2025 (7) TMI 64 - HC - VAT / Sales Tax

Eligibility for benefits of Karasamadhana Scheme 2021 - Power to exercise jurisdiction under Section 64(1) of KVAT Act - issuance of notice subsequent to acceptance of application filed by the appellant-assessee under Karasamadhana Scheme 2021 - HELD THAT - Reassessment proceedings were initiated against the assessee-appellant by issuing notice under Section 39 of KVAT Act by the Prescribed Authority which culminated in order dated 15.03.2021 against which the assessee-appellant filed an appeal which was partly allowed and for the remaining grounds which were not allowed by the First Appellate Authority demand was raised along with interest and penalty. In the meanwhile Karasamadhana Scheme 2021 was introduced under notification dated 29.03.2021. The assessee-appellant filed application to avail the benefit under Karasamadhana Scheme 2021 well within the time prescribed under the scheme. It is also to be noted that the time to avail benefits of scheme was extended further in view of lockdown due to COVID-19. A dealer shall not be eligible to avail the benefits of Karasamadhana Scheme 2021 in terms of clause 5.7 of the scheme - In terms of the clause a dealer against whom any competent authority has initiated suo-motu revision proceedings as on the date of coming into force of Karasamadhana Scheme 2021 such a dealer would not be eligible to avail benefits of the said Scheme. In the case on hand the assessee-appellant submitted application under Karasamadhana Scheme 2021 to avail waiver of 100% arrears of interest and penalty well within the time i.e. 31.10.2021 - The above Clause 5.7 makes it clear that a dealer shall not be eligible to avail benefits of the Karasamadhana Scheme 2021 if suo-motu revision proceedings has already been initiated by the time the scheme was introduced. In the instant case no suo-motu revision was pending against the assessee-appellant as on the date of notifying the Karasamadhana Scheme 2021 but suo-motu revision was initiated much subsequent to accepting and passing order in favour of the assessee-appellant under Karasamadhana Scheme 2021. If the revisional authority is permitted to initiate proceedings under Section 64(1) of KVAT Act subsequent to granting benefit under Karasamadhana Scheme 2021 the very purpose and object of introducing Karasamadhana Scheme 2021 would be defeated. When the proceedings against the appellant-assessee for the period from April 2016 to March 2017 has culminated and attained finality under Karasamadhana Scheme 2021 by passing order dated 28.12.2021 it is unreasonable and arbitrary to invoke revisional power under Section 64 of KVAT Act - When the assessee pays the entire tax arrears seeking waiver of interest and penalty which is accepted cannot be deprived by initiating proceedings under Section 64 of KVAT Act. The issue is answered in favour of the assessee-appellant and against the respondent-revenue - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the revisional authority has valid jurisdiction under Section 64(1) of the Karnataka Value Added Tax Act, 2003 ("KVAT Act") to initiate suo-motu revision proceedings after the matter has reached finality under the Karasamadhana Scheme, 2021 ("KSS 2021");

(b) The validity of disallowing deductions claimed towards labour and like charges despite maintenance of Books of Account, and the correctness of allowing only the standard deduction of 30% as per Rule 3(2) of KVAT Rules, 2005;

(c) The validity of disallowing input tax credit claims due to non-submission of documentary evidence and imposing VAT at 14.5% with consequential interest and penalty;

(d) The validity of demanding refund amounts along with interest and penalty based on an allegedly invalid VAT-156 form filed by the tax consultant.

However, the Court primarily focused on the first issue concerning the jurisdiction of the revisional authority under Section 64(1) post-acceptance of the KSS 2021 application, as the other issues became moot upon resolution of this question.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of Revisional Authority under Section 64(1) of KVAT Act after Finality under Karasamadhana Scheme, 2021

Relevant Legal Framework and Precedents:

Section 64(1) of the KVAT Act empowers the revisional authority to call for and examine the records of any order passed by any subordinate authority and if the order is found to be erroneous and prejudicial to the interest of the revenue, the revisional authority may pass such order as it thinks fit. The Karasamadhana Scheme, 2021 was introduced via Government Order dated 29.03.2021 to provide relief by granting 100% waiver of arrears of interest and penalty on tax dues, subject to certain conditions.

