Assistant Commissioner of Commercial Taxes Vs Kapsons Online Private Limited (Karnataka High Court)
Summary: The Karnataka High Court, in Assistant Commissioner of Commercial Taxes Vs Kapsons Online Private Limited, considered whether the Karnataka Appellate Tribunal could decide a VAT reassessment dispute on merits by relying upon evidence produced for the first time before it, without giving the original assessing authority an opportunity to examine that evidence. The Revenue filed a Sales Tax Revision Petition under Section 65(1) of the Karnataka Value Added Tax Act, 2003, challenging the Tribunal’s order dated 28 February 2025 in STA Nos. 35 and 36 of 2024. The dispute concerned alleged suppression of interstate purchases and sales turnover during the financial years 2014-15 and 2015-16.
Kapsons Online Private Limited was engaged in online trading of readymade garments, footwear, sportswear and accessories. During an inspection, the Enforcement Authority identified discrepancies between the interstate purchase turnover disclosed in monthly Form VAT-100 returns and the transactions reflected in e-Sugam declarations. The enforcement report also referred to unexplained credits in the company’s bank account. Based on these discrepancies, reassessment proceedings under Section 39(1) of the KVAT Act were initiated. Although notices were issued, the assessee did not participate or submit supporting documents. Consequently, ex parte reassessment orders were passed on 10 April 2019 and 22 September 2020.
The assessee challenged the reassessments before the Joint Commissioner of Commercial Taxes (Appeals), contending that the purchases had been properly disclosed. However, the First Appellate Authority found that the assessee had failed to produce documentary evidence substantiating its claims and granted only partial relief. On further appeal, the Karnataka Appellate Tribunal set aside the reassessment orders in their entirety. The Revenue challenged this decision, arguing that the Tribunal had proceeded to decide disputed factual issues without appreciating the assessee’s earlier non-cooperation and without referring the fresh evidence to the original assessing authority.
Before the High Court, the Revenue submitted that the reassessments were based on information collected by the Enforcement Authority and that the assessee had been afforded opportunities to participate. It argued that, if the Tribunal considered the reassessment or appellate orders deficient in reasoning or contrary to the principles of natural justice, the appropriate course was to remand the matter for fresh examination. The assessee maintained that the reassessments lacked a valid basis and that the Tribunal had correctly considered the procedural deficiencies and decided the matter on merits.
The High Court observed that the assessee had been issued notices and given opportunities to submit replies and supporting documents but had failed to participate in the original proceedings. The Tribunal subsequently considered material produced for the first time before it, even though that material had not been examined by the Prescribed Authority. The Court held that, once the Tribunal accepted the plea concerning violation of natural justice and proposed to rely upon fresh evidence, it should have remitted the dispute to the Prescribed Authority for proper examination. Although the Tribunal is the final fact-finding authority, it cannot assume the original assessing authority’s role by evaluating fresh evidence and recording foundational factual findings for the first time.
Accordingly, the High Court allowed the Revenue’s revision petition and set aside the Karnataka Appellate Tribunal’s order dated 28 February 2025, the First Appellate Authority’s order dated 31 October 2023 and the reassessment orders dated 10 April 2019 and 22 September 2020. The matter was remitted to the Prescribed Authority for fresh reassessment in accordance with law after granting the assessee an opportunity to present its evidence. The Court expressly directed that the Prescribed Authority should not be influenced by the Tribunal’s earlier findings. The decision reinforces the distinction between appellate fact-finding powers and the original authority’s responsibility to examine and evaluate evidence in tax reassessment proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Heard Sri Aditya Vikram Bhat, learned Additional Government Advocate for the petitioners-Revenue and Sri P.E. Umesh, learned counsel for the respondent-Assessee.
2. This Sales Tax Revision Petition is filed by the State under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (for short, “the Act”), assailing the order dated 28.02.2025 passed by the Karnataka Appellate Tribunal, Bengaluru (for short, “the Tribunal”), in STA Nos. 35 and 36 of 2024.
3. The respondent is engaged in the business of online trading in readymade garments, footwear, sportswear, and accessories. During the tax periods 2014–15 and 2015–16, the respondent failed to declare the entire interstate purchase turnover in the monthly returns filed in Form VAT-100. The goods purchased from interstate dealers were transported on the strength of e-Sugams generated by the appellant, and the undisclosed purchase turnover was reported as suppressed purchases.
3.1 During the course of inspection, the Enforcement Authority detected discrepancies. Based on the discrepancies so found, reassessment proceedings were initiated. The respondent failed to cooperate and remained ex parte, resulting in the reassessment orders dated 10.04.2019 and 22.09.2020 being passed under Section 39(1) of the Act.
3.2 On appeal, the Joint Commissioner of Commercial Taxes (Appeals) [First Appellate Authority (FAA)] upheld the reassessment orders, granting partial relief. On further appeal preferred by the respondent, the Tribunal set aside the reassessment orders in their entirety and issued various directions. Aggrieved by the order passed by the Tribunal, the State has preferred the present revision petition before this Court.
4. Sri Aditya Vikram Bhat, learned Additional Government Advocate appearing for the petitioners, submits that the reassessment proceedings were initiated on the basis of information and material gathered by the Enforcement Authority. The respondent was duly served with notice; however, it failed to file any reply or participate in the proceedings. In the absence of any response, the Prescribed Authority, having no other alternative, proceeded to complete the reassessment proceedings ex parte.
