IN THE HIGH COURT OF KARNATAKA

AT BANGALORE

Dated this the 30th day of May, 2013

PRESENT

THE HON’BLE MR JUSTICE D V SHYLENDRA KUMAR

AND

THE HON’BLE MRS JUSTICE B S INDRAKALA

STA Nos. 59 of 2009 & 75-85 of 2013 C/w

STA Nos. 60 of 2009 & 86-96 of 2013

BETWEEN:

M/S INFINITE BUILDERS AND DEVELOPERS NO.6, GM PEARL, I STAGE, I PHASE, BTM LAYOUT, BANGALORE – 560 068 (BY ITS PROPRIETOR MR GULAM MUSTAFA AGED ABOUT 37 YEARS) … COMMON APPELLANT

[By Sri G Sarangan, Sr. Counsel for Sri T N Keshava Murthy, Adv.]

AND:

THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES ZONE II, GANDHINAGAR BANGALORE – 560 009 … COMMON RESPONDENT

[By Sri T K Vedamurthy, AGA]

2

STA NOs 59 OF 2009 & 75-85 OF 2013 ARE FILED UNDER SECTION 66 (1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER DATED: 16.03.2009 PASSED IN NO. SMR/KST/DVO-II/CR-58 TO 94/08-09, T-823/08-09 ON THE FILE OF THE ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-II, GANDHINAGAR, BANGALORE, SETTING ASIDE THE RULING OF THE ADVANCE RULING AUTHORITY AND ETC.,

STA NOs 60 OF 2009 & 86-96 OF 2013 ARE FILED UNDER SECTION 66 (1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE ORDER DATED: 16.03.2009 PASSED IN NO. SMR/KST/DVO-II/CR-58 TO 94/08-09, T-823/08-09 ON THE FILE OF THE ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-II, GANDHINAGAR, BANGALORE, SETTING ASIDE THE RULING OF THE ADVANCE RULING AUTHORITY AND ETC.,

THESE APPEALS COMING ON FOR HEARING, THIS DAY, SHYLENDRA KUMAR J., DELIVERED THE FOLLOWING:

J U D G M E N T

The assessee is a registered dealer under the

provisions of Karnataka Value Added Tax Act, 2003 [for

short, the Act]. The assessee claims to be carrying on

the activity of land developer and builder and selling

constructed buildings to purchasers through a tripartite

agreements entered into amongst the assessee, owner of

the land and the purchasers. The assessee had carried

on such activity during the years 2005-06 and 2006-07

3

i.e. for the period from 1-4-2005 to 31-3-2006 and 1-4-

2006 to 31-3-2007.

2. Under the scheme of the Act, monthly returns of the

turnover is required to be filed by the registered dealers

and in so far as the year 2005-06 is concerned, the

assessee, though had filed such monthly returns, had

claimed its tax liability as nil for all the 12 months. The

assessee has filed nil returns even for the period April to

November, 2006.

3. The assessee, though had taxable turnover during

this period, has taken the stand that in the wake of the

law laid down by this court in the case of MITTAL

INVESTMENT CORPORATION vs ADDITIONAL

COMMISSIONER OF COMMERCIAL TAXES [(2011) 121

STC 14] was under the impression that such transfer of

constructed buildings is not one attracting tax, under the

Act. The assessee pleaded ignorance of the reversal of

this view taken by this court by the Supreme Court in the

4

case of K RAHEJA DEVELOPMENT CORPORATION vs

STATE OF KARNATAKA [(2005) 141 STC 298], as per

the judgment dated 5-5-2005 and claims to have

blissfully filed return indicating nil tax liability upto the

period mentioned above.

4. The legal position was otherwise and there was

liability for the payment of tax in respect of the

transaction in the nature of work contract not only in

terms of Section 12(1) of the Act, but also the law as

understood on analogous provision relating to liability of

a dealer in respect of value of the goods involved in

transfer of goods in the execution of works contract.

5. Be that as it may, the assessee’s premises had been

inspected by the intelligence wing of the commercial taxes

department on 25-3-2006. It transpires that the

intelligence wing noticed that the assessee was not paying

any tax by filing incorrect nil tax liability return and on

being apprised, it further transpires, the assessee

5

admitted its liability and it paid some amount viz.,

tentatively a sum of Rs 5.00 lakh on 29-3-2006 itself etc.

