2017 (1) TMI 688 - HC - VAT and Sales Tax

Works contract - demand of tax on in respect of goods utilized for construction of flats - reliance was placed in the case of K. Raheja Development Corporation Vs. State of Karnataka, 2005 (5) TMI 7 - Supreme Court , as well as judgment in M/S. Larsen and Toubro Limited and another Vs. State of Karnataka and another 2013 (9) TMI 853 - SUPREME COURT , to demand tax. Held that - the ownership of land is with the builder itself, and there is no development agreement entered into by the builders with the owners of the land. This is a material circumstance, which has completely been omitted from consideration by the Tribunal, while passing the order impugned - Various clauses of the agreement entered into by the builder with the allottee were referred to before the Tribunal. This Court finds that the Tribunal has not examined to any of the clauses of agreement, nor the nature of transaction itself has been commented upon, in order to return a finding that a works contract had come into existence. The Tribunal being the highest Court of fact was expected to have examined the nature of transaction itself, only after analyzing the clauses of agreement entered into between the assessee and prospective allottee, a finding of works contract could have been returned. It seems that Tribunal did not deal with the factual issues relating to transaction itself, as it was under the belief that the ratio of law laid down in K. Raheja Development Corporation as well as M/S. Larsen and Toubro Limited were clearly apparent. The distinction in fact have not been noticed, though it was apparent and had been pressed. In such circumstances, the Tribunal has failed to discharge the obligation imposed upon it by law of dealing with the factual issues raised and pressed before it, and therefore the order of Tribunal cannot be sustained. Since the Tribunal has not gone into factual issues in correct perspective, as such, the findings returned by it on the different issues are not liable to be sustained. Order of Tribunal do not sustain - matter on remand.

Summary

Issues Involved:
Assessment proceedings under the U.P. Value Added Tax Act, 2008 for the years 2010-11 and 2011-12; Determination of whether a works contract existed in the case of a developer/builder raising constructions of flats on owned land; Interpretation of judgments in K. Raheja Development Corporation Vs. State of Karnataka and M/S. Larsen and Toubro Limited Vs. State of Karnataka; Consideration of ownership of land, transfer of rights, and nature of transaction in relation to liability for tax on goods utilized in construction.

Analysis:
1. Existence of Works Contract and Liability for Tax:
The Tribunal held the assessee liable for tax based on the assumption that a works contract existed for raising construction, following judgments in K. Raheja Development Corporation and M/S. Larsen and Toubro Limited. However, the builder in the present case owned the land, unlike in the referenced cases where rights were transferred to prospective buyers. The Tribunal failed to consider crucial aspects of the transaction, including clauses of the agreement with allottees, which could determine the existence of a works contract. The Court emphasized that the Tribunal's cursory analysis and failure to examine the nature of the transaction rendered its order unsustainable.

2. Failure to Address Factual Issues and Legal Obligations:
The Court noted that the Tribunal did not adequately address factual issues regarding the transaction, as it relied solely on previous judgments without considering the distinctions in the present case. The Tribunal's failure to analyze the transaction and specific clauses of the agreement led to an incomplete assessment of whether a works contract existed, violating its obligation to investigate facts. Consequently, the Court set aside the Tribunal's order and directed a reconsideration with a proper examination of the transaction and legal obligations.

3. Reconsideration and Opportunity for Hearing:
In light of the deficiencies in the Tribunal's decision, the Court set aside the order and instructed a fresh consideration of the matter. The Tribunal was directed to reevaluate the case, considering the observations made by the Court and providing an opportunity for both parties to present their arguments. The Court emphasized that its decision did not prejudge the merits of the case, leaving all issues of fact and law open for the Tribunal's review.

In conclusion, the Court's judgment highlighted the importance of a thorough examination of the transaction and legal principles in determining the existence of a works contract and liability for tax on construction materials. The Tribunal's failure to address factual issues and legal obligations necessitated a reconsideration of the case to ensure a comprehensive and fair assessment.