2016 (8) TMI 920 - HC - VAT and Sales Tax

Demand of interest and penalty - Nature of works contract civil contract or construction contract - GVAT - contract of coating pipes - eligibility of composition scheme under section 55A of the act - tax rate is 2% or 12% - Held that - appellant has fairly conceded that looking to the fact that the respondent has passed the assessment order on the basis of material available with it, they were required to pay the tax on the basis of 12% and that has been paid by the appellant since the opinion of the expert was turned out. Activity of coating pipe is civil works and it was under bona fide opinion and following the advise, it has believed to be construction activity. The authorities below have committed an error of law and when the tax imposed has already been paid by the appellant, the penalty and interest is therefore not required to be liable to be paid by the appellant. Interest and penalty if paid, shall be refunded to appellant appeal disposed off decided in favor of appellant.

Summary

Issues:
Challenge to order of Gujarat Value Added Tax Tribunal regarding composition scheme for coating pipes contract.

Analysis:
1. The appellant, a public limited company, challenged the order of the Gujarat Value Added Tax Tribunal, which confirmed the Deputy Sales Tax Commissioner's order imposing a composition amount of 12% instead of the 2% deposited by the appellant for the contract of coating pipes. The appellant opted for a composition scheme under section 55A of the Act but was held liable to pay composition at 12% under the residuary Entry-8 of the notification. The total dues raised against the appellant amounted to ?4,83,05,013.

2. The appellant's appeal before the Joint Commissioner of Sales Tax (Appeal) and the Gujarat Value Added Tax Tribunal were dismissed, leading to the present appeal. The key questions of law raised for consideration included whether the contract for coating pipes fell within Entry 1 or the residuary Entry 8 of the notification, and whether the appellant was liable to pay composition at 12%, penalty under Section 45(6) of the Act, and interest under Section 47(4A) of the Act.

3. The appellant's Senior Counsel conceded that the tax should have been paid at 12% based on the material available, despite the appellant's belief that it fell under Entry 1 requiring payment at 2%. The Counsel did not press issues 1 and 2, relying on previous court decisions. The Court held that since the tax had been paid by the appellant, the penalty and interest were not required to be paid, and if paid, should be refunded to the appellant within the stipulated period.

4. The Court concluded that the activity of coating pipes was considered civil works, and the appellant acted in good faith based on advice, believing it to be a construction activity. As the tax had been paid, the penalty and interest were deemed unnecessary. Consequently, the Court ruled in favor of the appellant on issues 1 and 2, directing the refund of any penalty and interest paid by the appellant.

5. In summary, the Court disposed of the Tax Appeal in favor of the appellant, ruling that the penalty and interest, if paid, should be refunded to the appellant within the specified timeframe. The judgment highlighted the importance of good faith actions and the payment of taxes as per the prevailing legal provisions.