M/S RAJDEEP BUILDCON PVT LTD vs THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES
- Court
- Karnataka High Court
- 1 -
STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
Reserved on : 23.04.2026
Pronounced on : 07.07.2026
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 07 DAY OF JULY, 2026
PRESENT
THE HON'BLE MR. JUSTICE S.G.PANDIT
AND
THE HON'BLE MR. JUSTICE K. V. ARAVIND
SALES TAX APPEAL No. 3 OF 2023
C/W
SALES TAX APPEAL No. 11 OF 2022
SALES TAX APPEAL No. 12 OF 2022
SALES TAX APPEAL No. 2 OF 2025
SALES TAX APPEAL No. 5 OF 2025
SALES TAX APPEAL No. 7 OF 2025
IN STA No. 3/2023
BETWEEN:
1. M/S. R. R. GOLD PALACE PRIVATE LIMITED
A COMPANY INCORPORATED UNDER THE
PROVISIONS OF THE COMPANIES ACT, 1956,
REPRESENTED HEREIN BY ITS
MANAGING DIRECTOR,
SRI R RAMESH,
PREVIOUSLY KNOWN AS
M/S. R. R. GOLD PALACE,
A REGISTERED PARTNERSHIP FIRM
UNDER THE INDIAN PARTNERSHIP ACT, 1932.
Digitally
signed by
VINUTHA B S
Location:
High Court of
Karnataka
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
HAVING OFFICE AT
NO. 88, SAMPIGE ROAD,
TH TH
BETWEEN 6 AND 7 CROSS,
MALLESHWARAM, BANGALORE – 560 003.
…APPELLANT
(BY SRI. SUMANTH SUDARSHAN, ADVOCATE FOR
SRI. ANNAMALAI S., ADVOCATE)
AND:
1. THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES
(ZONE)-1, GANDHINAGAR,
BENGALURU VANIJYA THERIGE KARYALAYA,
KALIDASA ROAD, GANDHINAGAR,
BENGALURU – 560 009.
2. THE ASSISTANT COMMISSIONER OF
COMMERCIAL TAXES
(AUDIT AND RECOVERY) - 1.8,
DGSTO-1, BENGALURU
RD
3 FLOOR, BMTC COMPLEX, YESHWANTHPUR,
BENGALURU – 560 022.
…RESPONDENTS
(BY SRI. ADITYA VIKRAM BHAT, AGA)
THIS STA IS FILED UNDER SECTION 66(1) OF
KARNATAKA VALUE ADDED TAX ACT 2003 AGAINST THE
ORDER DATED 16.11.2022 PASSED IN ORDER No.ZAC-
1/BNG/SMR-13/2022-23, ON THE FILE OF THE ADDITIONAL
COMMISSIONER OF COMMERCIAL TAXES, ZONE-1,
GANDHINAGAR, BENGALURU. SETTING ASIDE THE ORIGINAL
REASSESSMENT ORDER PASSED ON 29.10.2018 PASSED IN
NO. VAT.AP, 101/17-18 PASSED BY THE JOINT COMMISSIONER
OF COMMERCIAL ACT ALLOWING THE APPEAL BY SETTING
ASIDE THE RECTIFICATION ORDER DATED 28.07.2017
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
RECTIFICATION ORDER DATED 28.07.2017 PASSED UNDER
SECTION 69(1) OF KVAT ACT, 2003 BY ACCT (AUDIT) - 1.8,
DVO -1, BENGALURU AND ALSO THE PENALTY ORDER. BY THE
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (AUDIT)-
1.8, DVO-1 BENGALURU, FOR THE TAX PERIOD FOR APRIL
2010 TO MARCH 2011.
IN STA No. 11/2022
BETWEEN:
1. M/S RAJDEEP BUILDCON PVT LTD
BUNGLOW NO.4,
LIBERTY SOC-2
NORHT MAIN ROAD,
OPP. LANE NO.5,
KOREGAON PARK
PUNE - 411 001
(REPRESENTED BY ITS DIRECTOR
SHRI. RAJESH MANNALAL KATARIYA
S/O MANNALAL PRITHWIRAJ KATARIYA
AGED ABOUT 52 YEARS)
...APPELLANT
(BY SRI. CHIDANANDA URS B.G., ADVOCATE)
AND:
1. THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES (ZONE)-1
DEPARTMENT OF COMMERCIAL TAXES
GOVERNMENT OF KARNATAKA
GANDHINAGAR BANGALORE - 560 001
2. THE ASSISTANT COMMISSIONER OF
COMMERCIAL TAXES (AUDIT)-1.1
DGSTO-1,
YESHWANTHPURA
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
BENGALURU - 560 022
...RESPONDENTS
(BY SRI. ADITYA VIKRAM BHAT, AGA)
THIS STA IS FILED UNDER SECTION 66(1) OF
KARNATAKA VALUE ADDED TAX ACT 2003 AGAINST THE
ORDER DATED 29.06.2022 PASSED IN ORDER No.ZAC-
1/BNG/SMR-27/2021-22, ON THE FILE OF THE ADDITIONAL
COMMISSIONER OF COMMERCIAL TAXES, ZONE-1,
GANDHINAGAR, BENGALURU. MODIFYING OF THE APPEAL
AND FILED AGAINST THE RE-ASSESSMENT ORDER DATED
14.06.2018 PASSED IN CAS NO.297503252 BY THE
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (AUDIT)-
1.1, DVO-01, BANGALORE UNDER SECTION 39(1) OF THE
KVAT ACT, 2003 FOR THE TAX PERIOD FOR 2016-17.
IN STA NO. 12/2022
BETWEEN:
1. M/S RAJDEEP BUILDCON PVT LTD
BUNGALOW NO.4, LIBERTY SOC 2
NORTH MAIN ROAD
OPP LANE NO.5
KOREGAON PARK
PUNE – 411 001
REP BY ITS DIRECTOR
SRI RAJESH MANNALAL KATARIYA
S/O MANNALAL PRITHWIRAJ KATARIYA
AGED ABOUT 52 YEARS
...APPELLANT
(BY SRI. CHIDANANDA URS B G., ADVOCATE)
AND:
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
1. THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES (ZONE)-1
DEPT OF COMMERCIAL TAXES
GOVERNMENT OF KARNATAKA
GANDHINAGAR BANGALORE – 560 001
2. THE ASSISTANT COMMISSIONER OF
COMMERCIAL TAXES (AUDIT)-1,
DGSTO -1 YESHWANTHPURA
BENGALURU – 560 022
3. THE UNDER SECRETARY
FINANCE DEPARTMENT (C T -1) KARNATAKA
GOVERNEMNT SECRETARIAT
VIDHANA SOUDHA BENGALURU – 560 001
...RESPONDENTS
(BY SRI. ADITYA VIKRAM BHAT, AGA)
THIS STA IS FILED UNDER SECTION 66(1) OF KARNATAKA
VALUE ADDED TAX ACT 2003 AGAINST THE ORDER DATED
28.06.2022 PASSED IN ORDER No.ZAC-1/BNG/SMR-26/2021-
22, ON THE FILE OF THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES, ZONE-1, GANDHINAGAR, BENGALURU.
MODIFYING OF THE APPEAL AND FILED AGAINST THE RE-
ASSESSMENT ORDER DATED 22.12.2017 PASSED IN CAS
NO.275307649 BY THE ASSISTANT COMMISSIONER OF
COMMERCIAL TAXES (AUDIT)-1.1, BANGALURU, UNDER
SECTION 39(1) OF THE KVAT ACT, 2003 FOR THE TAX PERIOD
FOR APRIL 2015 TO MARCH 2016.
IN STA NO. 2/2025
BETWEEN:
1. M/S. P. S. TECH COM PRIVATE LIMITED
ST TH
1 BLOCK 9 B MAIN,
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
CHAIRMAN LAYOUT, HRBR LAYOUT,
BANASAWADI, BENGALURU - 560 43.
(REPRESENTED BY ITS DIRECTOR
SRI PRASAD PARUSURAMAN)
...APPELLANT
(BY SRI. ATUL K. ALUR, ADVOCATE)
AND:
1. THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES
TH
ZONE-3, 6 FLOOR, VTK-1,
VANIJYA THERIGE KARYALAYA,
GANDHINAGAR, BANGALORE - 9
...RESPONDENT
(BY SRI. ADITYA VIKRAM BHAT, AGA)
THIS STA IS FILED UNDER SECTION 64(1) OF
KARNATAKA VALUE ADDED TAX ACT 2003 AGAINST THE
ORDER DATED 31.07.2024 PASSED IN CAS NO. 351440821 AD
SMR ON THE FILE OF THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES, ZONE-3, BENGALURU SETTING ASIDE
THE REASSESSMENT ORDER PASSED ON 31.07.2024 PASSED
BY THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES
ZONE-3, BENGALURU, FOR THE TAX PERIOD FOR APRIL 2008
TO MARCH 2009.
