2017 (5) TMI 1396 - HC - VAT and Sales Tax

Penalty - suppression in payment of sales-tax under the KGST Act, 1963 - case of appellant is that the levy of works contract tax and the penalty thereon is beyond the legislative competence and powers of the State of Kerala and therefore there cannot be any levy of tax or penalty under the KGST Act - Held that - it is rather clear that the liability to pay tax would arise only if the goods are used in a works contract - the terms of the contract clearly envisages that the goods are brought to the State by interstate movement, it gets terminated at the work site resulting in completion of interstate sale envisaged under the CST Act - this is a case in which penalty had been imposed on the assessee under Section 45A of the KGST Act. Penalty can be imposed only if there is deliberate suppression of turnover. In the light of the principles laid down, the question to be considered is whether there was deliberate contumacious conduct on the part of the assessee in declaring the goods as exigible for tax under the works contract - the matter is remitted back to the 1st respondent for fresh consideration of the revision petition - petition allowed by way of remand.

Issues Involved:
1. Imposition of penalty under Section 45A of the KGST Act for alleged suppression of taxable turnover.
2. Determination of whether the transactions constitute inter-state sales or imports under the CST Act.
3. Legislative competence of the State to levy tax and penalty on works contracts involving inter-state or imported goods.

Issue-Wise Detailed Analysis:

1. Imposition of Penalty under Section 45A of the KGST Act:
The petitioner challenged Exts. P5 and P6, which imposed penalties for alleged suppression of sales tax under the KGST Act. The petitioner argued that the procurement of materials was through inter-state supplies or imports, which were not considered in the assessment orders for August and September 1999. Despite submitting replies, the authorities imposed penalties, and a revision against this penalty was dismissed. The court noted that penalty can only be imposed if there is deliberate suppression of turnover. The authorities had not adequately considered whether there was deliberate contumacious conduct by the petitioner in declaring the goods as taxable under the works contract. Therefore, the court set aside the penalty order and remitted it back for fresh consideration.

2. Determination of Inter-State Sales or Imports:
The petitioner contended that the transactions involved inter-state purchases or imports, and thus should not be taxed under the KGST Act. The court examined the contractual provisions and found that the goods were brought to Kerala by inter-state movement, terminating at the work site, which constitutes an inter-state sale under the CST Act. The court referenced various judgments, including Gannon Dunkerley and Co. v. State of Rajasthan, which clarified that the State Legislature cannot impose tax on inter-state sales or imports. The court also cited CVAT v. ABB Ltd., which supported the view that goods moved in pursuance of contracts are considered inter-state sales. The court concluded that the authorities had not fully considered the terms of the contract and relevant case law in their assessment.

3. Legislative Competence to Levy Tax and Penalty:
The petitioner argued that the levy of works contract tax and the penalty thereon exceeded the legislative competence of the State of Kerala. The court referred to the Builders Association of India v. Union of India, which upheld the State's power to tax works contracts but restricted it from taxing inter-state sales or imports. The court also cited State of Kerala v. Unitech Machines Ltd., which held that goods brought from outside Kerala and used in works contracts do not constitute inter-state sales if the transfer occurs only upon incorporation into the work. The court emphasized that the legislative competence must be exercised within the limits set by the Constitution and relevant statutes.

Conclusion:
The court found that the authorities had not adequately considered the contractual terms and relevant legal principles in imposing penalties and assessing tax liability. The court set aside the revisional authority's order and remitted the matter back for fresh consideration, instructing the authorities to follow the prescribed procedure and take into account the observations made in the judgment.

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