6. A second inspection of the premises of the assessee

took place on 20-12-2006 by the assistant commissioner

of commercial taxes and the assistant commissioner also

noticed that the assessee had continued to file nil tax

liability returns even up to that date. As a consequence,

the matter was followed up departmentally and deputy

commissioner of the audit wing visited the premises of the

assessee with prior permission and after completing

necessary formalities for the purpose of verifying the need

for reopening the assessment of the assessee, as the

assessee had till then filed nil returns. This was done on

13-11-2007 and this was followed up by issue of

reassessment notice under Section 39(1) of the Act on 29-

1-2008. Just two days prior to the audit and verification

of the books of account, the assessee had filed what it

claims as revised returns for each month of the period

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from April 2006 to November, 2006. The assessee did

not file any revised returns for the period April 2005 to

March 2006, which was earlier filed as nil tax liability

return and continued to remain same.

7. The assessing officer concluded the reassessment

for the years 2005-06 and 2006-07 and determined the

tax liability for each of the month during these periods.

In the process, the assessing officer rejected the claim of

the assessee in respect of input tax rebate as per its

revised returns filed during the period April to November

2006. In the wake of filing of false or incorrect returns

and not meeting its tax liability in time, the assessing

officer also proceeded to levy penalty under Section 72(2)

of the Act and interest under Section 36 of the Act for the

months in question and 20 different reassessment orders

had been passed on 29-1-2008. The assessing officer

opined that the assessee having not filed its returns

within time, but on the other hand having filed incorrect

7

and false returns, and having not corrected on its own a

mistake which it had committed by not filing revised

returns within the statutorily permitted period in terms of

Section 35(4) of the Act and a claim towards input tax

credit being enabled only in respect of the assessees who

have filed returns either as per Section 35(1) or Section

35(2) of the Act and that having not been done, held that

the assessee was not entitled to claim any input tax credit

for the periods in question and concluded the assessment

by way of best judgment and levying penalty and interest,

as referred to above.

8. The assessee being aggrieved by these orders,

preferred appeals under Section 62(6) of the Act to the

joint commissioner of commercial axes. The assessee’s

contention found favour with the appellate commissioner.

The appellate commissioner took the view that the

assessee though had not produced the list of registered

dealers from whom it had made purchases and had paid

8

tax on such purchases and though it had not produced

the invoices evidencing the same before the assessing

officer, opined that the relief of input tax credit or rebate

as provided for in terms of the provisions of Section 10(4)

of the Act can be given even otherwise and proceeded to

accept not only the list of registered dealers from whom

the assessee claimed it had made purchases during the

periods in question but also the invoices said to have

been issued by those selling dealers and substituted itself

for the assessing officer for the purpose of Section 10(4) of

the Act and proceeded to determine the tax liability by

giving credit to the input tax as claimed by the assessee

and proportionately reduced the penalty and interest, as

the total tax liability of the assessee gets reduced in view

of the exercise undertaken by the appellate commissioner.

9. The revisional authority [additional commissioner of

commercial taxes] noticed that the orders passed by the

appellate authority is not only erroneous but detrimental

9

to the interest of the revenue and exercising powers under

Section 64(1) of the Act, issued show cause notices to the

assessee indicating that the order passed by the appellate

commissioner is not sustainable; that it is erroneous and

prejudicial to the revenue and liable to be set aside, and

called upon the assessee to show cause as to why the

same should not be set aside and the assessment order

restored, as per common notice dated 2-1-2009.

10. The assessee responded by filing its detailed

objections to the proposal, claimed that the assessee, in

fact, was entitled to input tax credit and filing of return in

time or not filing return of turnover in terms of Section 35

of the Act cannot deprive the assessee of its right for

claiming input tax credit in terms of the provisions of

Section 10 of the Act; that the appellate commissioner

had rightly modified the assessment orders passed by the

original authority; that the levy of penalty and interest is

also not justified; that the appellate commissioner was

10

well within its competence and jurisdiction for acting to

give relief of input tax credit to the assessee even for the

period April 2005 to March 2006, notwithstanding the

assessee having not filed any revised returns or not

claiming on its own any input tax credit for determination

of the tax liability, but the appellate commissioner having

noted the position in the books of accounts, has rightly

given the input tax credit etc. Several other objections

were also put forth opposing the proposal for revising the

appellate order and for restoration of the assessment

orders.

11. The matter was elaborately heard before the

revisional authority and the revisional authority after

exhaustive examination of the factual background,

reassessment orders, order of the appellate commissioner

and the relevant case law, opined that the assessee was

not entitled to the input tax credit for the period from

April 2005 to November 2006 and set aside the order of

11

the appellate commissioner for the months covering this

period and restored the orders passed by the assessing

officer.

