TaxTMI 
TaxTMI 
2026 (7) TMI 1045
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....B.G., learned counsel for the appellant in STA No. 11/2022 and STA No. 12/2022; and Sri Atul K. Alur, learned counsel for the appellant in STA Nos. 02/2025, 05/2025 and 07/2025, and Sri Aditya Vikram Bhat, learned Additional Government Advocate for the respondent-authorities/Revenue. 2. These appeals are filed under Section 66(1) of the Karnataka Value Added Tax Act, 2003 (for short, 'the Act') by the dealer/assessee, impugning the order passed by the Suo Motu Revisional Authority (for short, 'the SMR Authority') under Section 64 of the Act. 2.1 The following substantial questions of law are admitted by this Court: In STA No. 03/2023 i) "Whether ITC rightly claimed by the Appellant can be denied to it under the KVAT Act solely on the basis of the supplier allegedly being de-registered and / or not remitting the tax admittedly paid to it by the Appellant; ii) Whether the 1st Respondent is justified in placing reliance on the Hon'ble Supreme Court's judgment in Ecom Gill since, even assuming but not admitting that the ratio of the said decision were to applicable to the instance case, there is no dispute whatsoever that the goods in question were deli....
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....r the revisional authority was right in computing the limitation from the date of the original order U/s 39 of the KVAT Act and in rejecting/dismissing the appeal on the ground of limitation. ii) Whether the revisional authority was right in coming to the opinion that the subject Endorsement merges with the order under Section 39 of the KVAT Act when rejecting the appeal on limitation. iii) Whether the revisional authority was right in initiating the proceedings under Section 64 of the KVAT Act after the repeal of the KVAT Act, w.e.f. 30/06/2017. iv) Whether the revisional authority was right in concluding that proceedings are not barred by limitation under Section 64(3)(c) of the KVAT Act. v) Whether the revisional authority was right in passing the order after the substitution of Entry 54 of the VI Schedule to the Constitution of India." In STA No. 7/2025: i) Whether the Additional Commissioner, after having issued notice on 08.01.2020 under Section 64(1) of the KVAT Act five years after the Rectification order putting the appellant on notice on a specific ground asserting an error resulting in prejudice to the Revenue's inter....
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....ct to revise the order dated 29.10.2018 is bad in law. 4.3 It is further submitted that an order under Section 64 of the Act has to satisfy the twin conditions, namely, that the order sought to be revised is erroneous and prejudicial to the interests of the Revenue. The absence of either of these conditions would invalidate the order. It is contended that the mere possibility of another view or opinion cannot constitute a ground to invoke Section 64 of the Act. 4.4 It is submitted that the order passed by the First Appellate Authority was made after considering all the material evidence on record and that the said order was neither erroneous nor prejudicial to the interests of the Revenue. According to the learned counsel, the proceedings have been initiated merely on a change of opinion. It is further submitted that the findings recorded by the SMR Authority on merits are without considering the submissions made on behalf of the assessee. It is also contended that the Input Tax Credit (ITC) cannot be denied merely on the premise that the genuineness of the transactions has not been proved. 5. Sri Chidanand Urs B.G., learned counsel appearing for the appellant-assessee in ....
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....see. 6.1 It is further submitted that the mere calling for records does not amount to initiation of proceedings unless the same culminates in adjudication. According to the learned counsel, the proceedings commence only upon issuance of a show-cause notice under Section 64 of the Act and conclude upon the passing of an order under the said provision. It is submitted that if both the initiation and conclusion of the proceedings have not taken place within a period of four years from the date of the order sought to be revised, the proceedings would be liable to fail as being barred by limitation. 7. Per contra, Sri Aditya Vikram Bhat, learned Additional Government Advocate appearing for the respondent-authorities/Revenue, submits that the question regarding limitation is no longer res integra in view of the pronouncements of this Court. In support of his submissions, reliance is placed on the judgments of this Court in M/s. Abhiram Infra Projects Pvt. Ltd. vs. Additional Commissioner of Commercial Taxes and Another in STA No.04/2023 dated 27.09.2024, and M/s. Kalyan Jewellers Salem (Pvt.) Ltd. vs. Additional Commissioner of Commercial Taxes in STA No.06/2025 dated 02.07.2025. ....
