2016 (4) TMI 1205 - HC - VAT and Sales Tax

Declaration of assessment order - reporting their turnover on a receipt basis - legality of penalty in form VAT 203A dated May 22, 2015 - works contract - Should the petitioner be relegated to the alternative remedy of appeal under the Act? - Held that - The rule of exclusion of the writ jurisdiction, in view of the existence of an alternative remedy, is not a rule of compulsion - In the present case, the petitioner alleges that the assessing authority lacks jurisdiction to collect tax on bills receivables as that would amount to double taxation. They also allege violation of principles of natural justice on the ground that the tax collected at source was sought to be forfeited without putting them on notice, and without giving them an opportunity of being heard. As both these factors would justify a writ petition being entertained under article 226 of the Constitution of India, and as the alternative remedy of appeal is no longer available to the petitioner, we see no reason to non-suit them on this ground. Whether the scope of enquiry, in proceedings under article 226, is limited? - Held that - A writ of mandamus is not a writ of course or a writ of right but is, as a rule, discretionary - The statutory obligation cast on the assessing authority is to pass an order in accordance with the provisions of the Act and the Rules. As long as the assessment order accords with the provisions of the Act and the rules made thereunder, this Court would neither sit on appeal over the findings recorded by the assessing authority nor re-appreciate the evidence on record to substitute its views for that of the assessing authority. It is only within these self-imposed restrictions would the validity of the assessment orders be examined in proceedings under Article 226 of the Constitution of India. Effect of instructions issued by Government u/s 76(2) of the act and its effect - Held that - the power conferred on the Government, by section 76(2) of the Act, is only to remove difficulties, and cannot be exercised to make a provision which is inconsistent with the purposes of the Act - for effective implementation of the Act, the contractee was directed to effect tax collection at source when payment of the respective bills are made. Was the assessing authority justified in refusing the petitioner s claim to be subjected to tax under the Act only when they received payment from the contractee? - Held that - dealer has reflected bills receivable for works contract and sales in their balance-sheet; and, therefore they are liable to pay tax thereon. Is bifurcation of the turnover, into supply and works contracts portions in the assessment order justified? - Held that - it does appear that the petitioner has, in addition to executing works contracts, also supplied goods to the contractees. It would be difficult for us, therefore, to hold that the finding recorded by the assessing authority, of the petitioner having supplied goods to the contractees, is perverse or that all the contracts executed by the petitioner are indivisible works contracts, and not separate contracts for the sale of goods and for execution of works. This contention, urged on behalf of the petitioner, necessitates rejection. Were even purely labour contracts subjected to VAT under the impugned assessment orders? - Held that - It does appear that the assessing authority has not levied tax on the labour component of the works. While purely labour contracts, which do not involve any supply of material, cannot be subjected to tax at all, the subject contracts appear to include contracts where supply of material is minimal and a substantial portion relates to supply of labour. Such contracts, undoubtedly, constitute works contracts from which the labour component of the works are required to be deducted, and only the material component is liable to be taxed in accordance with the procedure prescribed under the Act and the Rules. As we are satisfied that the findings, recorded by the assessing authority in this regard, are not perverse, we see no reason to minutely dissect the assessment order, or undertake a detailed exercise of verification of the manner in which the turnover has been determined, deductions have been provided, and the tax has been assessed by the assessing authority. Is levy of tax at 14.5% by the assessing authority, on a part of the turnover, illegal? - Held that - It does appear that the assessing authority, while subjecting certain supplies made to the Transmission Corporation to tax at five per cent., has subjected certain other supplies to tax at 14.5 per cent. As the question whether certain turnover relating to supply/deemed supply of goods to the Transmission Corporation is liable to be taxed at five per cent. or 14.5 per cent. is a question of fact, we see no reason to take upon ourselves the task of elaborately examining the sales which were brought to tax at 14.5 per cent., and whether it included goods which do not fall within the ambit of entry 116 such as cement, etc. Was the assessing authority justified in forfeiting the tax collected at source without notice to the petitioner? - Held that - The impugned assessment orders, to the extent the assessing authority forfeited certain amounts on the premise that they constitute excess tax collected beyond the tax liability of the petitioner-contractor, are set aside. It is made clear that this order shall not preclude the second respondent from putting the petitioner on notice regarding his proposal to forfeit certain excess tax collection, give them an opportunity of being heard, and thereafter pass orders afresh in accordance with law. Can the petitioner be subjected to tax, on the same transactions, twice? - Held that - Till assessment orders are passed as aforesaid, for the financial years 2013-14 and 2014-15, the respondents shall not take any coercive steps for collection of the tax determined in terms of the assessment orders passed for the financial years 2011-12 and 2012-13. The interests of the Revenue is adequately safeguarded as, if tax is still found to be due from the petitioner for the earlier financial years 2011-12 and 2012-13, after an assessment order is passed for the financial years 2013-14 and 2014-15, the tax due would be liable to be paid by the petitioner, along with interest under section 22(2) of the VAT Act. Has the respondent failed to abide by the undertaking given to the court? - Held that - no further coercive steps shall be taken for recovery of the tax dues, pursuant to the assessment orders passed for the financial years 2011-12 and 2012-13, till assessment orders are passed, and communicated to the petitioner, for the financial years 2013-14 and 2014-15. Can the petitioner seek adjustment of tax paid to the Government ofA. P. with the tax due to the Government of Telangana? - Held that - Any grievance, which the petitioner may have, regarding payment of tax to the Government of Andhra Pradesh, can only be agitated in appropriate legal proceedings instituted against them, and it is not open to the petitioner to seek adjustment of the tax so paid to the Government of A. P. with the taxes due to be paid to the Government of Telangana pursuant to the assessment order passed under the Act. Petition allowed - Till assessment orders are passed for the financial years 2013-14 and 2014-15, and are communicated to the petitioner, the respondents shall not take coercive steps for recovery of the taxes due under the impugned assessment orders - decided in favor of petitioner.