12. However, in so far as the months of December 2006

to March 2007, the assessing officer though had denied

input tax credit to the assessee for the reason that the

assessee had not produced the list of registered dealers

and invoices and the appellate commissioner had taken a

common view in respect of this period also viz., that the

assessee is entitled for such input tax credit on the basis

of the material placed before the assessing officer, the

revisional authority, nevertheless, has not disturbed this

order of the appellate commissioner giving input tax

credit for the period December 2006 to March 2007 and

that is the reason as to why though the orders are

common, both by the appellate commissioner and the

revisional authority for the entire period from April 2005

to March 2007, the subject matter of these appeals by the

12

assessee is confined to the liability relating to the tax

period from April 2005 to November 2006, and arguments

addressed accordingly.

13. The stand of the appellant-assessee is again as

contended before the appellate commissioner and the

revisional authority; that input tax credit is given to an

assessee as a matter of substantive right in determination

of tax liability of the assessee; that it is not any benefit or

concession given to an assessee; that assuming that the

assessee had not filed either its returns or revised returns

strictly in compliance with the requirement of Section 35

of the Act, Section 10 of the Act, under which the input

tax credit is claimed or allowed, having not made any

reference to the provisions of Section 35 of the Act i.e.

provision relating to filing of returns, a non-compliance

with the requirement of Section 35 of the Act cannot come

in the way of allowing input tax credit to an assessee who

13

has actually paid such tax under the provisions of Section

10 of the Act.

14. The matter was taken up for hearing and we have

heard Sri G Sarangan, learned senior counsel along with

Sri T N Keshava Murthy, for the appellant-assessee and

Sri T K Vedamurthy, learned AGA, appearing for the

respondent-revenue.

15. Learned counsel for the appellant-assessee took us

through the scheme and the object of the Act and the

scheme of determination of tax liability under the Act,

with its difference between the output tax and input tax

i.e. tax liability being determined by giving input credit

from output tax liability and therefore the input tax credit

is an essential ingredient of the determination of tax

liability and in this regard have also referred to the

definition of ‘tax invoice’ in Section 2(32) of the Act, ‘tax

turnover’ in Section 2(34) and also the charging Section 4

of the Act, scheme of the determination of tax liability as

14

indicated in Section 10 of the Act, as to either Section 10

not making any reference in Section 35 or Section 35 not

referring to Section 10, by reading these statutory

provisions and the provisions of Section 38(2),

particularly the provision enabling passing of best

judgement orders on the failure of the assessee to file

returns, sub-sections (3) and (4) of Section 38 of the Act

and the factum of the assessee having filed revised

returns though belatedly as on 12-1-2007 covering the

period from April 2006 to November, 2006.

16. What is urged is that these returns though belated

were before the assessing officer prior to passing of the

best judgement orders which were passed on 29-1-2008.

Submission is that when the assessing officer had placed

reliance on the books of accounts of the assessee for the

purpose of passing of best judgement assessment orders,

the assessing officer could not have ignored the entries

relating to the input tax credit earned by the assessee, in

15

the sense that the books did reveal that the assessee

having made purchases and having paid tax on such

purchases for the periods in question and therefore

submits that the assessing officer could not have ignored

this relevant material while passing best judgement

assessment orders.

17. A good number of authorities are relied upon to

contend that in a circumstance where an assessee is

acting in a bona fide manner and has not indulged in

acting in a deliberate suppression or evasion, levy of

penalty and interest is not warranted. Reliance is also

placed on a Single Judge decision of this court in the case

of INDIA HERITAGE FOUNDATION vs STATE OF

KARNATAKA [(2008) 18 VST 376 (KARN] to submit that

even a belated return should be looked into and acted

upon. Reliance is also placed on the judgment of a

Division Bench of this court in the case of STATE OF

KARNATAKA vs K BOND POLYMERS [2012 (73) KLJ

16

429], to submit that this court has taken the view that

even in a matter of considering the claim for refund, the

authorities should not adopt a too technical an approach

and that when the assessee has, in fact, earned the input

tax credit and when it is part of the scheme of

determination of tax liability, that should not be denied to

the assessee only based on technicalities such as filing

delayed return or not filing of material particulars of the

same before the assessing officer, though so contemplated

under the statutory provisions.

18. It is also urged that the first appellate authority

could not have remanded the matter to the assessing

officer for examination of these facts yet again and as

such acted upon on its own and nothing wrong in it.

19. On the other hand, Sri. Vedamurthy, learned

Government Pleader appearing on behalf of the

respondents would strongly defend the order passed by

the Commissioner exercising revisional jurisdiction to

17

reverse the order passed by the appellate authority –

Joint Commissioner of Commercial Taxes, Bangalore.