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....s he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment or directing a fresh assessment. (3) The Additional Commissioner or the Commissioner shall not exercise any power under sub-section (1) or sub-section (2), as the case may be, if.- (a) the time for appeal against the order has not expired; (b) the matter has been subject to an appeal under Section 63 or a revision in the High Court; or (c) more than four years have expired after the passing of the order sought to be revised. [Provided that in the case of an order passed by the Appellate Authority under Section 62 allowing the appeal preferred in full, the condition specified in clause (a) shall not apply.] (4) Notwithstanding anything contained in sub-section (3), the Additional Commissioner or the Commissioner may pass an order under sub-section (1) or (2), as the case may be, on any point which has not been raised and decided in an appeal or revision referred to in clause (b) of sub-section (3), before the expiry of a period of one year from the date of th....
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....under Section 64 of the Act is for calling for records and initiating proceedings, and not for passing the final order. In the light of the aforesaid judgments of this Court, if records are called for, or notice is issued under Section 64, within a period of four years, the mere fact that the order is passed after the expiry of four years would not render the proceedings barred by limitation. It has been held that the date of calling for records would be relevant for determining the period of limitation prescribed under sub-section (3) of Section 64 of the Act. The question is answered accordingly. 11.1 However, the contention of the respondent-Revenue that once records are called for within a period of four years, there would be no limitation whatsoever for passing an order under Section 64 of the Act cannot be accepted, particularly when the scheme of the Act is structured on the basis of prescribed timelines, both for the assessee and the Assessing Authority. The power to pass an order cannot remain unfettered and without any time limit. Such an interpretation would lead to unintended and adverse consequences. It would result in arbitrary exercise of power and harassment of t....
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....ly and mandate that the proceedings be concluded within a reasonable time. Section 32 of the Act mandates the assessee to maintain books of account and other documents for a period of five years. Section 64 of the Act, in cases where an appeal or revision gives rise to revisional jurisdiction, prescribes a period of four years, as provided under clause (c) of Section 64(3), or one year, whichever is later, for completion of the revision proceedings. A cumulative reading of these provisions would indicate that, in any event, the revision proceedings should be completed within a period of five years from the date of the order sought to be revised. 16. It is a settled position of law that where no limitation is prescribed for the initiation or conclusion of proceedings, such proceedings cannot be kept pending indefinitely to the detriment of the taxpayer and contrary to the scheme of the Act. The Hon'ble Supreme Court in State of Punjab v. Bhatinda District Coop. Milk Producers Union Ltd., (2007) 10 VST 180 / (2007) 11 SCC 363, approved and prescribed a limitation in such situations. The principle laid down therein is as follows: "15. Sub-section (1) of Section 11 provided....
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....o contend that no period of limitation can be prescribed in a situation such as the present for initiating proceedings. 12. Learned counsel for the assessee relied upon State of Punjab v. Bhatinda District Co-op. Milk Producers Union Ltd., (2007) 11 SCC 363; (2007) 9 RC 637 to contend that if no period of limitation is prescribed, a statutory authority must exercise its jurisdiction within a reasonable period. What should be the reasonable period depends upon the nature of the statute, rights and liabilities thereunder and other relevant factors. 13. Relying upon this decision, it is submitted by learned counsel for the assessee that since section 201 of the Act does not prescribe any period of limitation for initiating or for completing proceedings in declaring the assessee as an assessee in default, exercise of jurisdiction should commence in so far as the statutory authority is concerned within a reasonable period of time. 14. We are unable to agree with learned counsel for the Revenue inasmuch as the decision relied upon by him deals with reasonable time for completing the assessment or for completing the task on hand. 15. In Bharat Steel Tub....
