By TIOL News Service

BANGALORE, APRIL 13, 2018: THE ISSUE BEFORE THE BENCH IN THIS CASE IS - Whether upon re-opening of assessment for a particular period, the order of regular assessment passed for the same period would cease to operate. YES IS THE VERDICT.

Pursuantly, the Court also held that any order of regular assessment which becomes inoperative, cannot subsequently be revised.

Facts of the case

The assessee-company, engaged in executing civil works contract for construction of buildings, was registered under the Karnataka Value Added Tax Act as well as the Central Sales Tax. The assessee was subjected to audit proceedings, pursuant to which the Deputy Commr. of Commercial Taxes passed an order of re-assessment, wherein returns filed by the assessee during the audit period were accepted and proceedings initiated u/s 39 of the KVAT Act were dropped. After this, a fresh re-assessment order was passed u/s 39(2) seeking recovery of certain ineligible input credit availed. The same was remitted by the assessee, with interest. Two more reassessment orders were passed for two separate periods, and the duty demanded was paid by the assessee with interest. Thereupon, the Deputy Commr. issued three more notices for separate tax periods, alleging that the claim of labour and like charges at 30% on the total contract receipts, which includes taxes collected and again allowing deduction towards taxes collected to arrive at taxable works contract receipts, had resulted in excess allowance of labour charges on the taxes collected which resulted in short payment of tax.

Upon considering the objections filed by the assessee, Deputy Commr. found merit in them and so the proposal made in the SCN was dropped. However, another notice u/s 39(2)(e) of the Act was issued by the Deputy Commr. to initiate re-assessment proceedings on the same ground of short payment of tax. The assessee submitted replies to the three reassessment notices. Thereupon, the Joint Commr. of Commercial Taxes invoked power u/s 63A and issued notice on the same ground of short payment of tax. On considering the assessee's submissions, the Joint Commr. passed orders revising the order passed by the Deputy Commr. Thereupon a rectification application filed u/s 69 by the assessee was rejected. Hence the present writ, challenging the order of the Joint Commr. u/s 63A(1) as well as the rejection of its rectification application.

On hearing the matter, the High Court held that,

++ the main ground of challenge in these writ petitions is regarding the jurisdiction of the Joint Commr. to pass an order u/s 63-A[1] of the Act pending re-assessment proceedings u/s 39[2][e] of the Act. In this regard, considering relevant findings of the Apex Court in THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES v. H.R. SRI RAMULU and V. JAGANMOHAN RAO v. COMMISSIONER OF COMMERCIAL TAX AND EXCESS PROFITS TAX, ANDHRA PRADESH and M/s. KUNDAN LAL SRIKISHAN, MATHURA [U.P.] v. COMMISSIONER OF SALES TAX, U.P. AND ANOTHER, it is crystal clear that when once a notice is issued for the purpose of making reassessment, the assessment proceedings would be reopened and the order of assessment ceases to operate. In the present set of facts, notices for reassessment were issued u/s 39[2][e] of the Act by the Deputy Commr. on 25.06.2016 whereby the proceedings initiated u/s 39[2] of the Act were dropped. Thus, it can be held that once notice dated 25.06.2016 was issued by the Deputy Commr. to initiate reassessment proceedings, against the reassessment order dated 16.08.2014 passed u/s 39[2] of the Act, the said order dated 16.08.2014 ceases to operate, or in other words, it ceases to be in existence to revise the said order.

++ The Joint Commr. initiated the revisional proceedings by issuing notice dated 3.11.2016 to revise the order dated 16.08.2014 passed u/s 39[2] of the Act which has ceased to be operative on 25.06.2016 when notice was already issued by the Deputy Commr. u/s 39[2][e] of the Act. In the circumstances, it can be held that the proceedings initiated by the Joint Commr. u/s 63-A[1] of the Act is without jurisdiction and nullity in the eye of law. Hence for these reasons, the orders cannot be sustained and deserve to be quashed. Accordingly, the orders are quashed with liberty to the Deputy Commr. to proceed with the reassessment proceedings initiated u/s 39[2][e] of the Act in accordance with law.

(See 2018-TIOL-684-HC-KAR-VAT)