Karnataka High Court
M/S Dhammanagi Property Developers vs Additional Commissioner Of Commercial ... on 26 June, 2018
Equivalent citations: AIRONLINE 2018 KAR 716
Bench: Vineet Kothari, S.Sujatha
1/23
R
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JUNE 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
S.T.A.Nos.128/2012 & 22 - 68/2013
BETWEEN :
M/s DHAMMANAGI PROPERTY DEVELOPERS
NO.137, RAILWAY PARALLEL ROAD
KUMARAPARK WEST,
BANGALORE-560020
REP. BY SRI BABU A. DHAMMANAGI
S/O ADIVEPPA DHAMMANAGI,
AGED ABOUT 56 YEARS,
PARTNER OF M/s DHAMMANAGI
PROPERTY DEVELOPERS ...APPELLANT
(BY SRI TATA KRISHNA, ADV. FOR SRI CHYTHANYA K.K., ADV.)
AND :
ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES ZONE-1,
VANIJAYA THERIGE KARYALAYA
3RD FLOOR, GANDHINAGAR,
BANGALORE-560 009. ...RESPONDENT
(BY SRI VIKRAM A. HUILGOL, HCGP.)
THESE STAs ARE FILED UNDER SECTION 66(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003, AGAINST THE
ORDER DATED 04.07.2012 PASSED IN NO.ZAC-
1/BNG/SMR.17/2011-12, T.NO.151/12-13 ON THE FILE OF THE
ADDL. COMMISSIONER OF COMMERCIAL TAXES, ZONE-1,
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013
M/s Dhammanagi Property Developers Vs.
Additional Commissioner of Commercial Taxes
2/23
BANGALORE, SETTING ASIDE THE ORDER PASSED BY THE
FAA, AND RESTORING THE ORDERS PASSED BY THE
ASSESSING AUTHORITY.
THESE APPEALS HAVING BEEN RESERVED FOR ORDERS
ON 22.06.2018, COMING ON FOR PRONOUNCEMENT OF
JUDGMENT, THIS DAY, S. SUJATHA, J., PASSED THE
FOLLOWING:
JUDGMENT
Mr. Tata Krishna, Adv. for Sri Chythanya K.K., Adv. for Appellant - Assessee Mr. Vikram A. Huilgol, HGCP for Respondent - Revenue These Sales Tax Appeals are filed by the Assessee U/s 66(1) of the Karnataka Value Added Tax Act, 2003 ('Act' for short) challenging the order passed by the Addl. Commissioner for Commercial taxes, Zone-I (Revisional Authority) under Section 64(1) of the Act, whereby the order passed by the First Appellate Authority U/s 62(6) of the Act has been set-aside and the order passed by the Assessing Authority U/s 39(1) of the Act has been restored.
2. Appellant/Assessee is a registered dealer under the provisions of the Act, who is engaged in the Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 3/23 execution of Civil Works contract and is also a developer of properties. The materials purchased by the assessee like sand, jelly, bricks, etc from unregistered dealers were brought to tax by the Assessing Authority U/s 3(2) of Act, while concluding the reassessment proceedings U/s 39(1) of the Act. Being aggrieved, appellant preferred appeals before the Appellate Authority and the same came to be allowed setting aside the tax levied under Section 3(2) of the Act on the URD purchases, as well as the penalty and interest levied U/s 72(2) and Section 36 of the Act. Thus, Commissioner of Commercial Taxes, Zone-I exercising powers under Section 64(1) of the Act revised the said order of the First Appellate Authority, by Order dated 4.7.2012, the order passed by the First Appellate Authority was set- aside restoring the order of the Assessing Officer relating to the tax periods April 2005 to March 2009. Hence, these appeals.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 4/23
3. Learned counsel appearing for the appellant has challenged the order of the Revisional Authority raising the following questions of law:
i) Whether the action of the respondent-
Authority u/s 64(1) of the Act is
justifiable in law ?
ii) whether the Revisional Authority is
justified in law in holding that the
appellant is liable to purchase tax U/s 3(2) of the Act ?