IN STA NO. 5/2025
BETWEEN:
1. M/S H R SATHISH
NO. 15, SIDDI VINAYAKA LAYOUT,
BHOOPSANDRA, BENGALURU- 560 064
(REPRESENTED BY ITS
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
PROPRIETOR SRI. H.R SATHISH.)
...APPELLANT
(BY SRI. ATUL K. ALUR, ADVOCATE)
AND:
1. THE ADDITIONAL COMMISSIONER OF COMMERCIAL
TH
TAXES (SMR)-3, 8 FLOOR VTK-1
VANIJYA THERIGE KARYALAYA,
GANDHINAGAR, BANGALORE-9.
...RESPONDENT
(BY SRI. ADITYA VIKRAM BHAT, AGA)
THIS STA IS FILED UNDER SECTION 66(1) OF
KARNATAKA VALUE ADDED TAX ACT 2003 AGAINST THE
ORDER DATED 21.10.2024 PASSED IN ZAC/03/BNG/SMR-
23/2024-25 ON THE FILE OF THE ADDITIONAL
COMMISSIONER OF COMMERCIAL TAXES, (SMR)-3,
BENGALURU SETTING ASIDE THE REASSESSMENT ORDER
PASSED ON 13.09.2019 PASSED BY THE JOINT
COMMISSIONER OF COMMERCIAL TAXES (APPEALS)-5,
BANGALORE, FOR THE TAX PERIOD FOR APRIL 2011 TO
MARCH 2012.
IN STA NO. 7/2025
BETWEEN:
1. M/S DHRUVADESH META STEEL PVT LTD
HAVING ITS REGISTERED OFFICE AT
ST
1 FLOOR, NO. 372, NILAYA,
OPP R.T NAGAR POLICE STATION,
R.T NAGAR MAIN ROAD,
BENGALURU 560 032
(REPRESENTED BY ITS SRI. SREEVATHSA. B.N
GENERAL MANAGER - COMMERCIAL AND
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
ADMINISTRATION).
FACTORY AT:
M/S. DHRUVADESH META STEEL PVT LTD.,
SY NO. 150-156, HIREBAGANAL VILLAGE,
GINIGERA POST, KPPPALA TALUK.
KOPPAL - 583 028
...APPELLANT
(BY SRI. ATUL K. ALUR, ADVOCATE)
AND:
1. THE ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES, ZONE-3,
TH
6 FLOOR, VTK-1,
VANIJYA THERIGE KARYALAYA,
GANDHINAGAR, BANGALORE - 560 009.
...RESPONDENT
(BY SRI. ADITYA VIKRAM BHAT, AGA)
THIS STA IS FILED UNDER SECTION 66(1) OF
KARNATAKA VALUE ADDED TAX ACT 2003 AGAINST THE
ORDER DATED 30.04.2024 PASSED IN ORDER
No.ZAC/03/DVG/SMR-29/2019-20 ON THE FILE OF THE
ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES,
ZONE-3, BENGALURU. SETTING ASIDE THE ORDER DATED
28.02.2015 PASSED IN APPEAL NO.KVAT /AP-488 TO
499/2014-15 ON THE FILE OF THE JOINT COMMISSIONER
OF COMMERCIAL (APPEALS, DAVANGERE) ORIGINAL
REASSESSMENT ORDER PASSED ON 28.04.2014 PASSED
BY THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES
(AUDIT) DAVANGERE, ALLOWING THE APPEALS AND FILED
UNDER SECTION 39(1), 72(2) AND 36 OF THE KVAT ACT
2003 FOR THE TAX PERIOD FOR 2007-2008.
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
THESE APPEALS HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS
DAY, K.V. ARAVIND J. , DELIVERED THE FOLLOWING:-
CORAM: HON'BLE MR. JUSTICE S.G.PANDIT
and
HON'BLE MR. JUSTICE K. V. ARAVIND
C.A.V. JUDGMENT
(PER: HON'BLE MR. JUSTICE K. V. ARAVIND)
Heard Sri Sumanth Sudharshan, learned counsel for
Sri Annamalai S., learned counsel for the appellant in STA
No.03/2023; Sri Chidananda Urs B.G., learned counsel for the
appellant in STA No.11/2022 and STA No.12/2022; and
Sri Atul K. Alur, learned counsel for the appellant in STA
Nos.02/2025, 05/2025 and 07/2025, and Sri Aditya Vikram
Bhat, learned Additional Government Advocate for the
respondent-authorities/Revenue.
2. These appeals are filed under Section 66(1) of the
Karnataka Value Added Tax Act, 2003 (for short, 'the Act') by
the dealer/assessee, impugning the order passed by the Suo
Motu Revisional Authority (for short, ‘the SMR Authority’) under
Section 64 of the Act.
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
2.1 The following substantial questions of law are admitted by
this Court:
In STA No.03/2023
i) “Whether ITC rightly claimed by the Appellant can
be denied to it under the KVAT Act solely on the
basis of the supplier allegedly being de-registered
and / or not remitting the tax admittedly paid to it
by the Appellant;
st
ii) Whether the 1 Respondent is justified in placing
reliance on the Hon’ble Supreme Court’s judgment
in Ecom Gill since, even assuming but not
admitting that the ratio of the said decision were to
applicable to the instance case, there is no dispute
whatsoever that the goods in question were
delivered to the Appellant as categorically held by
the JCCT, and thus in the light of this factual
finding, the ITC can by no stretch of imagination be
denied to the Appellant?
iii) Whether the 1st Respondent is thus justified in re-
opening and revising the JCCT’s order under
Section 64(1) of the KVAT Act on the incorrect
premise that the said order was erroneous in so far
as it is prejudicial to the interests of the Revenue
although the jurisdictional requirements necessary
to invoke the provisions of Section 64(1) of the
KVAT Act are wholly absent in the instant case; and
iv) The Respondents were justified in directing the levy
of penalty and in levying penalty under Section
72(2) of the KVAT Act on the erroneous premise
that the levy of penalty under the said provision is
automatic and mandatory?”
In STA No.11/2022
i) Whether on facts and in the circumstances of the
case, the respondent was justified in invoking
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
powers of revision under section 64 of the KVAT Act
to set aside the re- assessment order, in the
absence of satisfying the twin conditions
adumbrated by the Legislature?”
In STA No.12/2022
i) Whether on facts and in the circumstances of the
case, the respondent was justified in invoking
powers of revision under section 64 of the KVAT
Act to set aside the re- assessment order, in the
absence of satisfying the twin conditions
adumbrated by the Legislature?
ii) Whether on the facts and in the circumstances of
the case, whether the invoking of revision
jurisdiction under section 64(3) is beyond the time
limit prescribed under the Act?
iii) Whether the extension of time limit vide Removal
of Difficulties Order (01/2020) in No.FD 27 CSL
2020 dated 17.04.2020 by the Respondent No.3 by
an Executive Order is without jurisdiction in as
much as the as the State Legislature itself had no
power to amend the provisions of repealed KVAT
Act, 2003?
iv) Whether on the facts and in the circumstances of
the case, whether the disallowance of expenditure
which is purely related to labour and service and
addition of tax on URD purchases to output tax is
sustainable, which was correctly allowed in the Re-
assessment Order in CAS Order No.275307649
dated 22.12.2017 based on verification of books of
accounts, vouchers and Returns filed?”
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
In STA Nos.2/2025 and 5/2025
i) Whether the revisional authority was right in
computing the limitation from the date of the
original order U/s 39 of the KVAT Act and in
rejecting/dismissing the appeal on the ground of
limitation.
ii) Whether the revisional authority was right in
coming to the opinion that the subject
Endorsement merges with the order under
Section 39 of the KVAT Act when rejecting the
appeal on limitation.
iii) Whether the revisional authority was right in
initiating the proceedings under Section 64 of the
KVAT Act after the repeal of the KVAT Act, w.e.f.
30/06/2017.
iv) Whether the revisional authority was right in
concluding that proceedings are not barred by
limitation under Section 64(3)(c) of the KVAT
Act.
v) Whether the revisional authority was right in
passing the order after the substitution of Entry
54 of the VI Schedule to the Constitution of
India.”
In STA No.7/2025:
i) Whether the Additional Commissioner, after
having issued notice on 08.01.2020 under
Section 64(1) of the KVAT Act five years after the
Rectification order putting the appellant on notice
on a specific ground asserting an error resulting
in prejudice to the Revenue's interest, could have
exercised the jurisdiction to unsettle the order
dated 28.02.2015 on another ground paving way
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
for the first appellate authority's order dated
20.11.2024.”
FACTS
3. For the sake of convenience, the facts in STA No.03/2023
are referred to, as the issues raised in all the appeals are
identical.
3.1 For the assessment period 2010-11, a re-assessment
order was passed on 03.05.2014, and the said order was
subject matter of an appeal before the Joint Commissioner of
Commercial Taxes (Appeals), which came to be disposed of on
29.10.2018. For the purposes of Section 64 of the Act, the SMR
Authority issued a letter calling for the records of the First
Appellate Authority in respect of the order dated 29.10.2018.