4.1 It is further submitted that although the respondent preferred an appeal before the FAA, no material was placed on record to contradict the findings of the Prescribed Authority. The FAA noted that the respondent–appellant claimed that the entire purchase turnover had been declared and was reflected in the returns; however, it was held that no documentary evidence was produced in support of such contention.
4.2 It is submitted that the Tribunal, without taking into consideration the non-cooperation of the assessee before the Prescribed Authority, proceeded to adjudicate the matter on merits in the absence of any supporting material. It is further submitted that, if the Tribunal was of the view that the impugned orders passed by the Prescribed Authority and the FAA were in violation of the principles of natural justice or were bereft of reasons, it ought to have remitted the matter to the respective authorities for fresh consideration.
5. Sri P.E. Umesh, learned counsel appearing for the respondent, submits that the reassessment proceedings were initiated without any valid basis. It is contended that the reassessment, having been founded solely on the report of the Enforcement Authority and conducted without affording an opportunity to the respondent, is in violation of the principles of natural justice.
5.1 It is further submitted that even the FAA failed to appreciate the case in the proper perspective and that the order passed by the FAA is vitiated by inadequate reasoning. Learned counsel submits that the Tribunal, having duly considered these aspects, has rightly recorded findings on merits. It is therefore contended that no ground is made out to interfere with the order passed by the Tribunal, and accordingly, the revision petition is liable to be dismissed.
6. Having considered the submissions made on either side and upon perusal of the petition papers placed before the Court, we note that the reassessment proceedings were initiated on the basis of a report submitted by the Enforcement Authority of the Commercial Taxes Department. The said report indicated a mismatch between the e-Sugam declarations and the VAT returns, as well as unexplained credits in the respondent’s bank account.
7. The respondent was issued notice to participate in the proceedings and was afforded an opportunity to submit its reply along with supporting documents. However, the respondent failed to participate in the reassessment proceedings. Consequently, the Prescribed Authority proceeded to complete the reassessment on the basis of the material available on record.
8. Aggrieved thereby, the respondent preferred an appeal before the FAA. Though various contentions were urged before the FAA, the same were not substantiated by any material evidence, as the findings recorded by the Prescribed Authority were based on the evidence available on record. Except to the extent of granting partial relief, the FAA rejected the appeal.
9. Thereafter, the respondent preferred an appeal before the Tribunal, inter alia, contending violation of the principles of natural justice. The Tribunal framed the following points for consideration:
“1. Whether under the facts and in law, the respondent FAA is justified in upholding the ex-parte orders of the respondent AA passed for the financial years 2014-15 & 2015-16 in which the respondent AA has levied the impugned 5.5% & 14.5% VAT and the consequential interest & penalty on the suppressed sales turnovers arrived by adding Gross Profit to the difference purchase turnovers noticed between the VAT returns and e-sugams generated by the enforcement authority?
2. Whether under the facts and in law, the respondent FAA is justified in upholding the ex-parte order of the respondent AA passed for the financial year 2015-16 in which the respondent AA has levied the impugned 5.5% & 14.5% VAT and the consequential interest & penalty on the suppressed sales turnovers noticed between the VAT returns and bank statement as per enforcement report sent by the enforcement authority?
3. What Order?”
10. When the respondent specifically pleaded violation of the principles of natural justice and sought to rely upon material produced for the first time before the Tribunal—material which had admittedly not been produced before the Prescribed Authority—it was incumbent upon the Tribunal to remit the matter to the Prescribed Authority for fresh consideration, by granting an opportunity to the respondent to produce and substantiate the material relied upon.
11. The Tribunal committed an error in proceeding to adjudicate the issues on merits after recording a finding of violation of the principles of natural justice. The material relied upon by the Tribunal appears not to have been made available to the Prescribed Authority for its comments or consideration. The initial stage of evaluation of evidence vests with the Prescribed Authority, which is the authority competent to record foundational facts.
12. Though the Tribunal is undoubtedly the final fact-finding authority, it cannot assume the jurisdiction of the Prescribed Authority by accepting evidence and recording findings for the first time, particularly in a case where the Prescribed Authority had afforded liberty to the respondent and the respondent failed to submit a reply or produce documents for consideration.
13. In our view, without examining the merits of the matter any further, the order passed by the Tribunal is not sustainable for the reasons stated above. The material and contentions relied upon by the respondent, as discernible from the order of the Tribunal, require consideration by the Prescribed Authority. The Prescribed Authority would be in a better position to appreciate and evaluate the evidence sought to be relied upon by the respondent.
14. In that view of the matter, the following order;
Order
(i) The Sales Tax Revision Petition is allowed.
(ii) The impugned order dated 28.02.2025 passed in STA Nos.35 & 36/2024 by the Karnataka Appellate Tribunal, Bengaluru, is set aside.
(iii) The order of the Joint Commissioner of Commercial Taxes (Appeals) dated 31.10.2023 is also set aside.
(iv) The re-assessment orders dated 10.04.2019 and 22.09.2020 are also set aside.
(v) The matter is remitted to the Prescribed Authority to pass fresh re-assessment orders in accordance with law after granting opportunity to the respondent.
(vi) Needless to observe that in the re-assessment proceedings, the Prescribed Authority shall not be influenced by the findings recorded by the Tribunal.
(vii) No order as to costs.
