Karnataka High Court
M/S. Foto Best Pvt. Ltd., vs The Deputy Commissioner Of Commercial ... on 11 July, 2019
Author: S.Sujatha
Bench: S.Sujatha
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 11TH DAY OF JULY, 2019
BEFORE:
THE HON'BLE MRS. JUSTICE S.SUJATHA
WRIT PETITION Nos.23150 & 23294 - 23295/2018
c/w W.P.Nos.23151 & 23289 - 23292/2018 AND
W.P.Nos.23153 & 23559 - 23562/2018 (T - KST)
BETWEEN:
M/s FOTO BEST PVT. LTD.,
111/1 & 2, DICKENSON ROAD,
BENGALURU-560 042,
BY ITS MANAGING DIRECTOR,
RANJIV ARORA, 67 YEARS ... PETITIONER
(COMMON)
[BY SRI T.N.KESHAVAMURTHY, ADV.]
AND:
1. THE DEPUTY COMMISSIONER
OF COMMERCIAL TAXES, (AUDIT)-1.5,
DVO-1, 3RD FLOOR, TTMC,
BMTC COMPLEX,
YESHWANTPUR,
BENGALURU-560 022.
2. THE COMMISSIONER OF COMMERCIAL TAXES
GANDHINAGAR,
BENGALURU-560 009.
3. THE STATE OF KARNATAKA
BY ITS PRINCIPAL SECRETARY
TO GOVERNMENT,
FINANCE DEPARTMENT,
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VIDHANA SOUDHA,
BENGALURU-560 001. ...RESPONDENTS
(COMMON)
[BY SRI T.K.VEDAMURTHY, AGA.)
THESE WRIT PETITION Nos.23150 & 23294 -
23295/2018 ARE FILED UNDER ARTICLES 226 AND 227 OF THE
CONSTITUTION OF INDIA, PRAYING TO QUASH THE IMPUGNED
RECTIFICATION ORDERS DATED 31.03.2018 PASSED BY THE R-
1 UNDER SECTION 25A OF THE KARNATAKA SALES TAX ACT,
1957 RELATING TO ASSESSMENT YEARS 1989-1990, 1991-
1992 AND 1992-1993 AS IN ANNEXURES-A, A1 AND A2
RESPECTIVELY AS BARRED BY LIMITATION, LACKING IN
JURISDICTION AND VOID AB INITIO IN SO FAR AS THE
PETITIONER IS CONCERNED.
THESE WRIT PETITION Nos.23151 & 23289 -
23292/2018 ARE FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA, PRAYING TO QUASH THE IMPUGNED
RECTIFICATION ORDERS PASSED BY THE R-1 UNDER SECTION
25A OF THE KARNATAKA SALES TAX ACT, 1957 DATED
31.03.2018 RELATING TO ASSESSMENT YEARS 1993-1994,
1994-1995 AND 1995-1996 AS IN ANNXEURES-A, A1, A2
RESPECTIVELY AND RECTIFICATION ORDERS PASSED DATED
09.04.2018 RELATING TO ASSESSMENT YEARS 1996-1997 AND
1997-1998 AS IN ANNEXURES-A3 AND A4 RESPECTIVELY AS
BARRED BY LIMITATION, LACKING IN JURISDICTION AND VOID
AB INITIO, IN SO FAR AS THE PEITIONER IS CONCERNED.
THESE WRIT PETITION Nos.23153 & 23559 -
23562/2018 ARE FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA, PRAYING TO QUASH THE IMPUGNED
RECTIFICATION ORDERS PASSED BY THE FIRST RESPONDENT
UNDER SECTION 25A OF THE KARNATAKA SALES TAX ACT,
1957 DATED 09.04.2018 RELATING TO ASSESSMENT YEARS
1998-1999, 1999-2000, 2000-2001, 2001-2002 AND 2002-
2003 AS IN ANNEXURES-A, A1, A2, A3 AND A4 RESPECTIVELY
AS BARRED BY LIMITATION, LACKING IN JURISDICTION AND
VOID AB INITIO, IN SO FAR AS THE PETITIONER IS
CONCERNED.
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THESE PETITIONS COMING ON FOR PRELIMINARY
HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE
FOLLOWING:-
ORDER
These petitions involving similar and akin issues, have been considered together and disposed of by this common order.
2. The petitioner has challenged the rectification orders dated 31.3.2018 passed by the respondent No.1 under Section 25A of the Karnataka Sales Tax Act, 1957 relating to assessment years 1989-90 and 1991-92 to 2002-2003.