Clause 5.7 of the KSS 2021 explicitly bars eligibility for the scheme if, inter alia, any competent authority has initiated suo-motu revision proceedings as on the date of the Government Order notifying the scheme. This clause aims to prevent reopening of finalized matters under the scheme.

Court's Interpretation and Reasoning:

The Court analyzed the timeline and facts: the appellant had undergone assessment and appeal proceedings culminating in an order dated 15.03.2021 and 24.08.2021 respectively. The appellant then filed an application under KSS 2021 within the prescribed period, which was accepted on 28.12.2021 granting waiver of interest and penalty. Subsequently, the revisional authority issued notice under Section 64(1) on 16.02.2024, initiating suo-motu revision proceedings.

The Court noted that as per Clause 5.7 of KSS 2021, a dealer is ineligible for benefits if suo-motu revision proceedings had been initiated as on the date of the scheme's notification (29.03.2021). In this case, no such revision proceedings were pending against the appellant at that time; the revision was initiated only after acceptance of the KSS application.

The Court held that allowing revision proceedings post-acceptance of the KSS application would defeat the very purpose and object of the scheme, which is to provide finality and relief by waiving interest and penalty upon payment of tax arrears. It emphasized that once the scheme benefits are granted and the tax arrears are paid, reopening the matter through revision would be unreasonable, arbitrary, and would render the scheme otiose.

Key Evidence and Findings:

- The appellant's application under KSS 2021 was filed within the prescribed time and accepted by order dated 28.12.2021.

- No suo-motu revision proceedings were pending against the appellant as on the date of the scheme's notification.

- The revisional notice under Section 64(1) was issued only after acceptance of the KSS application.

Application of Law to Facts:

The Court applied Clause 5.7 of KSS 2021 strictly, concluding that since no revision proceedings were pending at the time of the scheme's introduction, the appellant was eligible and rightly granted benefits under the scheme. The subsequent initiation of revision proceedings was held to be impermissible.

Treatment of Competing Arguments:

The revenue contended that the KSS 2021 did not bar revisional proceedings under Section 64(1) for orders that were erroneous and prejudicial to revenue. The Court rejected this argument, reasoning that the scheme's object of finality and relief would be frustrated if revision could be initiated after benefits were granted.

Conclusion:

The revisional authority lacked jurisdiction to initiate revision proceedings under Section 64(1) after the appellant had been granted benefits under KSS 2021. The impugned order setting aside the appellate order and restoring the reassessment was therefore set aside.

Issues 2, 3, and 4: Validity of Disallowance of Deductions, Input Tax Credit, and Refund Demand

Since the Court answered the jurisdictional question in favor of the appellant, it held that the other issues concerning disallowance of labour charges deduction, input tax credit, and refund demands did not survive for consideration. These issues were thus not examined on merits.

3. SIGNIFICANT HOLDINGS

"If the revisional authority is permitted to initiate proceedings under Section 64(1) of KVAT Act subsequent to granting benefit under Karasamadhana Scheme, 2021, the very purpose and object of introducing Karasamadhana Scheme, 2021 would be defeated."

"When once the assessee-appellant is granted benefit under Karasamadhana Scheme, 2021, the benefit granted cannot be taken away by initiating proceedings under Section 64 of KVAT Act, then introducing Karasamadhana Scheme, 2021 would be otiose and it would defeat the purpose for which Karasamadhana Scheme, 2021 is introduced."

"The substantial question of law No.1 is answered in favour of the assessee-appellant and against the respondent-revenue."

The Court established the principle that finality attained under a tax amnesty or settlement scheme, such as KSS 2021, cannot be disturbed by subsequent suo-motu revision proceedings under the relevant tax statute, provided no revision was pending at the time of the scheme's commencement.

Accordingly, the Court allowed the appeal, set aside the revisional order dated 25.11.2024, and restored the appellate order allowing the waiver of interest and penalty under KSS 2021.