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2016 (9) TMI 1084 - MADRAS HIGH COURT

2016 (9) TMI 1084 - MADRAS HIGH COURT - TMI - Validity of Assessment order - Tamil Nadu Value Added Tax Act, 2006 - business of promotion and construction of flats - the petitioner claims deduction on 30% of the total turnover in terms of Rule 8(5)(d) of the TNVAT Rules and pays tax at appropriate rate on the balance turnover after availing Input Tax Credit of the tax paid on the purchases. The petitioner is stated to have paid Service Tax on the labour portion of the contract - whether the proc .....

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bearing in mind the legal principle enunciated in the aforementioned judgment. However to adjudicate the factual issues, the petitioner should first furnish adequate information. - Input tax credit - with regard to the mismatch, the petitioner can very well establish through records, regarding the payment of sale price etc., and without furnishing specific details with regard to the transactions, the petitioner cannot say that the selling dealer alone has to be proceeded against. The initia .....

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urance documents submitted by the petitioner in support of their case that the deletion of assets in the balance sheet was due to theft of assets. With regard to transfer of construction equipment to the petitioner's group company, resulting in deletion of assets in the balance sheet, the petitioner has reported the same in its monthly returns and stated that they have discharged the appropriate tax liability and only the amount that was paid during the personal hearing, has been considered. The .....

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he documents which shall be produced by the petitioner. - W.P.No.28067 to 28069 of 2015 M.P.Nos.1 to 1 of 2015 - Dated:- 12-9-2016 - T. S. Sivagnanam, J. For the Petitioner : Mr. N. Venkataraman Senior Counsel for Mr. L. Murali Krishanan For the Respondents : Mrs. S. Kanmani Annamalai AGP ORDER The petitioner, in all these Writ Petition, is one and the same and the challenge is to the orders of assessment under the Tamil Nadu Value Added Tax Act, 2006, (TNVAT Act), for the years 2013-14, 2012-13 .....

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in the business of promotion and construction of flats. The impugned assessment orders pertaining to a project conceived and developed by the petitioner called VBHC Oragadam , in which the petitioner proposed to construct 148 flats. The petitioner is stated to have entered into a Joint Development Agreement with the owner of the land and the construction commenced in January 2012, after obtaining necessary approvals. The manner in which the petitioner transacts business, has been set out in par .....

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he petitioner claims deduction on 30% of the total turnover in terms of Rule 8(5)(d) of the TNVAT Rules and pays tax at appropriate rate on the balance turnover after availing Input Tax Credit of the tax paid on the purchases. The petitioner is stated to have paid Service Tax on the labour portion of the contract. The petitioner completed the construction during March 2014, however at that time, 50% of the flats remained unsold. The petitioner would state that after completion of the constructio .....

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ct in the earlier years. During the period of construction between 2012 to 2014, the petitioner purchased goods locally from registered dealers on payment of tax and has claimed Input Tax Credit over the said period and has been utilising the same, for payment of output tax. While so, a VAT audit was conducted, in which certain defects were pointed out which paved way for issuance of a pre-revision notice dated 20.04.2015. 5. The learned Senior counsel appearing for the petitioner pointed out th .....

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Nos.1 to 6 are concerned, all liabilities have been discharged and the petitioner does not raise any contention in this regard in these Writ Petitions. It is submitted that only three remaining issues to be considered in all these Writ Petitions are pertaining to the tax computed on the deemed sale value of the goods involved in the execution of works contract by adding transport charges and gross profit to the purchase turnover reported in the monthly returns with an allegation that there was a .....

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drawn the attention of this Court to the decision of the Constitution Bench of the Hon'ble Supreme Court in the case of Gannon Dunkerley & Co., vs. State of Rajasthan reported in (1993) 88 STC 204. The learned counsel by referring to the said decision submitted that the taxable event is the transfer of property in goods involved in the execution of the works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of th .....

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e, it is contended that the respondent erroneously computed the taxable turnover without reference to the provision of Rule 8(5) of the TNVAT Rules, which would require that the taxable turnover in respect of transfer of property in goods involved in the execution of works contract has to be computed. 7. Further, it is submitted that the provisions of Section 3-B of the Tamil Nadu General Sales Tax Act, 1959, with necessary modifications relating to second sale exemptions have been enshrined in .....

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o be added to the turnover of L&T. In other words, the question is whether goods employed by the sub-contractor occur in the form of single deemed sale or multiple deemed sale. Referring to the decision of the Constitution Bench in the case of Builders' Association of India and others v. Union of India and others reported in [(1989) 73 STC 370), wherein it was held as follows:- Ordinarily unless there is a contract to the contrary in the case of works contract the property in the goods u .....

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t sight of by the Assessing Officer while completing the assessment. Referring to the decisions in the case of Sri Vinayaga Agencies vs. Assistant Commissioner (CT), Vadapalani-I Assessment Circle & Anr., reported in [2013] 60 VST 283, and Althaf Shoes (P) Ltd., vs. Assistant Commissioner (CT), Valluvarkottam Assessment Circle, Chennai reported in [2012] 50 vst 179 (Mad), it is submitted that the purchasing dealer cannot be mulcted with the liability on account of a fault committed by the se .....