3. The petitioner is a Private Limited Company registered under the provisions of the Karnataka Sales Tax Act, 1957 ('Act' for short). The petitioner is engaged in the business of processing and supplying of photographs, photo prints and photo negatives. The rectification orders impugned herein are passed by the Deputy Commissioner of Commercial Taxes (Audit). DVO-1, Bengaluru, subjecting the turnover relating to the transfer of goods -4- involved in the works contract executed, to tax under Entry 25 of the Sixth Schedule to the Act read with Section 5B of the Act.
4. These rectification orders are passed in the backdrop of the orders passed by the Hon'ble Apex Court in the case of State of Karnataka Vs. Pro Lab and others (D.D.30.1.2015).
5. Marshalling of facts is necessary for the better understanding of the case.
Entry 25 of the Sixth Schedule to the Act reads as under:
Sl. Description Period Rate of tax
No. of works u/s 5-B
contract
25 Processing 1-7-1987 to 6%
and 31-3-1996
supplying of 1-4-1996 to 8%
photographs, 31-3-1998
photo prints From 10%
and photo 1-4-1998
negatives
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6. The validity of this provision was challenged in the case of Keshoram Surindranath, Photo-Mag (P) Limited and others Vs. Asst. Commissioner of Commercial Taxes (LR), City Division, Bangalore and others. This Court held that entry 25 of the sixth schedule to the Act is beyond the scope of Article 366 of the Constitution of India. The Special Leave Petitions were filed by the Government of Karnataka against the decision of Keshoram Surindranath and the same were dismissed by following the decision in Rainbow Colour Lab & another Vs. State of Madhya Pradesh and others (2000)118 STC 9 SC. On the basis of the judgment of the Hon'ble Apex Court in the case of ACC Limited Vs. Commissioner of Customs reported in (2001) 124 STC 59 SC, the Government of Karnataka issued Circular instructions. In the said ACC Limited (supra) the Hon'ble Apex Court considering the question of whether drawings, designs, diskettes, manuals etc., relating to machinery or industrial technology were "goods" which could be subjected to customs duty on their transaction value at -6- the time of their import under the Customs Act, 1962 relying on several decisions relating to levy of sales tax observed that Rainbow Colour Lab requires consideration in the light of 46th constitutional amendment to Article 366 of the Constitution and further observed that the Rainbow Colour Lab case does not appear to be correct. In view of the said decision, the Commissioner issued instructions to the Sales Tax Authorities vide Circular No.17/03 dated 27.9.2002 stating that the earlier decision in Rainbow Colour Lab has been impliedly over- ruled in ACC Limited and the Authorities under the Act are bound by the Apex Court decision in ACC Limited and accordingly directed the Authorities to levy tax under Entry 25 of Sixth Schedule in respect of transfer of property of goods involved in the execution of works contract undertaken by the photographers. On the said instructions, the Authorities subjected the turnover of transfer of property in goods involved in the processing, supplying of photographs and photos to tax under Section 5-B read with Entry 25 of the Sixth Schedule. Proceedings under -7- Sections 12-A, 21 and 25A were initiated to bring the said transaction to tax. Being aggrieved by the same, assessees had preferred writ petitions before this Court. The said batch of writ petitions were heard with the lead case, Golden Colour Lab & Studio reported in (2004) 134 STC page 570. This Court declared that the decision in Keshoram Surindranath Photo-Mag (P) Limited (supra), affirmed by the Hon'ble Apex Court holding Entry 25 in the Sixth Schedule of the Act is unconstitutional for want of Legislative competence continues to be binding on the respondents. As a consequence, the Authorities under the Act cannot proceed on the basis that Entry 25 is restored to the Sixth Schedule of the Act.
