M/S Bangalore Club vs The State Of Karnataka
2022 Latest Caselaw 5141 Kant

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 22ND DAY OF MARCH, 2022

                         PRESENT

          THE HON'BLE MRS.JUSTICE S.SUJATHA

                            AND

THE HON'BLE MR. JUSTICE SHIVASHANKAR AMARANNAVAR

                     L.T.R.P.No.1/2021

BETWEEN :

M/s BANGALORE CLUB
NO.10, FIELD MARSHAL,
CARIYAPPA ROAD,
BENGALURU-560025                              ...PETITIONER

          (BY SRI R.V.PRASAD, SENIOR COUNSEL A/W
           SRI SURENDRAN THUMBOOCHETTY, ADV.)

AND :

1.      THE STATE OF KARNATAKA
        THROUGH THE COMMISSIONER OF
        COMMERCIAL TAXES,
        VANIJYA THERIGE KARYALAYA,
        1ST MAIN ROAD, GANDHINAGAR,
        BENGALURU-560009

2.      THE JOINT COMMISSIONER
        OF COMMERCIAL TAXES (APPEALS)-1
        SHANTHINAGAR, BENGALURU-560 027

3.      THE ASSISTANT COMMISSIONER OF
        COMMERCIAL TAXES (LUXURY TAX)-1
        YESHWANTH PURA,
        BENGALURU 560 022                  ...RESPONDENTS

              (BY SRI JEEVAN J. NEERALGI, AGA.)
                            -2-




      THIS LTRP IS FILED UNDER SECTION 11 - A OF THE
KARNATAKA TAX ON LUXURIES ACT, 1979, AGAINST THE
ORDER DATED 13.07.2020 PASSED IN STA No.650/2017 TO STA
No.659/2017 ON THE FILE OF THE KARNATAKA APPELLATE
TRIBUNAL AT BANGALORE, DISMISSING THE APPEALS AND
UPHOLDING     THE    ORDER     PASSED    BY   THE    JOINT
COMMISSIONER OF COMMERICAL TAXES (APPEALS)-1,
BENGALURU (HEREIN AFTER REFERRED TO AS FAA) ON
27.09.2017 IN KLT.AP.Nos.4 TO 8/2013-14, PARTLY ALLOWING
THE APPEAL MODIFYING THE QUANTUM OF PENALTY LEVIED
AND UPHOLDING ASSESSMENT ORDERS AND INTEREST
LEVIED BY THE ASSISTANT COMMISSIONER OF COMMERCIAL
TAXES (LUXURY TAX)-1, BENGALURU (HEREIN AFTER
REFERRED TO AS AA) FOR THE ASSESSMENT YEARS 2003-
2004, 2004-2005, 2005-2006, 2006-2007 AND 2007-2008.

      THIS PETITION COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., MADE THE FOLLOWING:

                       ORDER

This revision petition is filed by the assessee

under Section 11-A of the Karnataka Tax on Luxuries

Act, 1979 ('Act' for short) challenging the order dated

13.7.2020 passed by the Karnataka Appellate Tribunal

at Bengaluru ('Tribunal' for short) in STA Nos.650 to

659/2017 relating to the assessment years 2003-04 to

2007-08.

2. The revision petition has been admitted by

this Court to consider the following questions of law;

1) Whether on the facts and in the circumstances of the case, was the appellate tribunal justified in law, in dismissing the appeals filed by the petitioner and holding that the limitation prescribed in Section 7-A of the Act could not be applied to an assessment passed under Section 6(3) of the Act?

2) Whether on the facts and in the circumstances of the case, was the appellate tribunal was justified in holding that the provisions pertaining to re-assessment cannot be applied to an assessment when computing the period of limitation especially when the word "assessment" would take into its connotation a "re-assessment" in the comprehensive sense?

3. The petitioner is a Members Club providing

various facilities to its members and is registered under

the provisions of the Act. Assessments were concluded

for the assessment years in questions under

Section 6(3) of the Act vide orders dated 28.2.2014.

