Karnataka High Court
M/S Photo Emporium vs Deputy Commr. Of Comml. Taxes on 31 May, 2016
Author: Vineet Kothari
Bench: Vineet Kothari
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
Dated this the 31st day of May, 2016
Before
THE HON'BLE DR JUSTICE VINEET KOTHARI
Writ Petitions 21604-639 / 2011 c/w 1053-1060 / 2011 c/w
29456 - 29503 / 2011 c/w 30790 - 30837 / 2011 c/w
21799 - 21803/2013 c/w 16650 - 16673 / 2014 c/w 15285
/ 2015 & 15403-413/ 2015 c/w 12583 / 2015 & 12757 -
12765 / 2015 c/w 18986 / 2015 & 19101 - 111 / 2015
c/w 18985 / 2015 & 19112-19158 / 2015 (T)
Between
WP 21604 - 639 / 2011
M/s Photo Emporium
# 17, Tank Bund Road
Subhasnagar, Bengaluru
By its Director - R Srinivas Prasad, 33 yrs Petitioner
(By Sri T N Keshavamurthy, Adv.)
And
1 Deputy Commr. Of Comml. Taxes
(Audit 12), VAT Division 1
Vanijya Therige Karyalaya
Gandhinagar, Bengaluru
2
2 Commr. Of Comml. Taxes
Vanijya Therige Karyalaya
Gandhinagar, Bengaluru
3 State of Karnataka - by its Prl. Secretary
Finance Department
Vidhana Soudha, Bengaluru Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to quash the re-assessment orders dated 30.5.2011-
Annexure A, A1, A2 by the 1st respondent levying tax, penalty
and interest for the tax periods 2007-08, 2008-09 and 2009-10,
etc.
Between
WP 1053-1060/ 2011
M/s. G.K. Vale & Co.
206, Brigade Gardens
No.19, Church Street
Bangalore - 560 001
By its partner V Sukumar, 66 yrs
Petitioner
(By Sri T N Keshavamurthy, Adv.)
And
1 Dy. Commr. Of Comml. Taxes
(Debt Management)-11, DVO-I
Vanijya Therige Karyalaya
Gandhinagar, Bangalore-560 009.
2 Commissioner of Commercial Taxes
Vanijya Therige Karyalaya
Gandhinagar, Bangalore - 560 009
3
3 State of Karnataka - by Prl. Secretary
Finance Dept, Vidhana Soudha
Bangalore - 560 001 Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to issue a writ of certiorari & quash entry Sl.No.9 of the
sixth schedule to the act relating to processing & supplying of
photographs, photo prints & photo negative as unconstitutional,
etc.
Between
WP 29456-503/ 2011
M/s Classic Lab
10, Devaraj Urs Road
Mysuru - 570 001
By its proprietor Manoj Chouta, 52 yrs Petitioner
(By Sri T N Keshavamurthy, Adv.)
And
1 The Deputy Commissioner of
Commercial Taxes
VAT Audit-1, Seshadri House
Diwan's Road, Mysuru - 570 024.
2. The Commissioner of Commercial Taxes
Vanijya Therige Karyalaya
Gandhinagar, Bangalore - 560 009.
3. The State of Karnataka
Represented by it's Principal Secretary
4
Finance Dept. Vidhana Soudha
Bangalore - 560 001 Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to quash entry Sl.No.9 of the sixth schedule to the
Karnataka Value Added Tax Act, 2003 relating to processing
and supplying of photographs, photo prints and photo negatives
as unconstitutional, etc.
Between
WP 30790-837/ 2011
M/s. Danthi Colour Lab
No.44, 44/1, K.R. Circle
D. Devaraj Urs Road
Mysore - 570 001.
By its Partner D.A. Radakrishna Setty, 68 yrs
Petitioner
(By Sri T N Keshavamurthy, Adv.)
And
1 The Deputy Commissioner of
Commercial Taxes
VAT Audit-1, Seshadri House
Diwan's Road, Mysore - 570 024.
2. The Commissioner of Commercial Taxes
Vanijya Therige Karyalaya
Gandhinagar, Bangalore - 560 009.
3. The State of Karnataka - by Prl. Secy.
Finance Dept. Vidhana Soudha
Bangalore - 560 001 Respondents
(By Sri T K Vedamurthy, AGA)
5
Writ Petitions are filed under Art.226 of the Constitution
praying to quash entry Sl.No.9 of the sixth schedule to the
Karnataka Value Added Tax Act, 2003 relating to processing
and supplying of photographs, photo prints and photo negatives
as unconstitutional, etc.
