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2016 (6) TMI 750 - KERALA HIGH COURT

2016 (6) TMI 750 - KERALA HIGH COURT - TMI - Works Contracts - benefit of compounding of tax - validity of assessment orders u/s 25(1) of the KVAT Act, 2003 - The Intelligence Officer verified the accounts and found that they have suppressed contract receipt and penalty was imposed for the year 2009-10. - On verification it was found that petitioner has not filed any compounding application with the related documents as required under Sub rule 1 of Rule 11, but has remitted tax adopting the comp .....

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herefore, when a fact situation gives rise to a situation warranting interference under Section 25(1), Section 22 cannot control Section 25. Section 25 is an independent power available to the Department to consider and take action in respect of escaped assessment, under assessment etc,. That apart, Section 22(2) would further clarify that even in an instance where revised return is filed, assessment is deemed to be completed subject to Section 25 of the Act. Therefore merely for the reason that .....

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orks contractor. Option can be exercised only on compliance of the statutory format. In so far as the petitioner did not comply with such procedure, the Department was justified in acting accordingly as if petitioner had not opted for payment of tax at compounded rate. On facts itself, it is clear that the matter came to be noticed when a crime file was investigated by the officers where penalty had been imposed on the petitioner. Therefore, the said ground also is not available to the petitione .....

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as stated that in an earlier notice issued proposing to complete the assessment for the respective years, certain material mistakes were noticed and accordingly, revised notice had been issued. 2. The main contention urged by the petitioner is that the 1st respondent levied tax on the total contract receipts at 12.5% after deducting sub contract proved with Form 20H and labour charges allowed as per Rule 10(2)(b) of the KVAT Rules. Such a view had been taken on the ground that the assessee had n .....

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happened to take registration under the Act in March, 2008 at the instance of the Officers of the Department. 3. Further, it is contended that, from 2008 onwards, petitioner used to pay tax at compounded rate. When notice was received stating that the petitioner has not opted for payment of tax by filing compounding application, petitioner had filed a consolidated reply on 11/1/2016 indicating that some more time may be granted, if it is found that petitioner has not opted for the compounding fa .....

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proceedings under Section 25 could not have been invoked. Further, it is contended that petitioner had not undertaken any works contract. 5. Reference is also made to the judgment of the Supreme Court in Larsen and Toubro Ltd. v. State of Karnataka [(2014) 1 SCC 708]. It is submitted that as far as the petitioner is concerned, the transaction is only for its members. Reliance is also placed on the judgment in Assotech Reality Pvt. Ltd v. State of U.P. [(Allahabad) 2007 8 DST 738] and M/s.K.Rahej .....

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. The crime file was received in the office of the 1st respondent during February, 2015. Subsequent to the same, returns were scrutinised for ascertaining the actual facts. On verification it was found that petitioner has not filed any compounding application with the related documents as required under Sub rule 1 of Rule 11, but has remitted tax adopting the compounding rate. No application has been filed as provided under the Rules. In so far as no order had been issued, the allegation that ta .....

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at petitioner comes within the said definition. In para 5 of the counter affidavit, it is stated as under: 5. It is submitted that the self assessment annual return in Form 10 B filed by the petitioner on 16.6.2015 is as shown below: Contract amount received during the Quarter Exemption under Rule 10 Taxable Turn over 151286889 NIL 151286889 The above self assessment return itself admits that the petitioner executed an agreement with the members and constructing flats for them after collecting a .....

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Rules. Sections 22(1) and (2) read as under; 22. Assessment in case of non-filing of return and filing of defective return -(1) Where the return submitted under sub-section (1) of section 20 is not in the prescribed manner or not accompanied by the prescribed documents or with incorrect particulars, the assessing authority shall, after recording its reasons, reject the return with due notice to the dealer. Provided that the payment of any tax declared as payable as per the return shall be provis .....

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essing authority, the assessment for the return period shall, subject to the provisions of section 24 and section 25, be deemed to have been completed. According to the petitioner, they have filed their returns and if at all there was any defect, it should have been returned within the time limit specified under the Rules. Once, such an action has not been taken in the matter, Section 25 cannot be invoked. Section 25 is a special provision. Section 25(1) reads as under: 25. Assessment of escaped .....

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elates, proceed to determine, to the best of its judgment, the turnover which has escaped assessment to tax or has been under assessed or has been assessed at a rate lower than the rate at which it is assessable or the deduction in respect of which has been wrongly made or input tax or special rebate credit that has been wrongly availed of and assess the tax payable on such turnover or disallow the input tax or special rebate credit wrongly availed of, after issuing a notice on the dealer and af .....

