(These writ petitions are filed under Articles 226 and 227 of the Constitution of India, praying to:
A) Declare that the impugned notices issued u/s.45 of the Karnataka value added Tax Act, 2003, dated: 12.08.2016 for Rs.47,01,840/- of the Deputy Commissioner of Commercial Taxes (Audit 1), Davanagere towards arrears of tax, penalty and interest payable for the periods of 2005-2006 and (II) the impugned notice under Section 45 of the Karnataka value Added Tax Act, 2003, dated: 12.08.2016 for Rs. 10,50,25,796/- by the Deputy Commissioner of Commercial Taxes (Audit 1), Davanagere being arrears of tax, penalty and interest payable for the periods of 2006-2007 and (III) The impugned notice issued under Section 9 of the Tax on the entry of Goods Act, 1979 dated: 12.08.2016 for Rs.2,12,76,976/- being the arrears of Tax, penalty and interest payable for the year 2006-2007 as intimated by the Respondent No.2, the Branch Manager, Bank of Baroda, Khairatabad, Hyderabad in his letter dated: 16.08.2016 as per Annexure-A are unenforceable, null and void and not binding on Respondent No.2 being beyond the territorial jurisdiction prescribed under sub section (2) of Section 1 of the Karnataka Value Added Tax Act, 2003 and the provisions of the Karnataka Tax of entry of Goods Act, 1979; and
b) Quash the impugned notices issued u/s.45 of the Karnataka Value Added Tax Act, 2003, dated: 12.08.2016 for Rs.47,01,840/- of the Deputy Commissioner of Commercial Taxes (Audit 1), Davanagere towards arrears of tax, penalty and interest payable for the periods of 2005-2006 and
(ii) the impugned notice under Section 45 of the Karnataka Value Added Tax Act, 2003, dated: 12.08.2016 for Rs. 10,50,25,796/- by the Deputy Commissioner of Commercial Taxes (Audit 1), Davanagere being arrears of tax, penalty and interest payable for the periods of 2006-2007 and
(iii) the impugned notice issued under Section 9 of the Tax on the entry of Goods Act, 1979 dated: 12.08.2016 for Rs.2,12,76,976/- being the arrears of tax, penalty and interest payable for the year 2006-2007 as intimated by the Respondent No.2, the Branch Manager, Bank of Baroda, Khairatabad, Hyderabad in his letter dated: 16.08.2016 as per Annexure-A as null and void, etc.,.)
P.S. Dinesh Kumar, J.
1. Learned Addl. Government Advocate is directed to take notice for respondent No.1.
2. Petitioner, a public limited company involved in road construction activity is registered as a 'dealer' under the Karnataka Value Added Tax Act 2003 (KVAT Act for short) and Karnataka Tax on Entry of Goods Act 1979 (KTEG Act for short). By a communication dated 16.08.2016, its banker (2nd respondent), conveyed that petitioner's bank account was brought under lien in compliance with three notices dated 12.08.2016 issued by the 1st respondent, Deputy Commissioner of Commercial Taxes, Davangere. Feeling aggrieved, petitioner has ' come up with these writ petitions challenging the said notices and the lien marked over its bank account.
3. Relevant facts leading to issuance of notices are, 1st respondent passed an ex parte reassessment order dated 25.4,2013 under the provisions of KVAT Act for the assessment year 2005-06. The same was initially challenged before the Joint Commissioner of Commercial Taxes who allowed it in part. On further appeal, the Karnataka Appellate Tribunal (KAT for short) in STAs No.3307-3318/2013 allowed them in full and remanded the matter for fresh consideration.
4. First respondent passed two other ex parte reassessment orders; an order dated 7.4.2014, under the KVAT Act for the year 2006-07 which was challenged in W.P.No. 107587/2014 before this Court and another dated 5.4.2014 under the KTEG Act for the year 2006-07 challenged in W.P.No. 104387/2016.
