- 1 - STA No. 6 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF SEPTEMBER, 2025 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND SALES TAX APPEAL No. 6 OF 2022 BETWEEN: 1. M/S PRIMAVERA PROJECTS-N-CONSTRUCTIONS LTD., No.31, 3RD FLOOR, 'RANKA CHAMBERS', CUNNINGHAM ROAD, BENGALURU-560052. (REPRESENTED BY ITS DIRECTOR, SHRI. ARUN B. RANKA, S/O BHAWARLAL H. RANGA, AGED ABOUT 56 YEARS) …APPELLANT (BY SRI CHIDANANDA URS B. G., ADVOCATE) AND: 1. THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES, (ZONE)-1, DEPARTMENT OF COMMERCIAL TAXES, GOVERNMENT OF KARNATAKA, GANDHINAGAR, BANGALORE-560001. 2. THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES, (AUDIT)-1.3, VAT DIVISION -1, 5TH FLOOR, TTMC/BMTC BUILDING, YESHWANTHPUR, BANGALORE-560022. …RESPONDENTS (BY SRI ADITYA VIKRAM BHAT, AGA) Digitally signed by VALLI MARIMUTHU Location: HIGH COURT OF KARNATAKA - 2 - STA No. 6 of 2022 THIS STA IS FILED UNDER SECTION 66 (1) OF THE KVAT ACT, 2003 AGAINST THE ORDER DATED 25.11.2021 PASSED IN No.ZAC-1/BNG/SMR-05/2021-22 ON THE FILE OF THE ADDITIONAL COMMISSIONER OF COMMERICAL TAXES ZONE-I, GANDHINAGAR, BANGALORE SETTING ASIDE ORDER DATED 21.10.2017 PASSED IN VAT.AP.No.62/17-18 PASSED BY JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS-1) BANGALORE, AND RESTORING THE REASSESSMENT ORDER DATED 19.04.2017 PASSED BY THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES AUDIT 1.3, VAT DIVISION -1 BANGALORE, PASSED UNDER SECTION 39(1), 36(1) AND 37(1) AND 72(2) OF KVAT ACT 2003, BY DCCT (AUDIT) 1.3 DVO-1, BENGALURU FOR THE TAX PERIODS 2010-11. THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 20.08.2025, THIS DAY K. V. ARAVIND J., PRONOUNCED THE FOLLOWING: CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE MR. JUSTICE K. V. ARAVIND C.A.V. JUDGMENT (PER: HON'BLE MR. JUSTICE K.V. ARAVIND) The appellant-assessee, being aggrieved by the order of revision dated 25.11.2021 passed under Section 64(1) of the Karnataka Value Added Tax Act, 2003 (for short, 'the KVAT Act'), has preferred this appeal under Section 66(1) of the KVAT Act. 2. The appellant has raised the following substantial questions of law: - 3 - STA No. 6 of 2022 "1. Whether on the facts and in the circumstances of the case, the respondent was justified in invoking powers of revision under section 64 of the KVAT Act to set aside the reassessment order and the order of 1st appellate authority, in the absence of satisfying the twin conditions? 2. Whether on the facts and in the circumstances of the case, whether the Respondent was justified in relying on the decision of this Hon'ble High Court in the case of M/s.Ciscon Projects Pvt. Ltd. v. State of Karnataka in STA No.100013/2015 dated 12.12.2015? 3. Whether on the facts and in the circumstances of the case, even after effecting TDS on the RA Bills of the Appellant by the Main Contractor, can the set off be denied due to illegality committed by the Main Contractor as per Section 9-A of the Act read with Rule 44 of the KVAT Rules, 2005? 4. Whether on the facts and in the circumstances of the case, the respondent was justified in invoking powers of revision under section 64 of the KVAT Act when the Prescribed Authority has followed the law laid down by Hon'ble Apex Court in State of Andhra Pradesh vs. Larsen & Toubro Ltd., (2008) 17 VST 1 (SC) that appellant has executed the works contract and M/s.Harsha Constructions v. Commercial Tax Officer., reported in (2007)10 VST 216 (SC) wherein exemption is provided for the deductions made on the sub- contractor, which payment cannot be left unaccounted based on technical plea of TDS certificate not in the name of the Appellant?" - 4 - STA No. 6 of 2022 3. The appeal is admitted for consideration of the aforesaid substantial questions of law. 4. The facts, in brief, are that the appellant-assessee is a registered dealer under the provisions of the KVAT Act, engaged in execution of civil works contracts. The Prescribed Authority, by order dated 19.04.2017, completed reassessment under Section 39(1) of the KVAT Act for the tax periods from April 2010 to March 2011, by rejecting the claim of TDS of Rs.44,45,647/- issued in favour of M/s. National Projects Construction Corporation Limited (for short, 'NPCC Ltd.'), the contractee. 4.1 Aggrieved by the order of reassessment and penalty, the assessee preferred an appeal under Section 62 of the KVAT Act before the Joint Commissioner of Commercial Taxes (Appeals)- 1, Bengaluru. The First Appellate Authority, by order dated 21.10.2017, allowed the appeal in part, directing the Prescribed Authority to reduce the credit given to NPCC Ltd. in terms of the TDS certificate and to transfer the said TDS to the account of the assessee. 4.2 The Revisional Authority, invoking the provisions of Section 64 of the KVAT Act, by order dated 25.11.2021 held - 5 - STA No. 6 of 2022 that the order passed by the First Appellate Authority was erroneous and prejudicial to the interest of the Revenue, observing that the TDS of the main contractor cannot be set off against the subcontractor, as the same is contrary to law. The said order is assailed in the present appeal. 