20. Mr. Vedamurthy has also taken us through the

scheme of the Karnataka Value Added Tax Act, 2003 and

has in particular drawn our attention to the sequence of

events starting from 25.03.2006 and during this

inspection by the Intelligence Wing of the Department, it

had been noticed that the appellant had filed returns

indicating ‘Nil’ tax liability for the period from April 2005

up to the date and points out that the appellant in fact

did not dispute the liability and paid some provisional

amount towards tax liability, but nevertheless, did not file

revised returns; that the second inspection was

conducted on 20.12.2006 by the Assistant Commissioner

of the Department and it was yet again noticed that the

tax liability in terms of the turnover had not been

disclosed in the returns, but on the other hand, the

assessee had continued to file ‘Nil’ returns; that in fact it

18

was only on 12.1.2007 the assessee purported to file

revised returns only for the period from May 2006 to

December 2006 and no revised returns for the earlier

period was filed though the assessee was aware of and

had admitted the tax liability; that the returns were in

fact filed only one day prior to the Deputy Commissioner

going through the books of accounts of the assessee after

following necessary procedure as a consequence of which

notice under section 39 of the Act was issued for

reopening of the assessee’s assessments for the period

from 1.4.2005 up to the date.

21. In this background, what is submitted is that the

assessee in fact never filed revised returns for the earlier

period even after the inspection and ‘Nil’ returns

remained so up to the month of April 2006; that even for

the subsequent months, returns filed were not true and

correct, but grossly under stated in the turnover; that the

assessee never acted with any bonafides for disclosing the

19

true and correct turnover of his business so also taxable

turnover.

22. Mr. Vedamurthy would submit that while it is no

doubt the manner of availment of input credit by

deducting the same against the output tax liability is

provided for under section 10 of the Act, but the assessee

has not complied with the requirements of section 10 of

the Act also, particularly, by not giving full or proper

particulars for the purpose of claiming input tax credit

and to get it reduced from the total tax liability.

23. Our specific attention is drawn to sub-section [4] of

section 10 of the Act which mandates that unless a dealer

while filing returns and claiming deduction towards input

tax as tax invoices, debit notes or credit notes in relation

to sale and evidence of the input tax is based by enclosing

the tax invoices issued by the serving dealer in favour of

the assessee, the mandatory requirement which is not

followed and not complied with by the assessee, the

20

assessee cannot get the benefit of deduction of input

credit is the submission of Sri. T K Vedamurthy.

24. In this regard, Sri. T K Vedamurthy has also taken

us through the provisions of sections 35, 36, 37, 38, 39

and 40 of the Act and particularly section 40 of the Act

providing for the period of limitation. With reference to

the period of limitation, what is submitted is that the

period of limitation stipulated under the Act operates both

against the revenue and against the assessee and the

assessment not concluded within the permitted period

gets time barred and likewise an assessee not complying

the requisite compliances within the stipulated time also

loses the benefit of such compliance as stipulated in the

Act and within time.

25. Mr Vedamurthy has also drawn our attention to

Rule 37 of the Karnataka Value Added Tax Rules, 2005

[for short, the Rules], providing for the tax period for the

purpose of filing of returns and Rule 38 indicating the

21

manner of filing returns with particulars and proof of the

input tax credit etc. With reference to these statutory

provisions, what is very emphatically urged by Mr

VedamMurthy is that under the scheme of the Act, only

manner of claiming credit for the input credit is by filing

returns and as permitted in law; that in a return the

assessee cannot put forth claim for input credit as that is

not what is contemplated under the Act. Submission is

that if the assessee does not put forth a claim for

deduction of input tax credit while computing the tax

liability as indicated in the return filed by the assessee, it

cannot be claimed independently, as it has to be done by

determining the tax liability.

26. It is also submitted that under the scheme of the

Act, the dealer himself is given liberty to determine his tax

liability and indicate that in the returns by claiming

appropriate rebate or deductions and the liability

indicating the return is taken to be a deemed assessment,

22

unless it is found by the revenue that the registered

dealer has either failed to file a return or has not acted in

response to a notice issued in terms of sub-section 2 of

Section 38 of the Act, the terms of the best judgment can

be resorted to. It is therefore submitted that where the

assessee-dealer justifies the confidence reposed by

disclosing true particulars of his turnover, output tax

and input tax, it amounts to compliance on the part of

registered dealer in the requirements of the enactment,

but where it is found that tax liability as disclosed falls

short of the tax liability, it has to be determined following

the best judgment assessment.

