2009 (6) TMI 950 - HC - VAT and Sales Tax

Whether when a Governmental organisation, namely, railway would categorically indicate by virtue of this letter that there was no supply involved and what was the work awarded was only the labour contract, the finding of the suo motu enquiry is not legally sustainable? Held that - The reliance placed by the first appellate court and the appellant herein on the letter issued by the railway authorities much belatedly in respect of the contract that it would only denote the works contract cannot be accepted and this has been rightly done by the suo motu authority during the suo motu order. The letter issued by the authority relied upon by the appellant cannot be accepted as a material fact and it will not have any sanctity as against the original agreement or the tender contract as entered into between the railway authority and the assessee. The Joint Commissioner III (SMR) of Commercial Taxes, had given a specific finding that it is an undisputed fact that jelly was supplied for carrying out various types of works whether it is renewal of track or track sleeper renewal. Apart from that, he has also given a finding that the extracts taken from Southern Railway had clearly indicated that the dealer had supplied jelly worth ₹ 2,24,518 to the Railway Department during the relevant year and that the assessee sold condemned articles for ₹ 7,000. Such findings of fact have been clearly extracted by the authorities below. We are not able in any way, to assail the factual findings coupled with the clauses found in the agreement. We do not find any valid reason to interfere with the orders of the authority below as the reasonings are well-founded. Hence, the appeal filed by the assessee is dismissed.

Summary

Issues:
Assessment of tax liability for undisclosed sales under section 12(3) of the Tamil Nadu General Sales Tax Act for the assessment years 1985-86 and 1986-87 based on a railway contract involving supply and working of ballasts. Dispute regarding the nature of the contract between the assessee and the railways - whether it included supply of materials or was solely a works contract. Imposition of penalty at 1½ times the tax amount by the assessing officer, subsequently reduced to 50% by the Joint Commissioner III in a suo motu revision. Appeal against the order of the Joint Commissioner III challenging the tax liability and penalty.

Analysis:
The assessee, a contractor, reported a total turnover for the years 1985-86 and 1986-87, which led to the assessing officer levying tax considering a railway contract for supply and working of ballasts. A penalty was imposed for undisclosed sales under section 12(3) of the Act. The Appellate Assistant Commissioner, relying on a letter from the Divisional Railway Manager, concluded that the contract was a works contract, not involving material supply, overturning the assessing officer's decision.

The Department, disagreeing with the Appellate Assistant Commissioner's decision, initiated a suo motu revision. The Joint Commissioner III, after examining the contract terms and the nature of work, concluded that the contract did include supply of materials, upholding the tax liability and reducing the penalty to the mandatory minimum of 50%. The assessee challenged this decision in the present appeals, arguing that the railway's letter indicated no supply was involved, but the court found clauses in the original agreement mandating material supply, supported by the assessee's purchase of jelly, indicating material supply for the contract work.

The court upheld the findings of the Joint Commissioner III, emphasizing the contractual clauses and factual evidence of material supply. The court dismissed the appeal, stating the reasoning was well-founded and no valid reason existed to interfere with the lower authorities' orders. The appellant failed to establish any legal grounds for interference, leading to the dismissal of the appeals without costs.