2008 (1) TMI 856 - HC - VAT and Sales Tax

Composition of tax claim rejected - Held that - Taking into consideration the nature of the document executed by the assessee it was for the authorities to give its finding whether it is a works contract or contract for sale to reject the case of the assessee for composition and calling upon the assessee to pay the tax at a higher rate. It is unfortunate that all the authorities without examining the contents of the agreement have passed the orders. Therefore we are of the opinion that without answering the questions of law framed in this appeal the matter has to be reconsidered by the assessing officer afresh by considering all the contentions raised by the assessee in accordance with law. Appeal allowed. The matter is remanded to the assessing officer for fresh consideration in accordance with law by giving reasonable opportunity for the assessee and a liberty is given to the assessee to raise all such contentions and also to produce the agreement entered into by it with ITC Ltd.

Summary

Issues:
1. Nature of work executed by the assessee - works contract or contract for sale

Analysis:
The judgment of the court, delivered by Justice K.L. Manjunath, pertains to an appeal by the assessee challenging an order passed by the Additional Commissioner of Commercial Tax. The assessee had entered into an agreement with ITC Limited for setting up a manufacturing facility, including the relocation of certain items from its existing facility. The assessing officer initially rejected the claim for composition of tax, treating the work as a contract for sale. The first appellate authority allowed the appeal, extending the benefit of composition to ITC Limited. However, the Additional Commissioner, invoking section 22A of the Karnataka Sales Tax Act, held the first appellate authority's order as erroneous and prejudicial to revenue, directing the assessing officer to issue a revised demand notice. The assessee, aggrieved by this decision, raised questions of law in the appeal.

Upon hearing the arguments, the counsel for the assessee contended that the Additional Commissioner erred in reversing the first appellate authority's findings without considering the agreement's terms and the nature of work executed. The counsel argued that the work undertaken, including dismantling, shifting, and establishing a new unit, falls under a works contract based on the agreement's specifications. On the other hand, the Government Advocate for Revenue argued that the work constituted a contract for sale, emphasizing that the relocation and establishment of the new unit were incidental to the supply of machinery. The court noted the importance of examining the agreement's terms to determine whether it constitutes a works contract or a contract for sale, criticizing the authorities for not analyzing the agreement contents before passing orders.

The court concluded that the matter required fresh consideration by the assessing officer, emphasizing the need to examine all contentions raised by the assessee in accordance with the law. The court allowed the appeal, setting aside all previous orders and remanding the matter for reconsideration. The assessing officer was directed to review the case, providing a reasonable opportunity for the assessee to present arguments and produce the agreement with ITC Ltd. The reassessment was scheduled for a specific date, with no requirement for issuing a fresh notice as the assessee's counsel agreed to appear before the assessing officer.