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Judgment
Subhash B. Adi, J.—The petitioners in these writ petitions have called in question the orders dated December 23, 2009 and January 4, 2010 produced at annexures D and E passed by the respondent. Annexure D is a notice calling upon the petitioners to pay an amount of tax assessed at Rs. 40,94,743 together with penalty at Rs. 8,18,148 and interest of Rs. 22,52,108 in all Rs. 71,64,999 failing which the said amount would be recovered u/s 42(9) of the Karnataka Value Added Tax Act, 2003 (for short, "the Act"). Annexure E is another demand notice issued under the same provisions calling upon the petitioners to pay Rs. 44,40,994 inclusive of penalty and interest. The case of the petitioner is that, it is a private company engaged in manufacture of components for earthmoving equipments. The petitioner purchases raw materials, i.e., iron in Belur village, Dharwad District, then it is processed at the factory of the petitioner and sends the same to its own factory at Goa for further processing. After manufacturing the finished product is sold to the customers in Karnataka. In this regard, under the provisions of the Act, the tax is paid in terms of section 11(a)(5). However, the respondent visited the premises of the petitioner on November 17, 2009 and subsequently the petitioner received a notice dated December 7, 2009 u/s 39(1) of the Act alleging that the petitioner was evading payment of tax under the Act as the petitioner is not entitled to avail of input-tax credit on the value of the goods sent outside the State as a result of stock transfer out of the purchases effected from the registered dealers within Karnataka. It is stated that for the period between 2005-06 to 2008-09 tax of Rs. 21,97,806 was imposed and a notice was issued as per annexure A for which the petitioners had given reply as per annexure B. The petitioner had alleged that the Commissioner of the Commercial Tax has not authorised the officer to re-assess the tax u/s 39 of the Act. In this regard, the petitioner had called upon the Commissioner of Commercial Taxes to give certain clarifications. The Commissioner had issued clarification dated June 9, 2006 which is produced at annexure C for which the petitioners had sent another reply dated December 22, 2009. Thereafter the impugned demands were passed.
Amongst other contentions, Sri Raghavan, learned senior counsel for the petitioner, submitted that, the respondent-officer has no authorisation as required u/s 39(1) read with rule 46 of the Rules made thereunder. Reassessment could be bestowed only with the authorisation from the Commissioner. Thus, the respondent lacks the jurisdiction of authority under the law to make reassessment of the tax. He further submitted that, the object behind granting authorisation is to prevent the element of bias and submitted that, when the Commissioner has not authorised the respondent, the reassessment done by the respondent is per se is in violation of the provisions of section 39 read with rule 46 of the Rules. He further submitted that the petitioners are the assessees and they have paid the tax in consonance with the assessment orders. It is on the allegation that the petitioners have evaded the tax, reassessment is done and the reassessment is done not by the authorised officer.
In support of his submission, he relied on a judgment of this court in the case of R.C. India Vs. State of Karnataka, in STA Nos. 61, 62 and 63 of 2009 dated October 27, 2009 and submitted that in similar circumstances this court has observed at para 16 which reads as under (page 499 in 29 VST) :
An authorisation in favour of an officer by the Commissioner in terms of section 38(7) of the Act for the purpose of passing the best judgment assessment order on the persons who is carrying on the business without getting himself registered as a dealer should be precise and for the specific purpose and can and should only be passed by the Commissioner himself but what is placed before the court is some proposal by the Deputy Commissioner and agreement approval of the Commissioner and that too, for the purpose of carrying on audit in respect of the appellant-dealer for the period April 1, 2005 onwards.
To say the least, the records which are placed before the court are only inadequate to establish there was compliance with the requirements of the statutory provisions of sub-section (7) of section 38 and what surprises us is that such records are sought to be placed before the court as though it is one such record which can pass the test of statutory provisions quoted above.
The order passed by the assessing authority cannot be supported in law in the instant case for the reason that the officer was not competent to pass the same.
He further referred to the provisions of section 38(7) of the Act and submitted that the provisions of section 39(1) are identical and submitted that the whole exercise of reassessment by the respondent is one without authority of law.
