2022 (6) TMI 671 - HC - VAT and Sales Tax

Issuance of Garnishee Notices - non-service of pre-assessment notices as well as assessment orders - composition scheme - dispute over turnover - execution of civil work relating to construction of roads - HELD THAT - Any VAT dealer who executes a contract and opts to pay tax by way of composition, must register himself as a VAT dealer and he shall pay tax at the rate of 5% of the total consideration received or receivable. In a case where the VAT dealer opts for composition he shall before commencing execution of the work notify the prescribed authority in Form VAT 250 details of the contract on which composition option has been exercised. On receipt of the payment by the VAT dealer, he shall calculate the tax at 5% of the amount received and shall enter such details in Form VAT 200 whereafter the tax due shall be paid along with the return in Form VAT 200. In Koothattukulam Liquors v. Deputy Commissioner of Sales Taxes 2014 (3) TMI 782 - SUPREME COURT Supreme Court examined the concept of payment of tax under composition scheme. That was a case under the Kerala General Sales Tax Act, 1963 whereunder the appellant had opted for composition of tax in terms of Section 17 thereof. After the appellant had closed his business, he had approached the assessing authority to cancel the permission granted for payment of tax under the composition scheme. It was in that context that the question for consideration before the Supreme Court was whether the appellant could request for a regular assessment in the same year after opting for composition of tax under Section 17 of the Kerala General Sales Tax Act, 1963 - Supreme Court held that composition of tax is nothing but an alternative route to assessment regulated by the terms of the contract between the assessee and the assessing authority to arrive at the same destination. Therefore, the dealer who had voluntarily and with full knowledge of the alternate method of taxation had opted to be governed by it, he cannot in the lean season claim that his assessment for the very same assessment year be made under regular assessment. Once the contract is affected by way of payment of composition tax and acceptance thereof, both the parties are bound by the contract. In the instant case there is no dispute that for the assessment periods under consideration petitioner had already paid tax under the composition scheme. Respondents have also not disputed the turnover figures of the petitioner. If that be the position and having regard to the law laid by the Supreme Court in Koothattukulam Liquors v. Deputy Commissioner of Sales Taxes 2014 (3) TMI 782 - SUPREME COURT it was not open to the respondents to have resorted to regular assessments of the petitioner for the very same assessment periods and thereafter levy tax at a much higher rate - receipt or non-receipt of pre-assessment notices or assessment orders would have no significance or bearing as those are besides the point. When an action is without jurisdiction, the fact that the same has been put to challenge after two years would not be of material consequence. Petition allowed.

Summary

Issues Involved:
1. Legality of the urgent payment notice dated 20.07.2019.
2. Legality of the garnishee notices dated 24.02.2022.
3. Jurisdictional validity of fresh assessment proceedings after opting for composition scheme.
4. Compliance with procedural requirements for pre-assessment notices and assessment orders.

Detailed Analysis:

Issue 1: Legality of the urgent payment notice dated 20.07.2019
The petitioner, a special class civil contractor, registered under the Telangana Value Added Tax Act, 2005 (TVAT Act) and GST, received an urgent payment notice dated 20.07.2019 from the Commercial Tax Officer, Bhongir Circle. The notice demanded payment of Rs.6,52,46,001-00 for the assessment periods 2014-2017 based on assessment orders dated 02.07.2019. The petitioner contended that it had already paid tax under the composition scheme and had not received any pre-assessment notices or assessment orders. The court found that the petitioner had indeed paid tax under the composition scheme, and the respondents could not initiate fresh assessment proceedings to levy a higher tax rate.

Issue 2: Legality of the garnishee notices dated 24.02.2022
While the writ petition challenging the urgent payment notice was pending, the respondents issued arrear and garnishee notices dated 24.02.2022 to the petitioner's bank. The garnishee notices sought to enforce payment of Rs.6,56,52,213-00 under Section 29 of the TVAT Act. The court held that these notices were untenable as the petitioner had already paid tax under the composition scheme, and fresh assessments were not permissible.

Issue 3: Jurisdictional validity of fresh assessment proceedings after opting for composition scheme
The petitioner argued that once tax was paid under the composition scheme at 5%, the respondents could not levy tax at 14.5% through fresh assessments. The court referred to the Supreme Court's decision in Koothattukulam Liquors v. Deputy Commissioner of Sales Taxes, which held that payment of tax under the composition scheme is a bilateral agreement binding both parties. The court concluded that the respondents' actions were without jurisdiction as the petitioner had already opted for and paid tax under the composition scheme.

Issue 4: Compliance with procedural requirements for pre-assessment notices and assessment orders
The respondents claimed that pre-assessment notices and assessment orders were sent to the petitioner's business address by registered post. However, the petitioner denied receiving them. The court found that the core issue was the jurisdictional validity of the fresh assessments, not the procedural compliance of notice delivery. Since the fresh assessments were without jurisdiction, the procedural aspects were deemed irrelevant.

Conclusion:
The court set aside and quashed the urgent payment notice dated 20.07.2019 and the garnishee notices dated 24.02.2022, declaring them wholly untenable in law and fact. Both writ petitions were allowed, and no costs were awarded.