2016 (6) TMI 750 - HC - VAT and Sales Tax

Works Contracts - benefit of compounding of tax - validity of assessment orders u/s 25(1) of the KVAT Act, 2003 - The Intelligence Officer verified the accounts and found that they have suppressed contract receipt and penalty was imposed for the year 2009-10. - On verification it was found that petitioner has not filed any compounding application with the related documents as required under Sub rule 1 of Rule 11, but has remitted tax adopting the compounding rate. No application has been filed as provided under the Rules. In so far as no order had been issued, the allegation that tax has been paid at compounding rate which has to be ascertained is not sustainable. Held that - It is clear from the reading of Section 25 that it is a special power given to the assessing officer to take action if for any reason the whole or any part of the turnover of the business of a dealer has escaped assessment in any year or has been under assessed. Therefore, when a fact situation gives rise to a situation warranting interference under Section 25(1), Section 22 cannot control Section 25. Section 25 is an independent power available to the Department to consider and take action in respect of escaped assessment, under assessment etc,. That apart, Section 22(2) would further clarify that even in an instance where revised return is filed, assessment is deemed to be completed subject to Section 25 of the Act. Therefore merely for the reason that the authorities did not invoke Section 22 within the prescribed period does not preclude them from invoking Section 25, if the facts give rise to an eventuality as provided therein. Hence, I do not find anything wrong in the action of the Department in invoking Section 25(1). In this case, no compounding application was ever filed and there is no question of any other person claiming benefit based on the same. In order to invoke Section 8 (a) of the Act, option is to be exercised by the works contractor. Option can be exercised only on compliance of the statutory format. In so far as the petitioner did not comply with such procedure, the Department was justified in acting accordingly as if petitioner had not opted for payment of tax at compounded rate. On facts itself, it is clear that the matter came to be noticed when a crime file was investigated by the officers where penalty had been imposed on the petitioner. Therefore, the said ground also is not available to the petitioner. - Decided against the petitioner.

Issues Involved:
1. Challenge to assessment orders under Section 25(1) of the KVAT Act, 2003.
2. Levy of tax at 12.5% on total contract receipts.
3. Validity of invoking Section 25(1) without rejecting returns under Section 22.
4. Whether payment of tax at compounded rate without formal application precludes invoking Section 25(1).
5. Determination of the petitioner as a works contractor.

Detailed Analysis:

1. Challenge to assessment orders under Section 25(1) of the KVAT Act, 2003:
The petitioner, a registered Society under the Co-operative Societies Act, contested the assessment orders for the years 2010-2011 and 2011-2012. The orders were preceded by a notice indicating material mistakes in prior assessments, leading to revised notices. The petitioner argued that the assessments were flawed due to improper tax levies and procedural lapses.

2. Levy of tax at 12.5% on total contract receipts:
The petitioner contended that the 1st respondent levied tax on the total contract receipts at 12.5% after deducting sub-contracts and labor charges. The petitioner argued that they did not execute any work directly as the construction was awarded to contractors, and thus, they should not fall under the purview of the Act. The petitioner also highlighted their registration under the Act in March 2008, influenced by department officers.

3. Validity of invoking Section 25(1) without rejecting returns under Section 22:
The petitioner argued that if their returns were defective, they should have been rejected under Section 22 within the prescribed period, allowing them to file fresh returns. The court clarified that Section 25(1) is a special provision allowing the assessing authority to address escaped assessments or under-assessments independently of Section 22. The court found no procedural error in invoking Section 25(1) even if Section 22 was not initially applied.

4. Whether payment of tax at compounded rate without formal application precludes invoking Section 25(1):
The petitioner claimed that they had opted to pay tax at a compounded rate, which was being remitted periodically. However, the court noted that no formal compounding application was filed as required under the Rules. The court referenced a Division Bench judgment, which clarified that merely remitting tax at a compounded rate without a formal application does not exempt the petitioner from the procedural requirements. Therefore, the department's action under Section 25(1) was justified.

5. Determination of the petitioner as a works contractor:
The petitioner asserted that they were not a works contractor but merely facilitated agreements between members and contractors. The court referred to the Supreme Court's judgment in Larsen and Toubro Ltd. v. State of Karnataka, which outlined the criteria for a works contract. The court found that the petitioner met these criteria as they executed agreements for construction and received advances from members. The court upheld the assessing authority's finding that the petitioner was liable to pay tax as a works contractor.

Conclusion:
The court dismissed the writ petitions, affirming the department's actions under Section 25(1) of the KVAT Act. However, the court allowed the petitioner to file appeals before the statutory appellate authority within three weeks, during which recovery proceedings would be stayed.

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