5. While the matters stood thus, petitioner received the impugned communication dated 16.8.2016 from its banker.
6. Assailing the legality and correctness of the notices issued under Section 45 of the KVAT Act and Section 9 of KTEG Act, Sri N.G.Rasalkar, learned Counsel for the petitioner made following submissions:
a) That notice for the assessment year 2005-06 under the KVAT Act is bad in law as there exists no tax liability pursuant to order of remand passed by the KAT;
b) That notice for the year 2006-07 under the KVAT Act is not sustainable in law as the said issue is pending consideration in W.P.No. 107587/2014;
c) That notice for the year 2006-07 under KTEG Act is also not sustainable in law as the said issue is subject matter of W.P.No. 104387/2016;
d) As per Sub-Section (2) of Section 1, both KVAT Act and KTEG Act are applicable and enforceable only within the 'territorial jurisdiction' of State of Karnataka. Petitioner maintains its account with Khairtabad (Hyderabad) branch of Bank of Baroda, which is beyond the territorial limits of State of Karnataka. Hence the 1st respondent could not have exercised his authority and issued any notice to its banker:
e) As the impugned notices have been issued without authority of law, 2nd respondent ought not to have complied with the directions contained therein;
f) The 1st respondent could not have initiated recovery proceedings whilst the interim prayer made in Writ Petition No. 107587/2014 challenging the validity of the amendment to the KVAT Act is pending consideration before this Court. In support of this contention he placed reliance on a judgment of this Court in the case of M/s M.L.Narasimha Gupta vs. Commercial Tax Officer, 1st Circle, reported in 1989 (2) Kar.L.J. 353.
7. Amplifying above contentions, elaborate arguments were addressed. However, the petitioner has pressed two principal contentions. Firstly, that the 1st respondent has no 'territorial jurisdiction' and secondly, that in view of judgment of this Court in M.L.Narasimha Gupta's case, recovery proceedings could not have been initiated.
8. Per contra, learned AGA appearing for the first respondent submitted that:
a) admittedly arrears of tax and penalty due as on date is more than Rupees 10 Crores (Ten Crores);
b) Sub-Section (2) of Section 1 of KVAT Act should be read along with statement of objects of the KVAT Act. A harmonious reading of both would show that the aspect of territorial jurisdiction is limited for the purpose of 'charging' and not recovery;
c) The respondent-State is vested with power under Section 45 of the KVAT Act to demand and recover any tax, penalty or interest from 'any person' holding money or property on behalf of an assessee. Thus, every person holding money on behalf of an assessee shall become liable to pay arrears of tax under the KVAT Act;
d) The judgment of this Court in the case of M/s.M.L.Narasimha Gupta supra is not applicable to this case because, firstly, in the facts and circumstances of that case this Court had directed the Appellate Authority to consider the interim application. Secondly, petitioner has challenged the 'vires' of the amendment to the Act and re-assessment orders in a writ petition and the same is not a statutory appeal;
e) Petitioner has not exhausted the alternative and efficacious remedy of statutory appeal under Section 62 of the KVAT Act.
9. Incontrovertible facts of this case fall within a narrow compass. The first principal contention urged on behalf of the petitioner is with regard to territorial jurisdiction. First respondent is the designated recovery officer. Hence there is no dispute with regard to his authority to initiate recovery proceedings. Then the following points fall for consideration of this Court.
1. Whether 1st respondent could issue recovery notices to the branch manager of petitioner's bank situated beyond the State of Karnataka under the provisions of KVAT Act and KTEG Act?
2. Whether 1st respondent could have issued notices whilst writ petitions filed by the petitioner and I.A.s for stay are pending consideration?
10. Re: Point No: 1
The subtle issue involved in this point is exercise of power and authority by a Tax Recovery Officer while issuing a notice emanating from his office situated within the State of Karnataka and its fructification at a geographical location beyond the State of Karnataka.
