WIPRO LIMITED vs THE STATE OF KARNATAKA

1 IN THE HIGH COURT OF KARNATAKA, BANGALORE

DATED THIS THE 12TH DAY OF DECEMBER 2013

PRESENT

THE HON’BLE MR. JUSTICE N.KUMAR

AND

THE HON’BLE MRS.JUSTICE RATHNAKALA

STRP NO.684 OF 2013 & STRP NOS.685 TO 695 OF 2013

BETWEEN :

WIPRO LIMITED NO.146T, METAGALLI INDUSTRIAL AREA, KRS ROAD MYSORE REP BY ITS REGIONAL FINANCE AND ACCOUNTS MANAGER SRI.B.C.SHASHIDHARA

... PETITIONER

(BY SRI.K.P.KUMAR, SR. COUNSEL FOR SRI.K.S.HARISH & SRI.V.S.ARBATTI, ADVS.)

AND :

THE STATE OF KARNATAKA REP BY ITS DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT-2) MYSORE DIVISION MYSORE

... RESPONDENT

(BY SRI.T.K.VEDAMURTHY, GP) ---

These STRPs are filed under Section 65(1) of Karnataka Value Added Tax Act, 2003 against the order dated 21.6.2013 passed in STA No.1014 to 1025/2012 on the file of the KAT, Bangalore dismissing appeals filed under Section 63 of the Karnataka VAT Act, 2003.

These petitions coming on for Admission this day, N.KUMAR J., made the following:

ORDER

These revision petitions are preferred by the assessee against the order passed by the authorities levying Value Added Tax of 75% of the contract value on the ground that the value of the goods supplied under the annual maintenance contract is only 10%.

The assessee is engaged in the business of sale of computer hardware and software and registered under the VAT Act. They also provide consulting services to various plants and Annual Maintenance Contract. In relation to these AMC services, the assessee has discharged service tax on 90% of such AMC turnover. The assessee has charged VAT on the applicable rate of 10% on 10% of the AMC turnover.

3 The service is rendered by the assessee on all India basis by filing the income tax returns in terms of the Finance Act. For the assessment year 2006-07, the assessee duly filed its return as required under the KVAT Act. An inspection was conducted by the Deputy Commissioner of Commercial Taxes, Bangalore on 23.2.2010 in the office premises of the assessee at Bangalore. Thereafter, the said authority has furnished a detailed investigation report on 28.9.2011. The assessee was served with three proposition notices in respect of the same assessment period. The assessee filed its reply on various occasions to the said proposition notices.

The DCCT issued several endorsements seeking clarifications and documents. The asessee has complied with the said request. Thereafter, the DCCT passed an order confirming the proposal for levy of penalty and interest. Aggrieved by the said order, the assessee preferred an appeal before the 1st Appellate Authority which came to be dismissed. Aggrieved by the said order, he preferred an appeal to

4 the Tribunal, which also came to be dismissed affirming the orders passed by the authority. It is against the said order, the present appeal is filed.

Learned Senior counsel appearing for the petitioner – assessee submits that, for the turnover under the Annual Maintenance Contract which is purely a service contract, they are liable to pay only service tax and not any VAT as there is no sale of goods. However, even before the judgment of the Hon’ble Supreme Court in the year 2005, the Assessing Authority initiated re- assessment proceedings.

In the re-assessment proceedings, the Assessing Authority, after looking into the entire material produced before him, was of the view that out of the total turnover, 10% of the turnover represents the value of the goods supplied and sold and therefore, he levied a VAT on 10% of turnover. Accordingly, accepting the said order, the assessee has been paying taxes on 10% of the turnover under VAT Act and 90% of the turnover as service tax. Even for the

5 year 2006-07, he had paid the tax accordingly. It is in that context, three proposition notices were issued. The assessee replied and produced all the materials, but still, not being satisfied, now the authorities have come to the conclusion that 75% of the total turnover represents the value of the goods supplied and sold, which finding is without any basis. Infact, they have sent notices to various customers, obtained their reply and they have used that material against the assessee without giving an opportunity of cross-examining or having a say in respect of those statements. Therefore, he submits that the order is violative of principles of natural justice and requires to be set aside.