5. Sri B.G. Chidananda Urs, learned counsel appearing for the appellant-assessee, submits that the assessee is a subcontractor of NPCC Ltd., a Government of India undertaking. Hindustan Aeronautics Limited, Bengaluru (for short, 'HAL'), awarded a contract in favour of NPCC Ltd. for construction of staff quarters. NPCC Ltd., in turn, entered into an agreement with the assessee and subcontracted the execution of the aforesaid contract, entitling the assessee to 93% of the contract consideration agreed between HAL and NPCC Ltd. Learned counsel submits that HAL has deducted TDS in favour of NPCC Ltd., and since the work was executed by the assessee, the assessee is entitled to the credit of such TDS. It is further submitted that NPCC Ltd., being a Public Sector Undertaking of the Government of India, has also deducted TDS, and failure to grant credit of such TDS would result in double taxation. Learned counsel further submits that the - 6 - STA No. 6 of 2022 entire subcontract value is included in the turnover of the assessee. 5.1 Learned counsel further submits that the ownership of the goods used in the subcontract work remained with the assessee until the same were transferred in favour of HAL, and therefore, the turnover is that of the assessee and the TDS credit ought to have been given to it. It is submitted that the First Appellate Authority was justified in directing transfer of TDS from NPCC Ltd. to the account of the assessee. The order of the First Appellate Authority was neither erroneous nor prejudicial to the interest of the Revenue. Hence, the order of the Revisional Authority is unsustainable. 5.2 In support of his submissions, learned counsel has placed reliance on the judgment of the co-ordinate Bench of this Court in JMC Constructions Private Limited v. State of Karnataka, (2020) 75 GSTR 264. 6. Sri Aditya Vikram Bhat, learned Additional Government Advocate appearing for the respondents, submits that HAL entered into a contract with NPCC Ltd., and accordingly, TDS was deducted and Form VAT-156 was issued in favour of NPCC Ltd. It is submitted that Rule 44(3)(f) of the Karnataka Value - 7 - STA No. 6 of 2022 Added Tax Rules, 2005 (for short, 'the 2005 Rules') prohibits transfer of TDS from one account to another. Therefore, the direction of the First Appellate Authority to transfer TDS is contrary to Rule 44 of the 2005 Rules and is hence unsustainable. Learned Additional Government Advocate further submits that the contractor, NPCC Ltd., has already claimed credit of the TDS and consequently, no TDS is available for credit to the account of the assessee. It is also submitted that the contractor, NPCC Ltd., has declared composition tax including the turnover of the assessee-subcontractor. 6.1 Learned Additional Government Advocate further submits that the judgment in JMC Constructions Private Limited (supra) is not applicable to the facts of the present case. It is submitted that a similar controversy has already been considered and answered by this Court in the case of M/s. CISCON PROJECT PVT. LTD., v. The State of Karnataka and others in STA No.100013/2015, disposed of on 12.12.2017. In view of the said judgment, the questions of law raised in the present appeal are squarely covered, and no substantial question of law arises for consideration by this Court. - 8 - STA No. 6 of 2022 7. We have considered the submissions of learned counsel appearing for the appellant-assessee and the learned Additional Government Advocate appearing for the respondents. 8. Having considered the submissions of learned counsel for the parties, it is noted that HAL entered into a contract with NPCC Ltd. for the construction of staff quarters. NPCC Ltd., in turn, entered into an agreement with the assessee for execution of the said contract, i.e., NPCC Ltd. subcontracted the work to the assessee. HAL deducted tax at source under Section 9A of the KVAT Act and issued a certificate of deduction in Form VAT-156. The assessee declared the works contract turnover and claimed the deduction as credit of Tax Deducted at Source (TDS). The Prescribed Authority denied the TDS credit, applying Rule 44 of the 2005 Rules. It is noted that, in view of Rule 44(3)(f) of the 2005 Rules, TDS in Form VAT-156 is not transferable from one person to another. The First Appellate Authority, however, held that NPCC Ltd. was required to deduct TDS under Section 9A of the KVAT Act, and having deducted the same, failed to remit it. Accordingly, the First Appellate Authority directed that the TDS deducted by HAL in favour of NPCC Ltd. be credited to the account of the assessee against the output tax payable on the works contract. - 9 - STA No. 6 of 2022 9. The order of the First Appellate Authority was found to be erroneous and prejudicial to the Revenue, and consequently, proceedings under Section 66 of the KVAT Act were initiated. In response to the show-cause notice, the assessee submitted that NPCC Ltd., being a Public Sector Undertaking, was required to deduct tax at source under Section 9A of the KVAT Act and issue a certificate of deduction in Form VAT-156. It was further stated that, owing to the failure to comply with this requirement, the TDS credit could not be allowed in the hands of the assessee. The order of the First Appellate Authority was set aside as being contrary to Rule 44(3)(f) of the 2005 Rules, which prohibits the transfer of TDS credit from one person to another. 