2011 (1) TMI 1298 - HC - VAT and Sales Tax

If the revisional authority was of the view that the order passed by the Advance Ruling Authority is erroneous, they could correct the same and say what the correct law is? Held that - It is not as if when an order is passed by the Advance Ruling Authority, he should positively state whether the Advance Ruling Authority was wrong and what is the correct law. That is normally the procedure. In a case of this nature, when the reference to the Advance Ruling Authority itself is too vague and when it is answered in too general terms, as the question of construction work is purely a question of fact, as different materials are used in construction and thereafter they are transferred, the revision authority was justified in leaving that question to be decided by the assessing officer keeping in mind law on the point. The Advance Ruling Authority was not justified in giving their opinion in too general terms and was capable of being misinterpreted. Certainly, the opinion given by the Advance Ruling Authority is prejudicial to the interest of the Revenue and it is also not in accordance with law. No justification to interfere with the well considered order passed by the Commissioner. Appeal dismissed.

Summary

Issues:
Challenge to order by Commissioner of Commercial Taxes setting aside ACAR's ruling on works contract taxation rate.

Analysis:
The appellant, a civil works contractor, believed that only goods transferred during works contracts are taxable. Seeking clarification, the ACAR ruled that only transferred goods are taxable under the KVAT Act. However, the Commissioner set aside this ruling, stating that determining tax rates based on goods incorporation is a factual matter for assessing authorities, not the ACAR. The Commissioner argued that the ACAR's ruling limited tax interpretation flexibility, prejudicing revenue interests.

The appellant argued that the revisional authority's scope is limited to correcting errors, not deferring decisions to assessing authorities. Conversely, the Government Advocate supported the Commissioner, citing Section 64(2) of the KVAT Act, granting the Commissioner discretion to set aside erroneous orders prejudicial to revenue interests for further assessment.

The Court upheld the Commissioner's decision, emphasizing the broad powers granted under Section 64(2) of the KVAT Act. The Court noted that the ACAR's vague ruling on works contracts, a factual matter, was prejudicial to revenue interests and not in line with the law. The Court concluded that the Commissioner's decision to defer the matter to assessing authorities was justified, given the factual complexity of works contracts and the need for a case-specific tax assessment approach.

In summary, the Court dismissed the appeal, affirming the Commissioner's decision to set aside the ACAR's ruling and allowing assessing authorities to determine tax rates for works contracts involving property transfer based on specific facts and legal provisions.