27. Mr Vedamurthy would also submit that the returns

that was filed by the assessee were all found not true or

proper and therefore, there was need for reopening of the

assessment and on such reopening, the liability was

determined in terms of the provisions of the Act and it

23

was found that the liability was much more than what

had been disclosed or claimed by the dealer.

28. Learned Government Advocate would submit that

the assessing officer was fully justified in denying the

input tax deductions, as information and material had

not been placed before the assessing authority in the

return filed.

29. It is also submitted by the learned Government

Advocate that there is absolutely no bona fides on the

part of the dealer in continuing to file nil returns even

after the inspection and awareness on the part of the

dealer about his tax liability. It is therefore submitted

that as the true and correct tax liability was determined

only by reopening, the assessing officer was also justified

in levying penalty and interest, as assessee had not acted

with bona fides and had not disclosed true particulars of

his turnover.

24

30. Mr Vedamurthy has placed reliance on a judgment

of a Division Bench of this court rendered in the case of

M/S TOTAL ENVIRONMENT BUILDING SYSTEMS PVT.

LTD. vs THE DEPUTY COMMISSIONER OF

COMMERCIAL TAXES (W.A.3481-3492/2009 disposed of

on 7.10.2009) wherein it has been categorically held that

even in matters where a doubt is raised as regards to the

correctness of the earlier decision by the Supreme court

and the matter is referred to a Larger Bench, the law that

Supreme court had declared earlier prevails, to submit

that the law as it had been declared by Supreme Court in

the case of K RAHEJA DEVELOPMENT CORPORATION

[supra] holding that the turnover of a dealer relating to

construction activities, in the transfer of property

pursuant to a contract is liable to tax insofar as value of

the goods involved in the execution of the works contract

is concerned. It is therefore urged that there is absolutely

no bona fides on the part of the appellant/assessee in

25

claiming that it was under the bona fide impression that

there was no tax liability.

31. Mr Vedamurthy would also place reliance on a

Division bench decision of High Court of Jharkhand at

Ranchi in the case of BHARAT COAL PRODUCT vs

STATE OF JHARKHAND AND OTHERS ((2006) 146 STC

102) to the effect that the Assessing Officer is justified in

acting on the earlier return, if a revised return filed does

not disclose the basis and is not supported by particulars

and material facts and evidence etc. It is therefore

submitted that Assessing Officer was justified in not

acting upon a claim for deduction of input tax, as neither

particulars of the registered dealer had been furnished by

the assessee nor proof of payment of tax to the registered

dealers.

32. Specific attention is drawn to sub-section 4 of

Section 45 of the Act to submit that a revised return to be

filed by an assessee after furnishing a return under the

26

Act should be voluntary and discovered by the assessee

himself to be acted upon by the assessing officer and not

in pursuance of any inspection and discovery by the

authorities about the short filing on the part of the

assessee. It is also pointed out that the time limit that

has to be adhered to and the longer period of 6 months

for filing a revised return will be available only if so

permitted by the prescribed authority and not otherwise.

33. It is therefore submitted that the first appellate

authority had acted erroneously and without jurisdiction

by virtually re-writing the provisions of Section 10(4) of

the Act read with Section 35(4) of the Act; that the first

appellate authority has acted contrary to the statutory

provisions in allowing the appeals and the order also

being prejudice to the interest of the revenue, the

commissioner was justified in revising the orders which

were both erroneous and prejudicial to the revenue and in

27

restoring the order of the assessing officer to the extent

indicated in the order of the commissioner.

34. It is in this background of such submissions and

the statutory provisions, these appeals are required to be

examined.

35. Section 4 of the Act which creates the liability to tax

provides the rates of tax. Insofar as the present situation

is concerned, it is governed by Section 4(1)(c) of the Act,

which reads as under:

4. Liability to tax and rates thereof:-

(1) Every dealer who is or is required to be registered as specified in Section 22 and 24, shall be liable to pay tax, on his taxable turnover,

xxx

(c) in respect of transfer of property in

goods (whether as goods or in some other form) involved in the execution of works contract specified in column (2) of the Sixth Schedule, subject to

Sections 14 and 15 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates specified in the

28

corresponding entries in column (3) of the said schedule.

The nature of work carried on by the assessee is not in

doubt and it is a works contract relating to sale of

apartments involving construction of buildings etc.

36. Section 10 of the Act which spells out as to what is

output tax, input tax and net tax, virtually provides the

manner of determination of tax liability under the Act.

