2010 (3) TMI 1005 - HC - VAT and Sales Tax

Whether once the compounding option was accepted by the Department, a compounding order was also passed to that effect, the transactions of the petitioner will not come under the category of works contract thereby the respondent to assume jurisdiction to revise the assessment and levy tax on the transaction as ordinary sale by invoking the provisions of section 16 of the TNGST Act does not arise? Held that - In view of the judgment of the Supreme Court in Devendran & Company case 1996 (8) TMI 430 - SUPREME COURT OF INDIA wherein held that if earlier assessment is made on a particular percentage and subsequently, if the assessing authority wanted to reopen the assessment by taking away part of the sales turnover from the turnover already assessed for finding out the corresponding purchase turnover the same power is not available to the authorities. Thus the impugned order dated November 21, 2008 is set aside and the writ petition stands allowed.

Summary

Issues: Challenge to assessment proceedings under TNGST Act for AY 2005-06 based on compounding rate option exercised by petitioner.

Analysis:
The petitioner, engaged in supply and commissioning of pumps, challenged the assessment proceedings of the respondent under TNGST Act for AY 2005-06. The petitioner opted to pay tax at a compounding rate as per section 7C of the TNGST Act by filing returns in form A1, which was accepted by the Department. The petitioner argued that this choice precludes the transactions from being categorized as "works contract," thus preventing the respondent from revising the assessment under section 16 of the TNGST Act. The petitioner relied on the judgment in State of Tamil Nadu v. Devendran & Company [1996] 103 STC 95 to support their position, contrasting it with the respondent's reliance on State of Andhra Pradesh v. Kone Elevators (India) Ltd. [2005] 140 STC 22.

The respondent contended that the reassessment was not under a different head but at a lower rate, issuing a show-cause notice for the petitioner's response. The petitioner, in response to the notice, provided the works contract order and form A, highlighting section 7C(4) of the TNGST Act, which exempts dealers opting for compounding rate from maintaining detailed accounts. The petitioner also referenced the pre-amendment version of section 7C(4) to support their argument.

The Division Bench's decision in Deputy Commissioner of Commercial Taxes, Vellore v. Devandran & Co. [1981] 47 STC 264 was cited, emphasizing that section 16 of the TNGST Act cannot be used to reopen assessments unless there was an error in the initial assessment. The Supreme Court's affirmation of this judgment in State of Tamil Nadu v. Devendran & Company [1996] 103 STC 95 further supported the petitioner's case. The petitioner's submission of the work order from Indian Oil Corporation reinforced their position that the respondent lacked the authority under section 16 to revisit the assessment based on the Kone Elevators case.

Consequently, the High Court set aside the impugned order dated November 21, 2008, and allowed the writ petition, citing the petitioner's valid exercise of the compounding rate option and the inapplicability of section 16 in this context. The judgment aligned with the precedent set in Devendran & Company case [1996] 103 STC 95, leading to the closure of the related miscellaneous petition.