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2019 (12) TMI 7 - KARNATAKA HIGH COURTCancellation of registration of compensation scheme with retrospective effect - Karnataka VAT Act - Rule 137[2] of the KVAT Rules read with Section 15 of the Act - validity of notice impugned dated 9.2.2004 issued by the respondent No.4 to initiate reassessment proceedings for the tax periods April 2012 to March 2013 - time limitation. HELD THAT:- The order of cancellation is based on the inspection report dated 30.5.2015 forwarded to the Divisional VAT officer, D.V.Road, Mangalore, to take action to cancel the composition registration scheme granted under Section 15 (1) (c) of the Act. During the course of inspection on verification of the books of accounts relating to the business activities of the dealer, it was found that the petitioner is engaged in sale of Indian Made Foreign Liquor (IMFL) along with articles of food which is a condition prohibited for grant of composition under sub rule(4) of Rule 135 of the Rules. The order impugned does not traverse beyond this inspection report. The petitioner has not collected tax on his sales during the period of the operation of the composition scheme and has not claimed the input tax credit. Cancellation of the composition scheme retrospectively creates additional tax liability where the dealer has not collected the tax while opting for composition under Section 15 of the Act, otherwise the dealer was entitled to collect tax if the liability to pay tax was under Sections 3 and 4 of the Act. It is well settled that the retrospective withdrawal or cancellation of the registration certificate will have no effect upon the assessee who has acted upon it when it was valid and operative - In the present case, it is not in dispute that the petitioner had acted on the composition registration certificate issued by the competent authority and it had carried on its business on the basis of the said certificate. Thus it will be harsh for the respondents to assess the petitioner under the VAT regular scheme and demand the payment of tax even for that period for which the petitioner had carried on his business under the composition scheme. Cancellation of the composition certificate with retrospective effect would damage the business activity of the dealer with cascading effect denying the input tax credits which would have been claimed by the petitioner collecting the taxes on his sales for which maintaining of regular books of accounts would be necessary - Since the cancellation of composition registration certificate with retrospective effect cannot be approved, the re-assessment notice dated 09.02.2018 at Annexure-A2 deserves to be quashed. Petition allowed.
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