Summary

Issues Involved:
1. Alternative Remedy of Appeal
2. Scope of Enquiry under Article 226
3. Instructions Issued by Government under Section 76(2) of the Act
4. Taxation Based on Receipt of Payment vs. Incorporation of Goods
5. Scope of Rule 17(1)(e) and its Provisos
6. Bifurcation of Turnover into Supply and Works Contracts
7. Taxation of Purely Labour Contracts
8. Levy of Tax at 14.5%
9. Forfeiture of Tax Collected at Source
10. Double Taxation
11. Compliance with Court Undertaking
12. Adjustment of Tax Paid to Government of Andhra Pradesh

Detailed Analysis:

I. Alternative Remedy of Appeal
The court examined whether the petitioner should be relegated to the alternative remedy of appeal under the Act. It was noted that the writ petitions were adjourned multiple times based on the Advocate-General's submission that no coercive steps would be taken for recovery of tax on bills receivables. Given the passage of time, the alternative remedy of appeal was no longer available to the petitioner. The court held that the existence of an alternative remedy does not impinge upon the High Court's jurisdiction if it is in a position to decide the matter based on the affidavits filed. The court decided to entertain the writ petitions as the petitioner alleged lack of jurisdiction and violation of natural justice.

II. Scope of Enquiry under Article 226
The court emphasized that the scope of a writ petition under Article 226 is limited. A writ of mandamus can only be issued to enforce a statutory duty. The court will not re-appreciate evidence or substitute its views for that of the assessing authority as long as the assessment order accords with the provisions of the Act and the Rules.

III. Instructions Issued by Government under Section 76(2) of the Act
The petitioner argued that G.O.Ms. No. 11 dated July 29, 2005, issued under Section 76(2) of the Act, mandates that VAT is payable only when payment is made by the contractee. The court held that the instructions in G.O.Ms. No. 11 only pertain to tax collection at source and do not affect the tax liability of the dealer to pay VAT on the value of the material incorporated in the works. The court also noted that G.O.Rt. No. 3225 dated October 19, 2015, clarified that the tax liability would always be determined under the Act and the Rules.

IV. Taxation Based on Receipt of Payment vs. Incorporation of Goods
The petitioner contended that they should be taxed on a receipt basis rather than on the value of goods at the time of incorporation. The court held that under Section 4(7)(a) of the Act, the liability to pay VAT is on the value of the goods at the time of incorporation in the works. The court rejected the petitioner's argument, stating that the statutory obligation to file a return and pay tax cannot be postponed to the date of receipt of sale consideration.

V. Scope of Rule 17(1)(e) and its Provisos
The petitioner argued that the assessment order was not passed in accordance with Rule 17(1)(e) and its second proviso, which allows for the payment of balance tax at the time of finalization of accounts. The court held that Rule 17(1)(e) must be read in conjunction with Rule 17(1)(d), and the value of the goods at the time of incorporation must be determined accordingly. The court found no merit in the petitioner's interpretation of the second proviso to Rule 17(1)(e).

VI. Bifurcation of Turnover into Supply and Works Contracts
The petitioner argued that the turnover was artificially bifurcated into supply and works contracts. The court noted that the petitioner had admitted to having material supply contracts and works contracts. The court found no reason to hold that the finding of the assessing authority was perverse.

VII. Taxation of Purely Labour Contracts
The petitioner contended that purely labour contracts were subjected to VAT. The court held that purely labour contracts, which do not involve any supply of material, cannot be subjected to tax. However, the court found that the assessing authority had not levied tax on the labour component of the works.

VIII. Levy of Tax at 14.5%
The petitioner argued that the levy of tax at 14.5% on certain components of the works contract was unwarranted. The court held that the question of whether certain turnover relating to supply of goods to the Transmission Corporation is liable to be taxed at 5% or 14.5% is a question of fact and found no reason to interfere with the assessment order on this ground.

IX. Forfeiture of Tax Collected at Source
The petitioner argued that the tax collected at source was forfeited without notice. The court held that the assessing authority was required to put the petitioner on notice and give them an opportunity to show cause against the proposal to forfeit the excess tax collected. The court set aside the assessment orders to the extent that the tax collected at source was forfeited.

X. Double Taxation
The petitioner contended that they were subjected to double taxation. The court held that while the assessment orders for the financial years 2011-12 and 2012-13 do not suffer from any legal infirmity, the petitioner may suffer double taxation if no assessment order is passed for the financial years 2013-14 and 2014-15. The court directed the assessing authority to pass assessment orders for the financial years 2013-14 and 2014-15.

XI. Compliance with Court Undertaking
The court noted that the issue of whether the second respondent complied with the undertaking given to the court was moot as the writ petitions were being disposed of. The court directed that no further coercive steps be taken for recovery of tax dues until assessment orders for the financial years 2013-14 and 2014-15 are passed.

XII. Adjustment of Tax Paid to Government of Andhra Pradesh
The petitioner sought adjustment of tax paid to the Government of Andhra Pradesh with the tax due to the Government of Telangana. The court held that any tax paid to the Government of Andhra Pradesh cannot be adjusted against the tax due to the Government of Telangana pursuant to the assessment order passed under the Telangana Value Added Tax Act.

Conclusion:
The court set aside the impugned assessment orders for the financial years 2011-12 and 2012-13 to the extent that tax collected at source was forfeited. The court directed the assessing authority to pass assessment orders for the financial years 2013-14 and 2014-15 within four months and restrained the respondents from taking coercive steps for recovery of taxes due under the impugned assessment orders until the new assessment orders are passed. The writ petitions were disposed of without costs.