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ler as per Annexure-I of buyer and Annexure-II of sellers for the year 2011-12 to 2013-14; (iii) Levy of tax on sale of assets for the years 2012-13 and 2013-14; (iv) Reversal of Input Tax Credit on interstate sales without C Forms; and (v) Penalty under Section 27(3) and 27(4) of the Act on suppression and escapement of turnover. 10. It is submitted that opportunity was granted to the petitioner to submit their objections and the Assessing Officer has correctly estimated the deemed sale value i .....

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of goods involved in the works contract, has no rational basis. Further, it is contended that the petitioner has not proved that they have paid tax for availing the Input Tax Credit from the selling dealer and no documentary evidence has been produced for sufferance of sales tax on the purchase by the assessee. It is further submitted that when the contract is indivisible one, the method adopted by the petitioner by arriving at the contract value less 30% towards labour and services is incorrect .....

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to be followed while opting to pay tax under Section 5 of the TNVAT Act, which is only with an object of evading the tax and adjusting the entire liability from the Input Tax Credit. The petitioner has not given any details as to how many flats were sold, but reversed Input Tax Credit on 50% unsold flats stating that 50% of the flats alone have been sold. Therefore, it is submitted that if the petitioner is aggrieved, they should be directed to avail the statutory remedy available under the Act .....

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nder the other issues have been discharged. This statement is taken on record. It is seen that to the pre-revision notice issued to the petitioner, an elaborate reply has been given, apart from submitting additional written submissions at the time of personal hearing. The Assessing Officer has referred to the contentions raised by the petitioner in their objections taken note of the decisions referred to by them and proposed to discuss all the issues in seriatim. 13. The endeavour of the learned .....

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e that sofar as the transfer of those 50% of the flats, the petitioner cannot enter into a construction agreement, as the construction is already over and what is being sold, is an immovable property and not liable to tax. 14. Thus, the factual issue is as to how many number of flats have been sold, and what remained unsold on the date of issuance of completion certificate, whether the procedure adopted by the petitioner for the purpose of availing the Input Tax Credit was justifiable, whether i .....

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be complicated and there are several transactions, especially when the project consist of 148 flats, which is stated to have been completed and completion certificate was issued during March 2014. These complicated factual issues has to be adjudicated bearing in mind the legal principle enunciated in the aforementioned judgment. However to adjudicate the factual issues, the petitioner should first furnish adequate information. The mere statement that 50% of the flats remained unsold on the date .....

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of a judgment of the High Court of Karnataka. The question which was considered by the Hon'ble Supreme Court was whether iron and steel reinforcements of cement concrete that are used in buildings lose their character as iron and steel at the point of taxability, that is, at the point of accretion in a works contract. Though, the appeals concerned regarding the rate of taxability of the declared goods, that is, goods declared to be of special importance under Section 14 of the Central Sales .....

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s that are liable to be taxed after the 46th Constitution Amendment are subject to the drill ofArticle 286(3) read with Section 15 of the Central Sales Tax Act, namely, that they are chargeable at a single point and at a rate not exceeding 4% at the relevant time. Further, the point at which these iron and steel products are taxable is the point of accretion, that is, the point of incorporation into the building or structure. 14. The relevant paragraphs from these two decisions, therefore, need .....

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nstitution are subject to an additional restriction mentioned in sub- clause (b) of Article 286(3) of the Constitution. [para 32] In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated thus: Chattel to be affixed to land or another chattel. Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the prope .....

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clause (29-A) of Article 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed. After the 46th Amendment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable p .....

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46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. We do not accept the argument that sub-clause (b) of Article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of entry 54 thereof. As the Constitution exists today t .....

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he levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under entry 54 of the State List. We, therefore, declare that sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditio .....

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presented by building contracts in the context of the expanded concept of tax on the sale or purchase of goods as constitutionally defined under Article 366(29-A), would equally apply to other species of works contracts with the requisite situational modifications. (Paras 38-41) In M/s. Gannon Dunkerley (supra), this Court held: Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of Article 286 which en .....

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the legislative power of the States under Entry 54 in State List has to be exercised subject to the restrictions and conditions specified in that law. In exercise of the power conferred by Article 286(3)(a) Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act, 1956. No law has, however, been made by Parliament in exercise of its power under Article 286(3)(b). For the same reasons Sections 14 and 15 of the Central Sales Tax Act would also be applicable to the deemed sales result .....

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under Section 14 of the Central Sales Tax Act except in accordance with the restrictions and conditions contained in Section 15 of the Central Sales Tax Act. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of i .....

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or transfer of property in goods and, therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for levy of tax contemplated by Article 366(29-A)(b). 16. Similarly, with regard to the mismatch, the petitioner can very well establish through records, regarding the payment of sale price etc., and without furnishing specific details with regard to the transactions, the petitioner cannot say that the selling dealer alone has to be proceeded against. The init .....

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