- 1 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF NOVEMBER, 2025 PRESENT THE HON'BLE MR. JUSTICE B M SHYAM PRASAD AND THE HON'BLE MR. JUSTICE T.M.NADAF SALES TAX APPEAL NO. 5 OF 2023 BETWEEN: M/S LAKEPOINT BUILDERS PRIVATE LIMITED, NO.757/B, 100 FEET ROAD, HAL 2ND STAGE, INDIRANAGAR, BENGALURU - 560 008. (REPRESENTED BY ITS SENIOR MANAGER ACCOUNTS - SHRI.M PRABHAKARA S/O MUNI REDDY AGED ABOUT 35 YEARS) …APPELLANT (BY SRI. CHIDANANDA URS B G., ADVOCATE) AND: 1. THE ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES (ZONE)-3, DEPARTMENT OF COMMERCIAL TAXES, GOVERNMENT OF KARNATAKA, GANDHINAGAR, BANGALORE-560 001. 2. THE ASSISTANT COMMISISONER OF COMMERCIAL TAXES (AUDIT) - 5.9 DGSTO-5, VTK-2 "B" BLOCK, 6TH FLOOR, VIVEK NAGAR, KORAMANGALA, BENGALURU - 560 047. …RESPONDENTS (BY SRI. ADITYA VIKRAM BHAT, AGA.,) Digitally Signed by REKHA R Location : High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 THIS STA IS FILED UNDER SECTION 66 (1) OF THE KVAT ACT, 2003, PRAYING TO i) CALL FOR RECORDS AND QUASH THE REVISION ORDER NO.ZAC/03/BNG-05/SMT-55/22-23 DATED 08.08.2023 AT ANNEXURE - "A" BEARING T. NO. 723/2023-24 FOR THE YEAR 2016-17 PASSED BY RESPONDENT NO.1 AND ii) TO QUASH THE CONSEQUENTIAL DEMAND PROCEEDING IN T. NO.586/23-24 DATED 13.09.2023 ALONG THE DEMAND NOTICE IN FORM VAT - 180 DATED 13.09.2023 AT ANNEXURE - "B". THIS APPEAL, COMING ON FOR HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD and HON'BLE MR. JUSTICE T.M.NADAF ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE T.M.NADAF) The assessee is in appeal under Section 66 of KVAT Act, calling in question the order dated 08.08.2023, passed in revision order No.ZAC/03/BNG-05/SMR-55/22-23 (bearing No.723/2023-24 for the year 2016-17), by respondent No.1 (Annexure-A), as well as the consequential Demand proceedings in T.No.586/23-24 dated 13.09.2023, along with Demand notice in Form VAT-180 dated 12.09.2023 on the following substantial question of law which reads as under: - 3 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 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 order of the First Appellate Authority, in the absence of satisfying the twin conditions adumbrated by the Legislature? 2. Whether on the facts and circumstances of the case, the Appellant has fulfilled the conditions prescribed as per Rule 3(2)(i-1) of Karnataka Value Added Taxes Rules, 2005? 3. Whether the conditions imposed under Rule 3(2)(i- 1) are satisfied when all the information sought under VAT-120 is provided and any other information sought is unjust condition which would violate Art.14 read with Art.19(1)(g) read with Article 301 of the Constitution." 2. A brief outline of facts leading to filing of this appeal are as under: 3. The assessee is a registered company engaged in execution of civil works contracts and had opted for paying tax under 'composition scheme', in terms of Section 15(1) of Karnataka Value Added Tax Act, 2003 ('KVAT Act' for short) - 4 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 4. The Assistant Commissioner of Commercial Taxes (Audit)- 5.5, passed re-assessment order vide order dated 29.05.2019, under Section 39(1) for the Financial Year 2016-2017 read with Section 72(2) and Section 36(1) of KVAT Act. As per the order, tax of Rs.2,97,638/-, imposed with interest of Rs.34,089/- and penalty of Rs.8,417/-, thereby demanded a sum of Rs.1,26,675/- against the assessee. 5. The assessee preferred an application under the Karasamadhana Scheme, 2019, in terms of Notification issued by the Government of Karnataka vide Order No. FD 9 CSL 2019, Bengaluru dated 21.02.2019 (Annexure-C). A sum of Rs.84,149/- was paid towards tax along with the application. The respondent Authority under the scheme supra vide order dated 05.07.2019, waived interest of Rs.34,089/- and penalty of Rs.8,417/- in terms of the scheme (Annexure-E1), admitting the assessee to the benefits under the Karasamadhana Scheme. 6. The respondent No.1, subsequent to waiver and admittedly the assessee to the scheme supra invoking power - 5 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 under Section 64(1) of the KVAT Act, issued a notice to the assessee, on the premise that the orders of the assessing authority were erroneous, illegal and improper and it was prejudicial to the interest of revenue. The reason culminated in the notice states that the sub-contractors have failed to declare the turnover in the returns and in some contracts, the turnovers shortly declared, casting the burden on the assessee to produce the proof with respect to the main contract's turn over. The assessee filed a detailed reply to the notice issued by the Revisionary Authority, in terms of their communication dated 26.02.2023, taking the following contentions which reads as under: (a) The Assessing Authority has duly verified each and every deductions claimed and is based on the supporting and relevant evidences submitted from time to time during assessment proceeding. (b) With respect to the proposal to disallow the deductions to tune of Rs.17,26,32,904/-. The declaration certificate submitted by the Sub-contractor's, VAT Returns of the Sub-contractor turnover and the evidence of the registration of sub-contractor were produced. - 6 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 (c) During the course of re-assessment proceeding the Respondent No.2 were submitted with documentary evidence of VAT monthly return, invoice/RA Bills and declarations issued by sub-contractors. However, the same was not considered. (d) The conditions as stipulated under Section 15(5)(1)(b) is met by the Appellant and therefore the disallowance is incorrect. (e) Further referred to the Circular No.11/2009-10 on the conditions applicable to composition dealer. (f) Relied on certain case laws and orders passed by Hon'ble Supreme Court, High Courts and Tribunal." 