2016 (12) TMI 466 - HC - VAT and Sales Tax

Levy of VAT - nature of activity - activity is in the nature of sale of goods or providing services - petitioner has only agreed to sell the dredger after completion of the construction. - in respect of the receipts for carrying out various services, petitioner had paid service tax as evident from Exts.P2 and P3, VAT to be levied or not - non-application of mind - Held that - The petitioner has a case that they have been subjected to double taxation by calling upon them to pay service tax also. There is no dispute regarding the proposition as contended by the learned counsel for the petitioner that the sale tax and service tax are to be charged depending upon the nature of transaction and in their respective parameters. But, the question is how it has to be differentiated and which part of it can be assessed to tax under the Kerala Value Added Tax Act and which part could be assessed tax under the Service Tax Act. This is a matter which requires enquiry and I don t think that this Court will be justified in considering such issues at this stage of proceedings when the matter is still at large. - Petition dismissed for want of alternate remedy.

Summary

Issues:
Challenge to revised order of assessment under KVAT Act, 2003 for the assessment year 2011-12 - Petitioner's contention on service tax paid, liability to pay tax on sum received under 12th Finance Commission Scheme, violation of principles of natural justice, non-application of mind, double taxation, differentiation between sale tax and service tax.

Analysis:

1. The petitioner contested the revised order of assessment dated 30.09.2016 under Section 25(1) of the KVAT Act, 2003 for the assessment year 2011-12. The main contentions raised were related to the payment of service tax for services rendered and the argument that the petitioner should not be liable to pay Value Added Tax (VAT) due to already paid service tax. Additionally, the petitioner disputed the liability to pay tax on a sum received under the 12th Finance Commission Scheme, emphasizing that tax liability arises upon completion of the sale and delivery of goods. The petitioner claimed that as the construction of boats was ongoing and not a works contract, they should not be taxed until the completion of the construction.

2. The petitioner relied on judgments from the Apex Court and contended that the assessing officer did not consider their objections and legal references while passing the impugned order. The petitioner argued that the failure to consider their contentions amounted to a violation of natural justice and non-application of mind, warranting the order to be set aside for fresh consideration in accordance with the law.

3. The assessing officer, as per Ext.P1, acknowledged the petitioner's contentions regarding the nature of income and the applicability of tax. The officer considered the petitioner's argument that the proposed levy should not be treated as income from the right to use under the Act, emphasizing that the income was not exigible to tax due to the nature of the services provided. However, the officer concluded that the income fell under the category of earnings from operations, subject to tax under the KVAT Act.

4. The assessing authority also addressed the issue of income from the 12th Finance Commission works, where the petitioner had not disclosed the received amount in the monthly return, leading to a tax liability under works contract. The officer rejected the petitioner's contention, stating that the undisclosed income was taxable at 4%.

5. The court observed that the assessing authority had considered and rejected the petitioner's claims, indicating that there was no non-application of mind. The court emphasized the availability of an appeal as a remedy against such assessments, stating that interference through a writ petition was not justified unless the assessment was per se illegal or in violation of natural justice.

6. The court highlighted the need for proper differentiation between sale tax and service tax based on the nature of transactions, emphasizing that such issues required thorough inquiry and were better suited for appeal proceedings rather than writ petitions. The court dismissed the writ petition but allowed the petitioner to file an appeal within 15 days, with a stay on further recovery proceedings in the interim.