Full Judgment Text
1/23
R
IN THE HIGH COURT OF KARNATAKA, BENGALURU
TH
DATED THIS THE 26 DAY OF JUNE 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
S.T.A.Nos.128/2012 & 22 – 68/2013
BETWEEN :
M/s DHAMMANAGI PROPERTY DEVELOPERS
NO.137, RAILWAY PARALLEL ROAD
KUMARAPARK WEST,
BANGALORE-560020
REP. BY SRI BABU A. DHAMMANAGI
S/O ADIVEPPA DHAMMANAGI,
AGED ABOUT 56 YEARS,
PARTNER OF M/s DHAMMANAGI
PROPERTY DEVELOPERS ...APPELLANT
(BY SRI TATA KRISHNA, ADV. FOR SRI CHYTHANYA K.K., ADV.)
AND :
ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES ZONE-1,
VANIJAYA THERIGE KARYALAYA
RD
3 FLOOR, GANDHINAGAR,
BANGALORE-560 009. …RESPONDENT
(BY SRI VIKRAM A. HUILGOL, HCGP.)
THESE STAs ARE FILED UNDER SECTION 66(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003, AGAINST THE
ORDER DATED 04.07.2012 PASSED IN NO.ZAC-
1/BNG/SMR.17/2011-12, T.NO.151/12-13 ON THE FILE OF THE
ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-1,
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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BANGALORE, SETTING ASIDE THE ORDER PASSED BY THE
FAA, AND RESTORING THE ORDERS PASSED BY THE
ASSESSING AUTHORITY.
THESE APPEALS HAVING BEEN RESERVED FOR ORDERS
ON 22.06.2018, COMING ON FOR PRONOUNCEMENT OF
JUDGMENT, THIS DAY, S. SUJATHA, J ., PASSED THE
FOLLOWING:
J U D G M E N T
Mr. Tata Krishna, Adv. for Sri Chythanya K.K., Adv.
for Appellant - Assessee
Mr. Vikram A. Huilgol, HGCP for Respondent -
Revenue
These Sales Tax Appeals are filed by the Assessee
U/s 66(1) of the Karnataka Value Added Tax Act, 2003
(‘Act’ for short) challenging the order passed by the
Addl. Commissioner for Commercial taxes, Zone-I
(Revisional Authority) under Section 64(1) of the Act,
whereby the order passed by the First Appellate
Authority U/s 62(6) of the Act has been set-aside and
the order passed by the Assessing Authority U/s 39(1)
of the Act has been restored.
2. Appellant/Assessee is a registered dealer
under the provisions of the Act, who is engaged in the
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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execution of Civil Works contract and is also a developer
of properties. The materials purchased by the assessee
like sand, jelly, bricks, etc from unregistered dealers
were brought to tax by the Assessing Authority U/s 3(2)
of Act, while concluding the reassessment proceedings
U/s 39(1) of the Act. Being aggrieved, appellant
preferred appeals before the Appellate Authority and
the same came to be allowed setting aside the tax levied
under Section 3(2) of the Act on the URD purchases, as
well as the penalty and interest levied U/s 72(2) and
Section 36 of the Act. Thus, Commissioner of
Commercial Taxes, Zone-I exercising powers under
Section 64(1) of the Act revised the said order of the
First Appellate Authority, by Order dated 4.7.2012, the
order passed by the First Appellate Authority was set-
aside restoring the order of the Assessing Officer
relating to the tax periods April 2005 to March 2009.
Hence, these appeals.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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3. Learned counsel appearing for the appellant
has challenged the order of the Revisional Authority
raising the following questions of law:
i) Whether the action of the respondent-
Authority u/s 64(1) of the Act is
justifiable in law ?
ii) whether the Revisional Authority is
justified in law in holding that the
appellant is liable to purchase tax U/s
3(2) of the Act ?