11. Law enacted by the Parliament or State Legislature empowers the Executive to exercise powers flowing from and under a statute. Analysis of facts in this case shows that the Tax Recovery Officer has exercised his power flowing from the KVAT and KTEG Acts and issued notices to the petitioner's banker; whereas, the grievance of the petitioner is that the branch of its banker is situated beyond the State of Karnataka and therefore, the first respondent could not invoke his jurisdiction under the said Acts beyond State's Territory. Admittedly petitioner has registered himself as a dealer under both KVAT and KTEG Act. He has subjected himself to the jurisdiction of the assessing and recovery authorities exercising powers under the said Acts.
12. Recovery of tax, penalty or any other amount from 'certain other persons' is provided under Section 45 of the KVAT Act. The pari materia provision in KTEG Act is Section 9.
13. Relevant portion of Section 45 of KVAT Act reads as follows:
45. Recovery of tax, penalty, or any other amount, from certain other persons.-
(1) The prescribed authority may at any time or from time to time, by notice in writing, a copy of which shall be forwarded to the dealer at his last address known to the prescribed authority, require any person from whom money is due or may become due to the dealer or any person who holds or may subsequently hold money for or on account of the dealer to pay to the prescribed authority, either forthwith upon the money becoming due or being held at or within the time specified in the notice, not being before the motley becomes due or is held, so much of the money as is sufficient to pay the amount due by the dealer in respect of arrears of tax or penalty or the whole of the money when it is equal to or less than that amount.
14. Relevant portion of Section 9 of KTEG Act reads as follows -
9. Recovery of tax from certain other persons.-
(1) The assessing authority may, at any time or from time to time, by notice in writing (a copy of which shall be forwarded to the l[x x x] ldealer from whom any tax assessed is due at his last address known to the assessing authority) require any person from whom money is due to the 1 [x x x] 1 dealer or any person who holds or may subsequently hold money for or on account of the 1 [x x x] 1 dealer to pay to the assessing authority either forthwith upon the money becoming due or being held at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the 1 [x x x] 1 dealer in [ 1979:KAR. ACT 27 Tax on Entry of Goods 755 respect of arrears of tax or penalty or the whole of the money when it is equal to or less than that amount.
15. A careful reading of the above provisions clearly indicates that a Tax Recovery Authority may issue a notice to 'any person' who holds or may subsequently hold money for or on behalf of the dealer. In the instant case, according to the petitioner, 1st respondent authority has called upon its banker to pay the arrears of tax and penalty from petitioner's account.
16. It may be profitable to note that the issue with regard to proceeding against 'any person' fell for consideration before the Hon'ble Supreme Court in the case of SEBI v. Pan Asia Advisors Ltd., (2015) 14 SCC 71 wherein, the Apex Court was examining the principles of 'effects doctrine' in cases involving exercise of extra territorial jurisdiction and held that to protect the interests of investors, 'effects doctrine' could be applied. Two relevant passages from the said judgment read as follows:-
106. A reading of the above judgment makes it clear that a law enacted by Parliament if shows that for proceeding against in exercise of any extra-territorial aspect, which has got a cause and something in India or related to India and Indians in terms of impact, effect or consequence would be a mixed matter of facts and of law, then the courts have to enforce such a requirement in the operation of law as a matter of law itself. The Constitution Bench, however, held that Parliament has no power to legislate for any territory other than the territory of India or other part of India with respect to aspects or causes which have no impact or nexus with India as was explained in Question 1. Keeping the said principle thus pronounced by this Court in mind, when we examine the SEBI Act, 1992 read along with the SCR Act. 1956 as well as the 1993 Scheme, we find that the Act itself provides for proceeding against any person in order to protect the interests of investors and the stock market in India with reference to any fraud played against such interest of the investors in India. Therefore, the answer to the first question as pronounced by the Constitution Bench applies in all force to the case on hand.