Section 10 reads as under:

10. Output tax, input tax and net tax:–

(1) Output tax in relation to any

registered dealer means the tax payable under this Act in respect of

any taxable sale of goods made by that dealer in the course of his business, and includes tax payable by a commission agent in respect of taxable sales of goods made on behalf of such dealer subject to issue

of a prescribed declaration by such agent.

(2) Subject to input tax restrictions

specified in Sections 11, 12, 14, (17 and 18), input tax in relation to any

registered dealer means the tax

29

collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the tax on the sale of goods

to his agent who purchases such goods on his behalf subject to the manner as may be prescribed to claim input tax in such cases.

(3) Subject to input tax restrictions

specified in Sections 11, 12, 14, 17, 18 and 19, the net tax payable by a registered dealer in respect of each tax period shall be the amount of output tax payable by him in that period less the input tax deductible

by him as may be prescribed in that period and shall be accounted for in accordance with the provisions of (this Act).

(4) For the purpose of calculating the

amount of net tax to be paid or refunded, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale, has been issued in accordance with Section 29 or Section

30 and is with the registered dealer taking the deduction at the time any return in respect of the sale is furnished, except such tax paid under sub-section (2) of Section 3.

(5) Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, where under sub-section

30

(3) the input tax deductible by a dealer exceeds the output tax payable by him, the excess amount shall be adjusted or refunded

together with interest, as may be prescribed.

37. Sub-section 4 of Section 10 mandates that for the

purpose of calculating the net tax to be paid or refunded,

no deduction for input tax will be made unless tax

invoices, debit note, credit note in relation to a sale has

been issued in accordance with Section 29 or Section 30

of the Act and is with the registered dealer taking the

deduction at the time any return in respect of sale is

furnished etc.

38. Section 35 speaks of returns under the scheme of

voluntary assessment as embedded hereunder, “As a

return filed by the assessee within the prescribed time

and in the manner provided is deemed to be the

assessment.” This read with Section 38 provides for a

deeming of the return as the assessment.

31

39. Section 39 of the Act provides for reassessment of

tax and Section 40 for limitation of assessment. Rule 38

specifies the scheme of monthly return in respect of

assessee whose tax period is monthly. Rule 37 says that

tax period is entirely depending on the turnover. In the

present case, there is no dispute that in so far as the

assessee is concerned, it is a calendar month. Rule 38

provides for furnishing of monthly returns and the

manner of furnishing the same.

40. Even as submitted by the learned counsel for the

appellant and also the learned Government Advocate, the

value added tax is virtually a tax on addition made to the

cost which goes into the hands of a dealer as the assessee

in the normal course and if he complies with all the

mandatory provisions of the Act will be given input rebate

in respect of taxes which he has already paid at the time

of purchase through a registered dealer and therefore,

can claim adjustment in respect of his tax liability and

32

therefore, tax liability is described as net tax i.e. output

tax minus input tax and registered dealer is so enabled to

collect what is known as output tax from his purchasers.

41. The scheme of the Act does indicate that a dealer

virtually stands in the position of the State for the

purpose of claiming credit to the input tax from the

output tax. When once an assessee has deducted the

amount of input tax from the output tax the remainder,

which is the net tax, is bound to be paid by the dealer as

the assessee is enabled to retain the tax he has himself

paid earlier to his selling registered dealer. It is in this

background the Act has provided for certain statutory

and mandatory requirement as is found in Sections 10

and 35 of the Act. The manner of claiming input tax,

rebate or credit is therefore regulated by the statutory

provisions. The requirements are that the assessee who

filed the returns at the first instance for claiming any

input tax rebate or reduction should disclose the same in

33

the returns filed with full particulars of registered dealer

from whom purchases are effected by the assessee.

Dealers’ names are to be furnished along with return and

proof of payment of tax in the form of invoices issued by

the selling registered dealers should also accompany the

same.

42. In the present case, it is not in dispute that all the

requirements were not fulfilled by the assessee for the

period involved in the appeals viz., from April 2005 to

March 2006 – subject matter of appeals in STA 59/2009 -

and from April 2006 upto November 2006 – the subject

matter of appeals in STA 60/2011.