7. Pursuant to the said Judgment, State Legislature reintroduced Entry 25 of the Sixth Schedule to the Act with retrospective effect from July 1st 1989 by Karnataka Taxation Laws (Amendment) Act 2004 which came into force with effect from 29.01.2004. Section 2(3) of the said amendment reintroduced Entry 25 in identical -8- terms, as it appeared earlier, with retrospective effect i.e., with effect from 01.07.1989. Assessment orders were passed and demand notices were issued relating to the assessees engaged in the photographic activity based on the said amendment. Being aggrieved, the assseses filed writ petitions challenging the Amendment Act. The Division Bench of this Court in the case of Pro Lab & others Vs. State of Karnataka (supra), held that the provisions of Section 2(3) i.e., re-introduction of Entry 25 of Sixth Schedule is unconstitutional. In the light of the said decision, all consequential proceedings including assessment order and demands were set aside. On the challenge made by the State of Karnataka before the Hon'ble Apex Court, the same came to be allowed on 30.1.2015 declaring Entry 25 of the Sixth Schedule to the Act as constitutionally valid, setting aside the judgment of the Division Bench of this Court. Subsequent to the said decision, assessment/ revision/rectification orders were passed. The present batch of writ petitions arise from such rectification orders of the assessing authority. -9-
8. In the present set of facts, relating to the assessment years 1989-90, 1991-92 to 1997-98, the Assessing Authority passed assessment orders subjecting to tax, the transactions of transfer of property in goods involved in the execution of works contract of processing and printing of photo negatives, photo processing developing and supply of the negatives under Entry 25 of Sixth Schedule read with Section 5B of the KST. Later on, the assessing authority passed rectification orders under Section 25-A of the Act following the judgment of this Court in the case of Keshoram Surindranath supra, granting tax exemption setting aside the tax levied. Again, the assessing officer passed second rectification orders, rectifying the rectified orders and levied tax under Entry 25 of Sixth Schedule in view of the judgment of the Hon'ble Apex Court in the case of Pro Lab and Others supra, dated 30.01.2015. The details of the action initiated by the Assessing Authority are as under:
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WP NO: ASST.YR DATE of 1ST 25A ORDER 2ND 25A NOTICE 2ND 25A ORDER TAX assessment order 23150/18 1989-90 24.02.1993 03.10.2008 21.10.2017 31.03.2018 1,52,965
-C 23294/18 1991-92 29.05.1993 23.05.2008 -DO- -DO- 5,55,061
-C 23295/18 1992-93 18.03.1997 -DO- -DO- -DO- 87,532
-C 7,95,558 23151/18 1993-94 22.04.1998 -DO- -DO- -DO- 1,98,447
-12[2] 23289/18 1994-95 -DO- -DO- -DO- -DO- 2,56,366
-12[2] 23290/18 1995-96 -DO- -DO- -DO- -DO- 2,93,057
-12[2] 23291/18 1996-97 23.04.1998 -DO- -DO- 09.04.2018 8,76,188
-C 23292/18 1997-98 10.03.2003 -DO- -DO- -DO- 11,21,027
-12[2]/12A C: Composition 27,45,085
9. In respect of the assessment years 1998-99 to 2002-03, the Assessing Authority passed assessment orders by granting exemption from tax in terms of the judgment of this Court. The said assessment orders have been rectified vide order under Section 25-A of the Act in view of the law laid down by the Hon'ble Apex Court in Pro Lab's (supra). The details of the same are as under:
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WP NO: ASST.YR DATE of 25A NOTICE 25A ORDER TAX Assessment order 23153/18 1998-99 16.01.2004 21.10.2007 09.04.2018 4,89,018
-12[2] 23559/18 1999-00 04.06.2003 -DO- -DO- 83,319
-12[7] 23560/18 2000-01 20.12.2003 -DO- -DO- 11,61,018
-12[2] 23561/18 2001-02 06.05.2006 -DO- -DO- 5,42,129
-12[2] 23562/18 2002-03 27.05.2006 -DO- -DO- 10,17,242
-12[2] 32,92,726 ALL TOTAL: 64,33,369
10. The orders passed under Section 25-A of the Act pursuant to the judgment of the Hon'ble Apex Court in Pro Lab's (supra), are impugned herein mainly on two grounds. Firstly, the order under Section 25-A of the Act are passed beyond the period of limitation. Secondly, the Assessing Authority had no jurisdiction to pass orders under Section 25-A of the Act in view of the change in the tax regime and the re-designation of the officers from KST/KVAT to GST regime.
11. Learned counsel Sri.T.N.Keshavamurthy appearing for the petitioner argued that period of limitation
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prescribed under Section 25-A of the Act is five years from the date of an order passed. Indisputably, the orders impugned herein are passed beyond the period of five years from the date of the original order passed by the Assessing Authority. Hence, the order impugned is ex facie illegal. Nextly, it was argued that no notification has been issued conferring the powers on the Assessing Authority to exercise powers under Section 25-A of the Act after re- designation of the office under the provisions of GST Act. Though these two grounds were urged, the learned counsel has restricted his arguments only to the aspect of limitation requesting the Court to keep open the issue of jurisdiction. Learned counsel placed reliance on the following judgments:
1. Keshoram Surindranath Photo-Mag [P] Ltd., and Others V/s. Assistant Commissioner of Commercial Taxes [LR], City Division, Bangalore and Others, [121 STC 175 HC.DB]
2. Associated Cement Companies Ltd., V/s.
Commissioner of Customs, [124 STC 59 SC]
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3. Golden Color Lab & Studio V/s. Commissioner of Commercial Taxes and Another [134 STC 570 [HC] [DB]]
4. Pro Lab and Others V/s. State of Karnataka [[144 STC 33 [HC] [DB]]
5. State of Karnataka V/s. Pro Lab and Others [2015 [81] Kar. L.J. 377 [SC]
6. Mysore Cements Limited V/s. Deputy Commissioner of Commercial Taxes [Assessement-V] City Division-II, Bangalore [93 STC 464 Kar.]