113. Therefore, when we apply the above principles set down in the said judgment to the case on hand, we are convinced that the principle of "effects doctrine '' will apply to the case on hand since we have found that in the event of the allegations noted in para 81 of this judgment levelled against the respondents by the appellant being established, it will have a far-reaching consequence on the Indian investors on securities as well as the stock market and consequently the duty of SEBI to protect their interests would automatically come into play as stipulated under Sections 11-B, 11-C, 12 and 12-A of the SEBI Act, 1992. Therefore, the said judgment when applied carefully we find that the same supports the case of the appellant rather than the respondent. (emphasis supplied)
17. Both KVAT Act and KTEG Act authorize recovery of tax by making a demand from 'any person'. So long as an assessment or reassessment order is in force, it should be lawful for a Tax Recovery Authority to recover the assessed tax liability due to the State.
Admittedly, in the instant case, pursuant to reassessment orders there exists tax liability due and payable by the assessee-petitioner herein. Therefore, a combined reading of the relevant provisions of Acts and the judgment of Hon'ble Supreme Court in SEBI case, leads to an irresistible inference that a Tax Recovery Officer could exercise his power to issue a notice emanating from his office to 'any person' holding money on behalf of an assessee.
18. Rule 59 of KVAT Rules 2005 prescribes mode of recovery which includes attachment and sale of both movable and immovable property. It is no more res integra that a deposit in bank account is 'property'. [see State of Maharashtra Vs. Tapas Neogy (1999) 7 SCC 685].
19. The KVAT Act has come into force with its publication in the Gazette on 23.12.2004. By then the Information Technology Act 2000 (Act 21/2000 w.e.f 09.06.2000) was in full force. It was enacted by the Parliament to give effect to the resolution of 30th January 199.7 passed by the General Assembly of the United Nations adopting Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law. The preamble to the said Act reads thus:
An Act to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as "electronic commerce", which involve the use of alternative to paper-based methods of communication and storage of information to facilitate electronic filing of documents with the Government agencies and further to amend the Indian Penal Code, the India Evidence Act, 1872, the Banker's Books Evidence Act, 1891 and the Reserve Bank of India Act, 1934 and for matters connected therewith or incidental thereto;
WHEREAS the General Assembly of the United Nations by resolution A/RES/51/162, date 30th January 1997 has adopted the Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law;
AND WHREAS the said resolution recommends, inter alia, that all States give favorable consideration to the said Model Law when they enact or revise their laws, in view of the need for uniformity of the law applicable to alternatives to paper based methods of communication and storage of information;
AND WHEREAS it is considered necessary to give effect to the said resolution and to promote efficient delivery of Government services by means of reliable electronic records;
BE it enacted by Parliament in the Fifty-first Year of the Republic of India as follows. "
20. Keeping in pace with the development all over the globe, India has adapted itself to the technology in vogue. In furtherance, Parliament has enacted the Information Technology Act, 2000. Banks in the country are 'net enabled' and offer net banking and other products. To effect proper transfer of funds through NEFT, RTGS etc., Parliament has enacted 'The Payment And Settlement Act, 2007'. Corresponding amendments have been made in the cognate Acts such as Indian Evidence Act, Bankers' Books Evidence Act in consonance with the Information Technology Act, 2000. Courts cannot remain oblivious to the progress and development in the country, commercial practices in vogue and their corresponding sequel on the citizens' rights as also the interest of State. The Hon'ble Supreme Court in the case of SIL IMPORT USA vs. EXIM Aids Silk Exporters, Bangalore, reported in (1999) 4 SCC 567 has held that the Parliament would be aware of modern devices and equipments. it has precisely stated thus:
15. Facsimile (or fax)' is a way of sending handwritten or printed or typed material as well as pictures by wire or radio. In the West such mode of transmission came to wide use even way back in the late 1930s. By 1954 the International News Service began to use facsimile quite extensively. Technological advancement like facsimile, internet, e-mail etc. were in swift progress even before the Bill for the Amendment Act was discussed by Parliament. So when Parliament contemplated notice in writing to be given we cannot overlook the fact that Parliament was aware of modern devices and equipment already in vogue.
