Lanco Infratech Limited vs The Additional Commissioner of Commercial Taxes, Zone I and Others

B. Manohar, J.—In this appeal, the appellant is challenging the legality and correctness of the order dated 15-9-2010 made in No. ZAC-1/BCD/SMR/29/10-11 passed by the Additional Commissioner of Commercial Taxes, Bangalore u/s 64(1) of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ''the Act'' for short) setting aside the order passed by the First Appellate Authority. The appellant is a company incorporated under the Companies Act, 1956 and a dealer registered under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ''KVAT Act'') and also Central Sales Tax Act, 1956 (hereinafter referred to as ''the CST Act''). The appellant is engaged in the execution of works contracts for construction of buildings, roads and installation of Thermal Power Project at Nandikur Village of Udupi District.

The appellant''s office at Bangalore situated within the jurisdiction of Local VAT Officer 020. However, in the year 2007, appellant has shifted the Principal place of business from VAT Officer 020 to VAT Officer 055 with effect from 5-11-2007 and the same was communicated to the Competent Authorities in the prescribed Form VAT 3.

The case of the appellant is that they had taken the contract work of installation of Thermal Power Project at Nandikur Village, Udupi District. After completion of the project, they took up execution of project at Kondappalli, Ibrahimpatna at Vijayawada in Andhra Pradesh. The steel centering materials and other materials lying at the work place of Nandikur Village, Udupi District were required to be moved to the project site at Kondappalli. As per Rule 157 of Karnataka Value Added Tax Rules, 2005, the Delivery Note in Form VAT 505 are the documents prescribed to be carried by persons-in-charge of the goods vehicle for transportation. The available Form VAT 505 was made use for the purpose of transportation of steel centering work from the thermal power project, Nandikur to Kondappalli, 5 lorry loads of steel cribs were transported. The said vehicle was intercepted on 14-6-2009 by the Check-post Authorities at Nelamangala. The person in-charge of the goods produced the delivery notes in Form VAT 505. The Check-post Authorities did not accept the said delivery notes on the ground that Form VAT 505 are not electronically generated as per the notification dated 21-3-2009 issued by the Commissioner of Commercial Tax and thereby violated Section 157(2) of the Act. The person in-charge of the goods explained the circumstances under which, old Form VAT 505 were used. However, the Check-post Authorities did not accept the said delivery notes on the ground that they are not electronically generated and rejected the explanation offered by the appellant and passed an order dated 17-6-2009 levying penalty of Rs. 2,50,000/-.

The appellant being aggrieved by the order passed by the Check-post Authorities filed an appeal before the Joint Commissioner of Commercial Tax (Appeals-I), Bangalore and explained the circumstances under which, they were compelled to use old Form VAT 505. It is submitted that the project area is at the remote place of Nandikur Village and there was no internet access. In view of the urgency, the existing forms have been used. The goods transported were not for sale and it is only a stock transfer from Nandikur Village to Kondappalli, Andhra Pradesh. Hence, the said goods are not liable to be taxed. Further the notification issued by the Commissioner dated 21-3-2009 is not applicable to the appellant. The Appellate Authority, after considering the matter in detail, accepted the contention of the appellant by its order dated 19-9-2009 allowed the appeal and set aside the penalty order passed by the Check-post Authorities.

On review of the cases, the Additional Commissioner of Commercial Tax found that the order passed by the First Appellate Authority is erroneous in law and it is prejudicial to the interest of the revenue. Accordingly, the Additional Commissioner for Commercial Tax issued notice u/s 64(1) of the Act on 7-8-2010 for revision of the order passed by the First Appellate Authority. The appellant filed objections to the said proceedings and reiterated the contentions urged before the First Appellate Authority and also explained the circumstances under which, they could not use the electronically generated Form VAT 505 stating that the goods being transported were not for sale and it is only a stock transfer. No tax can be levied on the said goods and there is no revenue loss to the State Government. The Revisional Authority by its order dated 15-9-2010 allowed the revision petition and set aside the order passed by the First Appellate Authority and restored the order passed by the Check-post Authorities imposing penalty, on the ground that the action of the appellant is in infraction of law and violated Section 53(2)(b) read with Rule 157(1) of the Rules. Being aggrieved by the order dated 15-9-2010 passed by the Additional Commissioner of Commercial Tax, Zone-I u/s 64(1) of the KVAT Act.

