2007 (3) TMI 32 - HC - VAT and Sales Tax

Construction of flats on its own can not be tanable as work contract under U.P.T.T. where the right title and interest in the construction continue to remain with the developer mere payment term would not alter the nature of transaction

Summary

Issues Involved:
1. Imposition of tax on the petitioner treating it as executing a work contract.
2. Applicability of the principle laid down in K. Raheja Development Corporation v. State of Karnataka.
3. Jurisdiction of the Assistant Commissioner, Trade Tax, to impose tax.
4. Availability of an alternative remedy.

Detailed Analysis:

1. Imposition of Tax on the Petitioner Treating It as Executing a Work Contract:
The petitioner, a private company engaged in developing land and constructing houses for sale, challenged the orders imposing tax on the grounds that it did not undertake construction for and on behalf of the allottees. The court examined the terms and conditions of the allotment letter, which clearly stated that the petitioner remained the owner of the apartments until the execution of the sale deed. The petitioner argued that the construction was undertaken on its own account and not for the prospective allottees, thus it should not be treated as a work contract. The court found that the petitioner continued to be the owner of the apartments and construction thereon until the sale deed was executed and registered, and therefore, the construction could not be said to have been undertaken for and on behalf of the prospective allottees.

2. Applicability of the Principle Laid Down in K. Raheja Development Corporation v. State of Karnataka:
The Assistant Commissioner, Trade Tax, applied the principle from the K. Raheja Development Corporation case to impose tax on the petitioner. However, the petitioner argued that the facts of their case were different. The court noted that in the K. Raheja case, the agreement explicitly stated that the construction was for and on behalf of the prospective purchasers. In contrast, the petitioner's terms and conditions did not transfer any right, title, or interest to the allottees until the sale deed was executed and registered. Therefore, the court concluded that the principle from the K. Raheja case was not applicable to the petitioner's case.

3. Jurisdiction of the Assistant Commissioner, Trade Tax, to Impose Tax:
The petitioner contended that the Assistant Commissioner, Trade Tax, had no jurisdiction to impose tax on the construction undertaken by the petitioner, as the right, title, and interest vested with the petitioner until the execution of the sale deed. The court agreed, stating that if the construction was not undertaken for and on behalf of the prospective allottees, the liability for tax would not arise. The court found that the Assistant Commissioner had mechanically applied the principles from the K. Raheja case without analyzing the specific terms and conditions of the petitioner's allotment letter, thus acting without jurisdiction.

4. Availability of an Alternative Remedy:
The respondents argued that the petitioner had an alternative remedy available under Section 9 of the U.P. Trade Tax Act and should not have approached the court directly. However, the petitioner argued that the assessment order was wholly without jurisdiction, and therefore, the availability of an alternative remedy should not bar the petitioner from invoking the court's jurisdiction under Article 226 of the Constitution of India. The court cited several precedents where it was held that the existence of an alternative remedy does not bar the court's jurisdiction if the action is wholly without jurisdiction. The court concluded that since the imposition of tax was without jurisdiction, the petitions should not be dismissed on the ground of alternative remedy.

Conclusion:
The court found that the construction undertaken by the petitioner did not fall under the definition of a "works contract" as per Section 2(m) and Section 3F of the U.P. Trade Tax Act, and therefore, the imposition of tax was without jurisdiction. The impugned orders dated 24-3-2006 and 29-5-2006 were set aside. Both writ petitions were allowed, and the parties were directed to bear their own costs.