3.2 Notice under Section 64(1) of the Act was issued by the
SMR Authority on 05.08.2022. Thereafter, the SMR Authority,
after considering the reply filed by the assessee, passed an
order dated 16.11.2022 setting aside the order dated
29.10.2018 passed by the First Appellate Authority and issued
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
consequential directions. The order passed by the SMR
Authority is under challenge before this Court.
SUBMISSIONS
4. Sri Sumanth Sudharshan, learned counsel for
Sri Annamalai S., learned counsel for the appellant in
STA No.03/2023, submits that the re-assessment order was
passed on 03.05.2014 after considering the documents on
record. The said order was rectified on 28.07.2017. The order
of rectification was the subject matter of an appeal before the
First Appellate Authority, which came to be decided on
29.10.2018.
4.1 It is further submitted that the notice issued under
Section 64(1) of the Act, proposing to revise the order dated
29.10.2018 passed by the First Appellate Authority, is barred
by limitation. It is submitted that, in view of clause (c) of sub-
section (3) of Section 64 of the Act, no order can be passed
under Section 64 after four years from the date of the order
sought to be revised. It is contended that the order sought to
be revised is dated 29.10.2018, whereas the revisional order
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
has been passed on 16.11.2022, i.e., beyond a period of four
years, and is therefore barred by limitation.
4.2 It is also submitted that all powers conferred under
Section 64 of the Act are required to be exercised within a
period of four years. Accordingly, it is contended that the
exercise of jurisdiction under Section 64 of the Act to revise the
order dated 29.10.2018 is bad in law.
4.3 It is further submitted that an order under Section 64 of
the Act has to satisfy the twin conditions, namely, that the
order sought to be revised is erroneous and prejudicial to the
interests of the Revenue. The absence of either of these
conditions would invalidate the order. It is contended that the
mere possibility of another view or opinion cannot constitute a
ground to invoke Section 64 of the Act.
4.4 It is submitted that the order passed by the First
Appellate Authority was made after considering all the material
evidence on record and that the said order was neither
erroneous nor prejudicial to the interests of the Revenue.
According to the learned counsel, the proceedings have been
initiated merely on a change of opinion. It is further submitted
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
that the findings recorded by the SMR Authority on merits are
without considering the submissions made on behalf of the
assessee. It is also contended that the Input Tax Credit (ITC)
cannot be denied merely on the premise that the genuineness
of the transactions has not been proved.
5. Sri Chidanand Urs B.G., learned counsel appearing for the
appellant-assessee in STA No.11/2022 and 12/2022 submits
that all the powers conferred under Section 64 of the Act are
required to be exercised within a period of four years. It is his
specific contention that the entire proceedings, commencing
from the calling for records till the passing of the order, are
required to be completed within a period of four years.
5.1 It is submitted that, since the Act mandates maintenance
of books of accounts only for a period of five years, any
interpretation extending the period of limitation beyond four
years would render the defence of the assessee ineffective and
lead to absurd consequences. It is contended that the assessee
cannot be expected to maintain books of accounts beyond the
prescribed period of five years in anticipation of revisional
proceedings under Section 64 of the Act. It is further submitted
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
that any interpretation having the effect of extending the
limitation beyond four years would lead to absurd results and
leave the assessee defenceless.
5.2 In the alternative, it is submitted that treating the calling
for records as initiation of proceedings within the period of four
years would seriously affect the statutory protection available
to the assessee. It is contended that the calling for records by
the SMR Authority from the Assessing Authority or the First
Appellate Authority is merely an internal correspondence and,
therefore, cannot be accorded much evidentiary value.
5.3 It is further submitted that, even if the calling for records
is made within a period of four years, the revisional
proceedings must also culminate in the passing of an order
within the said period. According to the learned counsel, the
authorities, by taking undue advantage, have prolonged the
proceedings either by delaying the issuance of notice under
Section 64 of the Act or by delaying the conclusion of the
proceedings by passing the final order, which would seriously
prejudice and adversely affect the rights and defence of the
assessee.
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
6. Sri Atul K. Alur, learned counsel for the appellant-
assessee in STA Nos.02/2025, 05/2025 and 07/2025, in
addition to the submissions made above, submits that the
period of four years would commence from the date of
knowledge of the order sought to be revised. It is contended
that any other interpretation would lead to arbitrary exercise of
jurisdiction and prejudice the rights and defence of the
assessee.
6.1 It is further submitted that the mere calling for records
does not amount to initiation of proceedings unless the same
culminates in adjudication. According to the learned counsel,
the proceedings commence only upon issuance of a show-cause
notice under Section 64 of the Act and conclude upon the
passing of an order under the said provision. It is submitted
that if both the initiation and conclusion of the proceedings
have not taken place within a period of four years from the
date of the order sought to be revised, the proceedings would
be liable to fail as being barred by limitation.
7. Per contra , Sri Aditya Vikram Bhat, learned Additional
Government Advocate appearing for the respondent-
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STA No. 3 of 2023
C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
authorities/Revenue, submits that the question regarding
limitation is no longer res integra in view of the
pronouncements of this Court. In support of his submissions,
reliance is placed on the judgments of this Court in
M/s. Abhiram Infra Projects Pvt. Ltd. vs. Additional
Commissioner of Commercial Taxes and Another in STA
No.04/2023 dated 27.09.2024 , and M/s. Kalyan Jewellers
Salem (Pvt.) Ltd. vs. Additional Commissioner of
Commercial Taxes in STA No.06/2025 dated 02.07.2025 .
7.1 Placing reliance on the aforesaid judgments, it is
contended that if any of the actions contemplated under
Section 64 of the Act are commenced within a period of four
years, there is no limitation prescribed for passing the final
order. It is submitted that reading any such limitation into the
provision would amount to re-writing the statute, which is
impermissible.
7.2 Insofar as the merits are concerned, the learned
Additional Government Advocate submits that the scope of
enquiry undertaken and the findings recorded by the SMR
Authority are in conformity with the law laid down by the
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
Hon'ble Supreme Court in the case of State of Karnataka v.
Ecom Gill Coffee Trading (P) Ltd. , (2023) 111 GSTR 1
(SC) / (2023) 18 SCC 809 , and are therefore justifiable.
7.3 With the above submissions, the learned Additional
Government Advocate seeks dismissal of the appeals.
RELEVANT STATUTORY PROVISION
8. Section 64 of the Karnataka Value Added Tax Act, 2003
reads as under:
“64. Revisional powers of Additional Commissioner
and Commissioner.-
(1) The Additional Commissioner may on his own
motion call for and examine the record of any order
passed or proceeding recorded under this Act and if he
considers that any order passed therein by any officer,
who is not above the rank of a Joint Commissioner, is
erroneous in so far as it is prejudicial to the interest of
the revenue, he may, if necessary, stay the operation of
such order for such period as he deems fit and after
giving the person concerned an opportunity of being
heard and after making or causing to be made such
inquiry as he deems necessary, pass such order thereon
as the circumstances of the case justify, including an
order enhancing or modifying the assessment, or
canceling the assessment or directing a fresh
assessment.
(2) The Commissioner may on his own motion call
for and examine the record of any proceeding under this
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Act, and if he considers that any order passed therein by
any officer subordinate to him 1[or the Authority for
Clarification and Advance Rulings constituted under
Section 60] is erroneous in so far as it is prejudicial to
the interest of the revenue, he may if necessary, stay
the operation of such order for such period as he deems
fit and after giving the person concerned an opportunity
of being heard and after making or causing to be made
such inquiry as he deems necessary, pass such order
thereon as the circumstances of the case justify,
including an order enhancing or modifying the
assessment, or canceling the assessment or directing a
fresh assessment.
(3) The Additional Commissioner or the
Commissioner shall not exercise any power under sub-
section (1) or sub-section (2), as the case may be, if.-
(a) the time for appeal against the order has not
expired;
(b) the matter has been subject to an appeal
under Section 63 or a revision in the High Court;
or
(c) more than four years have expired after the
passing of the order sought to be revised.
[Provided that in the case of an order passed by
the Appellate Authority under Section 62 allowing the
appeal preferred in full, the condition specified in clause
(a) shall not apply.]
(4) Notwithstanding anything contained in sub-
section (3), the Additional Commissioner or the
Commissioner may pass an order under sub-section (1)
or (2), as the case may be, on any point which has not
been raised and decided in an appeal or revision referred
to in clause (b) of sub-section (3), before the expiry of a
period of one year from the date of the order in such
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appeal or revision or before the expiry of a period of four
years referred to in clause (c) of that sub-section,
whichever is later.
(5) Every order passed in revision under sub-
section (1) shall, subject to the provisions of sub-section
(2) of this Section and Sections 66 and 67, be final.
(6) Every order passed in revision under sub-
section (2) shall, subject to the provisions of Sections 65
and 66, be final.
