M/S S.R.S. Rig Services vs The Addl. Commissioner Of
2022 Latest Caselaw 151 Kant

         IN THE HIGH COURT OF KARNATAKA,
                  DHARWAD BENCH

       DATED THIS THE 05TH DAY OF JANUARY 2022

                      PRESENT

        THE HON'BLE MR. JUSTICE S.G. PANDIT

                        AND

 THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE

               STA No.100001 OF 2016

BETWEEN:

M/S. S.R. S RIG SERVICES
ROOM NO.1, SHANTA DURGA LODGE,
HIREKERUR, DIST:HAVERI,
REP. BY ITS PROPRIETOR,
K. VIJAYABHASKAR, AGE:47 YEARS,
R/O OPP BUS STAND, HIREKERUR.
                                         ...APPELLANT
(BY SRI. MAHESH WODEYAR, ADVOCATE)

AND

1.    THE ADDL. COMMISSIONER OF COMMERCIAL TAXES
      ZONE-2, 6TH FLOOR, VTK-1,
      GANDHINAGAR, BANGALORE.

2.    THE JOINT COMMISSIONER OF COMMERCIAL TAXES
      (APPEALS), DHARWAD DIVISION, HUBBALLI.

3.   THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES
     (ENFORCEMENT), HUBBALLI.
                                     ...RESPONDENTS
(BY SRI.SHIVAPRABHU S HIREMATH, AGA)
                              2



     THIS APPEAL IS FILED UNDER SECTION 66(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003, PRAYING THIS
HON'BLE COURT TO SET-ASIDE THE IMPUGNED REVISION
ORDER DATED 20.2.2016 PASSED BY THE ADDL.
COMMISSIONER    OF    COMMERCIAL   TAXES,   ZONE-II,
GANDHINAGAR, BENGALURU(RESPONDENT No.1) IN FILE
NO.ADCOM/ZONE-2/DWD/SMR/CR-03/2015-16           VIDE
ANNEXURE-F.

     THIS APPEAL COMING ON FOR FINAL HEARING, THIS
DAY, ANANT RAMANATH HEGDE J., DELIVERED THE
FOLLOWING:

                       JUDGMENT

Invoking Section 66(1) of Karnataka Value Added

Tax Act, 2003 (for short, 'KVAT Act'), the appellant is

assailing the correctness of the order dated 20.02.2016

passed by the Addl. Commissioner of Commercial Taxes,

Zone-II, Bengaluru in appeal No.AP/VT-1 03/2015-16. In

the said proceedings, the Addl. Commissioner of

Commercial Taxes/first respondent, in exercise of powers

conferred under Section 64(1) of the KVAT Act has set-

aside the order dated 25.6.2013, passed by the Joint

Commissioner of Commercial Taxes (Appeals), Dharwad

Division/second respondent, wherein second respondent

has allowed the appeal filed by the present appellant, in

exercise of powers conferred under Section 62(6) of the

KVAT Act.

2. Some facts which are necessary for

adjudication of the present appeal can be summarized as

under:

The appellant is running its business as rig service

provider in Hirekerur since April 2012. The appellant is

registered under the KVAT Act. On 29.6.2012, third

respondent-Deputy Commissioner of Commercial Taxes

has inspected the business premises of the appellant and

the appellant was instructed to produce the books of

accounts pertaining to its business.

3. Later, third respondent has issued notice dated

16.2.2013, under Section 38(5) of the KVAT Act. In terms

of the said notice, third respondent has sought explanation

on alleged 'suppressed sales turn over' by the appellant.

The basis for the first respondent to issue the notice

relating to suppressed sales turnover is the sales ledger

account of a dealer by name M/s. Rajalakshmi Sales

Corporation, Ranebennur. The notice demanded as to why

tax should not be imposed on sale of goods alleged to have

been supplied to the appellant by said M/s. Rajalakshmi

Sales Corporation in the year 2009-10, 2010-11, and

2011-12.

4. The appellant vide its letter dated 22.2.2013

has replied to the notice dated 16.2.2013, and denied the

liability. The appellant has also requested the third

respondent to furnish all the documents including alleged

sales tax ledger of M/s. Rajalakshmi Sales Corporation

relied upon by the first respondent.

5. Third respondent vide order dated 2.3.2013,

determined the tax liability at Rs.4,97,242/- for the

financial years 2009-10, 2010-11 and 2011-12. This

protective assessment order of third respondent was called

in question by filing an appeal before the second

respondent and the same was decided in favour of the

present appellant. Consequently, the order dated

02.03.2013 passed by the third respondent was set-aside.

6. By exercising the revisional jurisdiction, the

first respondent allowed the revision and in terms of the

impugned order dated 20.2.2016 has set-aside the order

of the Appellate Authority/second respondent.

Consequently, the order of first respondent is restored.

Hence, the present appeal.

7. Heard the learned counsel for the appellant

and the respondents-Revenue.

8. This appeal was admitted on 7.9.2016 and

following substantial questions of law were framed for

consideration:

a) Whether in the facts and circumstances of the case and in law, the prescribed Authority was justified in relying upon the third party ledger accounts i.e. Rajalaxmi Sales Corporation without complying with the principles of natural justice and fastening tax liability on the appellant?

b) Whether the revisional Authority was justified in reversing the order passed by the Appellate Authority?

