State of Karnataka vs Gopalan Enterprises, (India) Ltd.

N.K. Patil, J—These two Sales Tax Revision Petitions arise out of the common judgment and order dated 8th November 2012, passed in S.T.A. Nos. 1563 & 1564 of 2011 by the Karnataka Appellate Tribunal, at Bengaluru (hereinafter called Appellate Tribunal'' for short). The following questions of law are raised in these two revision petitions:

"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the orders passed by the Revisional Authority as well as prescribed authority in so far as they relate to February 2009 and March 2009 and remanded the matter to the prescribed authority with a direction to pass fresh orders particularly with reference to the Section 20(2) and Rule 130-A(a) of the KVAT Act?

Whether on the facts and circumstances, the Tribunal right in law in allowing the Appeal filed by the Assessee and directed the prescribed authority to allow the input tax credits in respect of the development of SEZ project by the dealer?"

The undisputed facts of the case are, the Respondent is a private limited company, registered under the provisions of the Karnataka Value Added Tax Act, 2003, (''KVAT Act'', for short), carrying on the business of works contract of construction of flats/buildings apart from undertaking the business activity of the development and construction of buildings in Special Economic Zone (''SEZ'' for short) notified on 16th February 2009 by the Central Government, at Hoodi village, K.R. Puram, Whitefield, Bengaluru.

The Deputy Commissioner of Commercial Taxes (Audit)-14, Bangalore (hereinafter called ''Prescribed Authority) has passed the order under Section 39(1) of the KVAT Act, for the tax periods of September 2008 to March 2009 on 4th August 2010. On perusal of the said order, it was observed that the same was erroneous and prejudicial to the interest of the revenue, warranting revisionary action. Hence, the Joint Commissioner of Commercial Taxes (Administration) DVO-1 (hereinafter referred to as "Revisional Authority'' for short), after hearing the assessee-Company and going through the objections filed by it, passed the order under Section 63-A of the KVAT Act, rejecting the objections filed by the assessee-Company on the ground that the revised returns filed for the tax periods under revision beyond six months cannot be accepted as provided under Section 35 (4) of the KVAT Act and confirmed the notice issued under Section 63-A dated 11th March 2011. Being aggrieved by the Revisional order in so far as it relates to the tax periods from February 2009 and March 2009, the assessee -Company filed Sales Tax Appeal Nos. 1563 and 1564 of 2011 before the Karnataka Appellate Tribunal, at Bengaluru. The Appellate Tribunal, after hearing both parties and perusal of the entire records available on file and also the relevant provisions of the KVAT Act and the Rules framed there under, raised the following issues for its consideration and answered both of them in the ''Negative''. The said issues are:

"(a) Whether the Revisional Authority is justified in disallowing the input tax credit claims relative to the SEZ project on the sole ground that such claims are made in the revised returns which are filed beyond the stipulated period?

(b) Whether in the facts and circumstances of these cases the PA is justified in allowing input tax credit claims in respect of the development of the SEZ project by the appellant?"

Accordingly, the Appellate Tribunal allowed both the appeals filed by assessee-Company and set aside the Revisional order passed by the Revisional Authority as well as the reassessment orders passed by the Prescribed Authority insofar as they relate to the tax periods February 2009 and March 2009 and remanded the matter back to the Prescribed Authority with a direction to pass fresh re-assessment orders for the tax periods February 2009 and March 2009 in accordance with law with particular reference to Section 20(2) and Rule 130-A(a) of the KVAT Act and the Rules framed there under. The Appellate Tribunal held that as per Section 20(2) of the KVAT Act read with Rule 130-A(a) of the KVAT Rules, a developer of any special Economic Zone is eligible for refund of tax paid on any inputs purchased for the purpose of development, operation or maintenance of the processing area in a SEZ. Nowhere in the order of the Revisional Authority or the re-assessment order dated 04-08-2010 passed by the Prescribed Authority for the impugned tax periods February 2009 and March 2009, there is any mention regarding the fact of allowing of input tax credit claims in relation to the processing area as distinguished from other areas of the SEZ. Such being the case, allowing of input tax credit in its entirety irrespective of the fact whether or not it relates to the processing area is not justifiable. Being highly aggrieved by the said order passed by the Appellate Tribunal, the petitioner/State of Karnataka has presented these two Sales Tax Revision Petitions, seeking appropriate reliefs as stated supra.

The submission of the learned Government Pleader appearing for petitioner, Shri. T.K. Veda Murthy, at the outset is that, the appellate Tribunal has erred in setting aside the order passed by the Revisional Authority as well as the Prescribed Authority on the ground that, as per Section 20(2) of the KVAT Act read with Rule 130-A(a) of the KVAT Rules, a developer of any special Economic Zone is eligible for refund of tax paid on any inputs purchased for the purpose of development, operation or maintenance of the processing area in a SEZ. Nowhere in the order of the Revisional Authority or the re-assessment order dated 04-08-2010 passed by the Prescribed Authority for the impugned tax periods February 2009 and March 2009, there is any mention regarding the fact of allowing of input tax credit claims in relation to the processing area as distinguished from other areas of the SEZ. The said reasoning given by Appellate Tribunal, for setting aside the orders of the Revisional and Prescribed Authorities is contrary to the law laid down by the Division Bench of this Court dated 31st July 2014 rendered in STRP Nos. 294/2011 and 210/2013 in the case of State of Karnataka v. M/s. Centum Industries Private Limited. Therefore, he submitted that the order passed by the Appellate Tribunal is liable to be set aside, confirming the orders passed by the Revisional and the Prescribed Authorities.