(7) If the order passed or proceedings recorded by
the appropriate authority referred to in sub-section (1) or
(2), involves an issue on which the High Court has given
its decision adverse to the revenue in some other
proceedings and an appeal to the Supreme Court against
such decision of the High Court is pending, the period
spent between the date of the decision of the High Court
and the date of the decision of the Supreme Court shall
be excluded in computing the period referred to in clause
(c) of sub-section (3).
(8) In computing the period of limitation for the
purpose of sub-section (3), any period, during which any
proceeding under this Section is stayed by an order or
injunction of any court, shall be excluded.
(9) For the purposes of this Section, ‘record’ shall
include all records relating to any proceedings under this
Act available at the time of examination by the Additional
Commissioner or the Commissioner. [Refer Rules 154
and 174] .”
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ANALYSIS
9. We have considered the submissions made by the learned
counsel appearing for the parties.
10. The primary contention raised in all these appeals is that
the issuance of a show-cause notice and the passing of an
order under Section 64 of the Act are required to be completed
within a period of four years from the date of the order sought
to be revised. It is contended that the mere calling for records
from the Assessing Authority or the First Appellate Authority for
the purpose of revision under Section 64 of the Act, within a
period of four years, would neither save nor extend the period
of four years for issuing notice or passing an order under
Section 64 of the Act.
11. This issue is no longer res integra in view of the
judgments of this Court in M/s. Abhiram Infra Projects Pvt.
Ltd. ( supra ) and M/s. Kalyan Jewellers Salem (Pvt.) Ltd.
( supra ). In both the cases, it has been held that the limitation
of four years prescribed under Section 64 of the Act is for
calling for records and initiating proceedings, and not for
passing the final order. In the light of the aforesaid judgments
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of this Court, if records are called for, or notice is issued under
Section 64, within a period of four years, the mere fact that the
order is passed after the expiry of four years would not render
the proceedings barred by limitation. It has been held that the
date of calling for records would be relevant for determining the
period of limitation prescribed under sub-section (3) of Section
64 of the Act. The question is answered accordingly.
11.1 However, the contention of the respondent-Revenue that
once records are called for within a period of four years, there
would be no limitation whatsoever for passing an order under
Section 64 of the Act cannot be accepted, particularly when the
scheme of the Act is structured on the basis of prescribed
timelines, both for the assessee and the Assessing Authority.
The power to pass an order cannot remain unfettered and
without any time limit. Such an interpretation would lead to
unintended and adverse consequences. It would result in
arbitrary exercise of power and harassment of taxpayers.
12. Moreover, Section 32 of the Act prescribes the period for
retention of accounts. Every dealer/assessee is required to
maintain books of accounts and other records until the
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expiration of five years after the end of the relevant year or
until the assessment attains finality, whichever is later. A plain
reading of Section 32 would indicate that if assessment
proceedings are concluded within four years, the books of
accounts are required to be retained for a period of five years.
If proceedings such as reassessment or appellate proceedings
are concluded beyond four years, the obligation to retain
accounts would continue till the expiry of the limitation period
for challenging or appealing against such orders.
13. The exercise of power under Section 64 of the Act being
in the nature of suo motu revision by the competent authority,
the assessee cannot be kept on tenterhooks, anticipating
uncertainty regarding the initiation of proceedings under
Section 64 of the Act. The mere calling for records by the SMR
Authority, by itself, would amount to initiation of proceedings.
14. The period consumed between the date of calling for
records and the issuance of notice under Section 64 must,
however, be reasonable. Though we have held that calling for
records by the SMR Authority within a period of four years
would satisfy the requirement of limitation under Section 64,
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any unreasonable delay in concluding the proceedings would
undoubtedly result in harassment and render the defence
available to the assessee ineffective. In the absence of books of
accounts and other relevant documents, the assessee may not
be in a position to effectively defend its case. In many
instances, the assessee may also be required to secure
documents or transaction details from the other party to the
transaction, who, in turn, cannot be expected to preserve such
records beyond the statutorily prescribed period of five years.
15. The next question that arises for consideration is as to
what would constitute a reasonable period for concluding the
proceedings from the date of calling for the records. We find
the answer on a conjoint reading of Sections 32 and 64 of the
Act. A combined reading of Sections 32 and 64 of the Act would
lead to the conclusion that the proceedings should ordinarily be
concluded within a period of five years. The above analysis
would necessarily imply and mandate that the proceedings be
concluded within a reasonable time. Section 32 of the Act
mandates the assessee to maintain books of account and other
documents for a period of five years. Section 64 of the Act, in
cases where an appeal or revision gives rise to revisional
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jurisdiction, prescribes a period of four years, as provided
under clause (c) of Section 64(3), or one year, whichever is
later, for completion of the revision proceedings. A cumulative
reading of these provisions would indicate that, in any event,
the revision proceedings should be completed within a period of
five years from the date of the order sought to be revised.
16. It is a settled position of law that where no limitation is
prescribed for the initiation or conclusion of proceedings, such
proceedings cannot be kept pending indefinitely to the
detriment of the taxpayer and contrary to the scheme of the
Act. The Hon'ble Supreme Court in State of Punjab v.
Bhatinda District Coop. Milk Producers Union Ltd. ,
(2007) 10 VST 180 / (2007) 11 SCC 363 , approved and
prescribed a limitation in such situations. The principle laid
down therein is as follows:
“15. Sub-section (1) of Section 11 provided for a three-
year limitation. We may notice that the said period of
limitation was introduced by reason of Punjab Act 12 of
1998 and prior thereto a period of five years was
prescribed therefor. Sub-section (3) of Section 11 also
provides for a three-year limitation. Sub-section (6) of
Section 11 which is the residuary provision provides for
five years' limitation.
16. Sub-section (1) of Section 11 empowers the
Commissioner to extend the period of three years for
passing the order of assessment wherefor reasons are
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required to be recorded in writing subject, however, to
the maximum period of five years. Ordinarily, therefore,
a period of three years has been prescribed for
completion of the assessment in terms of the provisions
of the Act. We may also notice that in cases where an
assessment order is to be reviewed, the same should be
done within a period of one year.
17. A bare reading of Section 21 of the Act would
reveal that although no period of limitation has been
prescribed therefor, the same would not mean that the
suo motu power can be exercised at any time.
18. It is trite that if no period of limitation has been
prescribed, statutory authority must exercise its
jurisdiction within a reasonable period. What, however,
shall be the reasonable period would depend upon the
nature of the statute, rights and liabilities thereunder
and other relevant factors.
19. Revisional jurisdiction, in our opinion, should
ordinarily be exercised within a period of three years
having regard to the purport in terms of the said Act. In
any event, the same should not exceed the period of five
years. The view of the High Court, thus, cannot be said
to be unreasonable. Reasonable period, keeping in view
the discussions made hereinbefore, must be found out
from the statutory scheme. As indicated hereinbefore,
maximum period of limitation provided for in sub-section
(6) of Section 11 of the Act is five years.”
16.1 The High Court of Delhi in the case of CIT v. NHK Japan
.,
Broadcasting Corpn (2008) 305 ITR 137 / 2008 SCC
OnLine Del 1433 , has held as under:
“10. There is no dispute that section 201 of the Act does
not prescribe any limitation period for the assessee
being declared as an assessee in default.
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11. Learned counsel for the Revenue relied
upon Bharat Steel Tubes Ltd. v. State of Haryana,
(1988) 70 STC 122 (SC) to contend that no period of
limitation can be prescribed in a situation such as the
present for initiating proceedings.
12. Learned counsel for the assessee relied
upon State of Punjab v. Bhatinda District Co-op. Milk
Producers Union Ltd., (2007) 11 SCC 363; (2007) 9 RC
637 to contend that if no period of limitation is
prescribed, a statutory authority must exercise its
jurisdiction within a reasonable period. What should be
the reasonable period depends upon the nature of the
statute, rights and liabilities thereunder and other
relevant factors.
13. Relying upon this decision, it is submitted by
learned counsel for the assessee that since section 201
of the Act does not prescribe any period of limitation for
initiating or for completing proceedings in declaring the
assessee as an assessee in default, exercise of
jurisdiction should commence in so far as the statutory
authority is concerned within a reasonable period of
time.
14. We are unable to agree with learned counsel for
the Revenue inasmuch as the decision relied upon by
him deals with reasonable time for completing the
assessment or for completing the task on hand.
15. In Bharat Steel Tubes Ltd.(1988) 70 STC 122 (SC)
the question that arose before the court (and which has
been stated on page 130 of the report) is whether an
order of assessment under section 11(3) of the Punjab
General Sales tax Act, 1948, or section 28(3) of the
Haryana General Sales tax Act, 1973, could now be
completed or it would be barred by limitation. In that
case, the assessment proceedings had been unduly
delayed and the Supreme Court came to the conclusion
that for completing the assessment proceedings there is
no period of limitation prescribed and that would depend
upon the facts of each case. Considering the facts of the
case, the Supreme Court gave a direction to the
assessing authority to complete all the pending
assessments within a period of four months from the
date of delivery of the judgment.