43. The assessee never filed any revised return in

respect of the period from April 2005 to March 2006 nor

claimed any input credit return, but, on the other hand

only filed nil tax liability return. The assessee persisted

and did not file any revised return or anything at all even

after inspection, notice etc. In this view of the matter,

34

there was nothing at all before the assessing authority to

provide any input tax deduction in favour of the assessee

for the entire period from April 2005 to March 2006. So it

is urged by the appellant/assessee that even long after

the expiry of the period in which the revised return could

have been filed, the fact remains that there is no response

by filing any revised returns. In such a position, we are of

the view that the first appellate authority did go out of its

duties and responsibilities and acted out of its

jurisdiction to entertain a claim for deduction of input tax

rebate in favour of the assessee by accepting some

material, purporting it to be based on the books of

accounts and the purchase invoices etc and in granting

reliefs to the assessee. We find, it is a case of the first

appellate authority acting more loyal than the king, even

though a claim had not been put forth by the assessee

through the returns, the first appellate authority has

ventured to allow the appeals and grant relief to the

assessee, contrary to statutory provisions!

35

44. For the period from April 2005 to March 2006, the

order of first appellate authority was clearly erroneous

and definitely prejudicial to the interest of the revenue

and the revisional authority has interfered for restoration

of the original orders for this period. We find nothing

incorrect or erroneous or illegality in acting so and

therefore, appeals relating to these periods are necessarily

to be dismissed i.e. STA 59/09 is dismissed.

45. Insofar as STA 60/09 is concerned, there is slight

variation on the facts, whereas the legal position remains

the same. Though the appeal covers the entire year or

12 calendar months, we are required to examine on the

aspect of not giving input tax credit or rebate only for the

period from April 2006 to November 2006 inasmuch as

the revisional authority has not disturbed the input tax

rebate as given by the appellate authority for the

remaining period. However, it may be relevant only for

36

the purpose of justification of levy of penalty and interest

etc are concerned.

46. Even in regard to this period of April 2006 to

November 2006 is concerned, the factual position is not

very different as it prevailed in the case of returns that

had been submitted by the assessee for the period April

2005 to March 2006. The conduct of the assessee in

filing nil returns for April 2006 to November 2006 can

never be accepted as bona fide, as the assessee, prior to

the filing of the return, had been made aware of the tax

liability and virtually admitted the same and had paid

some provisional amount. Therefore, there is absolutely

no bona fides on the part of the assessee in continuing to

file nil returns even for this period and claiming no tax

liability.

47. The assessee is not a small dealer but with a huge

turnover running to crores of rupees. It is not as though

the assessee could be accepted to be a novice or ignorant

37

dealer or a small businessman who was ignorant of his

responsibility. A return claiming nil tax liability on the

face of it appears to be an obvious attempt on the part of

the assessee to take undue advantage of the due

assessment procedure. The revised returns were filed

only after inspection etc. and therefore, cannot be

accepted as a voluntary return or bona fide return as the

assessee has done it after a good deal of persuasion. It is

not known as to what would have been the conduct of the

assessee if he was not compelled to do so.

48. In the circumstances we find levy of penalty and

interest is fully justified on the difference of tax payable

by the assessee. In fact Section 38(3) of the Act,

reading as under, provides some clue as to this aspect:

38. Assessment of tax:- xxx (3) Where an assessment has been made

under sub-section (2) and the dealer subsequently furnishes a return for the period to which the assessment

38

relates, the prescribed authority may withdraw the assessment but the dealer shall be liable to penalties and interest as applicable.

49. Even when a revised return or a return

subsequently has been made subsequent to passing of

the best judgement order, while the original assessment

can be withdrawn, best judgement assessment cannot be

withdrawn, which, nevertheless does not absolve the

assessee from being levied with penalties and interest and

they shall continue to be so levied and therefore in the

present case there is justification for the levy of penalty

and interest. We are of the opinion that the penalty and

interest levied on the assessee does not call for any

interference in this appeal by us.

50. Insofar as denial of input tax rebate for the period

from April 2006 to November 2006 is concerned, what is

urged on behalf of the assessee is that the revised returns

have been filed within 6 months from June to November

39

2006. This argument virtually admits that for the periods

April and May, they are beyond 6 months. It is therefore

examination is required for the period June-November

2006 for the purpose of entitlement of the assessee for the

input tax. We notice even here that while the assessee

had promptly filed nil returns for this period within the

time stipulations as per the Act, he did not care to file any

revised returns nor had furnished the full particulars of

the purchases made from registered dealers and the proof

thereof. The factual position with regard to the

compliance with the requirements of sub-section 4 of

Section 10 is not forthcoming and though the assessee

had filed revised returns for this period, even the revised

returns did not contain the particulars of the registered

dealer from whom purchases had been made and the

actual tax paid on such purchases in the form of tax

invoices issued by the selling registered dealers.