Sri M. Thirumalesh, learned Counsel appearing for the appellant contended that the order passed by the Revisional Authority is contrary to law. The notification dated 21-3-2009 issued by the Commissioner of Commercial Taxes is not applicable since the appellant''s Principal Office is situated within the jurisdiction of LVO 055. The notification dated 21-3-2009 is applicable only insofar as the jurisdictions that fall within LVO 020, LVO 065 and LVO 075. This aspect of the matter is completely overlooked by the Revisional Authority. Further, the steel cribs (steel centering materials) are transported from one project place to another. It is only a stock transfer and the question of payment of tax does not arise. The State Government has not suffered any loss. The appellant''s project area is situated in the remote area of Nandikur Village and there is no access to internet facilities. The use name and password pertaining to Commercial Taxes Website cannot be shared to all staff members of the Company to avoid any misuse of the same. In view of that, the existing Form VAT 505 were used. The said forms were issued by the Commercial Tax officials themselves. Further the Commissioner has no power to issue a notification and he can only issue circular. The State Government alone is authorised to issue notification. The notification issued by the Commissioner is not Gazetted. Discontinuation of old forms is not within the knowledge of the appellant. Hence the imposition of penalty by the Check-post Authority is contrary to law. The First Appellate Authority on considering the entire aspect of the matter set aside the order passed by the Check-post Authorities. The reasons assigned by the Revisional Authority is erroneous in law and sought for setting aside the same. He relied upon the judgments in Time Tech India Private Limited, Bangalore v. State of Karnataka 2012(74) Kar. L.J. 419 (HC) (DB); Elbit Medical Diagnostics Limited, Bangalore v. The Additional Commissioner of Commercial Taxes (Appeals), Zone-1, Bangalore 2012(73) Kar. L.J. 423 (HC) (DB); N. Subramanya v. Commissioner of Commercial Taxes in Karnataka, Bangalore 1997(43) Kar. L.J. 390 (HC) (DB) and Shyam Textiles (P.) Ltd. and another Vs. Commissioner of Commercial Tax, Karnataka, Bangalore, , to substantiate his contention.

On the other hand, Sri T.K Vedamurthy, learned Counsel appearing for the respondent argued in support of the order passed by the Revisional Authority and contended that the action of the appellant is in violation of the notification dated 21-3-2009 and thereby violated Section 57(2) of the Act and said violation attracts penalty u/s 53(12) of the Act. However, he submits that lesser penalty has been imposed by the authority. There is no infirmity or irregularity in the order passed by the Revisional Authority and sought for dismissal of the appeal.

We have carefully considered the arguments addressed by the learned Counsel for the parties and perused the orders impugned and provisions of law.

Upon hearing the learned Counsel for the parties, the only question that arise for our consideration in this appeal is:

Whether the Revisional authority is justified in setting aside the order passed by the First Appellate Authority and also invoking Section 64(1) of the Act is sustainable?

The records clearly disclose that 5 goods vehicles of M/s. Ashoka Road Lines were carrying steel cribs (centering material) from the Thermal Power Project Area, Nandikur Village, Udupi Taluk to the project site of the appellant situated at Kondappalli, Ibrahimpattnam, Vijayawada District in Andhra Pradesh. The said vehicles were intercepted by the Check-post Authorities at Nelamangala. The person in-charge of the goods vehicles tendered the document for verification of the Check-post Authorities. The Check-post Authorities found that they are not the valid documents for moving goods in view of the notification dated 21-3-2009 issued by the Commissioner of Commercial Taxes. The Check-post Authorities held that the dealers borne on the file of the office/LVOs notified in the above notification shall surrender unused Form VAT 505 delivery notes on or before 15-4-2009 and they should use Form VAT 505 delivery notes which should be obtained electronically for the movement of goods. Pursuant to the notice issued by the Check-post Authorities, the authorised representative filed objections and explained the circumstances under which, he was forced to use the Form VAT 505 for transportation of goods from Nandikur Village, Udupi District to Kondapalli of Andhra Pradesh. The Check-post Authorities did not accept the explanation offered and imposed penalty. The Appellate Authority set aside the said order of imposing penalty on an appeal filed by the appellant on the ground that the goods transported are not the taxable goods and imposition of penalty is contrary to law. However, the Revisional Authority felt that the order passed by the Appellate Authority is erroneous and prejudicial to the interest of the Revenue and issued notice. The explanation offered as to under what circumstances the appellant used Form VAT 505 was not accepted and set aside the order passed by the Appellate Authority and restored the order passed by the Check-post Authorities.