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16. In so far as Bhatinda District Co-op. Milk
Producers Union Ltd.(2007) 9 RC 637; 11 SCC 363 is
concerned, the question that arose before the Supreme
Court was regarding initiation of proceedings by
exercise of jurisdiction by the statutory authority. The
Supreme Court held that exercise of jurisdiction must be
within a reasonable period of time and considering the
provisions of the Punjab General Sales tax Act, 1948, it
was held that a reasonable period of time for initiating
proceedings would be five years.
17. There is a qualitative difference between Bharat
Steel Tubes Ltd.(1988) 70 STC 122 (SC) and Bhatinda
District Co-op. Milk Producers Union Ltd.(2007) 9 RC
637; 11 SCC 363. In the former case, the question
pertained to completion of proceedings, while in the
latter case is pertained to initiation of proceedings. We
are concerned with initiation of proceedings.
18. In so far as the Income-tax Act is concerned, our
attention has been drawn to section 153(1)(a) thereof
which prescribes the time limit for completing the
assessment, which is two years from the end of the
assessment year in which the income was first
assessable. It is well known that the assessment year
follows the previous year and, therefore, the time limit
would be three years from the end of the financial
years. This seems to be a reasonable period as accepted
under section 153 of the Act, though for completion of
assessment proceedings. The provisions of
reassessment are under sections 147 and 148 of the Act
and they are on a completely different footing and,
therefore, do not merit consideration for the purpose of
this case.
19. Even though the period of three years would be a
reasonable period as prescribed by section 153 of the
Act for completion of proceedings, we have been told
that the Income-tax Appellate Tribunal has, in a series
of decisions, some of which have been mentioned in the
order which is under challenge before us, taken the view
that four years would be a reasonable period of time for
initiating action, in a case where no limitation is
prescribed.
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20. The rationale for this seems to be quite clear—if
there is a time limit for completing the assessment,
then the time limit for initiating the proceedings must be
the same, if not less. Nevertheless, the Tribunal has
given a greater period for commencement or initiation
of proceedings.
21. We are not inclined to disturb the time limit of
four years prescribed by the Tribunal and are of the
view that in terms of the decision of the Supreme Court
in Bhatinda District Co-op. Milk Producers Union
Ltd.(2007) 9 RC 637; 11 SCC 363 action must be
initiated by the competent authority under the Income-
tax Act, where no limitation is prescribed as in section
201 of the Act within that period of four years.
22. Learned counsel for the Revenue submitted that
the Department came to know that the assessee was an
assessee in default only in November, 1998, when a
survey was conducted and it came to be known only
then that when the assessee had not deducted tax at
source on the global salary. We are of the opinion that
the date of knowledge is not relevant for the purposes
of exercising jurisdiction in so far as the provisions of
the Income-tax Act are concerned. If it were so, the
limitation period, as for example prescribed under
section 147/148 of the Act would become meaningless if
the concept of knowledge is imported into the scheme of
the Act.
23. The second part of the argument of learned
counsel for the Revenue in this regard was that the
question of limitation did not at all arise because the
assessee had itself admitted its liability and it voluntarily
paid the tax and interest on that amount. Again, we are
not in agreement with learned counsel for the Revenue
in this regard.
24. It appears that the assessee paid the tax voluntarily
as well as interest thereon but the acceptance of the
liability by the assessee would not by itself extend the
period of limitation nor would it extend the reasonable
time that is postulated by the scheme of the Income-tax
Act. The assessee cannot be put, in a sense, in a worse
position merely because it has admitted its liability. If
the assessee had denied its liability, the question that
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would have arisen would be whether the Revenue could
have initiated proceedings after a lapse of four years.
The answer to that would of course have to be in the
negative in view of the reason that we have already
indicated above. The fact that the assessee agreed to
pay the tax voluntarily cannot put the assessee in a
situation worse than if it had contested its liability.”
17 . In the light of the above principle, we deem it appropriate
to hold that, under Section 64 of the Act, if the records are
called for within a period of four years, the proceedings are
validly initiated within time. The issuance of a show-cause
notice and the passing of the final order shall be completed
within a period of five years from the date on which the order
sought to be revised was passed. In other words, the final
order shall be passed within one year after the expiry of four
years from the date on which the order sought to be revised
was passed.
18. CONCLUSION
(a) The letter calling for the records issued by the SMR
Authority within a period of four years from the date of the
order sought to be revised constitutes a valid initiation of
proceedings as per Section 64 of the Act.
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(b) If the order under Section 64 of the Act is passed within a
period of one year after the expiry of four years from the date
of the order sought to be revised, the same shall nevertheless
be valid, provided that the letter calling for the records was
issued within the said period of four years.
19. We shall now examine the question of limitation in the
light of the above observations in each of the cases before us.
19.1 In STA No.03/2023-List of dates are as under:
Sl. Particulars Dates
No.
1. Appeal order passed by the FAA which was
sought to be revised under Section 64(1) of
the Karnataka Value Added Tax, 2003.
29.10.2018
2. Letter issued by the SMR Authority calling for 12.07.2022
records.
3. Notice issued by the SMR Authority under 05.08.2022
Section 64(1) of the KVAT Act.
4. Revision order passed by the SMR Authority 16.11.2022
under Section 64(1) of the KVAT Act.
19.1.1 The order sought to be revised was passed on
29.10.2018. The letter dated 12.07.2022, issued by the SMR
Authority calling for the records, is within a period of four
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years. The order dated 16.11.2022, passed under Section
64(1) of the Act, is within a period of five years from the date
of the order sought to be revised and is, therefore, valid.
19.1.2 The assessee, a registered dealer engaged in the
business of diamond, gold, and silver items, filed its return in
Form VAT-100 for the tax period from April 2010 to March
2011. A reassessment order came to be passed under Section
39(1) of the Act. Subsequently, a rectification order was passed
on the ground that the input tax credit claimed on purchases
from M/s. Kushi Jewellers Pvt. Ltd. was not allowable, as
M/s. Kushi Jewellers Pvt. Ltd. was found to be non-existent.
Aggrieved thereby, the dealer preferred an appeal before the
first appellate authority, which allowed the appeal and set aside
the rectification order.
19.1.3 Thereafter, the SMR Authority issued a notice under
Section 64 of the Act. Upon consideration of the reply filed by
the assessee, it held that the burden cast upon the assessee
under Section 70 of the Act to prove the genuineness of the
input tax credit had not been discharged. It further held that
input tax credit in respect of purchases made from a
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de-registered seller cannot be permitted. The SMR Authority
also held that allowing input tax credit without the production
of tax invoices, transaction details, and other requisite proof as
contemplated under Section 70 of the Act is erroneous and
prejudicial to the interests of the revenue.
19.1.4 It was further held that, in the absence of the original
tax invoices and sufficient evidence of bona fide transactions,
the grant of input tax credit is erroneous and contrary to the
mandatory requirements of Section 70 of the Act. It was also
noticed that no delivery notes in Form 505 had been issued by
the seller, despite the high value of the transactions involved.
According to the SMR Authority, the bona fides of the
transactions remain in dispute unless it is established that the
purchases were made from a registered selling dealer, the
goods were in existence, the goods were transferred to the
purchasing dealer, payment was made by the purchasing
dealer, and the original tax invoices and delivery notes were
available. In the absence of the aforesaid documents, the SMR
Authority set aside the order of the first appellate authority and
restored the order passed by the prescribed authority under
Section 39 of the Act.
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19.1.5 The manner and scope of discharge of the burden of
proof and the requirements under Section 70 of the Karnataka
Value Added Tax Act, 2003 have been considered by the
Hon'ble Supreme Court in State of Karnataka v. Ecom Gill
Coffee Trading (P) Ltd. , (2023) 111 GSTR 1 (SC) /
(2023) 18 SCC 809. The relevant paragraphs read as follows:
“…. 13. Therefore, the short question which is posed for
the consideration of this Court is,
“Whether, in the facts and circumstances of the case,
the second appellate authority as well as the High Court
were justified in allowing the input tax credit?”
14. While considering the aforesaid issue/question,
Section 70 of the Karnataka Value Added Tax Act, 2003
is required to be referred to, which reads as under:
“ 70. Burden of proof .—(1) For the purposes
of payment or assessment of tax or any claim to
input tax under this Act, the burden of proving that
any transaction of a dealer is not liable to tax, or
any claim to deduction of input tax is correct, shall
lie on such dealer.
(2) Where a dealer knowingly issues or
produces a false tax invoice, credit or debit note,
declaration, certificate or other document with a
view to support or make any claim that a
transaction of sale or purchase effected by him or
any other dealer, is not liable to be taxed, or liable
to tax at a lower rate, or that a deduction of input
tax is available, the prescribed authority shall, on
detecting such issue or production, direct the
dealer issuing or producing such document to pay
as penalty:
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(a) in the case of first such detection, three
times the tax due in respect of such transaction or
claim; and
(b) in the case of second or subsequent
detection, five times the tax due in respect of such
transaction or claim.
