Court Quashes Tax Demand on Kalyani Motors, Imposes Costs on Officer

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Case Name:

Kalyani Motors Pvt. Ltd. vs Deputy Commissioner of Income Tax (High Court of Karnataka)

Writ Petition Nos.60480/2016

Key Takeaways:

- The court quashed the reassessment order demanding Rs. 8,04,88,670/- from Kalyani Motors.

- The court found that the applicable notification, which allowed a reduced tax rate, was ignored.

- The responsible officer was ordered to pay Rs. 50,000/- in costs from personal resources.

Issue

Did the Deputy Commissioner of Commercial Taxes err in demanding purchase tax from Kalyani Motors despite an applicable notification allowing a reduced tax rate?

Facts

- Kalyani Motors Pvt. Ltd. deals in the sale and purchase of used cars.

- The Deputy Commissioner of Commercial Taxes issued a reassessment order demanding Rs. 8,04,88,670/- in purchase tax for the period 01.04.2011 to 31.08.2015.

- The demand was based on the difference of purchase tax under Section 3(2) of the KVAT Act, 2003.

- Kalyani Motors argued that a specific notification allowed them to pay only 5% tax on the difference between the taxable turnover and the purchase amount of used cars.

- The notification was ignored by the tax authority, leading to the demand.

Arguments

- Petitioner (Kalyani Motors):

- Argued that the notification No. FD 82 CSL 10(VI), dated 31.03.2010, allowed them to pay only 5% tax on the difference between the taxable turnover and the purchase amount of used cars.

- Claimed that the tax authority ignored this notification and denied input tax credit without proper justification.

- Respondent (Deputy Commissioner of Commercial Taxes):

- Failed to provide a valid reason for the non-applicability of the notification to Kalyani Motors' case.

- Did not dispute the satisfaction of the notification's conditions by Kalyani Motors.

Key Legal Precedents

- Notification No. FD 82 CSL 10(VI), dated 31.03.2010:

- Reduced the tax payable by dealers engaged in the purchase and sale of used motor vehicles to 5% of the difference between the taxable turnover and the purchase amount.

- Conditions included no deduction of input tax and prior registration of the vehicles in the state.

Judgement

- The High Court quashed the reassessment order dated 28.10.2016.

- The court found that the tax authority ignored the applicable notification, which was a clear error.

- The Deputy Commissioner of Commercial Taxes was ordered to pay Rs. 50,000/- in costs from personal resources to the Registrar General of the court, to be remitted to the Prime Minister’s Relief Fund.

FAQs

Q1. What was the main issue in this case?

A1. The main issue was whether the Deputy Commissioner of Commercial Taxes erred in demanding purchase tax from Kalyani Motors despite an applicable notification allowing a reduced tax rate.

Q2. What was the outcome of the case?

A2. The High Court quashed the reassessment order and imposed costs on the responsible officer.

Q3. What was the significance of the notification in this case?

A3. The notification allowed Kalyani Motors to pay a reduced tax rate of 5% on the difference between the taxable turnover and the purchase amount of used cars, which the tax authority ignored.

Q4. What were the conditions of the notification?

A4. No deduction of input tax and prior registration of the vehicles in the state.

Q5. What were the costs imposed on the responsible officer?

A5. The officer was ordered to pay Rs. 50,000/- from personal resources to the Registrar General of the court, to be remitted to the Prime Minister’s Relief Fund.

1. The petitioner-assessee M/s.Kalyani Motors Pvt. Ltd., has filed this writ petition against the reassessment order Annexure-A dated 28.10.2016 passed by the 1st Respondent-Deputy Commissioner of Commercial Taxes (Audit) – 2.4, Koramangala, Bengaluru of the Respondent-Department of Commercial Taxes, raising a Demand of Rs.8,04,88,670/- against the assessee for the period 01.04.2011 to 31.08.2015 imposing difference of purchase tax u/s.3(2) of the KVAT Act, 2003.

