2013 (10) TMI 822 - HC - VAT and Sales Tax

Reopening of assessment u/s 16 - Nature of work - whether works contract or contract of sale - Held that - assessee is a sub contractor to M/s.Larsen and Toubro, who was granted contract for manufacture and supply of GRP pipes with required diameter with couplings and all necessary fittings and the transportation to the site and for laying, jointing and hydro testing and commissioning of the sewage pumping main including labour, tools and tackles and other allied incidental works etc., for Tirupur Water Supply and Sewerage Project. Even though copy of the agreement that the assessee had with Larsen and Toubro Limited, is not produced before this Court, yet, a reading of the order of the first Appellate Authority shows that the agreement was placed for consideration before the first Appellate Authority and in the preceding paragraph we have already extracted the core of the agreement entered into between the assessee and Larsen and Toubro Limited - apart from lack of materials which support the order of reassessment, we further find from the order of the Tribunal, that practically it had agreed with the findings of the first Appellate Authority on the nature of the contract, however, it fell into error in its reasoning that the sale was completed when the goods were unloaded and delivered to Larsen and Toubro Limited. Such reasoning is contrary to the terms of the agreement which were extracted by the first Appellate Authority in its order, which in the preceding paragraphs, we have also extracted in our order. When the nature of work involved not only manufacture but also laying of pipes thereafterwards, we do not find any ground to accept with the reasoning of the Tribunal that the nature of the contract is one of sale and not of composite nature - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of assessing authority to reopen assessment under Section 16
2. Nature of the contract - sale or works contract
3. Imposition of penalty under Section 16(1)(b)
4. Assessment rate of 12.6%

Issue 1: Jurisdiction of assessing authority to reopen assessment under Section 16
The Tax Case Revision was filed challenging the order of the Tamil Nadu Sales Tax Appellate Tribunal for the assessment year 2004-05. The substantial questions of law raised included the jurisdiction of the assessing authority to reopen the assessment under Section 16 in relation to the option exercised under Section 7-C of the Act. The Appellate Tribunal was criticized for not addressing this jurisdictional issue despite it being raised before them. However, the Court did not delve into this jurisdictional aspect, as the arguments were confined to the merits of the assessment.

Issue 2: Nature of the contract - sale or works contract
The dispute centered around whether the contract between the assessee and Larsen & Toubro Limited was a sale or a works contract. The Assessing Officer viewed the contract as predominantly for the sale of GRP pipes, couplings, and fittings, leading to the reassessment under Section 16AA. The first Appellate Authority, after analyzing the scope of work, concluded that the transaction was a composite contract involving manufacture, supply, and erection of pipes. The Court agreed with this assessment, emphasizing that the nature of the work indicated a works contract rather than a simple sale, citing relevant legal precedents.

Issue 3: Imposition of penalty under Section 16(1)(b)
The Appellate Tribunal had confirmed the penalty despite the assessment being under Section 16(1)(b) and not under Section 16(1)(a). The Court noted that for assessments under Section 16(1)(b), no penalty should be imposed. This discrepancy was highlighted as an error by the Tribunal, further supporting the decision to set aside the Tribunal's order and rule in favor of the assessee.

Issue 4: Assessment rate of 12.6%
Another point of contention was the assessment rate of 12.6% applied by the Tribunal, assuming the contract was for sale. The Court disagreed with this assessment, emphasizing that the agreement should be treated as a composite contract involving the supply of materials rather than a straightforward sale. This led to the Court allowing the Tax Case Revision and closing the matter without costs.

In conclusion, the High Court of Madras ruled in favor of the assessee, setting aside the Tribunal's decision and determining that the contract in question was a composite works contract, not a simple sale. The Court's detailed analysis focused on the nature of the work involved, legal precedents, and the lack of grounds for reassessment, ultimately leading to the decision to allow the Tax Case Revision.