1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 08 TH DAY OF FEBRUARY, 2016 BEFORE THE HON BLE MR. JUSTICE ANAND BYRAREDDY WRIT PETITION Nos.33089-33126 OF 2015 AND 4480-4489 BETWEEN: OF 2016 (T-KST) M/s. Kotak Mahindra Prime Limited, #20, 3 rd Floor, Uniworth Plaza, Sankey Road, Palace Guttahalli, Bangalore 560 020, Represented by Sri. Jomon P.A., Chief Manager (operations). PETITIONER (By Shri K.J.Kamath, Advocate) AND: 1. The State of Karnataka, Through: The Principal Secretary, Finance Department, Vidhana Soudha, Bangalore 560 001. 2. The Deputy Commissioner of Commercial Taxes,
2 Audit-1.7, DVO-1, BMTC Building, 5 th Floor, Yeshwanthapura, Bangalore 560 022. 3. The Assistant Commissioner of Commercial Taxes, Local VAT office 130, 5 th Floor, BMTC Building, Yeshwanthapura, Bangalore 560 022. RESPONDENTS (By Shri S.V.Girikumar, Additional Government Advocate for Respondents) ***** These Writ Petitions filed under Articles 226/227 of the Constitution of India praying to hold that impugned rectifications orders passed under Section 41(1) of the KVAT Act vide dated 6.7.2015, Annexure-E1 to E4 as illegal and without jurisdiction and ultra-vires the provisions of the Act, and as such restore his own earlier re-assesment orders dated 13.8.2014 vide Annexure-B1 to B4 as lawful and enforceable. These Writ Petitions coming on for Preliminary Hearing, this day, the court made the following: O R D E R The petition coming on for preliminary hearing, is considered for final disposal in the facts of the case. The
3 learned Government Advocate is directed to take notice for the respondents. 2. The petitioner is a company incorporated under the Companies Act and a dealer registered under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the KVAT Act, for brevity). The petitioner is engaged in the business of leasing of motor vehicles to various corporate entities as well as providing vehicle finance to individuals. In the case of the activity of leasing of motor vehicles, the vehicles are purchased from local registered dealers within the State of Karnataka and thereafter, the petitioner leases the vehicles on commercial terms and conditions under lease agreements. In respect of the tax periods 2008-09 to 2011-12, the petitioner claims to be entitled for input tax rebate on the purchases effected from the local registered dealers, who had issued valid tax invoices for the sales made and the tax paid at the time of purchase of the vehicles was entitled for rebate
4 against the output tax payable under the provisions of Section 10(3) of the KVAT Act. The excess of input tax credit over the output tax payable for a particular tax period was also eligible to be adjusted or carried forward to the succeeding tax period. The lease rentals received by the petitioner which is a taxable turnover for the purpose of application of Section 4 of the KVAT Act which is the charging section, was stated to be much below the purchase price of the goods so rented or leased out on which the tax paid as input tax would be more than the tax payable on lease rentals as output tax. In the result, the net tax would always be a refundable one and under the provisions of the KVAT Act, the refund was to be claimed as per Section 10(5) or which was to be carried forward for adjustment or refund in the subsequent tax periods. This is a circumstance which arises only in the case of lease transactions undertaken by the petitioner. Owing to this peculiarity of lease transactions and for want of complete understanding of the
5 provisions of the KVAT Act, the petitioner thought that the output tax on the lease rentals being very less when compared to the input tax on purchases, went on restricting the input tax only to the extent of output tax payable. This action was completely in the interest of the state revenue albeit being eligible to claim more input tax and a refund in reality. The goods purchased and sold by the petitioner were motor vehicles which is found under the entry No.1 of the Schedule V to the KVAT Act for the purpose of input tax restriction as per the provisions of Section 11(a)(2) of the KVAT Act, which provision reads as under: 11. Input tax restrictions- (a) Input tax shall not be deducted in calculating the net tax payable, in respect of.- (1) xxxxxxx (2) tax paid on goods as specified in the Fifth Schedule subject to such conditions as may be specified, purchased and put to use for purposes other than for.-
6 (i) resale; or (ii) manufacture or any other purpose of other goods for sale. 3. As per the above provision, in respect of goods specified under Schedule V to the KVAT Act, the input tax may not be claimed until such goods are either re-sold or used in manufacture of goods for sale. Therefore, the petitioner claims that though he had claimed the input tax to the extent of output tax payable, the excess portion of the input tax was either not reflected as refundable or carried forward to the next tax period. In view of the mandatory requirement of law under the provisions of Rule 34 of the KVAT Rules, the petitioner has got its accounts audited by the Chartered Accountant. It is stated that the business premises of the petitioner was inspected by the Assistant Commissioner of Commercial Taxes, and in the course of inspection, the Enforcement Authority made certain observations with respect to the transactions made by the
7 petitioner, and had forwarded a report to the regular jurisdictional audit authority of the petitioner, namely the second respondent, which was not to the knowledge of the petitioner. Pursuant to it, the second respondent is said to have initiated re-assessment proceedings against the petitioner under the provisions of Section 39(1) of the KVAT Act for the aforesaid tax period on the basis of the inspection report forwarded by the Enforcement Authority. The second respondent thereafter had passed re-assessment orders dated 13.08.2014 allowing the valid input tax credit claimed by the petitioner as per the audited statement in Form VAT 240. Consequent to the re-assessment orders, the second respondent had issued notice of excess payment of tax in VAT 185 on the petitioner. Since the petitioner was entitled for adjustment of excess tax paid in view of the said notice issued, the petitioner made adjustments of the excess taxes paid for the aforesaid tax periods against the output tax payable from the month of August 2014 in the monthly returns submitted in Form VAT
8 100 under the KVAT Act before the third respondent. Subsequently, the second respondent had observed that the allowance of input tax in the re-assessment orders as per the actual input tax claimed by the petitioner as per the returns filed in Form VAT 100 has resulted in loss of revenue and the reassessment orders was opined to be erroneous insofar as the same as prejudicial to the interest of the public revenue in the light of the judgment of this Court in the case of State of Karnataka vs. M/s. Centum Industries (P) Limited 2014 (8) KLJ 65. The second respondent had issued notice under the provisions of Section 41(1) proposing to rectify the reassessment order rejecting the input tax credit allowed earlier to the petitioner. It is this which is sought to be questioned in the present petitions. 4. The learned counsel for the petitioner would submit that the present notices issued and the proceedings sought to be re-opened are on the basis of the judgment in State of Karnataka vs. M/s. Centum Industries (P) Limited, which
9 judgment was brought to the attention of the authorities in the first instance and it is after noticing the said judgment and distinguishing the circumstances of the case that the reassessment orders had been passed. There is no authority or jurisdiction in the second respondent in seeking to reopen the proceedings on the basis of the said judgment. If at all, it is the revisional authority who may be vested with such power. It is to be noticed that it is indeed so, as the authority had the benefit of the judgment of this Court in Centum Industries and could not therefore on the basis of the said judgment, seek to re-open the proceedings on the footing that the re-assessment order was prejudicial to the interest of the revenue. If at all, it was for the revisional authority to have re-opened the said proceedings on any such opinion. Therefore, the petitions are summarily allowed. The impugned order is quashed. The respondent Department is
10 not precluded from initiating fresh proceedings in accordance with law. Sd/- JUDGE KS