2010 (9) TMI 961 - HC - VAT and Sales Tax

Rejection of belatedly filed revised returns - writ in the nature of declaration declaring that time-limit of six months provided in section 35(4) of the Karnataka Value Added Tax Act 2003 for filing the revised returns is directory Held that - Respondent No. 1 ought not to have passed the impugned order in defiance of the Commissioner s circular. There is not even a cursory reference to the circular. The order thus suffers from the non-consideration of the relevant material. Not entertaining the revised returns for the month of February and March 2006 even they were filed within the prescribed period of limitation reflective of the non-application of mind on the part of respondent No. 1. Thus quash the impugned reassessment order and the consequential demand notice. The matter is remanded to the first respondent for considering the petitioner s revised returns in keeping with the Commissioner s circular dated July 7 2008. It is made clear that no opinion whatsoever is expressed on the petitioner s tax liability. These petitions are allowed to the extent indicated hereinabove

Summary

Issues Involved:
1. Rejection of belatedly filed revised returns.
2. Interpretation of the six-month time limit in Section 35(4) of the Karnataka Value Added Tax Act, 2003.
3. Validity and binding nature of the Commissioner's circular dated July 7, 2008.
4. Non-application of mind by the respondent in rejecting revised returns within the prescribed period.
5. Maintainability of writ petitions alongside an appeal.

Detailed Analysis:

1. Rejection of Belatedly Filed Revised Returns:
The petitioner's grievance centers on the rejection of its belatedly filed revised returns and the reassessment order dated April 24, 2010. The petitioner argued that the original returns contained omissions due to the transition from the Karnataka Sales Tax Act to the VAT Act. The revised returns filed on August 19, 2006, involved additional tax payments and not refunds.

2. Interpretation of the Six-Month Time Limit in Section 35(4) of the VAT Act:
The petitioner sought a declaration that the six-month time limit for filing revised returns under Section 35(4) of the VAT Act is directory, not mandatory. The petitioner's counsel argued that the machinery provisions should be construed liberally and referred to Rule 39 of the VAT Rules, which allows correction of incomplete or incorrect returns without a prescribed limitation period.

3. Validity and Binding Nature of the Commissioner's Circular:
The petitioner relied heavily on the Commissioner's circular dated July 7, 2008, which directed the acceptance of revised returns indicating additional tax liability, even if filed beyond six months. The petitioner argued that the circular, issued under Section 59(1) of the VAT Act, is binding on the Department. The counsel cited the Supreme Court's judgment in Commissioner of Sales Tax, U.P. v. Indra Industries and the Kerala High Court decision in Commissioner of Income-tax v. Aspinwall and Co. Ltd., asserting that such circulars have the force of law and can mitigate the rigour of statutory provisions.

4. Non-Application of Mind by the Respondent:
The petitioner highlighted that the respondent rejected revised returns for some months within the prescribed period, indicating non-application of mind. The respondent's counsel acknowledged this error and undertook to rectify it for the months of February and March 2006.

5. Maintainability of Writ Petitions Alongside an Appeal:
The respondent's counsel argued against the maintainability of the writ petitions, citing the petitioner's simultaneous appeal before the appellate authority. However, the petitioner's counsel clarified that the writ petitions focused on the non-acceptance of revised returns due to delay, distinct from the grounds in the appeal.

Judgment:
The court held that the Commissioner's circular is binding on the Department and not in contravention of any statutory provision. The circular aimed to address the transitional issues from the KST Act to the VAT Act and promote voluntary compliance. The respondent's rejection of revised returns without considering the circular was unjustified. The reassessment order and the consequential demand notice were quashed. The matter was remanded to the respondent to consider the revised returns per the Commissioner's circular. The petitioner's counsel undertook to withdraw the appeals against the reassessment orders. The petitions were allowed to the extent indicated, with no order as to costs.