4. Firstly, it was argued that the provisions of
Section 3(2) of the Act are not applicable to the facts of
the present case as the appellant/assessee is not
carrying on any business relating to the transfer of
property in goods. The appellant is a developer of
properties and has purchased the materials like sand,
jelly, bricks, etc from the unregistered dealers and used
the same for construction of roads, drainage, sewage,
etc. i.e. in the process of formation of the layout, no
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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such goods purchased from the unregistered dealers are
sold. It is the immovable property/sites which has been
finally sold to the purchasers. There being no resale of
the goods, no input tax benefit is available to the
assessee. In such circumstances, levy of tax U/s 3(2) of
the Act is not attracted. The First Appellate Authority
on analyzing the facts of the case in the light of the
Judgment of the Karnataka Appellate Tribunal in M/s
Alliance Infrastructure Project Pvt. Ltd., -v- State of
Karnataka (STA No.461 to 465/2009 DD 26.09.2010)
as well as the Full Bench Judgment of the Karnataka
Appellate Tribunal, Bangalore reported in 2009 (67)
Kar.L.J. 359 (Tri.) (FB) in the case of Continental
Builders and Developers, Bangalore –v- State of
Karnataka had rightly set-aside the levy of tax U/s 3(2)
of the Act and the consequential penalty and interest
holding that no tax U/s 3(2) of the Act could be levied in
respect of purchases made from unregistered dealers
and used in the formation of layouts and thereafter sold
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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immovable properties. Under the circumstances,
decision of the Revisional Authority is untenable.
5. Nextly, it was contended that initiation of
proceedings by the Addl. Commissioner U/s 64(1) of the
Act is wholly without jurisdiction. No circumstances
warranted for the revisional proceedings. Any change of
opinion of the Revisional Authority would not call for
initiation of revision proceedings unless the essential
ingredients viz., i) the order of the Appellate Authority
is erroneous and ii) prejudicial to the interest of the
revenue is found. Merely for the reason that the order
passed by the First Appellate Authority is in favour of
the assessee would not be a ground for the Revisional
Authority to invoke Section 64(1) of the Act. This
material irregularity found in the proceedings initiated
by the Revisional Authority goes to the root of the
matter and hence, the same deserves to be set-aside.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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6. In support of his contention, learned counsel
for the appellant placed reliance on the following
Judgments:
1. CONTINENTAL BUILDERS AND
DEVELOPERS VS. STATE OF KARNATAKA
[[2008] 14 VST 175 [Kar]];
2. CONTINENTAL BUILDERS AND
DEVELOPERS VS. STATE OF KARNATAKA
[2009[67] Kar.L.J 359 [Tri.] (FB)]
3. CONCORDE HITECH CITY [P] LIMITED
VS. STATE OF KARNATAKA AND ANOTHER
[[2011] 39 VST 52 [Kar]]
4. CANARA OVERSEAS LIMITED V/S.
THE STATE OF KARNATAKA
[STRP.NO.21/2008, D.D. ON 08.07.2008]
5. KWALITY BISCUITS [P] LTD., V/S.
STATE OF KARNATAKA [[2012] 53 VST 66
[Kar]]
6. GODREJ AGROVET LIMITED V/S.
ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES, ZONE II, BANGALORE
[[2011] 39 VST 20 [Karn]]
7. Learned AGA, Mr.Vikram A.Huilgol, for the
respondent supports the impugned order. It was
argued that Section 3(2) of the Act contemplates the levy
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
8/23
of tax on the registered dealer or a dealer liable to be
registered, on the sale of taxable goods to him in the
course of his business, if such goods are sold by a
person who is not registered under the Act. The
appellant being a registered dealer under the provisions
of the Act is liable to pay tax U/s 3(2) of the Act, once
the goods are purchased from the unregistered dealers
and if the same are utilized in the course of business.
In support of his contention, learned counsel placed
reliance on the Judgment of the Co-ordinate Bench of
this court in the case of State of Karnataka –v- M/s
Shyamaraju & Company (India) Pvt. Ltd. in STRP
Nos.32 & 103-105/2010.