4. Firstly, it was argued that the provisions of Section 3(2) of the Act are not applicable to the facts of the present case as the appellant/assessee is not carrying on any business relating to the transfer of property in goods. The appellant is a developer of properties and has purchased the materials like sand, jelly, bricks, etc from the unregistered dealers and used the same for construction of roads, drainage, sewage, etc. i.e. in the process of formation of the layout, no Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 5/23 such goods purchased from the unregistered dealers are sold. It is the immovable property/sites which has been finally sold to the purchasers. There being no resale of the goods, no input tax benefit is available to the assessee. In such circumstances, levy of tax U/s 3(2) of the Act is not attracted. The First Appellate Authority on analyzing the facts of the case in the light of the Judgment of the Karnataka Appellate Tribunal in M/s Alliance Infrastructure Project Pvt. Ltd., -v- State of Karnataka (STA No.461 to 465/2009 DD 26.09.2010) as well as the Full Bench Judgment of the Karnataka Appellate Tribunal, Bangalore reported in 2009 (67) Kar.L.J. 359 (Tri.) (FB) in the case of Continental Builders and Developers, Bangalore -v- State of Karnataka had rightly set-aside the levy of tax U/s 3(2) of the Act and the consequential penalty and interest holding that no tax U/s 3(2) of the Act could be levied in respect of purchases made from unregistered dealers and used in the formation of layouts and thereafter sold Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 6/23 immovable properties. Under the circumstances, decision of the Revisional Authority is untenable.
5. Nextly, it was contended that initiation of proceedings by the Addl. Commissioner U/s 64(1) of the Act is wholly without jurisdiction. No circumstances warranted for the revisional proceedings. Any change of opinion of the Revisional Authority would not call for initiation of revision proceedings unless the essential ingredients viz., i) the order of the Appellate Authority is erroneous and ii) prejudicial to the interest of the revenue is found. Merely for the reason that the order passed by the First Appellate Authority is in favour of the assessee would not be a ground for the Revisional Authority to invoke Section 64(1) of the Act. This material irregularity found in the proceedings initiated by the Revisional Authority goes to the root of the matter and hence, the same deserves to be set-aside.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 7/23
6. In support of his contention, learned counsel for the appellant placed reliance on the following Judgments:
1. CONTINENTAL BUILDERS AND DEVELOPERS VS. STATE OF KARNATAKA [[2008] 14 VST 175 [Kar]];
2. CONTINENTAL BUILDERS AND DEVELOPERS VS. STATE OF KARNATAKA [2009[67] Kar.L.J 359 [Tri.] (FB)]
3. CONCORDE HITECH CITY [P] LIMITED VS. STATE OF KARNATAKA AND ANOTHER [[2011] 39 VST 52 [Kar]]
4. CANARA OVERSEAS LIMITED V/S. THE STATE OF KARNATAKA [STRP.NO.21/2008, D.D. ON 08.07.2008]
5. KWALITY BISCUITS [P] LTD., V/S. STATE OF KARNATAKA [[2012] 53 VST 66 [Kar]]
6. GODREJ AGROVET LIMITED V/S. ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES, ZONE II, BANGALORE [[2011] 39 VST 20 [Karn]]
7. Learned AGA, Mr.Vikram A.Huilgol, for the respondent supports the impugned order. It was argued that Section 3(2) of the Act contemplates the levy Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 8/23 of tax on the registered dealer or a dealer liable to be registered, on the sale of taxable goods to him in the course of his business, if such goods are sold by a person who is not registered under the Act. The appellant being a registered dealer under the provisions of the Act is liable to pay tax U/s 3(2) of the Act, once the goods are purchased from the unregistered dealers and if the same are utilized in the course of business.
In support of his contention, learned counsel placed reliance on the Judgment of the Co-ordinate Bench of this court in the case of State of Karnataka -v- M/s Shyamaraju & Company (India) Pvt. Ltd. in STRP Nos.32 & 103-105/2010.
8. Heard the rival submissions of the learned counsel appearing for the parties and perused the material on record.
9. The Appellate Authority in its order dated 29.11.2010 at paragraph 5 has observed that the Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 9/23 appellant is engaged in execution of civil works contract and is also a developer of properties; the appellant has filed return of turnover in Form VAT-100 for the tax period in question disclosing the total turnover and has claimed exemption of levy of tax on the entire turnover on the ground that the appellant has sold only sites by formation of layout. Thus, it is not in dispute that Appellant-M/s Dhammanagi Property Developers, Bangalore is a partnership concern registered under the KVAT Act with effect from 1.9.2005. Registration of the concern under the provisions of the Act indicates the business activity carried on by it. In this backdrop, adverting to the arguments of the learned counsel for the parties, Section 3(2) of the Act is examined which reads thus:
"3. Levy Of tax [1] xxxxx [2] The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 10/23 him, for use in the course of his business, by a person who is not registered under this Act."
10. To attract Section 3(2), the relevant factors to be satisfied are: i) Registered dealer or a dealer liable to be registered under the Act purchasing the taxable goods from the unregistered dealer; ii) Such purchase from the unregistered dealer is for use in the course of business of the registered dealer. If these two conditions are satisfied, registered dealer is liable to pay tax u/s 3(2) of the Act.
