Karnataka High Court: Composition Scheme Under Karnataka VAT Act Cannot Be Converted Into A Scheme To Tax Turnovers Which Aren’t Within Legislative Competence

The Court set aside the impugned Order related to tax demand challenged by an Assessee through a Sales Tax Appeal filed under Section 66 of the Karnataka Value Added Tax Act, 2003 (the Act). The main issues in the Appeal involved disputes over the inclusion of land cost in the value of works contracts, the validity of suo moto revisions under Section 64 of the Act, and the reopening of assessment proceedings that had attained finality under the ‘Karasamadhana Scheme’.

A Division Bench of Justice Krishna S Dixit and Justice Ramachandra D Huddar held, “Further, in terms of section 15(4) of the Act, the only item that is excluded is input tax credit as composition schemes are normally done to tax turnover without input tax as a simple alternative to regular tax payments. Composition schemes cannot be converted into a scheme to tax turnovers not falling within the legislative competence.”

Senior Advocate V Raghuraman appeared for the Appellant, while AGA Aditya Vikram Bhat represented the Respondents.

Brief Facts

M/S Fortious Infradevelopers LLP (Appellant), a Limited Liability Partnership, was engaged in executing civil works, building residential and commercial complexes, and performing other allied works. The Appeals arose from Orders issued by the Additional Commissioner of Commercial Taxes and the Assistant Commissioner of Commercial Taxes concerning reassessment orders for various tax periods.

Court’s Observations

The High Court had to determine whether levying tax on receipt for land cost i.e., immovable property, which does not constitute consideration for works contract under Composition Scheme of the Act is sustainable or not.

“In the instant case, when all the documents were already submitted by the Assessee at the time of reassessment, what the revisional authority has done is nothing but a mere change of opinion, which is impermissible…He is also incorrect in observing that under the Composition Scheme, there is no deduction granted towards value of labour or land cost. Thus, the impugned orders have erroneously disallowed the deduction claimed towards ‘land cost’ from the total receipts,” the Court remarked.

The Bench further explained that “it is clarified that while computing total turnover or the total consideration on which dealer is liable to pay tax under composition scheme, the same would not include the amount received from the customer towards their undivided share in land. However, in case of joint development projects, this exclusion would not be applicable.”

“The assessment proceedings for the period 2015-16 has attained finality under comprehensive Karasamadhana Scheme 2019 (CKSS 2019), the same cannot be reopened by invoking revisional powers in terms of Section 64 of the Act,” the Court held.

Consequently, the Court ordered, “In view of above discussion, the questions of law framed in these appeals, are answered in favour of the Assessee and against the Revenue; therefore, these appeals succeed and impugned orders are set at naught, costs having been reluctantly made easy.”

Accordingly, the High Court allowed the Appeal.

Cause Title: M/S Fortious Infradevelopers LLP v. The Additional Commissioner Of Commercial Taxes & Ors. (Neutral Citation: 2025:KHC:13861-DB)

Appearance:

Appellant: Senior Advocate V Raghuraman; Advocate Raghavendra CR

Respondents: AGA Aditya Vikram Bhat

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