8. Heard the rival submissions of the learned
counsel appearing for the parties and perused the
material on record.
9. The Appellate Authority in its order dated
29.11.2010 at paragraph 5 has observed that the
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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appellant is engaged in execution of civil works contract
and is also a developer of properties; the appellant has
filed return of turnover in Form VAT-100 for the tax
period in question disclosing the total turnover and has
claimed exemption of levy of tax on the entire turnover
on the ground that the appellant has sold only sites by
formation of layout. Thus, it is not in dispute that
Appellant-M/s Dhammanagi Property Developers,
Bangalore is a partnership concern registered under the
KVAT Act with effect from 1.9.2005. Registration of the
concern under the provisions of the Act indicates the
business activity carried on by it. In this backdrop,
adverting to the arguments of the learned counsel for
the parties, Section 3(2) of the Act is examined which
reads thus:
“3. Levy Of tax
[1] xxxxx
[2] The tax shall also be levied, and paid
by every registered dealer or a dealer liable to
be registered, on the sale of taxable goods to
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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him, for use in the course of his business, by
a person who is not registered under this
Act.”
10. To attract Section 3(2), the relevant factors
to be satisfied are: i) Registered dealer or a dealer liable
to be registered under the Act purchasing the taxable
goods from the unregistered dealer; ii) Such purchase
from the unregistered dealer is for use in the course of
business of the registered dealer. If these two
conditions are satisfied, registered dealer is liable to pay
tax u/s 3(2) of the Act.
11. We are afraid to accept the arguments of the
learned counsel for the appellant that the materials
purchased from the unregistered dealers for the
development of layout is not for use in the course of his
business. ‘Business’ defined under Section 2(6) of the
Act has a wide connotation which is extracted for ready
reference:
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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“2 (6) “Business” includes. –
[a] any trade, commerce, manufacture or
any adventure or concern in the nature of trade,
commerce or manufacture, whether or not such
trade, commerce, manufacture, adventure or
concern is carried on in furtherance of gain or
profit and whether or not any gain or profit
accrues therefrom; and
[b] any transaction in connection with, or
incidental or ancillary to, such trade, commerce,
manufacture, adventure or concern.”
12. This court in the case of Continental
1
Builders and Developers, Bangalore (supra ) has held
thus:
“5. With reference to the above legal rival
contentions, we have to answer questions
framed in paragraphs 14 and 15 against the
assessee for the following reasons:
The Tribunal, with reference to the rival
legal contentions and the undisputed facts
urged by the learned counsel for the parties,
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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has answered the point framed by it against
the assessee by recording reasons at
paragraph 8 of the impugned order after
referring to the undisputed facts with regard
to common facilities such as putting-up
compound wall, drainage, constructing club
house, stores, servant quarters, providing
street lighting and laying electrical and
telephone lines. It is not in dispute that the
material such as sand, jelly, cement, etc.,
were used for construction of the common
facilities referred to supra and provided the
same facilities to the residents of the layout. It
is also not in dispute that the sites carved out
in the layout are sold to the prospective
purchasers. The price of sites collected
includes the developmental charges to be
incurred for providing the above civic
amenities. Therefore, the stand of the
assessee was rightly rejected by the
assessing authority and the appellate
authorities that the developmental charges
agreement is only for the easementary right
and there is no transfer of property by way of
sale such as road and park in terms of
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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section 2[1][t] of the KST Act and the TP Act to
the residents of the layout. The contention
urged by the learned counsel for the assessee
that the assessee is not liable to pay tax
under section 5B read with section 17[6] of
the KST Act is wholly untenable in law and
therefore we cannot accept the same.
6 . No material is produced by the
assessee before the assessing authority to
show that the expenditure incurred for the
formation of layout and providing common
facilities to the respondents is not part of the
sale consideration. In the absence of common
facilities in a layout nobody will buy the sites.