2. The Assessee deals with the sale and purchase of used cars.

3. The learned counsel for the petitioner Mr.V.Raghuraman submits that though under the specific Notification No. FD 82 CSL 10(VI), Bangalore, dated 31.03.2010, the assessee was entitled to pay only 5% of the tax on the difference of value between the taxable turnover in respect of such sales of used motor vehicles and the amount paid towards the purchase of such used motor vehicles, subject to the conditions stipulated in such Notification but ignoring the said Notification, the Respondent-authority has demanded the purchase tax from the assessee and has denied the claim of input tax credit also, raising the aforesaid Demand on the ground that no returns were filed in support of the claim of ITC made by him. Though a reference to the said Notification has been noted in the Table of Notifications by the said authority given in the impugned order, the said authority has not discussed the same as to why such Notification will not cover the case of the assessee.

4. The said Notification is quoted below for ready reference:-

“ NOTIFICATION

No.FD 82 CSL 10(VI), Bangalore dated 31-3-2010 In exercise of powers conferred by sub- section (3) of Section 4 of the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004) read with Section 21 of the Karnataka General Clauses Act, 1899 (Karnataka Act III of 1899), and in supersession of Notification No.FD 182 CSL 2008(V), dated 31st July, 2008 (See Sl.No.109), published in Karnataka Gazette, Extraordinary, dated 31st July, 2008, the Government of Karnataka hereby reduces with effect the First day of April, 2010, the tax payable by a dealer engaged in the purchase and sale of used motor vehicles, on the sale of all kinds of used motor vehicles including used motor cycles under sub-section (1) of Section 4 of the said Act to five per cent of the difference between the taxable turnover in respect of such sale and the amount paid towards purchase of such motor vehicles subject to the condition that :-

(1) no deduction of input tax is claimed by the dealer in respect of purchase of any goods used in the motor vehicles sold ; and

(2) such motor vehicles have been registered in the State prior to their sale under the provisions of the Motor Vehicles Act, 1988 (Central Act 59 of 1988).

Note: For the words “five per cent”, the words “five and one half per cent” shall be substituted by Notification No.FD 143 CSL 12(III), dated 31- 07-2012 (Sl.No.164)”.

5. The learned AGA for the Respondent-Revenue Mr.T.K.Vedamurthy was unable to make out any ground for non applicability of the said Notification to the facts and circumstances of the case. The satisfaction of condition of the Notification by the Assessee is also not disputed by the Revenue.

6. Undisputedly, the assessee during the relevant period has dealt with the business of sales and purchase of used cars only and therefore, the applicability of the said Notification on all fours on the case of the present assessee for the period in question is not in dispute and denied in the present case.

7. After hearing the learned counsels, this Court is surprised and is pained by the manner in which the authority has passed the impugned reassessment order in the second round of assessement for the period 01.04.0211 to March 2012 just ignoring the applicable Notification and throwing it to winds. The said order is therefore nothing less than suffering from malice-in- facts as well as malice-in-law. Therefore, the said responsible officer deserves to pay the exemplary costs for passing such whimsical order and the writ petition deserves to be allowed.

8. Accordingly, the writ petition is allowed and the impugned order Annexure-A dated 28.10.2016 passed by the 1st Respondent is hereby quashed and set aside. The 1st Respondent-Assessing Authority Ms.K.C.Sujatha, Deputy Commissioner of Commercial Taxes (Audit) – 2.4, Bengaluru, is directed to deposit the costs quantified at Rs.50,000/- from her personal resources with the Registrar General of this Court within a period of one month from today, failing which, the same may be deducted from her salary by the Commissioner, Commercial Tax Department and the same to be paid to the Registrar General of this Court. The amount upon deposit shall be remitted to the ‘Prime Minister’s Relief Fund’, Delhi, for meeting the costs of relief to sufferers of natural disasters.

Sd/-

JUDGE