Originally, the place of business of the appellant was situated under LVO 020. However, in the year 2007, the appellant shifted the principal place of business to Kalyananagar, which comes under LVO 055. The notification dated 21-3-2009 issued by the Commissioner of Commercial Taxes is applicable only to those persons whose principal place of business is situated under LVO 020, LVO 065 and LVO 075 and the said notification is not applicable to the appellant. Apart from that, after completion of the project of installation of thermal power project at Nandikur Village, Udupi District, the appellant wanted to shift the centering materials to its New Project Area at Kondapalli, Vijayawada District, Andhra Pradesh where he has undertaken some project work. The goods under transportation were not for sale and it is only stock transfer for the project work. The materials transported are not salable goods. No tax can be levied on the said materials. Invoking Section 64(1) by the Additional Commissioner on the ground that the order passed by the Appellate Authority is erroneous and prejudicial to the interest of the Revenue is not correct and the question of collecting tax on the said goods does not arise. It is only a stock transfer from one project area to another. In the case of inter-State stock transfer, the question of payment of tax does not arise. The reasons assigned by the appellant for using the old forms was issued by the Tax Authorities cannot be doubted, since Nandikur Village is a remote area where there is no access to internet. Further, User name and password pertaining to the Commercial Tax Department Website cannot be shared to all the staff members of the Company to avoid any misuse of the same. Though the notification was issued on 21-3-2009, new forms were released only in the month of May 2009. In view of urgency, the appellant has used the old forms, which were issued by the Commercial Tax Department. Further there is no question of payment of tax involved in the said transaction. No mala fide intention could be attributed on the part of the appellant in carrying Form VAT 505 obtained by the Department and the Electronically generated forms were introduced subsequently, which was not within the knowledge of the appellant. Since, the principal office has already been shifted from LVO 020 to LVO 055, the notification issued by the Commissioner of Commercial Taxes dated 21-3-2009 is not applicable to the appellant. The action of the appellant has not affected the revenue of the State Government. Hence, invoking the revisional power u/s 64(1) on the ground that the order passed by the Appellate Authority is prejudicial to the interest of the Revenue is totally incorrect. The appellant has transported the goods with valid document as required u/s 53(2)(b) of the Act. When such being the case, the question of imposing penalty u/s 57(12) of the Act does not arise. There is no breach of any statutory duty. Further, the Commissioner can only issue circular and he has no power to issue notification under the Act. All the notifications had to be issued by the State Government and it has to be Gazetted. In the instant case, the notification dated 21-3-2009 is not Gazetted. Hence it cannot be treated as mandatory. The Revisional Authority without considering the objections raised by the appellant, only under the impression that there is Revenue loss to the State Government had set aside the order passed by the Appellate Authority which is contrary to law. In the judgment relied upon by Sri Thirumalesh in Time Tech India Private Limited''s case, this Court has clearly held as follows: 3. The provisions of Section 53 of the KVAT Act, applies to a transfer of goods intra-State i.e., from place to place in the State. In the instant case. It is not disputed by the respondent that it is a inter-State transport and the assessee had produced sufficient material to show that the transport was genuine transport from branch to branch. The contention that there was no delivery note, the assessee should suffer penalty, appears to be untenable contention. The check-post is almost on the border of the Karnataka State boundary. There was no possibility to divert the goods inter-State. The goods were accompanied by the authenticated documents. It is evident from the material that it is a inter-State movement and branch to branch transfer in which event the question of liability u/s 53 of the KVAT Act does not arise. Section 53 of the KVAT Act applies when there is movement of goods within the State itself. When it is a inter-State transport, the provisions of Section 53 of the KVAT Act do not apply. Therefore, the order of the Appellate Authority is sound and proper. The order passed in revision is set aside.

We find that the appellant has not violated any of the provisions of KVAT Act. The goods has been transported from one project area to another situated outside the State and the same is not for sale. Hence, the question of payment of tax does not arise. Imposition of the penalty u/s 53(12) of the KVAT Act is contrary to the provisions of the Act. Hence, the order passed by the Revisional Authority cannot be sustained. Accordingly we pass the following: ORDER

The appeal is allowed. The order dated 15-9-2009 by the Additional Commissioner of Commercial Taxes u/s 64(1) of the KVAT Act is set aside". The order passed by the First Appellate Authority is restored.