Therefore, there is transfer of common
facilities provided in the layout also along
with he sale of sites/plots in favour of the
residents. Therefore, the concurrent findings
on fact recorded by the authorities holding
that there is sale in favour of the residents as
defined under section 2[1][t] of the KST Act
and in terms of the TP Act is perfectly based
on valid and cogent reasons and the transfer
is for valid consideration. Therefore, the
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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findings of fact recorded in the impugned
orders are neither erroneous nor an error in
law. In our considered view, questions framed
at paragraphs 14 and 15 do not arise for our
consideration.”
In the said case, questions of law that arose for
consideration at paragraphs 14 and 15 reads as under:
14. Whether, in the facts and
circumstances of the case, the Tribunal was justified
in rejecting the review petition although it had
committed an error apparent on the face of the
record by dismissing the appeal in S.T.A.No.2601 of
2004 by dissenting from the judgment of a
coordinate Bench of the Tribunal?
15. Whether, in the facts and
circumstances o the case, charges received for
creation of common amenities that are not sold to
any person but only a right to use thereof is
provided, would be liable to tax under the provisions
of the Karnataka Sales Tax, 1957?”
Indeed, this judgment throws light on the aspect of
levy of tax on the transfer of common facilities provided
in the layout. The relevant questions of law are
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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answered in favour of Revenue, dismissing the revision
petition of the assessee. In the circumstances,
judgments rendered by the Tribunal would not come to
the assistance of the assessee.
13. Subsequently, in the case of Shyamaraju &
company (supra), the Co-ordinate Bench of this court
in STRP Nos.32 and 103-105/2010 had the occasion to
deal with the similar issue, in the context of goods
purchased from URDs for the development of their own
property in the course of his business. It is held thus:
“Sub-section (2) of Section 3 deals with the
liability to pay tax on the registered dealer when
he purchases taxable goods from a person who is
not registered under the Act. As is clear from the
aforesaid provision, the tax shall also be levied
and paid by every registered dealer or a dealer
liable to be registered on the sale of taxable goods
to him for use in the course of his business, by a
person who is not registered under this Act. In
other words, if a registered dealer purchases
taxable goods from a person who is not registered
under the Act, and uses it for his own
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M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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consumption personally, then there is no liability
to pay tax under sub-section (2). But once he
uses those taxable goods in the course of his
business, he is liable to pay tax which is known
as purchase tax. In fact, this Court had an
occasion to consider the aforesaid question in the
case of M/S. CONCORDE HITECH CITY (P)
LIMITED, vs. STATE OF KARNATAKA in
S.T.A.No.27/2009 disposed off on 16.07.2010,
where it was held as under:
“Sub-section (1) of Section 3 expressly
provides that, every sale of goods in the
State by a registered dealer or a dealer
liable to be registered, attracts levy of
tax. The person who sells such goods
has to pay the tax after levying the
same and collecting from the
purchasers. Sub-section (2) of Section 3
deals with a case where the person who
sells the goods is not a dealer who is
not registered under the Act. When
such a person sells the goods, the tax is
leviable and payable if the purchaser of
goods is a registered dealer or a dealer
liable to be registered. In other words, if
taxable goods are sold by a person who
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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is not registered to a person, who is not
a registered dealer or dealer liable to be
registered, no tax is leviable or payable.
But, once the person who purchases the
taxable goods in the course of his
business who is a registered dealer or a
dealer liable to be registered, then sales
tax is to be paid by such purchaser. In
common parlance it is called as
purchase tax. The liability to pay
purchase tax arises only if purchase
made for use in the course of his
business. It does not mean that the
said business which he is carrying on
should be only sale and purchase of
such goods.
The words employed are, ‘used in the
course of his business’ and not mere
use. The use of the goods may be in the
same condition if he resells it or it may
be absorbed in the final product in
respect of which he is carrying on
business. The use of the goods
purchased depends on the nature of his
business. Therefore, if that registered
dealer who purchases his goods and
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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sells the goods in the same form or uses
in the course of the business by
absorbing the same as an input and
then sells the final product, he is liable
to be levied sales tax. The contention
that Section 3(2) applies only to a case
where the registered dealer who
purchases goods from unregistered
dealer, uses the said goods in the same
condition in the course of his business,
is not tenable.