Per contra, learned Government Advocate appearing for the revenue submitted that merely because for 10 or 12 years the assessee was paying VAT on the 10% of the turnover and 90% as service tax, the assessment for each year being independent and distinct that cannot be the basis for assessing the

6 returns filed for 2006-07. The authorities, after investigating and obtaining replies from various customers of the assessee, as a matter of fact, found that 75% of the total turnover represents sale of the goods and only 25% represents the value of service and therefore, the order passed by the authorities is legal and valid and do not call for interference.

We have gone through the orders passed by the three authorities. It is not in dispute that till the judgment of the Hon’ble Supreme Court in BSNL case, the assessee was paying only service tax of the turnover for the Annual Maintenance Contract. After the orders were passed in the re-assessment proceedings, where10% was held to be the value of the goods supplied, they accepted the said finding and they are paying a VAT on 10% and service tax on 90%. Now, the authorities issued proposition notices, three in number, to the assessee, for which, reply has been given and all documents produced. However, they have issued

7 notices to the customers and on the basis of the so- called information collected from them, they have come to the conclusion that the total value of the goods supplied is 75%. The said material collected by the customers is not put to the assessee nor given any opportunity to cross-examine them and in the orders also, we do not find any reference to the said material collected and how the authorities have come to the conclusion that 75% represents the value of the goods supplied. The Tribunal was of the view that the certificates filed by the Chartered Accountant show that actually, it is around 4.3% of the total value of the goods supplied and when the assessee is paying VAT on 10%, the case of the assessee cannot be believed.

The material on record discloses that the certificate issued by the Chartered Accountant shows that the value of the goods supplied is between 4.3% to 8% and which is for number of years. Therefore, the assessee, to be on the safer side, is offering tax on 10%

8 of the total turnover. Unfortunately, the Tribunal has not looked at this in a proper perspective. At any rate, that cannot be made the basis to hold that the assessee has not come to the Court in clean hands or that the goods supplied represents 75% of the turnover. Merely because for 10 or 12 years the assessee has been paying tax in a particular manner, is not a ground to continue for the subsequent years if there is any change in the circumstances. It is settled law that these assessments are separate and distinct and it will not operate as res judicata. May be the principle underlying may be made the basis for the subsequent period. If, for the year 2006-07 there is sufficient material to show that the value of the goods sold is more than 10%, certainly by giving cogent reasons based on the legal evidence, it is open to the Assessing Authority to do so. But, before deviating from the old practice, it is now well established that there should be material to show the justification for deviating from the past practice and should also be based on the legal evidence. In the

9 instant case, though the authority has collected material from the customer, the same is not reflected in the order and the said material is not put to assessee and the say of the assessee is not obtained and therefore, that material cannot be acted upon. The proper course would be to furnish the statements of all the customers to the assessee and have the say of the assessee in the matter and if it makes a request to cross-examine, summon those witnesses, it may be permitted to do so and on the basis of the said material, an opportunity may be given and orders may be passed.

In that view of the matter, all the petitions are allowed. The levy of tax, interest and penalty are set aside. The Assessing Authority is directed to furnish a copy of the statements recorded by them of the customers and any other incriminating material they have collected against the assessee and have their say in the matter and if it wants to cross-examine them, to offer them an opportunity to cross-examine and then

10 pass appropriate orders in accordance with law. That would meet the ends of justice.

Consequently, the amount paid by the assessee shall be refunded to the petitioner forthwith, failing which, it will carry interest at 12% p.a. from the 31st day. The assessee shall appear before the authorities on 26.12.2013 at 11 a.m. The entire assessment proceedings shall be completed within a period of three months from the date of furnishing of all the incriminating materials, statements, which have been collected from the customers of the assessee including the investigation report, to the assessee. Ordered accordingly.

Sd/- JUDGE

WIPRO LIMITED vs. THE STATE OF KARNATAKA