The Karnataka High Court has dismissed both a review petition and a sales tax appeal holding that an assessee cannot avoid tax liability by attributing irregularities in tax returns to a tax consultant. The Court ruled that the issues raised had already been conclusively decided by a coordinate Bench and found no apparent error warranting review.
The Bench of Justice S.G. Pandit and Justice Rajesh Rai K has observed that the returns had been signed by the assessee himself and there was nothing to suggest that the consultant alone benefited from the allegedly inflated figures disclosed in the returns.
The appellant/assessee, a Bidar-based electrical contractor engaged in executing government electrical and civil works, had challenged multiple assessment and reassessment orders passed under the KVAT Act. The tax authorities had raised a demand comprising tax of ₹1.87 crore, interest of ₹2.32 crore, and penalty of ₹18.82 lakh relating to the assessment year 2016-17.
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The contractor questioned the legality of the reassessment proceedings on several grounds, including alleged violation of principles of natural justice; consideration of inflated turnover reflected in VAT returns; denial of input tax credit; disallowance of labour and like-charge deductions; recovery of refund claimed through Form VAT-156; alleged mistakes committed by its tax consultant; and loss of books of account due to theft.
Before considering the appeal, the Court dealt with a review petition seeking reconsideration of an earlier judgment dated March 19, 2025.
The petitioner argued that the earlier Bench had proceeded on an erroneous factual assumption by holding that sufficient opportunities had been granted to produce books of account. According to the petitioner, the books had been stolen and an FIR had been lodged. It was also contended that the turnover adopted by the department was based on Form 26AS entries rather than actual receipts from government departments.
However, the High Court noted that these very submissions had already been examined in detail by the earlier Bench while dismissing the previous appeal.
The Division Bench referred to the Supreme Court’s decisions in Sanjay Kumar Agarwal v. State Tax Officers and Parison Devi v. Sumitri Devi, reiterating that review jurisdiction is extremely limited and cannot be used as a disguised appeal.
The Court observed that a review is maintainable only when there exists an error apparent on the face of the record and not merely because a party seeks a rehearing on issues already decided. Since no such error was demonstrated, the review petition was dismissed.
While deciding the appeal, the High Court observed that the appellant’s principal grievance was that adequate opportunity had not been provided to produce books of account and supporting vouchers after the alleged theft of records.
The Court, however, accepted the Revenue’s contention that even after the appellant produced a copy of the FIR relating to the loss of records, sufficient time had been granted to reconstruct and submit the necessary documents. Despite this opportunity, the assessee failed to produce books of account even during the appellate proceedings.
The Bench relied upon the findings recorded by the earlier coordinate Bench, which had already held that the assessee had failed to avail the opportunities granted by the authorities.
One of the principal arguments advanced by the contractor was that erroneous VAT returns had been filed by its tax consultant and that the assessee should not suffer for the consultant’s conduct.
Rejecting this contention, the Court endorsed the earlier observations that a tax consultant acts as an agent of the assessee.
The Court further remarked that claiming higher contract amounts through inflated returns and subsequently disputing the same before tax authorities would virtually amount to defrauding the State in two ways, adding that such an assessee does not deserve equitable relief.
The Division Bench held that the present appeal involved substantially identical facts and legal issues that had already been adjudicated by the coordinate Bench in STA No. 1 of 2024.
Since the review petition challenging that earlier judgment had also failed, the findings recorded therein continued to govern the present dispute. Consequently, the Court found no reason to independently re-examine the issues.
The Karnataka High Court dismissed both the Review Petition holding that no apparent error existed in the earlier judgment; and the Sales Tax Appeal affirming the reassessment proceedings and consequential demand under the KVAT Act.
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