Between
WP 21799-803/ 2013
M/s. Adlabs
76/1, Mission Road
Bengaluru - 560 027
By its partner N. Seetharam Rai, 63 yrs Petitioner
(By Sri T N Keshavamurthy, Adv.)
And
1 The Assistant Commissioner of
Commercial Taxes, (Audit)-3.6
DVO-III, Shanthinagar
Bengaluru - 560 027.
2 The Commissioner of Commercial Taxes
Vanijya Therige Karyalaya
Gandhinagar, Bengaluru - 560 009.
3. The State of Karnataka - By its Prl. Secy.
Finance Dept., Vidhana Soudha
Bengaluru - 560 001 Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to quash the impugned re-assessment order
dt.27.4.2013, as in Ann-A & the demand notice dt.27.4.2013, in
6
Ann-A1, passed by the R1, as lacking in legislative competence
& opposed to law, etc.
Between
WP 16650-673/ 2014
M/s. Adlabs
76/1, Mission Road
Bengaluru - 560 027
By its partner N. Seetharam Rai, 63 yrs Petitioner
(By Sri T N Keshavamurthy, Adv.)
And
1 The Assistant Commissioner of
Commercial Taxes, (Audit)-3.6
DVO-III, Shanthinagar
Bengaluru - 560 027.
2 The Commissioner of Commercial Taxes
Vanijya Therige Karyalaya
Gandhinagar, Bengaluru - 560 009.
3 The State of Karnataka - by its Prl. Secy.
Finance Dept., Vidhana Soudha
Bengaluru - 560 001 Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to quash the impugned re-assessment order and
demand notice dt.22.3.2013, as in Annex-A & A1 relating to tax
period from April 2006 to march 2007 passed by the R-1 as
lacking in jurisdiction, legislative competence, etc.
7
Between
WP 15285/ 2015 & WP 15403-413/2015
M/s. Adlabs
Having its office at No.76/1
Mission Road, Bangalore-560 027.
Rep. by its partner N. Seetharam N. Rai Petitioner
(By Sri Arvind Kamath K &
Sri Vamshi Krishna C, Advs.)
And
1 State of Karnataka
Represented by Principal Secretary
Revenue Department, Vidhana Soudha
Ambedkar Veedhi, Bengaluru - 560 001.
2 Assistant Commissioner of Commercial Taxes
Audit -3.2, DVO-3, II Floor, BMTC Bus Stand
TTMC, Double Road, Shantinagar
Bangalore - 560 027.
Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to set aside the impugned re-assessment order
dt.5.3.2015 passed by R-2, at Annx-a, and direct the R-2 to re-
assess the petitioner afresh by confining the levy of tax only on
the value of the goods used in the works contract as declared by
the Supreme Court in the case of state of Karnataka V/s Pro
Labs and others, etc.
Between
WP 12583/2015 & WP 12757-765/2015
M/s. R.K. Color Centre
Having its office at No.382
8
Diagonal Road, V.V. Puram
Bangalore-560 004
Rep. by its proprietor Mr. Bhanu Prasad Petitioner
(By Sri Arvind Kamath K &
Sri Vamshi Krishna C, Advs.)
And
1 State of Karnataka - by its Prl. Secy.
Revenue Department, Vidhana Soudha
Ambedkar Veedhi, Bengaluru - 560 001.
2 Commissioner of Commercial Taxes
Vanijya Terige Karyalaya
Gandhinagar, Bangalore-560 009.
3 Assistant Commissioner Commercial Taxes
(Recovery)-43, Room No.614, 6th floor
VTK-1, Gandhinagar
Bangalore-560 009.
4. Assistant Commissioner of Commercial Taxes
(Audit) 4.4, VAT Division 4
VTK - 2 Koramangala
Bangalore - 560 047 Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to quash the impugned order dated 17.3.2010 for the
assessment periods from 2000-01, 2001-02, 2002-03, 2003-04
and 2004-05 passed by the R-3 vide Ann-G, H, J, K & L and the
consequential demand notice dated 26.2.2015 issued by the R-4
vide Ann-M, Holding the same as illegal and arbitrary.
9
Between
WP 18986/2015 & WP 19101-111/2015
M/s. Adlabs
Having its office at No.76/1
Mission Road, Bangalore-560 027.
Rep. by its partner Mr. Seetharam N Rai
Petitioner
(By Sri Arvind Kamath K &
Sri Vamshi Krishna C, Advs.)
And
1 State of Karnataka - by its Prl. Secy.
Revenue Department, Vidhana Soudha
Ambedkar Veedhi,
Bengaluru - 560 001.
