2011 (1) TMI 1190 - HC - VAT and Sales Tax

Writ petitions - respondent statedly suspended execution of the work, and kept it on hold . The petitioner allegedly did not submit bills and, therefore, treated the value of the fibre cables laid as part of the work in progress and capitalised the same in the balance sheet. For the two assessment years, the petitioner filed returns declaring nil turnover - show-cause notice dated February 10, 2010 was issued proposing to levy tax under section 4(7)(a) of the VAT Act at four per cent and/or 12.5 per cent on the material used in executing the work of laying cables involved in the works contract entrusted by the second respondent to the petitioner Held that - Merely because the works are abandoned, or merely because a part of the material was used only by the employer, the works contractor cannot escape VAT liability. In this case, there is no dispute that the petitioner has fully or partially completed the work of laying fibre cables and, even if it is abandoned by the second respondent, the taxable event under section 4(7)(a) of the VAT Act does not vanish. We are, therefore, not able to accept the submission of the petitioners, writ petitions fail and are accordingly dismissed

Summary

Issues Involved:
1. Validity of assessment orders under the Andhra Pradesh Value Added Tax Act, 2005 (VAT Act) for the assessment years 2005-06 and 2006-07.
2. Determination of taxable event in the execution of a works contract under section 4(7)(a) of the VAT Act.
3. Burden of proof regarding the non-liability of tax on the petitioner.
4. Jurisdiction of the tax authority in the absence of sale or purchase within the State.

Issue-Wise Detailed Analysis:

1. Validity of Assessment Orders:
The petitioner, M/s. A. P. Aksh Broad Band Limited, challenged the assessment orders dated March 29, 2010, for the assessment years 2005-06 and 2006-07 under the VAT Act. The petitioner argued that they did not execute any works contract during these years, did not raise any running account bills (RA Bills), and there was no transfer of goods in execution of works contract. Despite these contentions, the first respondent passed the impugned assessment orders, observing that the petitioner did not produce any supporting documents such as account books, balance sheet, profit and loss account, or RA bills to substantiate their claims.

2. Determination of Taxable Event:
The central issue was whether the petitioner could be taxed on the material component under section 4(7) of the VAT Act in the absence of a sale as defined in section 2(28) and Explanation VI. The court examined whether the taxable event in a works contract occurs at the time of incorporation of the goods into the works or when such goods are appropriated by the contractee. The court concluded that the taxable event occurs at the time of incorporation of the goods in the works executed, regardless of whether the goods are appropriated by the contractee. This interpretation aligns with the Supreme Court's rulings in Builders Association of India v. Union of India and Gannon Dunkerley and Co. v. State of Rajasthan.

3. Burden of Proof:
The petitioner failed to discharge the burden of proof under section 16(1) of the VAT Act, which requires the dealer to prove that the sale or purchase effected by them is not liable for any tax. The first respondent noted that the petitioner's contention of captively consuming material worth Rs. 66,58,42,892 was unsupported by evidence. The court emphasized that the taxable event under section 4(7)(a) of the VAT Act exists when goods are incorporated into the works contract, irrespective of their appropriation by the employer.

4. Jurisdiction of Tax Authority:
The petitioner argued that the first respondent had no jurisdiction to levy tax on non-existent sales, as they did not sell or purchase material in the course of business activity within the State or outside the State. The court rejected this argument, stating that the VAT Act does not require the goods used or supplied in the execution of a works contract to be appropriated by the contractee for the transaction to be taxable. The court held that the transfer of property in goods involved in the execution of a works contract constitutes a deemed sale under section 2(28) and is subject to tax under section 4(7)(a) of the VAT Act.

Conclusion:
The court dismissed the writ petitions, concluding that the petitioner's arguments lacked merit. The assessment orders passed by the first respondent were upheld, and the court affirmed that the taxable event under section 4(7)(a) of the VAT Act occurs at the time of incorporation of goods into the works contract. The court emphasized that the burden of proof lies with the petitioner to demonstrate non-liability for tax, which they failed to do. The court also clarified that the VAT Act does not require the goods to be appropriated by the contractee for the transaction to be taxable.