7. In this case, admittedly, the assessee is a
private limited company carrying on business of
civil works contract and also development of
properties. It is not in dispute that the taxable
goods were purchased from unregistered dealers
for development of their own property. That
development of their own property is done in the
course of business and therefore, Section 3(2) is
attracted. Hence, the order passed by the
Tribunal cannot be sustained. Accordingly, we
pass the following order:
The STRP is allowed. The impugned order
passed by the Appellate Tribunal is hereby set-
aside. The orders passed by the Assessing
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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Authority as well as the Appellate Commissioner
are restored.”
14. In the light of these Judgments, it is clear
that once the taxable goods purchased from the
unregistered dealers are used for development of
their own property in the course of the business of
the registered dealer, liability to pay tax u/s 3(2) of
the Act arises. The factual matrix of this case are
identical to M/s Shyamaraju & Company (supra) .
We have no reasons to differ from the same.
15. As regards the Judgment cited by the
learned counsel for the appellant in Concorde
Hitech City (P) Limited (supra), the same has been
considered by the Co-ordinate Bench of this Court in
the case of M/s Shyamaraju & Company (supra).
Even in Concorde Hitech City (P) Ltd., [Supra ], levy
of tax u/s 3[2] is upheld.
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M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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16. Canara Overseas Limited’s case (supra)
referred to by the learned counsel for the appellant was
rendered in a different context whereunder the assessee
was 100% export oriented unit engaged in exporting
iron ore from the place of extraction and processing to
other countries, in order to transport the iron ore,
chassis was purchased and thereafter body was built on
it, in order to treat it as a truck or lorry, thereafter claim
was made by the assessee for refund of input tax on
the ground that the investment made was for the
purpose of its business of manufacturing and
processing. In such circumstances, it was held that
purchase of chassis was not for the purpose of
manufacturing of the goods or for processing; it was
used only for transportation. Hence, the ratio
enunciated by this court in a different context is not
applicable to the facts of the present case.
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M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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17. Similarly in Kwality Bisuits (P) Ltd’s case
(supra), this court while adjudicating the issue relating
to the intellectual property right acquired by the
assessee therein, held that sale of intellectual property
do not attract tax under the Karnataka Sales Tax Act.
The same is not applicable to the present set of facts.
18. Hence, the decision of the Revisional
Authority that the activity of formation of layout is a
‘business’ is in conformity with the provisions of the Act,
merely for the reason that no input tax credit can be
claimed by the dealer, on this transaction, no liability
u/s 3(2) arises, is only a misconceived notion of the
Assessee and cannot be acceptable. It is hardly
required to be stated that the subsequent transactions
of the URD purchased goods is immaterial for the
purpose of levy of tax under Section 3(2) of the Act.
What is necessary is use of such goods ‘in the course of
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M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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business’. This requirement being satisfied, levy under
Section 3(2) of the Act certainly attracts.
19. As regards the jurisdiction of the Revisional
Authority to invoke Section 64(1) of the Act, it is obvious
that the order of the Appellate Authority is not only
erroneous but prejudicial to the interest of the revenue
as discussed above. The twin test i.e., [i] the appellate
order being erroneous and [ii] prejudicial to the interest
of the revenue, being satisfied, the proceedings initiated
by the Addl. Commissioner of Commercial Taxes is well
within the scope and ambit of Section 64(1) of the Act.
The action of the Revisional Authority cannot be held to
be without jurisdiction. Hence, appeals on this ground
also fail.
20. In the circumstances, no question of law
arises for consideration.
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M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
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For the aforesaid reasons, Appeals stand
dismissed.
Sd/-
JUDGE
Sd/-
JUDGE
ln.