Orders were passed imposing penalty and interest

under Sections 7 and 5-A(2-A) of the Act. Being

aggrieved, the assessee had preferred appeals before the

first appellate authority, who confirmed the orders of

the assessing authority insofar as tax and interest is

concerned, modified the penalty levied under Section 7

of the Act equal to the tax by the assessing authority to

Rs.14,11,500/- for each of the assessment year. On

further appeals before the Tribunal, the appeals came to

be dismissed. Hence, this revision petition.

4. Learned Senior Counsel appearing for the

appellant - assessee submitted that the assessment

order passed on 28.2.2014 for the assessment years in

question is wholly barred by limitation. Learned Senior

Counsel argued that though Section 6(3) of the Act did

not prescribe the period of limitation, the period of

limitation prescribed for passing an order of re-

assessment under Section 7-A of the Act i.e., five years

after the expiry of the year to which the tax relates

should be adopted in respect of an assessment under

Section 6(3) of the Act; the Tribunal grossly erred in

holding that the period of limitation prescribed in

Section 7-A of the Act cannot be read into Section 6(3)

of the Act.

5. Learned Senior counsel placing reliance on

the judgment of the Hon'ble Apex Court in the case of

Bharat Steel Tubes Ltd., and anr., v. State of

Haryana and anr., reported in 1988 (70) STC 122

submitted that in the absence of any prescribed period

of limitation, the assessment has to be completed within

a reasonable period. The period prescribed under

Section 7-A of the Act would be the reasonable period.

Learned Senior Counsel submitted that Section 7-A of

the Act cannot be construed as the provision for re-

assessment. The language employed in the said Section

denotes 'escaped assessment to tax' and 'proceed to

assess to the best of his judgment' not to re-assess.

Thus, it was argued that the word 'assessment' should

be taken in common parlance and therefore, re-

assessment would come within the ambit of the

expression assessment. The process of re-assessment

has the same purpose as an assessment. Thus, sought

for allowing the appeal answering the questions of law

in favour of the assessee.

6. Learned Additional Government Advocate

appearing for the revenue justifying the impugned order

submitted that Section 6(3) of the Act empowers the

authority to assess in the event of failure to furnish a

return in respect of any period within the prescribed

period. No period of limitation being prescribed by the

legislature for making assessment under Section 6(3) of

the Act, the assessment concluded on 28.2.2014 is not

barred by limitation. Learned Additional Government

Advocate argued that the intelligence wing has

inspected the assessee's premises and had submitted

the records; at the time of inspection conducted on

17.5.2007, on noticing that no tax liability was

discharged as required under law, a detailed notice

under Section 13(1)(b) of the Act was issued and served

on the assessee. In response to the said notice, the

assessee - club has filed its objections. However, the

assessee had discharged the tax liability. The

intelligence report dated 24.4.2008 was forwarded to the

assessing officer with the covering letter dated

29.12.2012. The assessing officer, thereafter issued the

proposition notice dated 12.2.2014 and final

assessment orders were passed on 28.2.2014.

7. Learned counsel submitted that during the

relevant period, levy of tax under Section 3-D of the Act

was under litigation. The Division Bench has rendered

the judgment in the case of Commissioner of

Commercial Taxes, Gandhinagar, Bangalore and

ors., v. Hennur-Banaswadi Cosmopolitan Club,

Bangalore, reported in (2011) 42 VST 99 (Karn), on

January 19, 2011, allowing the writ appeals filed by the

department setting aside the interpretation placed by

the learned Single Judge insofar as Section 3-D of the

Act is concerned. Section 6(3) cannot be equated to

Section 7-A of the Act. Hence, the limitation, if any,

prescribed under Section 7-A, that cannot be imported

to Section 6(3) of the Act. The authorities as well as the

Tribunal have rightly decided the issue placing reliance

on the judgment of the Hon'ble Apex Court in the case

of Commissioner of Sales Tax, M.P v. Filter Co,

reported in (1997) 107 STC 210. Accordingly, prayed

to dismiss the revision petition filed by the assessee

answering the questions of law in favour of the revenue.

