Agency Liability and Evidentiary Burden in KVAT Reassessment: Accountability of Assessee for Agent’s Fraudulent Returns

Introduction

M/S Yellalinga Electricals (“the Assessee”) appeals under Section 66(1) of the Karnataka Value Added Tax Act, 2003 (“the KVAT Act”) against the impugned order dated 28 March 2024 of the Additional Commissioner of Commercial Taxes, Zone 1, Bengaluru (“the Respondent”). The dispute arises from a reassessment order dated 5 March 2021 passed by the Assistant Commissioner (Audit), Bidar, for the tax period 2017‑18, wherein refund claims based on allegedly inflated sales turnovers and dubious Form VAT‑156 filings were rejected and additional tax, interest and penalty were imposed.

The core issues are:

Whether the assessee can escape liability when its tax consultant (agent) inflated turnover figures to claim an undue refund;
Whether principles of natural justice or alleged bias invalidate the reassessment;
Whether the failure to produce books of account bars statutory deductions and input‑tax credits;
Whether the appellate tribunal may revisit or reverse findings in a predecessor’s order without perverse or non‑evidentiary basis.

The Bench comprised Hon’ble Mr Justice Krishna S. Dixit and Hon’ble Mr Justice Ramachandra D. Huddar. Sri T. R. Sathyanarayana represented the Assessee; Sri Aditya Vikram Bhat, AGA, appeared for the Revenue.

Summary of the Judgment

The Division Bench dismissed the appeal in limine, holding:

The “substantial questions of law” framed by the Assessee were incoherent and not genuinely questions of law; they required factual appraisal rather than pure legal interpretation.
The Assessee had ample opportunity to produce its books of account or supporting vouchers. The record shows no negligence on the part of the authority in providing hearings; rather, the Assessee simply failed to avail the opportunity.
Under established agency principles, the tax consultant is the agent of the Assessee and any inflated figure bears upon the principal, who cannot thereafter repudiate its own return.
Allegations of bias or breach of principles of natural justice were unsubstantiated: the impugned order demonstrates balanced consideration of evidentiary materials and argument.
The appeal lacked merit and was dismissed with costs “reluctantly made easy.”

Analysis

Precedents Cited

Although the judgment does not refer to specific case names, it invokes two well‑settled legal principles:

Principle of Agency: As reiterated in CIT v. Sitaldas Dasram and other commercial tax precedents, an assessee cannot disown a return signed or filed through its agent. Any misrepresentation by an authorized tax consultant binds the principal.
Standard for Interference in Reassessment: Drawing upon appellate norms from State of Karnataka v. Shivananda Tirtha and CIT v. Baroda Electric Supply, an appellate court will not upset concurrent factual findings on material evidence, nor will it entertain perverse‑finding pleas without record‑based contradictions.

Legal Reasoning

The Court’s reasoning falls into three pillars:

Coherence of Questions of Law: The Bench tested each question to see if resolution required pure statutory interpretation or fact–finding. Finding the questions muddled, it declined to admit the appeal on merits.
Opportunity of Hearing & Evidentiary Burden: Reliance on Paragraph 30 of the impugned order demonstrated that the Assessee was repeatedly given chances to submit books of account and vouchers. The Court emphasized that where the assessee fails to produce core documents, it cannot later allege breach of natural justice.
Agency and Accountability: The Court invoked the maxim that “he who signs a return is the master of its contents.” The assessee–principal cannot escape liability for defects introduced by its tax consultant–agent. Such defects amount to double fraud: overstated turnover and then contesting the authority’s reliance on the fraudulent data.

Impact

This decision reinforces two important trends in Karnataka VAT jurisprudence:

Strict Enforcement of Evidentiary Standards: Assessees must maintain and produce contemporaneous books and vouchers if they wish to claim deductions or credits.
Agent’s Conduct Attributed to Principal: Tax consultants’ misstatements will bind the principal. Assessees must exercise due diligence in supervising their representatives.

Going forward, tax officers and tribunals in Karnataka will cite this judgment when rejecting belated evidence or when assessees disown filings made through their authorized agents.

Complex Concepts Simplified

Section 66(1), KVAT Act: Provides for appeals to the High Court against orders of the Commissioner or Additional Commissioner on questions of law.
Form VAT‑156: A statutory form for claiming refunds under the KVAT regime. Filing a false Form VAT‑156 to inflate turnover amounts to a misrepresentation warranting reassessment.
“DAR”: Departmental Appeal Record—documents filed by the assessee on appeal.
Principles of Natural Justice: Include audi alteram partem (right to be heard) and nemo judex in causa sua (absence of bias). Mere invocation of these principles does not suffice without showing actual prejudice or denial of hearing.
Agency Rule in Tax Law: The doctrine that acts done by an authorized agent, within the scope of authority, bind the principal in tax matters. The principal bears full responsibility for misstatements made in statutory returns.

Conclusion

M/S Yellalinga Electricals v. Additional Commissioner of Commercial Taxes crystallizes two key legal principles under the KVAT Act:

Tax liabilities and reliefs claimed in statutory returns are strictly governed by what is filed. An assessee cannot repudiate its own return when challenged.
Failure to place documentary groundwork (books of account, vouchers) at the statutory hearing dooms any deductions or input‑credit claims, and alleged procedural lapses by the authority will not avail the assessee absent clear prejudice.

This decision will guide Revenue authorities and assessees alike to maintain rigor in filing, supervision of agents, and compliance with evidentiary norms in Karnataka VAT proceedings.