40

51. As pointed out by the learned Government

Advocate, it is to be noticed that the revised returns were

filed almost several months after the filing of the original

returns and the actual assessment took place after almost

two years after the original inspection and much time gap

was there between filing of the returns and revised

returns and further interval before passing of the

assessment order. The assessee who had appeared before

the assessing authority and represented, did not place

any material or particulars as had been put forth before

the appellate authority at the time of assessment or prior

to the assessment. The assessee had ample opportunity

for making the same. Notwithstanding the assessee had

not fulfilled any compliance of the requirements of the

statutory provisions, the particulars of registered dealers

from whom purchases had been made had not been

furnished, particulars of register etc nor corresponding

tax invoices issued by the registered dealers were

provided, but only a claim statement was made for

41

claiming credit for input tax on purchases said to have

been effected from the dealers. We have already noticed

that insofar as the claim for input tax deduction is

concerned, the Act mandates strict compliance with the

requirements of Section 10 which is reflected in the

return as per Section 35 of the Act. While the argument

of Mr Keshava Murthy, learned counsel for the appellant-

assessee that the revisional authority while has accepted

the stand taken by the appellate authority for treating the

purchases made by the assessee from registered dealers

and unregistered dealers and in fact had accepted the

deduction of liability by the first appellate authority in

terms of Section 3(2) of the Act, it could not have made

any distinction only when it comes to provide input credit

in respect of the very purchases depicted from the

registered dealers.

52. Mr Vedamurthy, learned AGA, would point out that

the liability under Section 3 of the Act is a different

42

liability independent of the liability under Section 4 of the

Act and insofar as Section 4 liability is concerned, the

determination is only in terms of the other provisions,

whereas insofar as Section 3(2) liability is concerned, the

analogy drawn by Mr Keshava Murthy is apt, so far as

input tax rebate is concerned. The Act expressly provides

for statutory compliance, whereas it does not provide so

in respect of determination of Section 3 liability.

53. The Act specifically provides for the manner in

which the extent of purchases made by an assessee from

registered dealer and the claim for corresponding tax

made at the time of purchase can be claimed by

prescribing a specific mode and that is not complied by

the assessee. Therefore, even assuming that the benefit

of reduction of Section 3(2) tax liability as given by the

appellate authority is not disturbed by the revisional

authority, it cannot be a ground for extending such a

43

benefit in respect of input tax rebate either by comparison

or otherwise.

54. Insofar as the argument that the revised return

having been filed within six months and taking cue from

the provisions of Section 38(3) of the Act, the revised

return should be accepted and acted upon is concerned,

we find this provision is not applicable to the present

situation as it arises only in a situation where best

judgment assessment is passed because of non-filing of

the return as for the periods in question which we are

discussing, the assessee had filed nil returns.

55. In so far as Mr Keshava Murthy’s submission that

in a best judgment assessment, where a return is not

accepted and is based on the information as disclosed in

the books of accounts etc., the claim in the returns or

non-claiming in the returns cannot be of much

significance, we find that claim for input tax credit can

only be in specified form and not in a generalised form

44

and therefore, the arguments cannot succeed. We have

discussed this aspect elaborately as above. Therefore, on

comparison of provisions of Section 38(3) of the Act, the

benefit cannot be extended by overlooking the statutory

requirements under Section 10(4) of the Act read with

sub-sections (1) and (4) of Section 35 of the Act.

56. In the circumstances we find that the impugned

order passed by the Commissioner setting aside the

appellate authority’s order for the periods April 2005 to

March 2006 and April 2006 to November, 2006 and

restoring the assessment order cannot be said to be

suffering from any illegality or want of jurisdiction and

therefore, the appeals to that extent are dismissed. The

Judgments relied cannot further the case of the

appellant/assessee, as when a statutory provision

mandates compliance in a particular manner in

examining as to whether the compliance is secured or

otherwise a broad based approach is not called for, more

45

so in tax matters, where the liability is strictly as per the

sections and compliance, both on the part of the revenue

and on the part of the assessee, also should be strictly in

terms of the statutory provisions. An assessee pays

penalty if it violates the statutory provision and likewise

the revenue also loses revenue unless it adheres to the

requirements of the statutory provision. It is for this

reason we are not impressed by the submission on behalf

of the assessee that there was no need for taking a

technical approach or hyper technical approach and if the

appellate authority had taken a pragmatic and plausible

view, the revisional authority should not have disturbed

the same or interfered with the same, is not accepted.

57. Appeals dismissed but costs made even.

Sd/-

JUDGE

Sd/-

JUDGE

*pjk/AN/BRN