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ettlement fee. It is clear from the reading of Section 25 that it is a special power given to the assessing officer to take action if for any reason the whole or any part of the turnover of the business of a dealer has escaped assessment in any year or has been under assessed. Therefore, when a fact situation gives rise to a situation warranting interference under Section 25(1), Section 22 cannot control Section 25. Section 25 is an independent power available to the Department to consider and t .....

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the action of the Department in invoking Section 25(1). 8. Next question is whether payment of tax at compounded rate in terms of Section 8(a) without a formal application would preclude the Department from invoking Section 25(1). Learned counsel for the petitioner relies upon judgment of the Division Bench in Johnson and Johnson Ltd. v. Asst.Commissioner (Assmt.) [(2009) 17 KTR 613]. Reference to the facts of the said case would show that appeal is filed against clarification issued by the Com .....

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The appellant contended that only in the pharma division they have paid tax at compounded rate and in so far as other divisions are concerned, drugs and medicines cannot be subjected to assessment at compounded rate. Appellant filed a clarification petition before Commissioner who held that appellant is liable to pay tax at compounded rate on the sale of drugs and medicines as stated in Section 8(e) of the Act no matter whether the application is filed under prescribed form or not who are avail .....

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unded rate on MRP by the seller, the purchasing dealer is entitled to exemption. Going by the collection of tax in the pharma division the appellant cannot deny that they have not opted for payment of tax at compounded rate under section 8(e) of the Act. All what the Commissioner has stated is that once the appellant has started billing in accordance with compounding scheme, then the same itself amounts to opting to pay tax under the compounding scheme and the appellant cannot therefore back out .....

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surviving dispute then it is for the appellant to pursue the same before the statutory authority in appeal. This judgment apparently will not apply to the facts of the present case. The Division Bench was only approving a clarification issued by the Commissioner wherein the Division Bench clarified that all what the Commissioner has stated is that once the appellant had started billing in accordance with compounding scheme, then the same itself amounts to opting to pay tax under the compounding .....

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xercised only on compliance of the statutory format. In so far as the petitioner did not comply with such procedure, the Department was justified in acting accordingly as if petitioner had not opted for payment of tax at compounded rate. On facts itself, it is clear that the matter came to be noticed when a crime file was investigated by the officers where penalty had been imposed on the petitioner. Therefore, the said ground also is not available to the petitioner. 9. Next question is regarding .....

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ating that the transaction of sale of tax does not come within the purview of the Act and that the work is being done by different contractors. 10. As per Section 6(1)(e) of the KVAT Act, there is a liability to pay tax when during the execution of works contract, there is transfer of goods. The Supreme Court had occasion to consider the issue in Larsen and Toubro Ltd. (supra). It was held that 3 conditions have to be fulfilled; (i) there must be a works contract (ii) goods should have been invo .....

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a species of the works contract. It was also held that where a contract comprises of both, may be a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. It is held at para 97 as under: 97. In light of the above discussion, we may summarise the legal position, as follows: 97.1. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, three conditions must be fulfilled: (i) there mus .....

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ruction of building, the goods (chattels) like cement, concrete, steel, bricks, etc. are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods. 97.3. Where a contract comprises of both a works contract and a transfer of immovable property, such contract does not denude it of its character as works contract. The term works contract in Article 366(29-A)(b) takes within its fold all genre of works contra .....

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d the traditional decisions which have held that the substance of the contract must be seen have lost their significance where transactions are of the nature contemplated in Article 366(29-A). Even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if such contract otherwise .....

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goods which are involved in the execution of the works contract. Such a deemed sale has all the incidents of the sale of goods involved in the execution of a works contract where the contract is divisible into one for the sale of goods and the other for supply of labour and services. In other words, the single and indivisible contract, now by the Forty-sixth Amendment has been brought on a par with a contract containing two separate agreements and the States now have power to levy sales tax on .....

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within the ambit of sale or purchase for the purposes of levy of sales tax. In other words, transfer of movable property in a works contract is deemed to be sale even though it may not be sale within the meaning of the Sale of Goods Act. 97.11. Taxing the sale of goods element in a works contract under Article 366(29-A)(b) read with Entry 54 List II is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovab .....

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in with the builder. That is not the situation here. That apart, the assessing authority considered the matter and held as under; The assessee M/s.Federal Housing Construction Co-op Society is originated only for the purpose of constructing villas/apartments for its members and for that purpose the assessee executed agreement with the members for the construction of apartment and received advance for the said purpose. As the society comes under the purview of works contract they are liable to ta .....

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