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....re, do not merit consideration for the purpose of this case. 19. Even though the period of three years would be a reasonable period as prescribed by section 153 of the Act for completion of proceedings, we have been told that the Income-tax Appellate Tribunal has, in a series of decisions, some of which have been mentioned in the order which is under challenge before us, taken the view that four years would be a reasonable period of time for initiating action, in a case where no limitation is prescribed. 20. The rationale for this seems to be quite clear-if there is a time limit for completing the assessment, then the time limit for initiating the proceedings must be the same, if not less. Nevertheless, the Tribunal has given a greater period for commencement or initiation of proceedings. 21. We are not inclined to disturb the time limit of four years prescribed by the Tribunal and are of the view that in terms of the decision of the Supreme Court in Bhatinda District Co-op. Milk Producers Union Ltd.(2007) 9 RC 637; 11 SCC 363 action must be initiated by the competent authority under the Income-tax Act, where no limitation is prescribed as in section 201 ....
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....om the date on which the order sought to be revised was passed. 18. CONCLUSION (a) The letter calling for the records issued by the SMR Authority within a period of four years from the date of the order sought to be revised constitutes a valid initiation of proceedings as per Section 64 of the Act. (b) If the order under Section 64 of the Act is passed within a period of one year after the expiry of four years from the date of the order sought to be revised, the same shall nevertheless be valid, provided that the letter calling for the records was issued within the said period of four years. 19. We shall now examine the question of limitation in the light of the above observations in each of the cases before us. 19.1 In STA No. 03/2023-List of dates are as under: Sl.No. Particulars Dates 1. Appeal order passed by the FAA which was sought to be revised under Section 64(1) of the Karnataka Value Added Tax, 2003. 29.10.2018 2. Letter issued by the SMR Authority calling for records. 12.07.2022 3. Notice issued by the SMR Authority under Section 64(1) of the KVAT Act. 05.08.2022 4. Revision order passed by the SMR Authority under ....
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....oices and delivery notes were available. In the absence of the aforesaid documents, the SMR Authority set aside the order of the first appellate authority and restored the order passed by the prescribed authority under Section 39 of the Act. 19.1.5 The manner and scope of discharge of the burden of proof and the requirements under Section 70 of the Karnataka Value Added Tax Act, 2003 have been considered by the Hon'ble Supreme Court in State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd., (2023) 111 GSTR 1 (SC) / (2023) 18 SCC 809. The relevant paragraphs read as follows: ".... 13. Therefore, the short question which is posed for the consideration of this Court is, "Whether, in the facts and circumstances of the case, the second appellate authority as well as the High Court were justified in allowing the input tax credit?" 14. While considering the aforesaid issue/question, Section 70 of the Karnataka Value Added Tax Act, 2003 is required to be referred to, which reads as under: "70. Burden of proof.-(1) For the purposes of payment or assessment of tax or any claim to input tax under this Act, the burden of proving that any transaction of a....
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....physical movement of goods, genuineness of transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC. In fact, the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per Section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. At the cost of repetition, it is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per Section 70 of the 2003 Act. 17. Even considering the intent of Section 70 of the 2003 Act, it can be seen that ITC can be claimed only on the genuine transactions of the sale and purchase and even as per Section 70(2) if a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to take at a lower rate, or that a deduction of input tax is available, such a dealer is liable to pay the penalty. Therefore, as observed hereinab....
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....indings given by the assessing officer as well as the first appellate authority, on irrelevant considerations that producing invoices or payments through cheques are sufficient to claim ITC which, as observed hereinabove, is erroneous. As observed hereinabove, over and above the invoices and the particulars of payment, the purchasing dealer has to produce further material like the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgment of taking delivery of goods including actual physical movement of the goods, alleged to have been purchased from the dealers concerned. 20. Now so far as the reliance placed upon Rules 27 and 29 of the Karnataka Value Added Tax Rules, 2005 and the submission on behalf of the purchasing dealers that under the provisions of the 2005 Rules, more particularly under Rules 27 and 29, the only requirement is to issue the tax invoice and to produce the same and there is no other requirement is concerned, the aforesaid has no substance. Rule 27 cast an obligation on the dealers to issue tax invoice and the particulars of the tax invoice are provided under Rule 29. Merely....