9. Sri. Mahesh Wodeyar, learned counsel for the

appellant would contend that the entire demand made by

first respondent is based on ledger accounts alleged to

have been maintained by M/s. Rajalakshmi Sales

Corporation, which is a third party. The said ledger

extracts are not the documents maintained by the

appellant. It is further urged that appellant is not having

any sort of business transaction with said M/s Rajalakshmi

Sales Corporation. It is further contention of the appellant

that despite specific request made in writing, in terms of

reply dated 22.2.2013, to furnish all the necessary

documents including ledger statements alleged to have

been maintained by M/s. Rajalakshmi Sales Corporation,

first respondent has not furnished the materials. This

according to the appellant has caused serious prejudice to

the defence of the appellant. It is further contended that

the liability is fastened on the appellant on the basis of

documents, without affording an opportunity to verify the

correctness of the said documents.

10. Learned counsel for the appellant in support of

his contentions, by placing reliance on the judgment of the

Hon'ble Apex Court reported in SCC (1977) 2 777,

(State of Kerala Vs. A.T. Shaduli Grocery Dealer),

would urge that the appellant is entitled to an opportunity

of hearing and also entitled to cross-examine the

authorized person from M/s. Rajalakshmi Sales

Corporation, on the documents relied on by the first

respondent which are said to be the ledger accounts of

M/s. Rajalakshmi Sales Corporation. Since the documents

were not furnished to the appellant, despite the specific

request made in this behalf, the appellant could not

effectively defend the case. And on this ground, the

learned counsel for the appellant would urge for remand of

the matter for fresh consideration, by setting aside the

impugned order.

11. Learned counsel for the respondents-Revenue

defending the impugned order would urge that, the

appellant has given inconsistent statement in his reply.

From the said statements it can be inferred that the

appellant has suppressed the sales. It is also urged that

the appellant has not made any demand for supply of

ledger statements. The learned counsel would also urge

that the tax liability imposed is on the basis of credible

materials and has prayed for dismissal of the appeal.

12. We have perused the records and considered

the contentions raised at Bar.

13. From the reading of the order dated 2.3.2013,

wherein the reply dated 22.2.2013, submitted by the

appellant is extracted, it is apparent that the appellant has

made a request to furnish all the requisite documents to

the appellant before imposing any tax liability. Admittedly,

first respondent has not furnished any documents to the

appellant. Admittedly, the demand is based on the third

party ledger account and not based on the documents

maintained by the appellant. When this order of third

respondent imposing tax liability was questioned before

second respondent-Appellate Authority, the order of first

respondent was set-aside on the premise that protective

assessment order dated 2.3.2013 by first respondent is

unsustainable and accordingly, the appeal was allowed.

14. The revisional authority, in terms of the

impugned order, by setting aside the order of the appellate

authority, has restored the protective assessment order

dated 2.3.2013. From reading of the impugned order, it is

apparent that first respondent has primarily based its

order on the basis of the ledger statements of M/s.

Rajalakshmi Sales Corporation, Ranebennur. However, it is

forthcoming from the records that M/s. Rajalakshmi Sales

Corporation is a third party and not a dealer or agent of

the appellant. According to the appellant, it has no

business transaction with the said M/s. Rajalakshmi Sales

Corporation. Under these circumstances, omission on the

part of third respondent in not furnishing to the appellant,

the ledger extracts of M/s. Rajalakshmi Sales Corporation

relied upon by the third respondent, before imposing tax

liability, vitiates the entire proceeding before the first

respondent.

15. The Hon'ble Apex Court in the case of K.T.

Shaduli Grocery Dealer (supra) has held as under;

The short question that fell for determination before the High Court was, whether under the provisions of the Act the opportunity of being heard which was to be given to the assessees, would include within its sweep the right of cross-examination of a third party whose accounts were the basis of the best judgment assessments made by the Sales Tax Officer and the examination of which later on showed that the returns filed by the assessees were incorrect and incomplete. The High Court, on a consideration of s. 17(3) and the Rules made under the Act came to the conclusion that the assessees were entitled to a fair hearing and the opportunity of being heard could not be said to be complete unless in the circumstances of these cases the assessees were allowed to cross-examine Haji P.K. Usmankutty and other wholesale dealers

on whose accounts reliance was placed by the Sales Tax Authorities.

16. In the present case we find that the third

respondent has not furnished the requisite materials to the

appellant to defend its case. Not furnishing the documents

on the basis of which the tax liability is imposed is a

serious error committed by the first respondent which goes

to the root of the matter. The first respondent was under

legal obligation to furnish all the documents on the basis of

which the demand was made for payment of tax. The

omission on the part of first respondent to comply this

requirement of law resulted in violation of principles of

natural justice.

17. Thus, for the reasons assigned above, we

deem it appropriate to set-aside the impugned order and

to remand the matter to third respondent to consider the

matter afresh, in accordance with law, after furnishing to

the appellant all the documents on which the third

respondent would place reliance. It is made it clear that we

have not expressed anything on the merits of the matter.

18. Hence, the following:

ORDER

a) The appeal is allowed in part.

b) The order dated 20.2.2016 passed by

first respondent marked at Annexure-D is

set-aside.

c) The matter is remitted back to third

respondent to decide the matter afresh

in accordance with law, by furnishing all

the documents relied upon by the third

respondent including the ledger

statements of M/s. Rajalakshmi Sales

Corporation, Ranebennuru, which the

third respondent is relying and after

affording an opportunity of hearing to

the appellant.

d) Amount in deposit before this Court be

transmitted to third respondent-Deputy

Commissioner and further order on the

said deposit shall be made pursuant to

the decision to be arrived at by the third

respondent.

e) No order as to costs.

SD JUDGE

SD JUDGE

JTR