The main legal point established in the judgment is that the act of the dealer in gathering the amount from its customer in the name of tax constituted collection and violated the provisions of Section 18, thereby attracting Section 18AA.

1. This appeal is filed by the State Government against the order passed by the learned Single Judge of this Court on 19.12.2003 in WP No.12318/2001.

2. In the impugned order the learned Single Judge of this Court, while thought it fit to set aside the demand raised by the Revenue that is, Official of the Commercial Tax Department of the State Government demanding payment of a sum of Rs.15,49,050.00 as a sequel to the passing of an order dated 4.1.2001 produced at Annexure-G to the writ petition and consequential demand notice dated 26.2.2001 Annexure-H to the writ petition that the amount referred to above which had been passed under the provisions of Section 18AA of the Karnataka Sales Tax Act, 1957, hereinafter referred to as ‘the Act’ as orders suffering from want of jurisdiction on the part of the officer passing the order.

3. The State having lost the Revenue to the extent of Rs.15,49,050.00 has come up in Appeal u/s 4 of the Karnataka High Court Act.

4. The appeal had been admitted, respondent had been put on notice. The respondent is served and represented by counsel.

5. We have heard Sri Vedamurthy, learned Government Pleader appearing for the appellant State Government and its official and Sri Shreyas Jayasimha learned counsel appearing for the respondent dealer.

6. The brief facts leading to the above appeal are that the respondent – dealer is a person carrying on business in civil construction activity as a builder/developer.

7. Therespondent had undertaken certain works contract to be executed in favour of HPCL at Mangalore and it in terms of the contract, were to receive lump sum amount on the completion of the work under the contract.

8. The contract, it appears, was entered into and the work also began during the Accounting Year relevant for the Assessment Year 1995-96 and it is the version of the Respondent-writ petitioner that it had continued for 3 years and a part of works contract had been executed during the year relevant for the assessment period 196-97 that is, 1.4.1996 to 31.3.1997.

9. The dealer, it appears, had also opted for payment of tax under the provisions of Section 17(6) of the Act by way of composition in lieu of the normal tax liability of a dealer who is executing the works contract as envisaged under the regular charging Section 5B of the Act.

10. The facts which are not in dispute and relevant for the purpose of this appeal are, that during the relevant period the total turnover of a dealer who adopted for payment of tax by way of composition under the provisions of sub-section (6) of Section 17 of the Act was at 4% of the total turnover irrespective of the taxability or otherwise of some of the components of the turnover and that the dealer had, according to it, gathered the equivalent amount of tax liability payable in terms of subsection (6) of Section 17 from its customer, had indicated the amount so gathered, in its monthly returns and had also remitted the amount to the State.

11. It appears the Assessing Authority had also accepted the returns and had quantified the tax liability of the dealer in terms of sub-section (6) of Section 17 and found no occasion to vary the payment made by the dealer as the actual tax liability of the dealer for the period and under the provisions of sub-section (6) of Section 17.

12. It was later that attention was bestowed by the very Assessing Authority to the provisions of subsection (2) of Section 18 of the Act which in turn alerted the Assessing Authority also to look into the provisions of Section 18AA of the Act and having realized that notwithstanding the embargo on the dealer from collecting any tax from the customers, the dealer had collected the actual tax payable by it to the State and for such purpose being of the opinion that the amount so collected being in violation of the provisions of Section 18, was liable to be forfeited in favour of the State under the provisions of Section 18AA of the Act and issued a show cause notice da