M/S Lal Construction Co vs The State Of Karnataka
2021 Latest Caselaw 1582 Kant

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 18TH DAY OF FEBRUARY, 2021

                       PRESENT

         THE HON'BLE MR.JUSTICE ALOK ARADHE

                          AND

   THE HON'BLE MR.JUSTICE NATARAJ RANGASWAMY

                 S.T.A. NO.10 OF 2016
BETWEEN:

M/S LAL CONSTRUCTION CO.,
REPRESENTED BY ITS PARTNER
SRI. GOPAL V. TOLANI,
AGED ABOUT 73 YEARS,
"JAINIVAS", NO.1/4, SHANTHI ROAD,
SHANTHINAGAR,
BANGALORE-560027.                     ..APPELLANT
(BY SRI. M.N.SHANKARE GOWDA, ADVOCATE)

AND:

THE STATE OF KARNATAKA
THROUGH THE COMMISSIONER OF
COMMERCIAL TAXES,
VANIJYA THERIGE KARYALAYA,
1ST MAIN ROAD, GANDHINAGAR,
BENGALURU-560009.                     ...RESPONDENT
(BY SRI. JEEVAN J. NEERALGI, ADDITIONAL GOVERNMENT
ADVOCATE)

      THIS STA IS FILED UNDER SECTION 66(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
ORDER DATED 30.11.2015 PASSED IN ZAC-1/BNG/KVAT/SMR-
12-A/2015-16 T.NO.365/2015-16 ON THE FILE OF THE ADDL.
COMMISSIONER     OF    COMMERCIAL     TAXES,   ZONE-1,
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BENGALURU, SETTING ASIDE THE 06(1) THE SMR ORDER
PASSED BY THE JOINT COMMISSIONER OF COMMERCIAL
TAXES, (ADMN), DVO-1, BENGALURU DATED 16.11.2012 VIDE
NO.JCCT(ADMN)-1/SMR.CR-28/09-10   STANDS    THE    TAX
PERIODS APRIL 2007 TO MARCH-2008. DIRECTING THE
PRESCRIBED AUTHORITY TO RE-COMPUTE THE TAXABLE
CONTRACT RECEIPTS AFTER DIS-ALLOWING TOTAL TDS OF
RS.23,40,187/- AND WORK OUT 23,40,187/- FOR EACH
CALENDAR MONTH SEPARATELY AND TO LEVY TAX AT
APPROPRIATE RATE AS WELL AS APPLICABLE PENALTY AND
INTEREST UNDER SECTION 36 AND 72(2) OF KAVAT ACT, 2003
AFTER EXAMINING THE APPLICABILITY OF PENALTY AND
INTEREST AFTER FOLLOWING DUE PROCEDURE AS PER LAW
AND SHALL ISSUE REVISED DEMAND NOTICE ACCORDINGLY.

    THIS S.T.A COMING ON FOR HEARING THIS DAY, ALOK
ARADHE, J., DELIVERED THE FOLLOWING:

                          JUDGMENT

Mr.M.N.Shankare Gowda, learned counsel for the

appellant.

Mr.Jeevan J. Neeralgi, learned counsel for the

respondent.

This appeal under Section 66(1) of the Karnataka

Value Added Tax Act, 2003 (hereinafter referred to as 'the

Act' for short) has been filed by the appellant against the

order passed by the Additional Commissioner of

Commercial Taxes dated 30.11.2015 under Section 64(1)

of the Act.

2. The subject matter of the appeal pertains to

the assessment period April 2007 to March 2008. The

appeal was admitted by a Bench of this Court vide order

dated 17.03.2016 on the following substantial questions of

law.

"1. On the facts and in the circumstances of the case whether the Additional Commissioner of Commercial Taxes, Zone-I, Bengaluru is right in holding that the TDS deducted does not constitute exemption turnover in the absence of such provision in the Act and Rules?

2. On the facts and in the circumstances of the case whether the tax deducted at source is not entitled to be deducted at the hands of the appellant while computing the tax payable, under the provisions of the Section 9-A of the KVAT Act and Rule 3(2)(h) of KVAT Rules?

3. On the facts and in the circumstances of the case whether the Additional Commissioner of Commercial Taxes, Zone-I, Bengaluru is right in revising the order of the Joint Commissioner of Commercial Taxes (admn.), DVO-I, dated 16.11.2012 even though the order was not suffering from any error which was prejudicial to the interest of the revenue?"

