2015 (2) TMI 472 - HC - VAT and Sales Tax

Demand of tax deducted at source along with interest in terms of Section 22(2) read with Section 22(4) of the Andhra Pradesh Value Added Tax Act, 2005 - violation of principles of natural justice - Works contract - Running Account Bills - Exemption from payment of Sales tax - Suppression of facts - Held that - As NECL was liable to pay tax under the AP VAT Act, for execution of the works contract of construction of the Krishnapatnam Port, KPCL was statutorily obligated, under Section 22(3) of the AP VAT Act, to deduct tax at source from the running account bills of NECL, and remit the deducted tax amount to the Government. The fact that NECL could seek refund of the tax paid, in view of G.O.Ms. No.609 dated 29.05.2006, did not absolve KPCL of their statutory obligation to deduct tax at source. Even on a notification being issued under Section 15(1) of the AP VAT Act, the contractee is statutorily obligated, under Section 22(3) thereof, to deduct tax at source from the running account bills of the contractor, and the contractor is entitled, thereafter, to claim refund. If a statute has conferred a power to do an act, and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any manner other than the one prescribed. Likewise KPCL/NECL cannot claim a legitimate expectation to be continued to be exempt from payment of sales tax, as the revised concession agreement itself provides for a change of law, and the steps required to be taken by the parties to the agreement in this regard. As grant of exemption is contrary to law (ie the A.P.VAT Act), KPCL cannot claim to have a legitimate expectation that GoAP would continue to grant it exemption. If a denial of legitimate expectation, in a given case, amounts to denial of a right guaranteed or is arbitrary, discriminatory, unfair or biased, gross abuse of power or violation of principles of natural justice, the same can be questioned on the well-known grounds attracting Article 14 but a claim based on mere legitimate expectation, without anything more, cannot ipso facto give a right to invoke these principles. It can be one of the grounds to consider but the court must lift the veil and see whether the decision is violative of these principles warranting interference. - the revised concession agreement provides for a situation where there is a change in law. It requires the agreement to be suitably amended to bring it in conformity with the change in law. Having failed to do so, it is not now open to KPCL to contend that exemption from payment of sales tax should be continued, notwithstanding that it would then fall foul of the provisions of the A.P. VAT Act, on the application of the doctrine of legitimate expectation. The contention that the doctrine of legitimate expectation and promissory estoppel are attracted does not, therefore, merit acceptance. The petitioner has not only suppressed relevant facts regarding their having deducted tax at source from the running account bills of NECL, they have made false statements on oath before this Court that there is no deduction of tax at source from NECL. - They have, by resort to such dishonest means, secured interim stay of all further proceedings and have thereby avoided remitting the tax deducted at source, from the running account bills of NECL, to the Government. The undeserved benefit and advantage obtained by KPCL, by abusing the judicial process, must be neutralized. As they have suppressed facts, made false statements on oath, and have thereby abused the process of Court, KPCL shall pay exemplary costs of ₹ 75,000/- to the Commissioner, Commercial Taxes within three weeks from the date of receipt of a copy of this Order, failing which it shall be open to the Commissioner, Commercial Taxes to recover the said amount from them in accordance with law. - Decided against assessee.

Summary

Issues Involved:

1. Statutory obligation to deduct TDS.
2. Deduction of tax at source by KPCL.
3. Payment of tax and claiming refund.
4. Application of promissory estoppel and legitimate expectation.
5. False statements by KPCL.

Detailed Analysis:

I. Statutory Obligation to Deduct TDS:

The court examined whether KPCL was under a statutory obligation to deduct TDS from the running account bills of NECL, despite the concession agreement exempting them from sales tax. The court noted that the Andhra Pradesh Value Added Tax Act, 2005 (AP VAT Act) did not provide for exemptions but only for refunds under Section 15. The concession agreement, which was made under the APGST Act, became unenforceable after the AP VAT Act came into force. Clause 2.3 of the agreement provided for amendments in case of a change in law, which KPCL did not pursue. Consequently, KPCL was obligated to comply with the AP VAT Act, including Section 22(3) which mandates deduction of TDS.

II. Deduction of Tax at Source by KPCL:

The court scrutinized the books of accounts of KPCL to determine if they had deducted tax at source from NECL's bills. The records and auditors' reports for the years 2009-10 to 2011-12 indicated that KPCL had indeed deducted TDS but had not remitted the full amount to the government. The court found that KPCL's claim of not deducting TDS was false, as evidenced by their own ledger entries and annual reports.

III. Payment of Tax and Claiming Refund:

KPCL argued that they should not be required to pay TDS first and claim a refund later if there was no tax liability. However, the court held that under the AP VAT Act, KPCL was statutorily obligated to deduct and remit TDS, irrespective of any subsequent refund claims. The court noted that G.O.Ms. No.609, which allowed for refunds, was in force until April 2010. For periods after April 2010, KPCL was required to remit TDS without any guarantee of refunds, as no new notification had been issued under Section 15(1) of the AP VAT Act.

IV. Application of Promissory Estoppel and Legitimate Expectation:

KPCL invoked the doctrines of promissory estoppel and legitimate expectation, arguing that the state had promised them exemption from sales tax. The court rejected this argument, stating that these doctrines could not be used to compel the government to act contrary to the law. The AP VAT Act did not allow for exemptions, and the revised concession agreement itself provided for amendments in case of a change in law. Therefore, KPCL could not claim an expectation of continued exemption.

V. False Statements by KPCL:

The court found that KPCL had made false statements on oath, claiming that they had not deducted tax at source. The evidence from their own records and auditors' reports contradicted these claims. The court emphasized the seriousness of making false statements and abusing the judicial process, and imposed exemplary costs on KPCL for their dishonest conduct.

Conclusion:

The writ petition was dismissed, and KPCL was ordered to pay exemplary costs of Rs. 75,000 to the Commissioner of Commercial Taxes within three weeks. The court held that KPCL was obligated to deduct and remit TDS under the AP VAT Act, and that their claims of exemption were unfounded and contrary to the law.