The Karnataka High Court held that the prescribed authorities under the Karnataka value added Tax (KVAT) Act has no power to assess the petitioner-dealer under VAT Scheme for the period when the composition certificate issued under Rule 137 of the Rules was in existence. The Court further quashed the Re-assessment proceedings since the petitioner ready to file VAT 100 returns and to pay the tax under the VAT Scheme subsequent to cancellation of the composition certificate.
The petitioner, Oriental Cuisines Pvt. Ltd is a company engaged in Hotel industry running a chain of restaurants registered under Karnataka VAT 2003 and central sales Tax Act, 1956. The issue begins with the decision of Assistant Commissioner of Commercial Taxes, who cancelled the composition scheme in terms of Section 15(1) of the KVAT Act relating to two outlets by reasoning that petitioner is dealing in liquor either at the principal place of business or branches.
The business premises inspected by the Enforcement Wing and proceeded for reassessment and concluded disallowing the input tax credit and enhancing the tax liability with penalty and interest.
The petitioner challenged the decision and filed a petition before Karnataka High Court. The counsel for the petitioner raised a contention that the re-assessment order is invalid since the composition scheme opted by the petitioner was cancelled earlier by the commissioner.
The counsel also made a further submission that the approach of the Authorities in concluding the Re-assessment and enhancing the tax liability assessing the entire turnover of the assessee in VAT scheme irrespective of the branches without canceling the composition certificate during the relevant period calls for interference by this Court.
On contrary to this, the Additional Government advocate appearing for the respondent with the support of decision in M/s. Aswati inns private limited V/S. The State of Karnataka and another raised a statement that the Composition Scheme under Section 15 of the KVAT Act read with Rules 135 to 141 of the KVAT Rules prescribes the condition of the composite scheme whereby inter-state purchase and selling of liquor is totally prohibited.
The court heard the contentions and perused the cases cited by them. While perusing the inspection report wherein stated that assessee filing return under CoT has effected inter-state purchase of raw-material, purchase and sale of liquor under the excise license CL-9, Re-assessment proceedings under Section 39(1) of the KVAT Act were initiated and concluded, reassessing the dealer under the VAT Scheme and assessing the taxable turnover to levy of tax at 14.5% rejecting the composition scheme.
The Court cited various case laws and observed that ” it is clear that unless the certificate issued under Rule 137 [Composition Certificate] has not been canceled, the Dealer-Petitioner herein would be entitled to continue with the benefit under Section 15 of the KVAT Act on composition scheme”.
“It is also made clear that VAT option is enabled to file VAT100 returns with effect from 1.8.2015. Even in the notice, for cancellation of composition scheme, it was proposed to cancel the COT facility with immediate effect. The same coming into effect from 22.07.2015, the Prescribed Authority has no power to assess the petitioner-dealer under VAT Scheme for the period when the composition certificate issued under Rule 137 of the Rules was in existence. Rule 137 provides for the issuance of certificates. The certificate issued under Rule 137 entitles the petitioner to make payment in terms of composition scheme at 4% unless the same is canceled in terms of Rule 145 of the Rules. Indisputably, the certificate issued under Rule 137 was not canceled during the tax period April 2014 to March 2015.”
The bench, finally, concluded that for the period in question, no reassessment can be made under Section 39[1] of the VAT Act subjecting the petitioner to tax under VAT Scheme.
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