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....uthority as well as the High Court have materially erred in allowing ITC despite the purchasing dealers concerned having failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per Section 70 of the KVAT Act, 2003. The impugned judgment(s) and order(s) passed by the High Court [State of Karnataka v. Tallam Apparels, 2021 SCC OnLine Kar 15785], [State of Karnataka v. Ecom Gill Coffee Trading (P) Ltd., 2021 SCC OnLine Kar 15783], [CCT v. Rajshree Impex, 2021 SCC OnLine Kar 15784], [Transworld Star Manjushree v. CCT, 2021 SCC OnLine Kar 15782] and the second appellate authority allowing ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside. The orders passed by the assessing officer denying ITC to the purchasing dealers concerned, confirmed by the first appellate authority are hereby restored." 19.1.6 In the light of the above and the tests prescribed by the Hon'ble Supreme Court for determining the eligibility of input tax credit, this Court is of the view that the matter requires reconsideration by the SMR Authority. It is pertinent to note that the order passed by the SMR Authority is much pr....
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....anation offered by the assessee. Insofar as the denial of deduction towards security charges is concerned, the SMR Authority held that security charges would not fall within the scope of supply and labour and like charges eligible for deduction under Rule 3(2) of the Karnataka Value Added Tax Rules, 2005 (for short 'the Rules'). 19.2.3 It is contended by the learned counsel for the assessee that security charges are in the nature of manpower supply and would, therefore, fall within the ambit of supply of labour. It is further contended that such expenditure is incurred in relation to the execution of the works contract and ought to be treated as labour and service charges for the purpose of deduction. 19.2.4 This Court finds merit in the contention urged by the learned counsel for the assessee. Rule 3(2)(l) of the Karnataka Value Added Tax Rules, 2005, reads as under: "3. Determination of turnover.- (1) The total turnover of a dealer, for the purposes of the Act, shall be the aggregate of .- xxxxx (2) The taxable turnover shall be determined by allowing the following deductions from the total turnover.- xxxxx (l) All amounts actual....
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....he supply of labour and services. Explanation II to Rule 3(2) of the Karnataka Value Added Tax Rules, 2005, reads as under: "Explanation - II: For the purpose of clause (l), "labour and other like charges" include charges for obtaining, on hire or otherwise, machinery and tools used in the execution of a works contract, charges for planning, designing and architects' fees, cost of consumables used in the execution of the works contract, cost of establishment to the extent relatable to supply of labour and services and other similar expenses relatable to supply of labour and services." 19.2.9 There is no dispute with regard to the incurring of these expenses. Fuel expenses would have been incurred for various activities in the course of execution of the works contract. In view of Explanation II, the finding recorded by the SMR Authority that such expenditure is not deductible under Rule 3(2) of the Rules is erroneous. 19.2.10 The last issue pertains to labour charges, which were admittedly not claimed during the re-assessment proceedings. The suo motu revisional jurisdiction can be invoked only when the order passed by the Assessing Authority or the First Appellate Au....
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....the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.-***" 6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to Section 263(1) of the Act. 7. There can be no doubt....
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....s of the Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84 (SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323] .)" 19.2.14 It is also a settled position of law that where the view taken by the Assessing Authority is one of the possible views, the mere existence of another possible view, or the fact that the Revisional Authority holds a different view, would not justify the exercise of suo motu revisional power. 19.2.15 In the present case, the Assessing Authorit....
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..... The letter calling for records by the SMR Authority is dated 21.12.2019, and the same is within a period of four years from the date of the orders sought to be revised. However, the order passed by the SMR Authority under Section 64(1) of the Act is beyond a period of five years from the date of the order sought to be revised and is, therefore, clearly barred by limitation and not sustainable on that ground. 19.5 In STA No.2/2025-List of dates are as under: Sl.No. Particulars Dates 1. Appeal order passed by the FAA which was sought to be revised under Section 64(1) of the Karnataka Value Added Tax, 2003. 29.09.2018 2. Letter issued by the SMR Authority calling for records. 04.04.2019 3. Notice issued by the SMR Authority under Section 64(1) of the KVAT Act. 16.03.2024 4. Revision order passed by the SMR Authority under Section 64(1) of the KVAT Act. 31.07.2024 19.5.1 The order sought to be revised is dated 29.09.2018. The letter calling for records by the SMR Authority is dated 04.04.2019, which is within a period of four years from the date of the orders sought to be revised. However, the order dated 31.07.2024 passed by the SMR....