(3) Before issuing any direction for the payment
of the penalty under this Section, the prescribed
authority shall give to the dealer the opportunity of
showing cause in writing against the imposition of
such penalty.”
15. Thus, the provisions of Section 70, quoted
hereinabove, in its plain terms clearly stipulate that the
burden of proving that ITC claim is correct lies upon the
purchasing dealer claiming such ITC. Burden of proof
that ITC claim is correct is squarely upon the assessee
who has to discharge the said burden. Merely because
the dealer claiming such ITC claims that he is a bona fide
purchaser is not enough and sufficient. The burden of
proving the correctness of ITC remains upon the dealer
claiming such ITC. Such a burden of proof cannot get
shifted on the Revenue. Mere production of the invoices
or the payment made by cheques is not enough and
cannot be said to be discharging the burden of proof cast
under Section 70 of the KVAT Act, 2003. The dealer
claiming ITC has to prove beyond doubt the actual
transaction which can be proved by furnishing the name
and address of the selling dealer, details of the vehicle
which has delivered the goods, payment of freight
charges, acknowledgment of taking delivery of goods,
tax invoices and payment particulars, etc. The aforesaid
information would be in addition to tax invoices,
particulars of payment, etc.
16. In fact, if a dealer claims input tax credit on
purchases, such dealer/purchaser shall have to prove
and establish the actual physical movement of goods,
genuineness of transactions by furnishing the details
referred above and mere production of tax invoices
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would not be sufficient to claim ITC. In fact, the
genuineness of the transaction has to be proved as the
burden to prove the genuineness of transaction as per
Section 70 of the KVAT Act, 2003 would be upon the
purchasing dealer. At the cost of repetition, it is observed
and held that mere production of the invoices and/or
payment by cheque is not sufficient and cannot be said
to be proving the burden as per Section 70 of the 2003
Act.
17. Even considering the intent of Section 70 of the
2003 Act, it can be seen that ITC can be claimed only on
the genuine transactions of the sale and purchase and
even as per Section 70(2) if a dealer knowingly issues or
produces a false tax invoice, credit or debit note,
declaration, certificate or other document with a view to
support or make any claim that a transaction of sale or
purchase effected by him or any other dealer, is not
liable to be taxed, or liable to take at a lower rate, or
that a deduction of input tax is available, such a dealer is
liable to pay the penalty. Therefore, as observed
hereinabove, for claiming ITC, genuineness of the
transaction and actual physical movement of the goods
are the sine qua non and the aforesaid can be proved
only by furnishing the name and address of the selling
dealer, details of the vehicle which has delivered the
goods, payment of freight charges, acknowledgment of
taking delivery of goods, tax invoices and payment
particulars, etc. The purchasing dealers have to prove
the actual physical movement of the goods, alleged to
have been purchased from the respective dealers. If the
purchasing dealer(s) fail(s) to establish and prove the
said important aspect of physical movement of the goods
alleged to have been purchased by it/them from the
dealers concerned and on which ITC have been claimed,
the assessing officer is absolutely justified in rejecting
such ITC claim.
18. In the present case, the respective purchasing
dealer(s) has/have produced either the invoices or
payment by cheques to claim ITC. The assessing officer
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has doubted the genuineness of the transactions by
giving cogent reasons on the basis of the evidence and
material on record. In some of the cases, the registration
of the selling dealers have been cancelled or even the
sale by the dealers concerned has been disputed and/or
denied by the dealer concerned. In none of the cases,
the purchasing dealers concerned have produced any
further supporting material, such as, furnishing the name
and address of the selling dealer, details of the vehicle
which has delivered the goods, payment of freight
charges, acknowledgment of taking delivery of goods,
tax invoices and payment particulars, etc. and therefore
it can be said that the purchasing dealers concerned
failed to discharge the burden cast upon them under
Section 70 of the KVAT Act, 2003. At the cost of
repetition, it is observed and held that unless and until
the purchasing dealer discharges the burden cast under
Section 70 of the KVAT Act, 2003 and proves the
genuineness of the transaction/purchase and sale by
producing the aforesaid materials, such purchasing
dealer shall not be entitled to input tax credit.
19. Despite the findings of fact recorded by the
assessing officer on the genuineness of the transactions,
while refusing to allow ITC, which came to be confirmed
by the first appellate authority, the second appellate
authority as well as the High Court have upset the
concurrent findings given by the assessing officer as well
as the first appellate authority, on irrelevant
considerations that producing invoices or payments
through cheques are sufficient to claim ITC which, as
observed hereinabove, is erroneous. As observed
hereinabove, over and above the invoices and the
particulars of payment, the purchasing dealer has to
produce further material like the name and address of
the selling dealer, details of the vehicle which has
delivered the goods, payment of freight charges,
acknowledgment of taking delivery of goods including
actual physical movement of the goods, alleged to have
been purchased from the dealers concerned.
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STA No. 12 of 2022
AND 3 OTHERS
20. Now so far as the reliance placed upon Rules 27
and 29 of the Karnataka Value Added Tax Rules, 2005
and the submission on behalf of the purchasing dealers
that under the provisions of the 2005 Rules, more
particularly under Rules 27 and 29, the only requirement
is to issue the tax invoice and to produce the same and
there is no other requirement is concerned, the aforesaid
has no substance. Rule 27 cast an obligation on the
dealers to issue tax invoice and the particulars of the tax
invoice are provided under Rule 29. Merely because the
tax invoice as per Rules 27 and 29 might have been
produced, that by itself cannot be said to be proving the
actual physical movement of the goods, which is required
to be proved, as observed hereinabove. Producing the
invoices as per Rules 27 and 29 of the 2005 Rules can be
said to be proving one of the documents, but not all the
documents to discharge the burden to prove the
genuineness of the transactions as per Section 70 of the
KVAT Act, 2003.
21. Now so far as the reliance upon the decision of
the Delhi High Court in On Quest Merchandising India (P)
Ltd. v. State (NCT of Delhi) [On Quest Merchandising
India (P) Ltd. v. State (NCT of Delhi), 2017 SCC OnLine
Del 11286] , relied upon by the learned counsel
appearing on behalf of the purchasing dealers is
concerned, at the outset, it is required to be noted that
before the Delhi High Court, Section 9(2)(g) of the Delhi
Value Added Tax Act was under consideration, which
reads as under:
“ 9. (2)(g) to the dealers or class of dealers
unless the tax paid by the purchasing dealer has
actually been deposited by the selling dealer with
the Government or has been lawfully adjusted
against output tax liability and correctly reflected
in the return filed for the respective tax period.”
The burden of proof as per Section 70 of the KVAT
Act, 2003 was not an issue before the Delhi High
Court. How and when the burden of proof can be
said to have been discharged to prove the
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STA No. 12 of 2022
AND 3 OTHERS
genuineness of the transactions was not the issue
before the Delhi High Court. As observed
hereinabove, while claiming ITC as per Section 70
of the KVAT Act, 2003, the purchasing dealer has
to prove the genuineness of the transaction and
as per Section 70 of the KVAT Act, 2003, the
burden is upon the purchasing dealer to prove the
same while claiming ITC.
22. In view of the above and for the reasons stated
above and in absence of any further cogent material like
furnishing the name and address of the selling dealer,
details of the vehicle which has delivered the goods,
payment of freight charges, acknowledgment of taking
delivery of goods, tax invoices and payment particulars,
etc. and the actual physical movement of the goods by
producing the cogent materials, the assessing officer was
absolutely justified in denying ITC, which was confirmed
by the first appellate authority. Both, the second
appellate authority as well as the High Court have
materially erred in allowing ITC despite the purchasing
dealers concerned having failed to prove the genuineness
of the transactions and failed to discharge the burden of
proof as per Section 70 of the KVAT Act, 2003. The
impugned judgment(s) and order(s) passed by the High
Court [State of Karnataka v. Tallam Apparels, 2021 SCC
,
OnLine Kar 15785] [State of Karnataka v. Ecom Gill
Coffee Trading (P) Ltd., 2021 SCC OnLine Kar
,
15783] [CCT v. Rajshree Impex, 2021 SCC OnLine Kar
,
15784] [Transworld Star Manjushree v. CCT, 2021 SCC
OnLine Kar 15782] and the second appellate authority
allowing ITC are unsustainable and deserve to be
quashed and set aside and are hereby quashed and set
aside. The orders passed by the assessing officer denying
ITC to the purchasing dealers concerned, confirmed by
the first appellate authority are hereby restored.”
19.1.6 In the light of the above and the tests prescribed by the
Hon'ble Supreme Court for determining the eligibility of input
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STA No. 12 of 2022
AND 3 OTHERS
tax credit, this Court is of the view that the matter requires
reconsideration by the SMR Authority. It is pertinent to note
that the order passed by the SMR Authority is much prior to the
pronouncement of the judgment of the Hon'ble Supreme Court
in the case of Ecom Gill ( supra ). Since the Hon'ble Supreme
Court has indicated the various facets, procedures, and modes
of discharging the burden of proving the genuineness of the
transactions, the assessee also deserves an opportunity to
satisfy the said requirements.