On the contrary, Sri Dinesh Rao, learned Government Advocate for the respondent, submitted that, reassessment has been done strictly in consonance with section 39 of the Act read with rule 46 of the Rules and a person who has re-assessed the tax is an authorised officer. In support of his contention, he further relied on exhibit R1 a print copy of the e-mail sent by the Commissioner showing assignment of the case to various persons and submitted that this e-mail can be opened only by the authorised persons and the identity of the Commissioner and the password are confidential, as such the authorisation is in consonance with the requirement of section 39 read with rule 46 of the Rules. He also submitted that the petitioner has evaded the tax and it is in this regard reassessment has been done. He further submitted that the objection which has been raised by the learned senior counsel is too technical.
The only question that arises for consideration in these writ petitions is :
Whether the Commissioner for Commercial Tax has duly authorised the officer to reassess the tax in terms of section 39(1) of the Act read with rule 46 of the Rules thereunder ?
Before we consider the contentions of the learned counsel for the parties, it is better to refer to the provisions of section 39(1) which reads as under:
Reassessment of tax.--(1) Where the prescribed authority has grounds to believe that any return furnished which is deemed as assessed (or) any assessment issued u/s 38 understates the correct tax liability of the dealer, it,--
(a) may, based on any information available, re-assess, to the best of its judgment, the additional tax payable (and also impose any penalty under sub-section (2) (or sub-section (6) of section 72 and demand payment of any interest), and
(b) shall issue a notice of reassessment to the dealer demanding that the tax shall be paid within ten days of the date of service of the notice after giving the dealer the opportunity of showing cause against such reassessment in writing.
(2) Where after making a reassessment under this section, any further evidence comes to the notice of the prescribed authority, it may make any further reassessments in addition to such earlier reassessment.
A reading of the provisions of section 39(1) makes clear that it confers power for reassessment and further reassessment and to levy tax, penalty and interest thereon. However, reassessment could be done only by the prescribed authority. The prescribed authority referred to u/s 39(1) of the Act means an authority mentioned under the Rules. Rule 46 of the Rules requires the Commissioner to authorise any officer to make reassessment u/s 39. By reading of both the provisions, it is clear that the reassessment must be by the authorised person and authorised person is one who has been authorised by the Commissioner for Commercial Tax. When law requires that the Commissioner shall authorise the officer, the authorisation must be an expressed authorisation.
In this case, the State has not disputed that there is no expressed authorisation except relying on the e-mail print out. No other material is produced to show that the Commissioner had issued any authorisation to the officer. The authorised officer must be a person competent to reassess the tax in consonance with the provisions of section 39.
Hence without going into the merits of the case as regard to whether the petitioner has really evaded the tax or not, if the person who has re-assessed the tax is not the authorised officer, then the assessment made by him becomes one without authority of law. The provisions of the tax Act require to be construed strictly.
A Division Bench of this court while considering the identical provision, has observed that, if the law requires that certain things to be done in a particular manner, there is no reason for the authority to act in contravention of the same. If the Commissioner is empowered under rule 46 to authorise an officer, the said authorisation cannot be by way of oral or telephonic, but must be by an expressed order. While exercising the powers under the tax statutes, the authority must act in conformity with the provisions of the Act and the Rules made thereunder.
u/s 38(7) of the Act, the Commissioner has been conferred with power to authorise an authority to assess the tax. After reading of provision of section 38(7) read with section 39(1) further read with rule 46 and in the light of the decision of the Division Bench, I am of the clear opinion that there is no authorisation as required u/s 39(1) of the Act read with rule 46 of the Rules. The e-mail print out produced by the State at annexure R1 does not satisfy the requirements of section 39(1) read with rule 46 of the Rules. If that is so, the writ petition requires to be allowed only on this short question.
Accordingly, the writ petition is allowed. The impugned annexures D and E are quashed. The Commissioner is directed to issue authorisation in accordance with the provisions of the Acts and Rules made thereunder for the reassessment of the tax u/s 39 of the Act and the authorised officer shall reassess the tax in consonance with section 39(1) and (2). This exercise must be completed within two months from the date of receipt of copy of this order. Sri Dinesh Rao, learned Government Advocate, is permitted to file memo of appearance within four weeks.