3. Facts leading to filing of this appeal briefly

stated are that the appellant is a registered dealer under

the provisions of the Act. The appellant is a partnership

firm which carries on the activity of execution of works

contract exclusively for Ministry of Defence. During the

assessment period in question, the appellant was awarded

a works contract by the Ministry of Defence. The assessee

filed the return for the assessment period 2007-08. The

Deputy Commissioner, Commercial Taxes vide order dated

22.07.2008 passed an order of re-assessment, wherein he

allowed the deduction of the value added tax amount

deducted at source to the tune of Rs.23,40,187/- by a

contractee at the time of arriving at the taxable turn over.

Thereafter, the Joint Commissioner of Commercial Taxes

initiated the revision petition under Section 63-A of the Act

for the assessment period 2007-08, proposing to revise

the re-assessment order passed by the Commissioner of

Commercial Taxes. The assessee filed a reply to the notice

on 10.08.2010 and thereafter, the Revisional Authority

passed an order under Section 63-A of the Act dated

16.11.2012, by which the revisional proceedings in relation

to deduction of tax at source to the extent of

Rs.22,40,187/- were dropped.

4. However, the aforesaid order was taken up in

suo motu revisional proceedings by the Additional

Commissioner of Commercial Taxes and the Additional

Commissioner by an order dated 30.11.2015 passed under

Section 64(1) of the Act, set-aside the order dated

16.11.2002 passed by the Joint Commissioner of

Commercial Taxes and directed the authority to compute a

taxable contract receipts after disallowing total TDS at

Rs.23,40,187/- to levy the tax at an appropriate rate as

well as applicable penalty with interest under Sections 36

and 72(2) of the Act. In the aforesaid factual background,

this appeal has been filed by the appellant.

5. Learned counsel for the appellant submitted

that the order passed by the Second Revisional Authority

ie., the Additional Commissioner of Commercial Taxes for

the assessment period 2007-08 is erroneous, illegal and

have no authority in law to review the order of the Joint

Commissioner of Commercial Taxes. It is further submitted

that the findings recorded by the Assistant Commissioner

of Commercial Taxes that the Assessing Officer has

wrongly allowed exemption on the above TDS amount

from taxable turnover even though such receipts are

deducted by the Tax Deducting Authority, in the R.A. bill is

contrary to the provision of the Act. It is further submitted

that the amount collected by way of TDS cannot form part

of the total turn over. In support of the aforesaid

submission, learned counsel for the appellant has invited

the attention of this Court to Rule 3(2)(h) of the Karnataka

Value Added Rules, 2005 (hereinafter referred to as 'the

Rules' for short).

6. On the other hand, learned Additional

Government Advocate has referred to the provision of

Section 2(43), 2(35) and 2(36) of the Act which defines

the expressions 'taxable turn over', 'total turn over' and

'turn over' respectively. It is also submitted that the

provision of Section 3(2)(h) of the Rules do not have

application in the factual situation of the case. Learned

Additional Government Advocate has further submitted

that the TDS is collected on the total contractual receipts

and not on the profits. Therefore, the same cannot be

deducted from the total turn over.

7. We have considered the submission made on

both sides and perused the record. Before proceeding

further, it is apposite to take note of the relevant extract of

Rule 3(2) and (h) of the Rules which provides for amounts

which have to be deducted from the total turn over. Rules

3(2) and (h) of the Rules reads as under:

"3. Determination of turnover.

          (1) xxxx

           (2)     The taxable turnover shall be

determined by allowing the following deductions from the total turnover.-

xxxx

(h) All amounts collected by way of tax under the Act"

8. Thus, from perusal of the aforesaid Rules, it is

evident that all the amounts collected by way of tax under

the Act shall be deducted from the total turn over.

9. In the instant case, the TDS has been collected

from the appellant under the provisions of the Act.

Therefore, the amount of TDS to the extent of

Rs.23,40,187/- cannot be allowed to be added in the total

turn over and the revisional authority has rightly dropped

the proceedings in respect of the deduction of tax on the

aforesaid amount. However, the aforesaid aspect of the

matter has not been appreciated by the Additional

Commissioner of Commercial Taxes and it has been

erroneously held that the amount of total TDS deducted

cannot form part of the exempted turn over in the absence

of such provisions of the Act and Rule.

10. It is pertinent to note that while recording the

aforesaid finding, the Assistant Commissioner of

Commercial Taxes failed to appreciate Rule 2(h) of the

Rules. Therefore, in view of the preceding analysis, the

substantial questions of law involved in this appeal are

answered in favour of the appellant and against the

respondent.

11. In the result, the order dated 30.11.2015

passed by the Additional Commissioner of Commercial

Taxes for the assessment period 2007-08 is hereby

quashed.

In the result, the appeal is allowed.

Sd/-

JUDGE

Sd/-

JUDGE

GH