19.1.7 However, it is made clear that, insofar as the validity of
the proceedings initiated by the SMR Authority under Section
64 is concerned, the same is within the parameters of the Act
and is sustainable. The order of remand is confined only to the
limited extent of affording an opportunity to the assessee and
requiring the SMR Authority to re-examine the matter in the
light of the principles laid down in Ecom Gill ( supra ).
19.1.8 Accordingly, the order dated 16.11.2022 passed under
Section 64 of the Act is set aside and the matter is remitted to
the SMR Authority for fresh adjudication in accordance with
law. Needless to observe that the assessee shall be at liberty to
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AND 3 OTHERS
produce such further evidence, documents, and books of
account as may be necessary to satisfy the tests laid down by
the Hon'ble Supreme Court in the case of Ecom Gill ( supra ).
19.2 In STA Nos.11 and 12/2022-List of dates are as
under:
Sl.
No.
Particulars Dates in
STA
No.11/2022
Dates in
STA
No.12/2022
14.06.2018 22.12.2017
1. Re-assessment order passed by the
AA which was sought to be revised
under Section 64(1) of the
Karnataka Value Added Tax, 2003.
2. Letter issued by the SMR Authority 12.11.2021 12.11.2021
calling for records.
3. Notice issued by the SMR Authority
under Section 64(1) of the KVAT Act.
24.01.2022 24.01.2022
4. Revision order passed by the SMR
Authority under Section 64(1) of the
KVAT Act.
29.06.2022 28.06.2022
19.2.1 In both the cases, the letter calling for the records by
the SMR Authority was issued within a period of four years from
the date of the order sought to be revised. The order passed by
the SMR Authority under Section 64(1) of the Act was also
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
passed within a period of five years from the date of the order
sought to be revised. Accordingly, the same are valid.
19.2.2 The Revisional Authority issued notice proposing
revision in respect of nine heads of expenditure. Except for four
issues, the remaining issues were dropped after considering the
explanation offered by the assessee. Insofar as the denial of
deduction towards security charges is concerned, the SMR
Authority held that security charges would not fall within the
scope of supply and labour and like charges eligible for
deduction under Rule 3(2) of the Karnataka Value Added Tax
Rules, 2005 ( for short ‘the Rules’).
19.2.3 It is contended by the learned counsel for the assessee
that security charges are in the nature of manpower supply and
would, therefore, fall within the ambit of supply of labour. It is
further contended that such expenditure is incurred in relation
to the execution of the works contract and ought to be treated
as labour and service charges for the purpose of deduction.
19.2.4 This Court finds merit in the contention urged by the
learned counsel for the assessee. Rule 3(2)(l) of the Karnataka
Value Added Tax Rules, 2005, reads as under:
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STA No. 12 of 2022
AND 3 OTHERS
“ 3. Determination of turnover.- (1) The total
turnover of a dealer, for the purposes of the Act, shall
be the aggregate of .-
xxxxx
(2) The taxable turnover shall be determined by
allowing the following deductions from the total
turnover.-
xxxxx
(l) All amounts actually expended towards labour
charges and other like charges not involving any
transfer of property in goods in connection with
the execution of works contract including charges
incurred for erection, installation, fixing, fitting out
or commissioning of the goods used in the
execution of a works contract.”
19.2.5 As per clause (l) of sub-Rule (2) to Rule 3 of the Rules,
all amounts actually expended towards labour charges and
other like charges not involving any transfer of property in
goods, in connection with the execution of a works contract,
are liable to be deducted from the total turnover for the
purpose of determining the taxable turnover. The expression
"other like charges" has to be read ejusdem generis with
"labour charges". Applying the principle of ejusdem generis , the
expression "other like charges" must be assigned the same or
similar meaning as that attributed to "labour charges". Labour
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STA No. 12 of 2022
AND 3 OTHERS
charges are nothing but charges incurred towards the
manpower employed in the execution of the work.
19.2.6 The security charges, undoubtedly being manpower
charges, and there being no dispute with regard to the
incurring of such expenditure in connection with the execution
of the works contract, would clearly fall within the ambit of
"other like charges". Hence, the finding recorded by the SMR
Authority in this regard is not sustainable.
19.2.7 Insofar as the denial of deduction towards
transportation charges is concerned, it is the case of the
assessee that such charges were incurred towards
transportation of capital goods, equipment, shuttering materials
and other materials from one project to another. Such
expenditure is not incurred towards the cost of the materials
incorporated in the works contract. Any expenditure incurred in
relation to goods, which does not involve transfer of property in
goods in connection with the execution of the works contract,
would be deductible from the total turnover under Rule 3(2) of
the Rules.
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
19.2.8 The other issue relates to the denial of deduction
towards fuel charges, which is governed by Explanation II to
Rule 3(2) of the Rules. The labour and other like charges would
include various expenses incurred, including the cost of
consumables used in the execution of the works contract, the
cost of establishment to the extent relatable to the supply of
labour and services, and other similar expenses relatable to the
supply of labour and services. Explanation II to Rule 3(2) of the
Karnataka Value Added Tax Rules, 2005, reads as under:
“Explanation – II: For the purpose of clause (l), “labour
and other like charges” include charges for obtaining, on
hire or otherwise, machinery and tools used in the
execution of a works contract, charges for planning,
designing and architects’ fees, cost of consumables used
in the execution of the works contract, cost of
establishment to the extent relatable to supply of labour
and services and other similar expenses relatable to
supply of labour and services.”
19.2.9 There is no dispute with regard to the incurring of these
expenses. Fuel expenses would have been incurred for various
activities in the course of execution of the works contract. In
view of Explanation II, the finding recorded by the SMR
Authority that such expenditure is not deductible under Rule
3(2) of the Rules is erroneous.
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
19.2.10 The last issue pertains to labour charges, which were
admittedly not claimed during the re-assessment proceedings.
The suo motu revisional jurisdiction can be invoked only when
the order passed by the Assessing Authority or the First
Appellate Authority is erroneous and prejudicial to the interests
of the Revenue. The proceedings under Section 64 of the Act
are not intended for the benefit of the assessee. Such
proceedings cannot result in reduction of the tax liability of the
assessee. Accordingly, it is held that the assessee is not
entitled to claim any additional expenditure in the course of
revisional proceedings under Section 64 of the Act.
19.2.11 Moreover, the orders subjected to revision is the re-
assessment orders dated 14.06.2018 and 22.12.2017. The
issues forming the subject matter of the revisional proceedings
were examined in detail by the Assessing Authority. The
assessee had furnished particulars of labour and other like
charges incurred under various heads and had also produced
copies of the relevant records. The assessee had further
produced evidence of actual payments made to such labourers
or labour contractors. Upon examination of the books of
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
accounts and other supporting documents, and by applying the
principles laid down by the Hon'ble Supreme Court in Gannon
Dunkerley and Co. v. State of Rajasthan , (1993) 88 STC
204 / (1993) 1 SCC 364 , the Assessing Authority allowed the
deductions.
19.2.12 Section 64 of the Act can be invoked only when the
order sought to be revised is both erroneous and prejudicial to
the interests of the Revenue. These are the twin conditions
required to be satisfied. The absence of either of these
conditions would invalidate the exercise of jurisdiction under
Section 64 of the Act. For an order to be regarded as
erroneous, the view taken by the Assessing Authority must be
impermissible in law. As a consequence of such erroneous view,
there should also be a loss of revenue so as to render the order
prejudicial to the interests of the Revenue. Mere loss of
revenue, by itself, is not a sufficient ground to invoke Section
64 of the Act.
19.2.13 Useful reference may be made to the judgment of the
Hon'ble Supreme Court in Malabar Industrial Co. Ltd. v.
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
CIT , (2000) 2 SCC 718 / (2000) 243 ITR 83, wherein, it is
held as under:
“5. To consider the first contention, it will be apt to
quote Section 263(1) which is relevant for our purpose:
“263. Revision of orders prejudicial to Revenue.—
(1) The Commissioner may call for and examine
the record of any proceeding under this Act, and
if he considers that any order passed therein by
the Assessing Officer is erroneous insofar as it is
prejudicial to the interests of the Revenue, he
may, after giving the assessee an opportunity of
being heard and after making or causing to be
made such inquiry as he deems necessary, pass
such order thereon as the circumstances of the
case justify, including an order enhancing or
modifying the assessment, or cancelling the
assessment and directing a fresh assessment.
Explanation.—” *
6. A bare reading of this provision makes it clear that the
prerequisite to exercise of jurisdiction by the
Commissioner suo motu under it, is that the order of the
Income Tax Officer is erroneous insofar as it is prejudicial
to the interests of the Revenue. The Commissioner has
to be satisfied of twin conditions, namely, (i) the order of
the Assessing Officer sought to be revised is erroneous;
and (ii) it is prejudicial to the interests of the Revenue. If
one of them is absent — if the order of the Income Tax
Officer is erroneous but is not prejudicial to the Revenue
or if it is not erroneous but is prejudicial to the Revenue
— recourse cannot be had to Section 263(1) of the Act.