8. We have given our anxious consideration to

the arguments advanced by the learned counsel

appearing for the parties and perused the material on

record.

9. Section 6(3) of the Act reads thus;

"6. Assessment and collection of tax.-

(1) xxx (3) If a proprietor liable to pay tax under this Act fails to furnish a return in respect of any period within the period specified in sub-section (1) of section 5, the Luxury Tax Officer shall, after giving the proprietor a reasonable opportunity of being heard, assess to the best of his judgment, the amount of tax if any, due from him."

10. Section 7-A of the Act reads thus;

"7A. Assessment of escaped tax.- (1) Where for any reason the whole or any part of the charges for lodging, charges for luxuries provided in a hotel for residents or others, charges for luxuries provided in a marriage hall [or charges for luxuries provided in a hospital or charges for luxuries provided in a club has escaped assessment to tax or has been assessed at a lower rate than

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the rate at which it is assessable, the Luxury Tax Officer may, at any time within a period of five years from the expiry of the year to which the tax relates, proceed to assess to the best of his judgement the tax payable on such charges after issuing a notice to the proprietor and after making such enquiry as he considers necessary.

2) In making an assessment under sub-

section (1) the Luxury Tax Officer may, if he is satisfied that the tax escaped from assessment is due to willful non-disclosure of the charges for lodging by the proprietor, after giving a reasonable opportunity of showing cause, direct the proprietor to pay, in addition to the tax assessed under sub-section (1), a penalty not exceeding one and a half times the tax so assessed."

11. The undisputed facts are, inspection was

conducted by the enforcement wing on 17.5.2007; taxes

were paid by the assessee on 22.5.2007, 30.7.2007,

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1.10.2007 and 21.2.2008; proposition notice was

issued by the assessing officer on 12.2.2014;

assessment orders were passed under Section 6(3) of

the Act on 28.2.2014; there was no deferment order or

stay order passed by the Courts to conclude the

assessments. The constitutional validity of Section 3-D

of the Act which provides for levy and collection of tax

on luxury provided in a Club to the members who are

required to pay any amount as fee, deposit, donation or

any other such charges by whatever name called, was

challenged by some institutions/clubs. The learned

Single Judge vide order dated August 20, 2008, has

upheld the constitutional validity, however interpreted

the levy under Section 3-D, to be on the basis of

utilization of the facilities by the members of the Club.

Being aggrieved by the said interpretation, the revenue

has preferred writ appeals insofar as the learned Single

Judge holding that Section 3-D does not stipulate any

levy on mere existence of the facility and the tax is

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leviable only on the member who utilizes the facility

available in the Club. The said appeals were disposed of

by the Division Bench on January 19, 2011 allowing the

writ appeals filed by the State setting aside the

interpretation placed by the learned Single Judge

insofar as Section 3-D is concerned. Consequently, all

the assessment orders passed by the authorities were

restored, however the orders imposing liability prior to

March 1, 2003 were set aside, if no assessment orders

were passed as on the date of passing of the order,

liberty was reserved to the authorities to issue

proposition notices and to pass assessment orders in

accordance with law.

12. A bare reading of Section 6(3) of the Act

makes it clear that no period of limitation is prescribed

for assessment in cases of the assessee failing to furnish

a return in respect of any period within the period

specified in sub-section (1) of Section 5. The

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explanation offered by the revenue for invoking Section

6(3) of the Act by issuing the proposition notice on

12.2.2014 is, that the intelligence report dated

24.4.2008 was received in the office of the assessing

officer on 29.12.2012. This inter se delay in the office of

the Commercial Taxes would not be a ground to

consider the assessments concluded on 28.2.2014 as

reasonable.