11. We are afraid to accept the arguments of the learned counsel for the appellant that the materials purchased from the unregistered dealers for the development of layout is not for use in the course of his business. 'Business' defined under Section 2(6) of the Act has a wide connotation which is extracted for ready reference:
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 11/23 "2 (6) "Business" includes. -
[a] any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on in furtherance of gain or profit and whether or not any gain or profit accrues therefrom; and [b] any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern."
12. This court in the case of Continental Builders and Developers, Bangalore (supra1) has held thus:
"5. With reference to the above legal rival contentions, we have to answer questions framed in paragraphs 14 and 15 against the assessee for the following reasons:
The Tribunal, with reference to the rival legal contentions and the undisputed facts urged by the learned counsel for the parties, Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 12/23 has answered the point framed by it against the assessee by recording reasons at paragraph 8 of the impugned order after referring to the undisputed facts with regard to common facilities such as putting-up compound wall, drainage, constructing club house, stores, servant quarters, providing street lighting and laying electrical and telephone lines. It is not in dispute that the material such as sand, jelly, cement, etc., were used for construction of the common facilities referred to supra and provided the same facilities to the residents of the layout. It is also not in dispute that the sites carved out in the layout are sold to the prospective purchasers. The price of sites collected includes the developmental charges to be incurred for providing the above civic amenities. Therefore, the stand of the assessee was rightly rejected by the assessing authority and the appellate authorities that the developmental charges agreement is only for the easementary right and there is no transfer of property by way of sale such as road and park in terms of Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 13/23 section 2[1][t] of the KST Act and the TP Act to the residents of the layout. The contention urged by the learned counsel for the assessee that the assessee is not liable to pay tax under section 5B read with section 17[6] of the KST Act is wholly untenable in law and therefore we cannot accept the same.
6. No material is produced by the assessee before the assessing authority to show that the expenditure incurred for the formation of layout and providing common facilities to the respondents is not part of the sale consideration. In the absence of common facilities in a layout nobody will buy the sites.
Therefore, there is transfer of common facilities provided in the layout also along with he sale of sites/plots in favour of the residents. Therefore, the concurrent findings on fact recorded by the authorities holding that there is sale in favour of the residents as defined under section 2[1][t] of the KST Act and in terms of the TP Act is perfectly based on valid and cogent reasons and the transfer is for valid consideration. Therefore, the Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 14/23 findings of fact recorded in the impugned orders are neither erroneous nor an error in law. In our considered view, questions framed at paragraphs 14 and 15 do not arise for our consideration."
In the said case, questions of law that arose for consideration at paragraphs 14 and 15 reads as under:
14. Whether, in the facts and circumstances of the case, the Tribunal was justified in rejecting the review petition although it had committed an error apparent on the face of the record by dismissing the appeal in S.T.A.No.2601 of 2004 by dissenting from the judgment of a coordinate Bench of the Tribunal?
15. Whether, in the facts and circumstances o the case, charges received for creation of common amenities that are not sold to any person but only a right to use thereof is provided, would be liable to tax under the provisions of the Karnataka Sales Tax, 1957?"
Indeed, this judgment throws light on the aspect of levy of tax on the transfer of common facilities provided in the layout. The relevant questions of law are Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 15/23 answered in favour of Revenue, dismissing the revision petition of the assessee. In the circumstances, judgments rendered by the Tribunal would not come to the assistance of the assessee.
13. Subsequently, in the case of Shyamaraju & company (supra), the Co-ordinate Bench of this court in STRP Nos.32 and 103-105/2010 had the occasion to deal with the similar issue, in the context of goods purchased from URDs for the development of their own property in the course of his business. It is held thus:
"Sub-section (2) of Section 3 deals with the liability to pay tax on the registered dealer when he purchases taxable goods from a person who is not registered under the Act. As is clear from the aforesaid provision, the tax shall also be levied and paid by every registered dealer or a dealer liable to be registered on the sale of taxable goods to him for use in the course of his business, by a person who is not registered under this Act. In other words, if a registered dealer purchases taxable goods from a person who is not registered under the Act, and uses it for his own Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 16/23 consumption personally, then there is no liability to pay tax under sub-section (2). But once he uses those taxable goods in the course of his business, he is liable to pay tax which is known as purchase tax. In fact, this Court had an occasion to consider the aforesaid question in the case of M/S. CONCORDE HITECH CITY (P) LIMITED, vs. STATE OF KARNATAKA in S.T.A.No.27/2009 disposed off on 16.07.2010, where it was held as under:
"Sub-section (1) of Section 3 expressly provides that, every sale of goods in the State by a registered dealer or a dealer liable to be registered, attracts levy of tax. The person who sells such goods has to pay the tax after levying the same and collecting from the purchasers. Sub-section (2) of Section 3 deals with a case where the person who sells the goods is not a dealer who is not registered under the Act. When such a person sells the goods, the tax is leviable and payable if the purchaser of goods is a registered dealer or a dealer liable to be registered. In other words, if taxable goods are sold by a person who Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 17/23 is not registered to a person, who is not a registered dealer or dealer liable to be registered, no tax is leviable or payable. But, once the person who purchases the taxable goods in the course of his business who is a registered dealer or a dealer liable to be registered, then sales tax is to be paid by such purchaser. In common parlance it is called as purchase tax. The liability to pay purchase tax arises only if purchase made for use in the course of his business. It does not mean that the said business which he is carrying on should be only sale and purchase of such goods.
