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2016 (7) TMI 218 - KARNATAKA HIGH COURT

2016 (7) TMI 218 - KARNATAKA HIGH COURT - [2016] 94 VST 186 (Kar) - Validity of re-assessment - Cancellation of registration certificate - Demand of VAT @12.5% rejecting the benefit of composition scheme - rate of tax on paving bricks/blocks - 4% or 12.5% - distinction between bricks and paving bricks/ blocks - whether the nature of activity is works contract or not - Section 15 r/w Rule 137 of Rule 15 of the Karnataka Value Added Tax Act, 2003 (KVAT) - Held that:- although the KVAT Act or Rules .....

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ssued under Rule 145 of the Rules, by the concerned officer for cancellation of certificate nor it is even the case of the appellant-revenue that the certificate has been cancelled and notice was given in Form VAT-11. - Under these circumstances, if the certificate is not cancelled and order of reassessment has been made, in our view, the same would run counter to the scheme of composition of tax as provided and conceived under Section 15 read with and the relevant Rules referred to above. - .....

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shed the order passed by the first respondent - authority and issued further directions. 2. The brief facts of the case are that in the year 2006, respondent applied for composition of tax under Section 15 r/w Rule 137 of Rule 15 of the Karnataka Value Added Tax Act, 2003 [hereinafter, referred to as "the KVAT Act"]. The said application was processed and ultimately, on 20/12/2006, certificate came to be issued and a copy of the said certificate is at Annexure "A", produced i .....

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eded to pass the order whereby, the reassessment was made and the tax was assessed. The respondent herein challenged the said decision of the reassessment by the first respondent by filing writ petitions before this Court. Learned Single Judge found that as per the due payment made by the petitioner in W.P.Nos.13172-73/2010, paving bricks are included in Entry-2 of Schedule-III and the liability to pay tax would be at the rate of 4% only and not 12.5% and therefore, the order for re-assessment i .....

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nnected matters decided on 23/03/2016, paving bricks/blocks are not included in Entry-2 of Schedule-III and therefore, the liability to pay tax will be at the rate of 12.5% and not 4% as held by learned Single Judge. It has been submitted that in the present order of reassessment, the tax was proposed to be recovered at 12.5% and hence, the order of the learned Single Judge deserves to be set aside and the reassessment already made by the first appellant be maintained. 5. Whereas, learned counse .....

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ility of composition of tax had also issued certificate on 20/12/2006. As per learned counsel for respondent, unless and until the said certificate is cancelled, there was no question of reassessment to be made de hors the composition scheme. She also submitted that even if such certificate was to be cancelled, the opportunity of hearing was required to be given specifically on the aspect as to why the certificate should not be cancelled but no such notice has been given nor any opportunity what .....

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f the certificate any reassessment can be made or not. In the circumstances, she submitted that ultimate decision taken by the learned Single Judge for cancellation of the reassessment order may not be interfered with. 6. As such, if we consider the reasons recorded by the learned Single Judge, it appears that the learned Single Judge was guided by his own decision dated 17/01/2011 in W.P. Nos. 13172-73/2010 and since he found that the duty leviable was 4% on the paving bricks/blocks and not 12. .....

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. 8. However, in our view, the matter does not end there. There is substance in the contention raised by the learned counsel appearing for respondent that unless and until the certificate regarding composition of tax has been cancelled, whether reassessment could be made by the authority or not. 9. In order to appreciate the contention, we may consider the relevant statutory provision and the Rules. Section 15 of the KVAT Act provides for composition of tax. As we are concerned in the present ma .....

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ment which shall not exceed fifty lakh rupees, and who is not a dealer falling under clause (b) or (c) or (d) below; (b) who is a dealer executing works contracts; or (c) who is a hotelier, restaurateur, caterer or dealer running a sweetmeat stall or an ice cream parlour or bakery or any other class of dealers as may be notified by the Government; or (d) who is a mechanised crushing unit producing [granite or any other metals; may elect to pay in lieu of the net amount of tax payable by him unde .....

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erer or any other class of dealers as may be notified by the Government or mechanized crushing unit producing granite or any other metals, the option is available to such dealer to elect to pay in lieu of the net amount of tax payable on the basis of 5% of his total turnover or total consideration of the works contract. As in the present case, the other contingencies for the eligibility are not to be considered, they need not be discussed, but in the present case, the status claimed by the respo .....

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onsiders that the Form VAT 1 submitted under Rule 136 is incorrect or incomplete or the dealer is ineligible for any other reason, after giving him the opportunity of showing cause in writing against rejection, issue a notice in Form VAT 9 informing the dealer that the Form VAT 1 is rejected and, where appropriate, demand any tax due; (2) if he is satisfied that the Form VAT 1 submitted under Rule 136 is correct and complete and within the time prescribed, issue a certificate in Form VAT 8 to th .....

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icate has been issued and therefore, it would presuppose that the VAT Officer at the relevant point of time when the certificate was issued was satisfied about the correct and complete details submitted in the form under Rule 136. 10. Rule 145 of the Rules, which is relevant for the present case reads as under:- "145. Cancellation of certificate.-The jurisdictional Local VAT officer or VAT sub- officer shall, on receipt of a final return filed by the dealer under Rule 143 and in the case of .....

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ate would result into civil consequence on the taxable liability on the assessee because as per Section 15 of the Rules, the composition offered to the assessee at the rate of 5% on the turnover or total consideration is in lieu of all taxes. The moment the cancellation of the certificate is made, the consequence may arise for filing of regular return and payment of tax as per the respective entries of the schedule. Further, it may also attract the question of reassessment if the assessment is a .....

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er/assessee, the certificate may be cancelled, if such a case is made out. It is only thereafter, the intimation may be required to be given to the dealer in Form VAT-11. 11. We are inclined to read the observance of principles of natural justice into Rule 145 of the Rules as it is by now well-settled that if any order which would result in a civil consequence, is to be passed by any authority, such power has to be exercised by observance of principles of natural justice vide State of Orissa v. .....

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of the principles of natural justice is null and void even in administrative matters vide A.K. Kraipak v. Union of India AIR 1970 SC 150. Any violation of the principles of natural justice results in arbitrary exercise of power and therefore would be an infraction of Art.14 of the Constitution. It has been held in Union of India v. Tulsi Ram Patel AIR 1985 SC 1416 that violation of rule of natural justice results in arbitrariness which is the same as discrimination and where discrimination is t .....

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cessary to read the said principles into the statute so as to bring it in conformity with Art.14 of the Constitution. Where the non-observence of natural justice results in civil consequences, it would per se cause in prejudice. In K.I. Shephard v. Union of India AIR 1988 SC 618, the Hon'ble Supreme Court has elucidated to the effect that natural justice now requires that persons liable to be directly affected by proposed administrative acts, decisions or proceedings be given adequate notice .....

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of the Act, we are of the view that the principles of natural justice have to be read as part and parcel of Rule 145 of the Rules which deals with cancellation of certificate. 14. If the facts of the present case are further examined, it is not the case of the appellant - revenue that at any point of time, notice was issued under Rule 145 of the Rules, by the concerned officer for cancellation of certificate nor it is even the case of the appellant - revenue that the certificate has been cancel .....

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the certificate is cancelled, the power may be available to the VAT Officer, to assess or reassess the liability to pay tax. In absence of cancellation, he will have power limited only to verify as to whether composition of tax as per the scheme of the Act has been paid or not. It need not be stated that in a case of composition of tax, the liability to pay tax as per respective entry for the respective schedule is not to be considered since it is in lieu of the same composition of tax is to be .....

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