2 Assistant Commissioner Commercial Taxes
Audit-3.2, DVO-3. II floor, BMTC Bus Stand
TTMC, Double Road, Shantinagar
Bangalore-560 027 Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to set aside the impugned re-assessment order
dt.30.3.2015 passed by R-2 at Annex-A and direct the R-2 to re-
assess the petitioner afresh by confining the levy of tax on the
value of the goods used in the works contract, etc.
Between
WP 18985/2015 & WP 19112-158/2015
M/s. Rachana Enterprises
Boal Complex, No.313/1, 2nd Cross
10
Gandhinagar, Bangalore-560 009
Rep. by its proprietrix Mrs. P. Manjula Petitioner
(By Sri Arvind Kamath K &
Sri Vamshi Krishna C, Advs.)
And
1 State of Karnataka - by its Prl. Secy.
Revenue Department, Vidhana Soudha
Ambedkar Veedhi, Bengaluru - 560 001.
2 Assistant Commissioner Commercial Taxes
Audit-1.6, DVO-1, Bangalore-560 001.
Respondents
(By Sri T K Vedamurthy, AGA)
Writ Petitions are filed under Art.226 of the Constitution
praying to set aside the impugned revised order dt.27.2.2015 in
respect of assessment period 2006-07 passed by R-2 vide
Annex-A and direct the R-2 to re-assess the petitioner afresh by
confining the levy of tax only on the value of the goods used in
the works contract, etc.
These Petitions coming on for hearing this day, Court
made the following:
ORDER
All these petitions are being disposed of by this common order.
2 The petitioners before this Court are assessees doing business of processing and supplying of photographs, photo 11 prints and photo negatives running their Photo Studios within the State of Karnataka. They are registered under the provisions of the Karnataka Value Added Tax, 2003 (for short KVAT Act, 2003).
3 They contended before the respondent Department that they were not liable to pay any tax under the provisions of the KVAT Act, 2003 because what was provided to the customers was only a service and use of goods in the process viz., use of photograph paper and certain chemicals was only incidental and there was no execution of any Works Contract as such and therefore, question of levy of tax under the earlier provisions of the Karnataka Sales Tax Act or the substituted new law viz., Karnataka Value Added Tax Act, 2003 did not arise in their case.
4 The Division Bench of this Court in the case of Pro Lab, Mangalore Vs State of Karnataka 2005 (59) Kar.LJ 410 (DB) held in favour of the assessees and struck down the relevant Entry 25 for imposition of tax on such processing and 12 supplying of photographs, photo prints and photo negatives at the rates ranging from 6% to 10% at different points of time. 5 The Revenue took the matter before the Hon'ble Supreme Court where the aforesaid Division Bench judgment of this Court came to be reversed by the Apex Court in the case of State of Karnataka Vs Pro Lab & Ors reported in 2015 (81) Kar.LJ 377 (SC). The relevant observations of the Hon'ble Supreme Court discussing the various case laws on the issue as to whether the said activity amounted to execution of works contract or not, was decided in favour of Revenue by the Hon'ble Supreme Court and the relevant portion of the judgment is quoted below for ready reference.
28 We would like to point out at this stage that the High Court in the impugned judgment has not dealt with the matter in its correct perspective. The reason given by the High Court in invalidating Entry 25 is that this provision was already held unconstitutional by the said High Court in Keshoram's case against which the SLP was also dismissed and in view of that decision, it was not 13 permissible for the Legislature to re-enact the said entry by applying a different legal principle. According to us, this was clearly an erroneous approach to deal with the issue and the judgment of the High Court is clearly unsustainable. The High Court did not even deal with various facets of the issue in their correct perspective, in the light of subsequent judgments of this Court with specific rulings that Rainbow Colour Lab's case is not longer a good law.
29 The impugned judgment of the High Court is accordingly set aside, the present appeal is allowed and as a result thereof, the writ petitions filed by the respondents in the High Court are dismissed holding that Entry 25 of Sixth Schedule of the Act is constitutionally valid. There shall, however, be no order as to costs.
The Assessing Authority, accordingly, by the orders impugned in the present batch of petitions, passed assessment orders levying the output tax under the provisions of the VAT Act, 2003 on the said business activity of the petitioner assessees and demands were raised against the assessees. These writ petitions are 14 directed against these assessment orders some of which have been passed prior to the date of the judgment of the Hon'ble Supreme Court on 30.1.2015 and some after the said judgment. 6 Learned counsel for the petitioner assessees fairly submitted that in view of the validity of the relevant Entry 25 having been upheld by the Hon'ble Supreme Court in the aforesaid judgment reversing the Division Bench judgment of this Court, they cannot possibly contend against the levy of output tax itself in the impugned orders passed by the Assessing Authority before this Court. However, the limited grievance which they submitted before this Court is that while imposing the output tax under the provisions of the VAT Act, 2003, the Assessing Authority was also required to consider the case of the petitioner assessees for giving of the input tax credit admissible in the said Act against the output tax liability to determine the net VAT liability and also the deduction for labour charges from the composite value of works contract, which is exigible to output tax under the provisions of the VAT Act, 2003 was required to be given. They also submitted that such claims 15 of input tax credit and the deductions for determining the net taxable turnover and tax liability could not be earlier raised before the Assessing Authority, while the impugned orders were passed because they were contending all through that they are not at all liable to pay any tax under the provisions of the VAT Act, 2003. They, therefore, submitted that the Assessing Authority should be directed to at least, even now, consider their claim of input tax credit and other deductions, in accordance with law.
