2019 (12) TMI 804 - HC - VAT and Sales Tax

Re-assessment - Authorization granted by respondent no.2 under Section 29(7) of the Value Added Tax Act, 2008 - business of construction of road and bridges - Petitioner had opted for Composition Scheme as announced by State Government for Civil Contractors for assessment year 2007-08, 2008-09 and 2009-10 - HELD THAT - The action of respondent no.2 proceeding to grant authorisation for re-assessment for including capital goods for value of work contract purchased from outside the State along with raw material to the quantum of turnover of Compounding Scheme for the year under consideration is highly unjustified, as the assessee had already been taxed @ 2% for work done as the goods used in execution of work contract, was to the extent of 5% of the total contract money - Apart from that total contract money under consideration for assessment year 2010-11 of the composition scheme was only ₹ 1,80,71,92,729/- and petitioner-assessee having imported goods valuing ₹ 3,36,13,446/- which is less than 5% of total contract money, therefore, the assessing authority had rightly taxed @ 2%, thus the order of authorization for re-assessment under Section 29(7) of the VAT Act cannot be sustained on the premises that plant and machinery has not been included. Once the matter of the assessee for previous year was accepted by the Tribunal as far as the capital goods are concerned, which were outside the Composition Scheme, the respondentauthority was not correct to pass order of authorisation under subsection 7 of Section 29 for the re-assessment, as the same had attained finality and was binding - As the order of authorisation for re-assessment is based on the fact that the capital goods should have been included in the value of work contract and was liable to be assessed @ 6%, respondent no.2 had no other material on record to form the basis for reason to believe that the income has escaped assessment. The order dated 15.3.2019 authorising the respondent no.3 for re- assessment for assessment year 2010-11 is against the well settled principle of law and is unsustainable. Once the Assessing Authority has assessed the value of work contract and passed assessment order and taxed the assessee @ 2%, since the value of goods imported from outside the State, was less than 5% of the total amount of contract money, the respondent no.2 did not have any material to believe that whole or any part of turnover of dealer has escaped assessment to tax or has been under assessed or assessed to tax at a lower rate than at which it was assessable. Petition allowed.

Summary

Issues:
Challenge to authorization for reassessment under Section 29(7) of the VAT Act, 2008 for assessment year 2010-11.

Analysis:
1. The petitioner challenged the authorization granted by respondent no.2 for reassessment under Section 29(7) of the VAT Act, 2008 for the assessment year 2010-11. The petitioner, a civil contractor registered under the VAT Act, opted for the Composition Scheme for previous assessment years but did not opt for it for the year under consideration. The dispute arose regarding the inclusion of machinery and tools imported from outside the State in the assessment for the year 2010-11.

2. The petitioner contended that the assessing authority had already taxed the imported goods at 2% based on the Compounding Scheme, as the imported goods were less than 5% of the total contract amount. The petitioner argued that the authorization for reassessment was illegal as it was based on the inclusion of plant and machinery, which had been excluded in previous assessments and upheld by the Tribunal.

3. The petitioner relied on legal precedents, including the judgment in Koothattukulam Liquors case, emphasizing the bilateral agreement aspect of the Compounding Scheme. The petitioner also cited the judgment in Project Manager Construction case, supporting their argument against reassessment under Section 29(7) of the VAT Act.

4. The respondent, represented by the Special Counsel, did not dispute the petitioner's acceptance of the Compounding Scheme for previous years. The Special Counsel presented a judgment in Seema Construction Company case, which argued against reassessment after accepting the Compounding Scheme.

5. The Court analyzed the legal definitions of "sale," "capital goods," and "works contract" to determine the inclusion of plant and machinery in the assessment. It noted that plant and machinery used in work contracts should not be considered as sales, as settled by a previous Tribunal decision that attained finality.

6. The Court concluded that the authorization for reassessment was unjustified as the assessing authority had already taxed the petitioner at 2% based on the Compounding Scheme. The Court held that there was no basis for reassessment under Section 29(7) as the inclusion of plant and machinery was not warranted.

7. Ultimately, the Court quashed the order of authorization for reassessment and the consequential notice, ruling in favor of the petitioner and allowing the writ petition.

This detailed analysis of the judgment highlights the key arguments, legal precedents, and the Court's reasoning in resolving the challenge to the authorization for reassessment under the VAT Act for the specified assessment year.