16. Francis Bennion in Statutory Interpretation has stressed the need to interpret a statute by making "allowances for any relevant changes that have occurred, since the Act's passing, in law, social conditions, technology, the meaning of words, and other matters".
17. For the need to update legislations, the courts have the duty to use interpretative process to the fullest extent permissible by the enactment. The following passage at p. 167 of the above book has been quoted with approval by a three-Judge Bench of this Court in State v. S.J. Choudhary [(1996) 2 SCC 428 : 1996 SCC (Cri) 336] :
"It is presumed that Parliament intends the court to apply to an ongoing Act a construction that continuously updates its wording to allow for changes since the Act was initially framed (an updating construction). While it remains law, it is to be treated as always speaking. This means that in its application on any date, the language of the Act, though necessarily embedded in its own time, is nevertheless to be construed in accordance with the need to treat it as current law."
21. Under the provisions of KVAT Act or KTEG any person can register online as a dealer. He can also submit his returns 'online' and pay taxes by e-payment. Thus a dealer enjoys benefits of e- governance and accorded with facility and privilege to comply with statutory compliances by electronic mode which can be handled from any part of the globe without being physically present at the official address registered with the authorities.
22. Rule 79 of KVAT Rules prescribes mode of recovery by attachment and sale of shares in a Corporation. Rule 98 provides for the mode of recovery in which a share in a Corporation can be sold by a Tax Recovery Officer. Under the Companies Act, shares of listed Companies are compulsorily held in the Demat (dematerialized) form. Seizure and sale of shares in 'Demat' form can be effected only in cyberspace by using internet. In contrast to real world, Cyberspace is made of virtual elements accessible through internet at any time and from any place without barrier of borders. Therefore, it is logical to infer and hold that once the Act has authorized attachment and sale of shares in a company, legislature had taken into account transaction by electronic mode. Second respondent, Bank of Baroda is State owned. This Court can take judicial note of its significant presence in the State of Karnataka. It offers contemporary banking facilities such as NEFT, RTGS, ATM etc. These services are available with computerized branches. Admittedly, petitioner's bank account number consists of 14 digits (0950400000015) which indicates that it is 'net enabled'. Thus, it can be safely concluded that money in petitioner's bank account is available for transaction in every branch and ATM centre across the country and beyond the territory of India. Further, Bank of Baroda is a 'State' under Article 12 of the Constitution of India. It offers National Electronic Fund Transfer (NEFT) and other contemporary banking facilities.
23. Validation of online registration, e-filing and e-payment are in consonance with the I.T.Act, 2000. So also the validation of net banking.
24. Attachment of a 'net enabled' bank account stands precisely on the same footing as that of attachment and sale of shares in a Company.
25. To paraphrase above discussion, both KVAT KTEG Acts authorize recovery officers to demand money from 'any person' and authorize recovery by attachment and sale of share in Companies. Hence, by natural corollary a Tax Recovery Authority can lay its hands on the money in deposit in a bank account situated beyond its territory if the same is accessible online. Therefore applying 'effects doctrine', the recovery proceedings initiated by the first respondent under the provisions of the KVAT Act and KTEG Act are preeminently tenable.
26. Re: Point No.2.
A careful perusal of the authority relied upon by the petitioner (M.L.Narashimha Gupta supra) shows that there is a classic difference between the two cases. In the said case, this Court was concerned with an I.A. for stay to be considered by an Appellate Authority in a statutory appeal. In contrast, the case on hand is a writ petition wherein, the petitioner has challenged the 'vires' of the Act and incidentally challenged the tax liability. Therefore, the immunity from recovery argued by the learned counsel for the petitioner is misconceived.
27. Resultantly, in view of above discussion, these writ petitions fail and are accordingly dismissed. No costs.
28. Learned Addl. Government Advocate is permitted to file memo of appearance in four weeks.