10. As rightly contended by the learned Additional Government Advocate and held by the Revisional Authority, the issue relates to the transfer of TDS credit, wherein Form VAT- 156 was issued in favour of NPCC Ltd., to the credit of the assessee. The assessee contended that NPCC Ltd., being a Public Sector Undertaking of the Government of India, was required to deduct TDS under Section 9A of the KVAT Act. On the other hand, it is also contended that NPCC Ltd., after deducting TDS, failed to issue Form VAT-156 to the appellant - 10 - STA No. 6 of 2022 and did not remit the TDS to the Government account, thereby preventing the assessee from claiming the credit. 11. In the present petition, this Court is concerned with the question as to whether the TDS credit reflected in Form VAT- 156, issued in favour of NPCC Ltd. by HAL, can be transferred and allowed to the credit of the assessee. We find that, in view of the specific prohibition under Rule 44 of the 2005 Rules, such transfer is not permissible. Rule 44(3)(f) reads as follows: "44. Submission of return by Government department, etc. xxx xxx xxx (3) xxx xxx xxx (f) Any authority or person deducting tax, having obtained Form VAT 156 or Form VAT 158 [or Form VAT 161] shall not either directly or through any other person transfer the same to another person." 12. This condition is also explicitly stated in the Guide Points to Form VAT-156. On this ground, the TDS credit claimed by the assessee was denied by the Prescribed Authority. The First Appellate Authority, without considering the bar imposed under Rule 44(3)(f) of the 2005 Rules, directed the transfer of the - 11 - STA No. 6 of 2022 credit. The Revisional Authority, therefore, rightly held the said order to be erroneous and set it aside. 13. We are in complete agreement with the findings of the Prescribed Authority and the Revisional Authority that the assessee is not entitled to claim credit of TDS reflected in Form VAT-156, issued in favour of NPCC Ltd. We further hold that the TDS credit in Form VAT-156 has already been claimed by NPCC Ltd. and accounted for by the Prescribed Authority. Once the TDS has been allowed as credit, it cannot be transferred or claimed again, as doing so would result in double credit of the same amount. 14. The Revisional Authority was justified in holding that the direction to transfer TDS in Form VAT-156, issued in favour of NPCC Ltd., to the assessee, was contrary to Rule 44(3)(f) of the 2005 Rules. An order that is contrary to statutory provisions is, by definition, erroneous and prejudicial to the interest of the Revenue. It is a settled position of law that an order passed in contravention of statutory provisions is erroneous, and any resultant loss of revenue is prejudicial to the interest of the Revenue. - 12 - STA No. 6 of 2022 15. A similar issue was considered by this Court in CISCON Project Pvt. Ltd. v. State of Karnataka and Others in STA No.100013/2015, dated 12.12.2017. Identical to the facts of the present case, the claim for transfer of TDS in Form VAT-156 from one person to another, which was permitted by the First Appellate Authority, was held to be contrary to Rule 44(3)(f) of the 2005 Rules, and the invocation of Section 64(1) of the Act was upheld. It was held that a subcontractor is not entitled to the benefit of set-off of TDS reflected in Form VAT-156 issued to the main contractor. Further, set-off can be allowed only to the person to whom Form VAT-156 is issued and not to any subcontractor executing part of the work allotted by the contractor. The Special Leave Petition against the said order of this Court was dismissed by the Hon’ble Supreme Court in SLP(Civil) Diary No.2246/2018, dated 23.07.2018. 16. There is no statutory basis for the finding and direction of the First Appellate Authority directing the transfer of TDS credit from NPCC to the appellant. Any direction issued by the First Appellate Authority must be in the exercise of its statutory jurisdiction. The direction in the present case, directing the transfer of TDS credit from NPCC to the appellant, is without - 13 - STA No. 6 of 2022 jurisdiction and is in contravention of Rule 44(3)(f) of the 2005 Rules. 