2021 (4) TMI 965 - HC - VAT and Sales Tax

Suo moto revision - Eligibility for deduction of the entire sub-contractors' payments made - payments made to the sub-contractors - assessment years 2008-09 to 2011-12 - the contention of the appellant s counsel is that it was wholly unnecessary to have initiated the suo moto revisional proceedings - HELD THAT - There must be two circumstances which co-exist to enable the respondent to exercise power of revision under Section 64 of the KVAT Act, which is a suo moto revisional power. Firstly, the order passed by the first appellate authority or any other inferior authority not above the rank of the Joint Commissioner is erroneous. Secondly, the erroneous order must prejudice the interest of the Revenue. Therefore, the revisional authority has to first determine what is the erroneous order and thereafter determine as to whether the erroneous order has adversely affected the interest of the Revenue. Both the circumstances must co-exist before the revisional authority can initiate suo moto revisional proceedings. That, it is not sufficient to vest power in the respondent/authority to exercise suo moto revision merely because an order is erroneous - there must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. While discussing the aspects regarding the payments made to the sub contractors, there is no categorical finding given as to whether the assessee was, indeed, entitled to claim such benefit or not entitled to the same. In the absence of such finding being given by the respondent/revisional authority, the matter has been simply remanded to the Prescribed Authority under the KVAT Act to verify the issue based on certain observations made - the respondent/Authority was not right in remanding the matter to the Prescribed Authority to verify the issues with regard to certain observations made during the course of the order of purchases and sub contractors and to make a fresh re-assessment under Section 39(1) of the KVAT Act without giving a finding as such and in categorical terms as to whether the appellant/assessee was, indeed, entitled to make a claim regarding the deductions vis-a-vis the payments made to various sub-contractors in the respective assessment years. Matters remanded to the respondent/Authority to reconsider the same afresh - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Eligibility of the appellant/assessee to claim deductions for payments made to sub-contractors under the KVAT Rules.
2. Validity of the suo moto revision by the respondent authority under Section 64 of the KVAT Act.
3. Compliance with principles of natural justice and procedural propriety in passing the rectification and reassessment orders.

Issue-wise Detailed Analysis:

1. Eligibility of the Appellant/Assessee to Claim Deductions for Payments Made to Sub-Contractors under the KVAT Rules:
The appellant, a partnership firm registered under the KVAT Act and CST Act, claimed deductions under Rule 3(2)(i-1) of the KVAT Rules for payments made to sub-contractors during the assessment years 2008-09 to 2011-12. The appellant subcontracted construction work to registered dealers and provided necessary materials like cement and steel. The sub-contractors had filed their returns and discharged their tax liabilities. The appellant produced certificates from sub-contractors declaring the amounts paid and confirming tax discharge on the taxable turnover. The Prescribed Authority initially accepted these deductions but later issued a rectification order for 2008-09, reducing the expenditure to be carried forward and restricting the deduction claimed towards sub-contracts. The appellant contended that this rectification was on flimsy grounds and without a show-cause notice.

2. Validity of the Suo Moto Revision by the Respondent Authority under Section 64 of the KVAT Act:
The first appellate authority accepted the appellant's contentions and granted relief based on the Supreme Court judgment in Larsen & Toubro, holding that the deductions claimed were valid. However, the respondent issued notices under Section 64 of the KVAT Act for suo moto revision of the orders passed by the first appellate authority and the Prescribed Authority. The appellant argued that the suo moto revision was unjustified as the first appellate authority had relied on a Supreme Court judgment. The appellant contended that the revisional authority did not provide a categorical finding on the entitlement to deductions and merely remanded the matter for reassessment, which was unwarranted.

3. Compliance with Principles of Natural Justice and Procedural Propriety in Passing the Rectification and Reassessment Orders:
The appellant argued that the rectification order for 2008-09 was passed without issuing a show-cause notice, violating principles of natural justice. The suo moto revision was also challenged on the grounds that it lacked a clear finding on the erroneous nature of the original assessment and its prejudicial impact on revenue. The appellant emphasized that both criteria must be met for valid exercise of revisional power under Section 64 of the KVAT Act. The respondent's order was deemed arbitrary as it did not conclusively determine whether the deductions were justified, instead remanding the matter for a fresh assessment.

Judgment:
The court found that the respondent authority did not provide a categorical finding on the appellant's entitlement to deductions and merely remanded the matter for reassessment. This approach was deemed improper. The court set aside the impugned orders and remanded the matters to the respondent authority for reconsideration, instructing them to provide a clear finding on the appellant's entitlement to deductions. The court also allowed the appellant to raise additional contentions and present further material. The parties were directed to appear before the respondent authority on a specified date without expecting fresh notices. The appeals were allowed, and all pending applications were disposed of.