The words employed are, 'used in the course of his business' and not mere use. The use of the goods may be in the same condition if he resells it or it may be absorbed in the final product in respect of which he is carrying on business. The use of the goods purchased depends on the nature of his business. Therefore, if that registered dealer who purchases his goods and Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 18/23 sells the goods in the same form or uses in the course of the business by absorbing the same as an input and then sells the final product, he is liable to be levied sales tax. The contention that Section 3(2) applies only to a case where the registered dealer who purchases goods from unregistered dealer, uses the said goods in the same condition in the course of his business, is not tenable.
7. In this case, admittedly, the assessee is a private limited company carrying on business of civil works contract and also development of properties. It is not in dispute that the taxable goods were purchased from unregistered dealers for development of their own property. That development of their own property is done in the course of business and therefore, Section 3(2) is attracted. Hence, the order passed by the Tribunal cannot be sustained. Accordingly, we pass the following order:
The STRP is allowed. The impugned order passed by the Appellate Tribunal is hereby set- aside. The orders passed by the Assessing Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 19/23 Authority as well as the Appellate Commissioner are restored."
14. In the light of these Judgments, it is clear that once the taxable goods purchased from the unregistered dealers are used for development of their own property in the course of the business of the registered dealer, liability to pay tax u/s 3(2) of the Act arises. The factual matrix of this case are identical to M/s Shyamaraju & Company (supra). We have no reasons to differ from the same.
15. As regards the Judgment cited by the learned counsel for the appellant in Concorde Hitech City (P) Limited (supra), the same has been considered by the Co-ordinate Bench of this Court in the case of M/s Shyamaraju & Company (supra). Even in Concorde Hitech City (P) Ltd., [Supra], levy of tax u/s 3[2] is upheld.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 20/23
16. Canara Overseas Limited's case (supra) referred to by the learned counsel for the appellant was rendered in a different context whereunder the assessee was 100% export oriented unit engaged in exporting iron ore from the place of extraction and processing to other countries, in order to transport the iron ore, chassis was purchased and thereafter body was built on it, in order to treat it as a truck or lorry, thereafter claim was made by the assessee for refund of input tax on the ground that the investment made was for the purpose of its business of manufacturing and processing. In such circumstances, it was held that purchase of chassis was not for the purpose of manufacturing of the goods or for processing; it was used only for transportation. Hence, the ratio enunciated by this court in a different context is not applicable to the facts of the present case.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 21/23
17. Similarly in Kwality Bisuits (P) Ltd's case (supra), this court while adjudicating the issue relating to the intellectual property right acquired by the assessee therein, held that sale of intellectual property do not attract tax under the Karnataka Sales Tax Act. The same is not applicable to the present set of facts.
18. Hence, the decision of the Revisional Authority that the activity of formation of layout is a 'business' is in conformity with the provisions of the Act, merely for the reason that no input tax credit can be claimed by the dealer, on this transaction, no liability u/s 3(2) arises, is only a misconceived notion of the Assessee and cannot be acceptable. It is hardly required to be stated that the subsequent transactions of the URD purchased goods is immaterial for the purpose of levy of tax under Section 3(2) of the Act. What is necessary is use of such goods 'in the course of Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 22/23 business'. This requirement being satisfied, levy under Section 3(2) of the Act certainly attracts.
19. As regards the jurisdiction of the Revisional Authority to invoke Section 64(1) of the Act, it is obvious that the order of the Appellate Authority is not only erroneous but prejudicial to the interest of the revenue as discussed above. The twin test i.e., [i] the appellate order being erroneous and [ii] prejudicial to the interest of the revenue, being satisfied, the proceedings initiated by the Addl. Commissioner of Commercial Taxes is well within the scope and ambit of Section 64(1) of the Act. The action of the Revisional Authority cannot be held to be without jurisdiction. Hence, appeals on this ground also fail.
20. In the circumstances, no question of law arises for consideration.
Date of Judgment 26-06-2018, STA Nos.128/2012 & 22-68/2013 M/s Dhammanagi Property Developers Vs. Additional Commissioner of Commercial Taxes 23/23 For the aforesaid reasons, Appeals stand dismissed.
Sd/-
JUDGE Sd/-
JUDGE ln.