7. There can be no doubt that the provision cannot be
invoked to correct each and every type of mistake or
error committed by the Assessing Officer; it is only when
an order is erroneous that the section will be attracted.
An incorrect assumption of facts or an incorrect
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
application of law will satisfy the requirement of the
order being erroneous. In the same category fall orders
passed without applying the principles of natural justice
or without application of mind.
8. The phrase “prejudicial to the interests of the
Revenue” is not an expression of art and is not defined in
the Act. Understood in its ordinary meaning it is of wide
import and is not confined to loss of tax. The High Court
of Calcutta in Dawjee Dadabhoy & Co. v. S.P.
Jain [(1957) 31 ITR 872 (Cal)] , the High Court of
Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422
(Kant)] , the High Court of Bombay in CIT v. Gabriel
India Ltd. [(1993) 203 ITR 108 (Bom)] and the High
Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215
ITR 81 (Guj)] treated loss of tax as prejudicial to the
interests of the Revenue.
9. Mr Abraham relied on the judgment of the Division
Bench of the High Court of Madras in Venkatakrishna
Rice Co. v. CIT [(1987) 163 ITR 129 (Mad)] interpreting
“prejudicial to the interests of the Revenue”. The High
Court held:
“In this context, (it must) be regarded as
involving a conception of acts or orders which
are subversive of the administration of revenue.
There must be some grievous error in the order
passed by the Income Tax Officer, which might
set a bad trend or pattern for similar
assessments, which on a broad reckoning, the
Commissioner might think to be prejudicial to
the interests of Revenue Administration.”
In our view this interpretation is too narrow to merit
acceptance. The scheme of the Act is to levy and collect
tax in accordance with the provisions of the Act and this
task is entrusted to the Revenue. If due to an erroneous
order of the Income Tax Officer, the Revenue is losing
tax lawfully payable by a person, it will certainly be
prejudicial to the interests of the Revenue.
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STA No. 12 of 2022
AND 3 OTHERS
10. The phrase “prejudicial to the interests of the
Revenue” has to be read in conjunction with an
erroneous order passed by the Assessing Officer. Every
loss of revenue as a consequence of an order of the
Assessing Officer cannot be treated as prejudicial to the
interests of the Revenue, for example, when an Income
Tax Officer adopted one of the courses permissible in law
and it has resulted in loss of revenue; or where two
views are possible and the Income Tax Officer has taken
one view with which the Commissioner does not agree, it
cannot be treated as an erroneous order prejudicial to
the interests of the Revenue unless the view taken by
the Income Tax Officer is unsustainable in law. It has
been held by this Court that where a sum not earned by
a person is assessed as income in his hands on his so
offering, the order passed by the Assessing Officer
accepting the same as such will be erroneous and
prejudicial to the interests of the Revenue.
(See Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84
(SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC
482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323] .)”
19.2.14 It is also a settled position of law that where the view
taken by the Assessing Authority is one of the possible views,
the mere existence of another possible view, or the fact that
the Revisional Authority holds a different view, would not justify
the exercise of suo motu revisional power.
19.2.15 In the present case, the Assessing Authority has
allowed the deductions in terms of Rule 3(2) of the Rules by
applying the principles laid down by the Hon'ble Supreme Court
in Gannon Dunkerley and Co. ( supra ). The Revisional
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STA No. 12 of 2022
AND 3 OTHERS
Authority has not recorded any finding as to the inapplicability
of the said judgment. In the light of the above, this Court is of
the considered opinion that the orders passed under Section 64
of the Act suffers from a jurisdictional error. The view taken by
the SMR Authority is merely a change of opinion, on which
ground the revisional power cannot be exercised.
19.2.16 Accordingly, we hold that the orders passed under
Section 64 of the Act suffers from jurisdictional error and is not
sustainable in law. Consequently, the same are liable to be set
aside.
19.3 In STA No.07/2025-List of dates are as under:
Sl.
No.
Particulars Dates
28.02.2015
1. Rectification order passed by the FAA that
merges with the order in original which is
sought to be revised under Section 64(1) of the
Karnataka Value Added Tax, 2003.
2. Letter issued by the SMR Authority calling for 11.01.2018
records.
3. Notice issued by the SMR Authority under 08.01.2020
Section 64(1) of the KVAT Act.
4. Revision order passed by the SMR Authority 30.04.2024
under Section 64(1) of the KVAT Act.
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
19.3.1 The order sought to be revised is dated 28.02.2015.
The letter calling for records by the SMR Authority is dated
11.01.2018, and the same is within a period of four years from
the date of the orders sought to be revised. However, the order
passed by the SMR Authority under Section 64(1) is dated
30.04.2024, which is much beyond a period of five years from
the date of the order sought to be revised. Therefore, the said
order is not sustainable, being barred by limitation.
19.4 In STA No.05/2025-List of dates are as under:
Sl.
No.
Particulars Dates
1. Appeal order passed by the FAA which was
sought to be revised under Section 64(1) of
the Karnataka Value Added Tax, 2003.
13.09.2019
2. Letter issued by the SMR Authority calling for 21.12.2019
records.
3. Notice issued by the SMR Authority under 08.05.2024
Section 64(1) of the KVAT Act.
4. Revision order passed by the SMR Authority
under Section 64(1) of the KVAT Act read
with Section 9(2) of the CST Act.
21.10.2024
19.4.1 The order sought to be revised is dated 13.09.2019.
The letter calling for records by the SMR Authority is dated
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AND 3 OTHERS
21.12.2019, and the same is within a period of four years from
the date of the orders sought to be revised. However, the order
passed by the SMR Authority under Section 64(1) of the Act is
beyond a period of five years from the date of the order sought
to be revised and is, therefore, clearly barred by limitation and
not sustainable on that ground.
19.5 In STA No.2/2025-List of dates are as under:
Sl. Particulars Dates
No.
1. Appeal order passed by the FAA which was
sought to be revised under Section 64(1)
of the Karnataka Value Added Tax, 2003.
29.09.2018
2. Letter issued by the SMR Authority calling 04.04.2019
for records.
3. Notice issued by the SMR Authority under 16.03.2024
Section 64(1) of the KVAT Act.
4. Revision order passed by the SMR
Authority under Section 64(1) of the KVAT
Act.
31.07.2024
19.5.1 The order sought to be revised is dated 29.09.2018.
The letter calling for records by the SMR Authority is dated
04.04.2019, which is within a period of four years from the
date of the orders sought to be revised. However, the order
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STA No. 12 of 2022
AND 3 OTHERS
dated 31.07.2024 passed by the SMR Authority under Section
64(1) of the Act is beyond a period of five years from the date
of the order sought to be revised and is, therefore, barred by
limitation. Consequently, the said order is not sustainable on
the ground of limitation.
20. For the reasons recorded and the discussion made
hereinabove, we proceed to pass the following:
ORDER
In STA No.03/2023
(i) The appeal is allowed in part .
(ii) The order of the SMR Authority dated
16.11.2022 is hereby set aside, and the
matter is remitted for fresh consideration in
the light of the observations made
hereinabove.
(iii) In view of the order of remand, the substantial
questions of law are left unanswered and kept
open.
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C/W STA No. 11 of 2022
STA No. 12 of 2022
AND 3 OTHERS
In STA No.11/2022
(i) The appeal is allowed .
(ii) The substantial question of law is answered in
favour of the assessee and against the
Revenue.
(iii) The order of the SMR Authority dated
29.06.2022 stands set aside.
In STA No.12/2022
(i) The appeal is allowed in part .
(ii) The first substantial question of law is
answered in favour of the assessee and
against the Revenue to the extent stated
hereinabove.
(iii) The second, third, and fourth substantial
questions of law are answered in favour of the
Revenue and against the assessee.
(iv) The order of the SMR Authority dated
28.06.2022 stands set aside to the extent
indicated above.
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STA No. 12 of 2022
AND 3 OTHERS
In STA Nos.02/2025 and 05/2025
(i) The appeals are allowed in part .
(ii) The fourth substantial question of law is
answered in favour of the assessee and
against the Revenue.
(iii) In view of the answer to the fourth substantial
question of law, the other substantial
questions of law do not arise for consideration.
(iv) The orders of the SMR Authority dated
21.10.2024 and 31.07.2024 stand set aside.
In STA No.07/2025
(i) The appeal is allowed in part .
(ii) In view of our finding that the order of the
SMR Authority dated 30.04.2024 is barred by
limitation, the same stands set aside.
Consequently, the admitted substantial
questions of law do not arise for consideration.
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AND 3 OTHERS
(iii) The order of the SMR Authority dated
30.04.2024 stands set aside.
Pending I.As’ if any, stand disposed of.
We place on record our appreciation for the able
assistance rendered by Sriyuths Sri Amaregouda Kellur,
Research Assistant, and Sri Harshith A., Law Intern.
Sd/-
(S.G.PANDIT)
JUDGE
Sd/-
(K. V. ARAVIND)
JUDGE
DDU