As against this, learned counsel appearing for assessee-Company, inter alia contended and sought to substantiate the impugned judgment and order passed by the Appellate Tribunal stating that the same is passed after due appreciation of the entire relevant material available on file and after following the judgment of the Hon''ble Apex Court in the case of The Deputy Commissioner of Commercial Taxes Vs. H.R. Sri Ramulu, AIR 1977 SC 870 : (1977) 1 SCC 703 : (1977) SCC 246 : (1977) 2 SCR 593 : (1977) 39 STC 177 : (1977) 9 UJ 104 , wherein it has been held that, "When once a re-assessment is initiated by issue of a notice of reassessment, the earlier assessment/re-assessment ceases to be operative.". He further submitted that following the aforesaid decision of the Hon''ble Apex Court, it held that the deemed assessments in the case of the assessee-Company for the tax periods February 2009 and March 2009 which came into existence by legal fiction pursuant to the filing of returns earlier have become inoperative soon after the issuance of re-assessment notices. Such being the case, there are no restrictions whatsoever to the Prescribed Authority to finalize the re-assessment on the basis of the available fractural matrix de horse the earlier returns. The Prescribed Authority has resorted to the re-assessment for the two tax periods involved taking into account the data made available to him by the assessee-Company. It is a separate issue as to whether or not such re-assessments are just and legal. Merely because the Prescribed Authority has allowed certain input tax credit claims the Revisional Authority without analyzing the issue in detail is not justified in disallowing the same on the pretext that such claim should not have been allowed accepting the revised returns filed after elapsing of the prescribed period for filing revised returns. The said reasoning given by the Appellate Tribunal is well founded and well reasons and the matter is rightly remanded back to the Prescribed Authority to pass fresh reassessment orders for the tax periods February 2009 and March 2009 in accordance with law, with particular reference to Section 20(2) and Rule 130-A(a) of the KVAT Act and the Rules framed there under. Hence, interference in the same is uncalled for not there is any scope for interference by this Court in remand orders. Hence, the revision petitions filed by the revenue may be dismissed as devoid of merits.

After careful consideration of the submissions made by learned Government Pleader appearing for State and learned counsel appearing for assessee- Company and after perusal of the impugned judgment and order passed by the Appellate Tribunal dated 8th November 2012 in STA Nos. 1563 and 1564 of 2011 and the order passed by the Prescribed and the Revisional Authorities, the only point that arises for our consideration in these two revision petitions is:

"Whether the Appellate Tribunal is justified in setting aside the orders passed by the Prescribed and Revisional authorities and remanding the matter to the Prescribed Authority?"

After perusal of the entire material available on file, it is seen that the appellate Tribunal, after critical evaluation of the entire material available on its file and after hearing both the sides and following the judgment of the Hon''ble Apex Court, has allowed the appeals filed by the assessee-Company on the ground that as per Section 20(2) of the KVAT Act read with Rule 130-A(a) of the KVAT Rules, a developer of any special Economic Zone is eligible for refund of tax paid on any inputs purchased for the purpose of development, operation or maintenance of the processing area in a SEZ. Nowhere in the order of the Revisional Authority or the re-assessment order dated 04-08-2010 passed by the Prescribed Authority for the impugned tax periods February 2009 and March 2009, there is any mention regarding the fact of allowing of input tax credit claims in relation to the processing area as distinguished from other areas of the SEZ.

It is the specific case of the petitioner-State that the Appellate Tribunal ought to have followed the judgment passed by the Division Bench of this Court dated 31st July 2014 rendered in STRP Nos. 294/2011 and 210/2013 in the case of State of Karnataka v. M/s. Centum Industries Private Limited. If that is the case, since the matter is now remanded back to the Prescribed Authority, with a direction to pass fresh re-assessment orders for the aforesaid periods, then, it is very much open for the petitioner to place the said judgment of the Division Bench, before the Prescribed Authority to consider the matter afresh and decide the same, after affording reasonable opportunity of hearing to both the parties. Therefore, interference in the impugned judgment and order passed by Appellate Tribunal is not called for nor we find any good ground as such made out by petitioner to entertain the revision petitions. The matter has been rightly remanded back to the Prescribed Authority to pass fresh re-assessment orders. Therefore, the petitioner is at liberty to workout its remedy before the Prescribed Authority and place reliance on the judgment rendered by the Division Bench of this Court and in such event, the Prescribed Authority shall pass appropriate orders after hearing both the parties concerned, in accordance with law.

Having regard to the facts and circumstances of the case, these two Sales Tax Revision Petitions filed by the petitioner-State are disposed of, reserving liberty to the petitioner -State to workout its remedy before the Prescribed Authority. Further, it is needless to clarify that the Prescribed Authority shall decide the matter purely on the basis of the merits of the case, without being influenced by the observations made by the Appellate Tribunal, during the course of its judgment and order, after affording reasonable opportunity of hearing to both the parties.