7 Learned counsel representing the Revenue however, submitted that while the question of exigibility to tax under the provisions of the VAT Act, 2003 is now beyond the pale of doubt in the case of the petitioner assessees after the aforesaid Supreme Court decision rendered on 30th January, 2015 in the case of Pro Labs (supra) reversing the judgment of the Division Bench of this Court, the claim of the petitioner assessees on input tax credit cannot be considered at this stage in view of the fact that some of the assessment orders were made in view of the interim order granted by the Hon'ble Supreme Court in 16 the aforesaid case in State of Karnataka Vs Pro Lab & Ors on 19.11.2007 which is quoted below for ready reference.
Hearing of the Civil Appeal is expedited.
Meanwhile, the authorities may make the assessment but no coercive steps will be taken to recover the tax from the respondents (herein). IA 1 of 2007 is allowed.
Let the applicant M/s R K Colour Lab, in the application be impleaded as respondent to the Appeal.
He urged that if at all the assessees wanted to lay any such claim, they ought to have claimed the same before the Assessing Authority during the course of the assessment proceedings itself and now, even the limitation for rectification of the orders might have lapsed in some of the cases. He also contended that there cannot be said to be any mistake apparent on the face of the record or the impugned assessment orders which may require rectification in the aforesaid manner. He therefore submitted that the writ petitions deserve dismissal. 17 8 I have heard the learned counsel at some length and perused the judgment of the Hon'ble Supreme Court cited at the Bar and the impugned assessment orders passed by the Assessing Authority.
9 Since the question of exigibility of tax on the activity of the present petitioner assessees is now beyond the pale of doubt and as rightly submitted by the learned counsel for petitioner assessees that they cannot possibly now contend against the levy of output tax itself in the present cases, the process of assessment for determining the correct tax liability of the petitioner assessees under the provisions of the VAT Act, 2003 cannot be left half way through only. The question of liability to pay tax under the provisions of VAT Act, 2003 has been determined by the Hon'ble Supreme Court finally in the cases of the assessees only now on 30th January, 2015. If the claim for input tax credit and other deductions from the gross turn over on account of labour charges, etc., could not be made by them during the assessment proceedings which took place while this litigation was pending before the Hon'ble Supreme Court, the 18 assessees cannot be non-suited to make such claim now, if otherwise it is admissible in accordance with the provisions of law. The impugned orders passed by the Assessing Authority do not reflect any such consideration by the Assessing Authority either on the basis of such claims made before the Assessing Authority or not.
10 Therefore, while the levy of output tax is sustainable on the said activity now held to be a 'works contract' by the Hon'ble Supreme Court, the computation of net tax liability under the provisions of the VAT Act, 2003 has to be done afresh by the Assessing Authority, in accordance with the provisions of the VAT Act, 2003.
11 The different claims of input tax credit, deduction of labour charges, franchise charge, exemption from Entry Tax on the purchases of materials, etc., require determination of questions of fact based on relevant evidence, returns and claims made or to be made by the petitioner assessees. 19 12 Therefore, the cases necessarily call for a remand of the proceedings to the Assessing Authority himself, allowing the petitioner assessees to make such claims based on relevant evidence in accordance with law and the respondent Assessing Authority is expected to decide such claims of the petitioner assessees on merits in accordance with law by passing a fresh speaking assessment orders in pursuance of the present remand of case made by this Court.
13 Accordingly, these writ petitions are allowed. The assessees are relegated back to the Assessing Authority. They will have liberty to make appropriate applications before the Assessing Authority along with the claims to be made by them for deductions or input tax credit, file requisite evidence for the same and it is expected of the respondent Authority to pass appropriate fresh speaking assessment orders on merits, in accordance with law within a period of six months from today. The petitioner assessees may appear, in the first instance, before the respective Assessing Authority on 27th June, 2016. 20 The assessment proceedings may be undertaken by the Assessing Authority, as directed above.
Sd/-
Judge an