Karnataka HC Holds Revised Return Mandatory For Lower VAT Claim, Rejects India Heritage Foundation's Plea

The Karnataka High Court on 8 July held that a taxpayer cannot seek a lower VAT rate during reassessment proceedings without first filing a revised return under the Karnataka Value Added Tax (KVAT) Act, and dismissed India Heritage Foundation, Bengaluru's revision petition seeking to reduce the VAT rate on iron and steel used in a works contract from 12.5% to 4%.

A Division Bench of Justices S.G. Pandit and Rajesh Rai K relied on its earlier decision in Nandi Constructions v. State of Karnataka and held that, since the Foundation had not filed a revised return under Section 35(4) of the KVAT Act (which permits a dealer to correct errors by filing a revised return), it could not raise the claim for a reduced VAT rate for the first time during reassessment proceedings. It observed:

“it is not in dispute that no revised return as contemplated under Section 35(4) of the Act was filed. It was only during the course of the reassessment proceedings, nearly three years after the filing of the return, that the assessee sought before the reassessing authority a reduction of VAT on iron and steel incorporated in the works contract from 12.5% to 4%.”

India Heritage Foundation had originally filed its VAT return by declaring and paying VAT at 12.5% on the value of iron and steel incorporated in the construction works.

Nearly three years later, during reassessment proceedings, it argued that iron and steel are “declared goods” under Sections 14 and 15 of the Central Sales Tax Act (which restrict the taxation of specified goods) and, therefore, could be taxed only at 4%, relying on Articles 265 and 286 of the Constitution.

The State opposed the claim, contending that the Foundation had voluntarily declared VAT at 12.5% in its original return and had never filed a revised return under Section 35(4) of the KVAT Act. It argued that the taxpayer could not introduce a fresh claim for a lower tax rate for the first time during reassessment proceedings.

The Court accepted the State's contention and reiterated that the Foundation had neither corrected its original return nor filed a revised return before seeking the reduced VAT rate during reassessment. Referring to Nandi Constructions v. State of Karnataka, it observed:

“In the similar circumstance a coordinate bench of this Court in NANDI CONSTRUCTIONS V. STATE OF KARNATAKA (STRP No. 216/2015 and Connected matters) has held that no benefit other than the benefit claimed in revised return or original return can be allowed by the re-assessment Authorities or the 1st Appellate Authority.”

Accordingly, the High Court dismissed the revision petition and answered the principal question of law on the maintainability of the revised claim in favour of the State, while leaving open the remaining questions concerning the applicable VAT rate and other issues.

For Petitioner: Vani H, Advocate

For Respondent: Aditya Vikram Bhat, AGA