7. The respondent No.1, upon hearing the assessee, passed the order impugned dated 08.08.2023, holding that the re-assessment order passed under Section 39(1), Section 36(1) and Section 72(2) of KVAT Act, 2023 for the tax period 2016-2017, by the Assessing Officer viz ACCT (Audit)-5.9, DVO-05, Bengaluru, dated 29.05.2019, being erroneous, illegal and improper and prejudicial to the interest of the revenue, set aside the same and modified the re-assessment order, disallowing the subcontract turnover deductions claimed by the assessee, discussed in the table depicted in the order, directing the Assessing Authority to re-determine - 7 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 the tax liability, and to levy applicable penalty and interest in terms of the provisions of KVAT Act, with an observation that the penalty and interest waived under the Karasamadhana scheme needs to be deducted from the penalty and interest determined afresh. 8. Pursuant to the order passed by the respondent No.1, a notice of demand comes to be issued under Form VAT 180, dated 12.09.2023, with a Demand Notice under Form VAT-180, demanding a sum of Rs.2,48,39,022/-. It is this order under revision, as well as consequential Demand proceedings and Demand notice in Form VAT-180, are called in question in the present appeal. 9. Heard Sri.Chidananda Urs B.G, learned counsel for appellant and Sri.Aditya Vikram Bhat, learned Additional Government Advocate for respondents. 10. On a short point, Sri.Urs urges before us that, once the assessee has been admitted to a scheme, to avail waiver of 100% arrears of interest and penalty in an application filed within time, ended in passing order - 8 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 confirming the waiver of interest and penalty, a subsequent Notice under Section 64(1), invoking the revisional power, is uncalled for. In the case on hand, the suo-motu revision was initiated much subsequent to accepting and passing the order in favour of the assessee under the Karasamadhana Scheme, 2019. In any event, if such initiation of power is permitted, the same would be having the effect of uprooting the object of Karasamadhana scheme. 11. Given the factual background, invoking the jurisdiction of revision under Section 64 by the authority amounts to arbitrary and illegal, which is having the effect of unsettling the settled things and causes hardship on the assessee, that apart against the very object of the Karasamadhana Scheme, 2019. 12. To buttress his argument, Sri.Urs, relied on the judgment of the Co-ordinate Bench of this Court in M/s Omkar Land Developers Vs. Additional Commissioner of Commercial Taxes Zone-1, dated 18.06.2025, to contend that once the application filed under the Karasamadhana - 9 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 Scheme, has attained its finality in terms of the scheme, granting benefit under the same, invoking revisional powers under Section 64 of KVAT Act is unreasonable and arbitrary. In the said judgment, this Court observed that once the assessee is granted benefit under the Karasamadhana Scheme, 2021 cannot be taken away by initiating proceedings under Section 64 of KVAT Act, then the very introducing of the scheme would be otiose and the object gets defeated. It is further observed that once the assessee pays entire tax arrears, seeking waiver of interest and penalty, which is accepted by an order to that effect, cannot be deprived by initiating the proceedings under Section 64 of KVAT Act. With this, Sri. Urs urges us that the order passed by the revisional authority, exercising power under Section 64 of KVAT Act, must be declared as arbitrary and unreasonable and not available, once the assessee is admitted to the scheme stated supra, and quash the order passed in the revision, so also the consequential order of re- determination of assessment as well as Demand Notice. - 10 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 13. Though Sri. Aditya Bhat, tries to support the order, but to a query of the Court that, once the position of law settled by the order of the Co-ordinate Bench of this Court, holding that the exercise of revisional power under Section 64, subsequent to admitting the assessee to the scheme, by passing an order of waiver amounts to unreasonable and arbitrary, with all fairness submits that the said findings have been accepted, in terms of the order passed by the Co-ordinate Bench of this Court in the aforesaid judgment. 14. In view of the judgment of the Co-ordinate Bench of this Court, stated supra, the issue involved in the case on hand is no more remained res-integra. We are of the considered opinion that once the assessee having been admitted to the scheme by waiving interest as well as penalty on an order panel by the authority under the Scheme and settling the matter, resorting to issue notice under Section 64 of KVAT Act, suo-motu undermines the settlement under the scheme as well as the object of the - 11 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 scheme and having the effect of unsettling the settled and amount unreasonable besides arbitrary. 15. In view of the aforesaid discussions, we are of the considered opinion that the judgment relied on by Sri.Urs, applicable to the case on hand, with full force. Once the matter has been settled under Karasamadhana Scheme applicable to the assessee in this case, the order passed by the respondent No.1 vide Annexure-A as well as the consequential re-determined assessment order and demand in Form VAT-180 amounts to arbitrary exercise of power and unreasonable, accordingly, unsustainable in law. 16. For the reasons recorded above, the first substantial question of law, which we have already reproduced above, must be answered in favour of the assessee and against the respondent/revenue. Since, the assessee has succeeded on the first substantial question of law, there remains nothing to consider further substantial questions of law raised in the appeal. Accordingly, the appeal succeeds and we pass the following: - 12 - HC-KAR NC: 2025:KHC:48280-DB STA No. 5 of 2023 ORDER i. The Appeal is allowed. ii. The order impugned vide Annexures-A and B are set aside. Sd/- (B M SHYAM PRASAD) JUDGE Sd/- (T.M.NADAF) JUDGE RR List No.: 1 Sl No.: 45