2018 (12) TMI 1885 - HC - VAT and Sales Tax

Validity of reassessment proceedings - change of opinion - levy of purchase tax - penalty u/s 27(3) of the T.N.V.A.T. Act - Works Contract - HELD THAT - The petitioners herein are works contractors. The purchase tax under Section 12 of the T.N.V.A.T. Act has been levied on them. It has been held in the decision of THE STATE OF TAMIL NADU VERSUS EAST COAST CONSTRUCTIONS AND INDUSTRIES 1985 (2) TMI 239 - MADRAS HIGH COURT that where the goods have been used in the construction of buildings, such user cannot be said to be a disposal of goods as contemplated by Clause (b) of Section 7-A(1) of the Tamil Nadu General Sales Tax Act, 1959. The said provision is in pari materia with Clause (b) of Section 12 of the T.N.V.A.T. Act. The transaction in which the petitioners are engaged is said to constitute deemed sales. Therefore, when the petitioners have already been visited with tax on that count, they cannot also be saddled with levy of purchase tax - petition allowed.

Summary

Issues:
1. Imposition of penalty under different sections of the T.N.V.A.T. Act.
2. Reopening of assessment based on change of opinion.
3. Validity of reassessment proceedings initiated following internal audit objections.
4. Tax liability of works contractors under Section 12 of the T.N.V.A.T. Act.

Analysis:

1. Imposition of Penalty: The assessing officer had imposed penalties through separate orders, which was challenged by the Writ petitioners. The court referred to legal precedents to establish that penalties can only be imposed under Section 22(5) of the T.N.V.A.T. Act and not under Section 27(3) through separate orders. Citing past judgments, the court held that levying penalties through independent orders is legally invalid. Consequently, the court set aside the penalty orders imposed in the Writ petitions.

2. Reopening of Assessment: The court noted that the impugned assessment orders were based on a mere verification of existing records without any new material discovery. Referring to legal principles, the court emphasized that reopening assessments based on a change of opinion is impermissible. The court cited a Supreme Court decision to support this position. Additionally, the court referenced an Allahabad High Court decision to highlight that reassessment proceedings cannot be initiated solely on a change of opinion by the statutory authority at a later stage.

3. Validity of Reassessment Proceedings: The reassessment proceedings in the present case were initiated following objections raised during an internal audit. The court did not find this a valid ground for reassessment and emphasized that mere objections do not warrant reopening of assessments. This aspect was crucial in determining the legality of the reassessment process undertaken by the authorities.

4. Tax Liability of Works Contractors: The petitioners, who were works contractors, were subjected to purchase tax under Section 12 of the T.N.V.A.T. Act. The court referred to a relevant judgment to establish that the use of goods in construction activities does not constitute a disposal of goods as per the Act. Drawing parallels with the legal provision, the court concluded that the petitioners, having already been taxed on this basis, should not be additionally liable for purchase tax. Therefore, the court set aside the impugned orders concerning the tax liability of the works contractors.

In conclusion, the High Court of Madras ruled in favor of the Writ petitioners on all the issues raised, setting aside the penalty orders, questioning the validity of reassessment proceedings, and determining the tax liability of works contractors under the T.N.V.A.T. Act.