12. Learned counsel for the Revenue justifying the impugned orders, submitted that relating to the assessment years 1989-90 to 1997-98, the original rectification order under Section 25-A itself was bad since the same was passed beyond the period of five years from the date of the order passed whereby tax levied under Entry 25-A of Sixth Schedule has been nullified. Hence, further delay if any caused in the second rectification order under Section 25-A of the Act would not invalidate the
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orders. It was argued that the rectification orders have been passed under Section 25-A of the Act in all the assessment years involved herein, to give effect to the order of the Hon'ble Apex Court in the Pro Lab's case. Hence, the same are legally valid and justifiable. Reliance was placed on the judgment of the Hon'ble Apex Court in the case of [1] M/s. K.B.Foams [P] Ltd., V/s DCCT, Bangalore City Division, Bangalore and Another [62 STC 233]; and [2] State of Tamil Nadu V/s. Mahalakshmi Textile Mills Ltd., [1999] 113 STC 1 [SC].
13. I have carefully considered the rival submissions of the learned counsel for the parties and perused the material on record.
14. The main controversy relates to the period of limitation in passing the orders under Section 25-A of Sixth Schedule to the Act pursuant to the judgment of the Hon'ble Apex Court in Pro Lab's case. Section 25-A of the Act reads thus:
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"25-A. Rectification of mistakes. - [1] With a view to rectifying any mistake apparent from the record, the assessing authority, appellate authority or revising authority, may, at any time, within five years from the date of an order passed by it, amend such order:"
15. This provision makes it clear that the 'Assessing Authority' [for the purpose of the present cases], is empowered to rectify any mistake apparent from the record, at any time, within a period of five years from the date of the order passed by the said authority. Indisputably, all the impugned orders herein are passed beyond the period of five years from the date of the original assessment order/original rectification order. This Hon'ble Court in the case of Mysore Cements Limited, supra, had the occasion to consider Section 25-A of the Act inasmuch as rectification of mistakes. After extensively analyzing the various judgments holding the field, it has been held that:
"27. It should, however, be borne in mind that orders which have become final, cannot be rectified. This is not because a mistake apparent on the record ceases to be so in regard to an order which has become
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final, but because the time/limitation prescribed for appeal, revision, review or rectification, had expired. In other words, so long as the time prescribed for rectification or other remedy under the relevant Statute has not expired, the order cannot be said to have become final, for purpose of rectification."
16. It is also encapsulated what would be "mistakes apparent in the record relating to a question of law". No doubt the subsequent decision of the Hon'ble Supreme Court or concerned High Court if to be given effect to under the said provision, the same has to be in conformity with the period of limitation of five years provided therein. Revenue is not in a position to explain how this period of limitation of five years could be enlarged. Surprisingly, the assessing authority has invoked the said provision relating to the assessment years 1989- 90, 1991-92 to 1997-98 to reduce the tax liability giving effect to the order of this Court that no tax liability can be fixed under Entry 25 of Sixth Schedule of the Act, beyond the period of limitation. Machinery is provided under the Act to check the error committed by the assessing
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authority if it is prejudicial to the interest of revenue. Strangely, this aspect has not been noticed by the hierarchy of authorities provided under the Act. The same having reached finality, at this length of time, the reduction of tax based on the order under Section 25-A of the Act cannot be held to be unjustifiable. However, department has to initiate suitable action in respect of the concerned officers for enlarging the period of limitation provided under Section 25-A of the Act, in extending the benefits to the assessee.
17. Further, though proviso to Sub-section [2] of Section 12-A of the Act provides for computing the period of limitation for assessment of the escaped turnover to exclude the time within which any action has been taken to give effect to, any finding, direction or order may under Sections 20, 21, 22, 22A, 23 or 24 or any judgment or any order made by the High Court or Supreme Court or any other Court, the said provision has not been invoked by the assessing authority. On the other hand, Section 25-A
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of the Act which provides only five years limitation has been invoked. Even on this ground, the concerned officers have to be fixed with, for the loss of revenue caused to the State Exchequer. The orders of rectification impugned herein cannot be approved, being passed beyond the period of limitation envisaged under Section 25A of the Act and deserves to be set aside on the ground of limitation alone. As already observed, the jurisdiction/competency of the assessing authority to exercise the powers under Section 25-A of the Act is not pressed.
18. Accordingly, the orders impugned passed by respondent No.1 under Section 25A of the Act, as well as the consequential demands raised are quashed. However, liberty is reserved to the revenue to take recourse to appropriate proceedings in accordance with law to give effect to the judgment of the Hon'ble Apex Court in Pro Lab's case supra, relating to Entry 25 of VI Schedule to the Act if available under the Act.
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Writ petitions stand disposed of in terms of the above.
Sd/-
JUDGE PMR/NC