17. Learned Additional Government Advocate submits that Section 15 of the KVAT Act permits composition of tax by a dealer. Rule 15(5)(b) of the 2005 Rules enables a dealer executing a works contract and opting for composition of tax under subsection (1) not to pay tax by way of composition on amounts payable or paid to a subcontractor as consideration for execution of the works contract, provided the subcontractor is a registered dealer liable to tax under the KVAT Act and such amounts are included in the returns filed by the subcontractor. We are, however, not inclined to examine this issue, as it does not arise from matters emanating from the impugned orders. Furthermore, this was not a ground on which the order of the First Appellate Authority was revised and directions were issued. 18. The assessee placed considerable reliance on the judgment of a Coordinate Bench of this Court in JMC Constructions Private Limited (supra), contending that NPCC Ltd., being a Government of India undertaking, was obligated to deduct tax at source under Section 9A of the KVAT - 14 - STA No. 6 of 2022 Act. It was submitted that, notwithstanding the deduction of TDS by NPCC Ltd., the latter failed to issue Form VAT-156 in favour of the assessee and to remit the TDS, thereby precluding the assessee from claiming the corresponding credit. It was further contended that, although the assessee was informed to admit the turnover and avail of the TDS certificate issued by HAL, NPCC Ltd. itself admitted the entire turnover and adjusted the TDS issued by HAL, resulting in a duplication of the same turnover in the hands of both NPCC Ltd. and the assessee. Learned counsel further argued that the taxable event arises upon the transfer of property in goods involved in the execution of the works contract, which occurs when the goods are incorporated into the work. Since the goods were introduced into the work by the assessee, the transfer of property is deemed to have occurred at the instance of the assessee. Accordingly, it was submitted that only the turnover of the subcontract should be included in the assessee’s taxable turnover and that the TDS credit ought to be allowed. However, it is observed that the ruling in JMC Constructions Private Limited (supra) is not germane to the facts of the present case. The directions in that case were rendered in the context of its peculiar facts. In the cited matter, the TDS certificate - 15 - STA No. 6 of 2022 issued to the main contractor had neither been claimed as set- off nor as refund, whereas in the present case, the contractor declared the turnover and availed of the TDS credit. Furthermore, the implications of Rule 44(3)(f) of the 2005 Rules were not under consideration in JMC Constructions Private Limited (supra). 19. It is a settled position of law that, while interpreting a fiscal statute, the Court cannot re-write the provisions, either by addition or omission. The Court is required to give effect to the plain meaning of the provisions, unless ambiguity exists. When Rule 44(3)(f) of the 2005 Rules specifically bars the transfer of TDS credit reflected in Form VAT-156 from one person to another, no direction for such transfer can be permitted, irrespective of the reasons advanced. 20. We note that the Coordinate Bench, while rendering the judgment in JMC Constructions Private Limited (supra), did not consider the judgment of this Court in M/s. CISCON Project Pvt. Ltd. (supra), which directly deals with the issue in question. 21. Learned counsel for the assessee relied on the judgment of the Hon’ble Supreme Court in State of Andhra Pradesh v. - 16 - STA No. 6 of 2022 Larsen & Toubro Limited, (2008) 17 VST 1 (SC), to contend that the taxable event in a works contract arises from the transfer of property in goods, which occurs when the goods are incorporated into the works, and that the value of such goods constitutes the measure for levy of tax. It is submitted that, in the present case, the assessee incorporated the goods in the work, and the transfer of property in the goods took place at the instance of the assessee, thereby entitling the assessee to claim the TDS credit. We, however, observe that this issue does not arise from the impugned order. In the absence of any pleadings on this point before the Prescribed Authority and the First Appellate Authority, it is not open to this Court to consider the same at this stage. 22. Insofar as the contention urged by the assessee that NPCC Ltd. deducted tax from its earlier bills and failed to issue the TDS certificate in Form VAT-156, as well as failed to remit the same to enable the assessee to claim credit, there is no foundation or pleading in support of this claim. This issue does not arise from the orders of the Prescribed Authority, the First Appellate Authority, or the Revisional Authority. In the absence of specific pleadings and prior raising of such issues, this Court is not inclined to consider the same. - 17 - STA No. 6 of 2022 23. In view of the foregoing reasons, the appeal is dismissed. The substantial questions of law raised in the appeal are answered against the appellant-assessee and in favour of the State-Revenue. No order as to costs. Sd/- (S.G.PANDIT) JUDGE Sd/- (K. V. ARAVIND) JUDGE MV