13. As per the law enunciated by the Hon'ble

Apex Court in the case of Bharat Steel Tubes Ltd.,

supra, even in the absence of any prescribed period of

limitation, the assessment has to be completed within a

reasonable period. What such reasonable period would

be, would depend upon facts of each case. One view

can be that it should be a period not exceeding five

years as the legislature has fixed the limitation of five

years for completing assessments in case of escaped

turnover. Unless there be an assessment made soon

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after the period to which such assessment relates, the

question of consideration of escapement would indeed

become difficult to consider and examine. The Hon'ble

Apex Court having regard to the return filed by the

assessee along with the payment of admitted tax held

that no prejudice to the assessee will be caused if the

assessing authority is permitted to complete the

assessment even at that stage. If no assessment is

made, the assessee may claim refund of taxes in the

absence of an assessment. Accordingly, directed the

assessing authority to complete all the pending

assessments within four months on the basis of the

available material.

14. In the case of Filter Co. supra, the Hon'ble

Apex Court while examining the assessments concluded

under Section 19 of the Madhya Pradesh General Sales

Tax Act, 1958, has observed that the said provision

would apply only if an assessment has already been

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made and there has been under assessment or escaped

assessment therein. The relevant portion of said

Section 19 reads thus;

"Where an assessment has been made under this Act or any Act repealed by Section 52 and if for any reason any sale or purchase of goods chargeable to tax under this Act or any Act repealed by Section 52 during any period has been under assessed or has escaped assessment or assessed at a lower rate or any deduction has been wrongly made therefrom, the Commissioner may, at any time within five calendar years from the date of order of assessment, after giving the dealer a reasonable opportunity of being heard and after making such enquiry as he considers necessary, proceed in such manner as may be prescribed to reassess...."

15. The said provision i.e., Section 19 itself had

made it very clear that, where an assessment has been

made under the said Act or any Act repealed by Section

52 and if for any reason any sale or purchase of goods

chargeable to tax during any period has been under

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assessed or has escaped assessment or assessed at a

lower rate, re-assessment could be done. In that

scenario, it was held that in a case where there has

been no assessment, for the assessment years in

question, the provisions of Section 19 do not apply and

cannot be invoked. With great respect, in our

considered view, the said judgment would be of no

assistance to the revenue.

16. In the light of Bharat Steel Tubes Ltd.,

Supra, it emanates that the assessment has to be

concluded within a reasonable period albeit the

provision does not spell out the period of limitation. In

the given circumstances, as narrated herein above, the

assessing officer sleeping over the matter after collecting

the taxes, pursuant to the inspection conducted on

17.05.2007 and issuing the proposition notice on

12.2.2014 for the assessment years in question i.e.,

2003-04 to 2007-08, is unreasonable As observed by

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the Hon'ble Apex Court, if no assessment is made, an

anomalous situation might arise, it might give raise to a

claim of refund in the absence of an assessment,

whereby the principles of unjust enrichment may

attract. Hence, in our considered view it would be

appropriate to confirm the assessment orders only as

far as levy of taxes are concerned. Any reference made

to the matters pending before this Court challenging the

vires of Section 3-D of the Act would not come to the

assistance of both the parties since the assessee was

not a party to the proceedings before this Court and

taxes were collected in the year 2007-2008. There being

lapse on the part of the assessing officer in invoking

Section 6(3) of the Act well within a reasonable period,

atleast, within a period of five years from the expiry of

the year to which the tax relates as per Section 7-A of the Act

dealing with the assessment of escaped tax, conclusion of

the original assessment beyond the period specified for

assessment of escaped tax under Section 7-A of the

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Act would ex-facie prove that the said assessment was

not further amenable to re-assessment, which appears

to be not the intention of the legislature. Hence, we

answer the questions of law in favour of the assessee

and against the revenue subject to non refund of taxes

paid.

17. For the reasons aforesaid, revision petition is

allowed in part. The orders passed by the assessing

officer relating to interest and penalty are set aside.

However, having regard to the peculiar facts and

circumstances of the case as narrated above, the

assessee shall not be entitled for refund of the taxes

paid in pursuance to the inspection conducted on

17.5.2007. If the amount is recovered by the revenue

towards interest and penalty, the same shall be

refunded to the assessee within ninety days from the

date of receipt of the order. Thereafter, Section 12 of

the Act would apply. At this juncture, learned Senior

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Counsel seeks for refund of the amount with interest

but the same is rejected.

Sd/-

JUDGE

Sd/-

JUDGE

nd