2015 (2) TMI 473 - HC - VAT and Sales Tax

Exemption from sales tax - works contract - doctrine of promissory estoppel - assessee argued that they were informed that the turnover, regarding the port contract, was exempt from tax ; they did not, therefore, disclose the turnover relating to port construction in their returns - AP VAT Act, 2005 - Option to revise the return - Held that - On the AP VAT Act coming into force, KPCL was no longer entitled to claim exemption from tax, as no such power to grant exemption is available to the Government under the Act; the only benefit which KPCL was entitled to under the Act, was for refund of the tax under Section 15(1) of the Act, that too on a notification being issued by the Government in this regard; and the doctrine of promissory estoppel or legitimate expectation could not be invoked to implement a contractual provision which is contrary to law. The claim of NECL for exemption from tax, for the works executed by them for KPCL, does not merit acceptance as a similar relief claimed by KPCL has been negatived by this Court in 2015 (2) TMI 472 - ANDHRA PRADESH HIGH COURT . CAN THE POWER OF REVISION BE EXERCISED WHEN THE ORDER OF THE STAT HAS ATTAINED FINALITY? - Held that - Even in the absence of a provision, similar to the proviso to Section 32, the decision of the STAT, on a question of law, would bind the assessing authority. However, as noted hereinabove, the order of the STAT was passed in ignorance of the relevant statutory provisions, and is contrary to the law declared by the Supreme Court in Gannon Dunkerly 1992 (11) TMI 254 - SUPREME COURT OF INDIA and the Full bench of this Court in Seven Hills Constructions 2014 (9) TMI 110 - ANDHRA PRADESH HIGH COURT , and is not a decision on a question of law which alone would bind the revisional and assessing authorities. As the orders of the revisional and assessing authorities are in accordance with the statutory provisions both plenary and subordinate, and the law declared in the aforesaid judgments, the impugned revisional and assessment orders do not necessitate interference on this score. Clarification the Advance Ruling Authority - whether Binding - Held that - Under Section 67(4)(iii) of the A.P. VAT Act, the order of the Advance Ruling Authority binds officers in the Commercial Tax Department below the rank of the Commissioner of Commercial Taxes. In the exercise of his revisional powers, under Section 32(1) of the Act, the Commissioner of Commercial Taxes is not bound by the Ruling of the Advance Ruling Authority. Use of the word officers in Section 67(4)(iii) makes it clear that the order of the Advance Ruling Authority would not bind the STAT or this Court in the exercise of its jurisdiction under Section 34 of the Act. Orders of the STAT would bind all officers/quasi-judicial authorities of the Commercial Taxes department, including the Commissioner, notwithstanding a ruling of the Advance Ruling Authority to the contrary, more so as an appeal lies to the STAT against the ruling of the Advance Ruling Authority. (Tirupati Chemicals16). The decision of the STAT on a question of law would bind officers in the commercial taxes department even if there be a decision of the ARA to the contrary. However as noted hereinabove the order of the STAT is not a decision on a question of law and would not, therefore, bind the revisional or the assessing authority. Denial of Composition of Tax - Held that - The revisional authority has erred in denying the petitioner the benefit of payment of tax under Rule 17(2)(b), merely on the ground that they had not disclosed the turnover in their returns, particularly when there is no statutory sanction for denial of such a benefit. No statutory provision either plenary or subordinate, which confers power on the authorities to deny the assessee the benefit of composition on this ground, has been brought to our notice. - The revisional authority shall, to this limited extent, examine the matter afresh and, in case the petitioner has opted for composition before commencement of the execution of the work and has notified the authority on Form VAT 250 prior thereto, consider extending them the benefit of composition, and for payment of tax under Rule 17(2)(b) & (c) of the Rules. Doctrine of promissory estoppel - Held that - As NECL is not a party to the revised concession agreement, they are not entitled to invoke the doctrine of promissory estoppel more so as no promise has been made to them by the GoAP. In any event, a similar claim by KPCL has been negatived by this Court in its order in W.P. No.34680 of 2013. The claim of NECL, for application of the doctrine of promissory estoppel, must therefore fail. Conclusion - Held that - While NECL is liable to pay tax on the turnover relating to execution of the works contract for KPCL, the provisions of the Act and the Rules obligate KPCL to deduct tax at source from the running account bills of NECL. However both NECL and KPCL cannot be subjected to tax on the very same transactions. The respondents shall grant NECL reasonable time to produce TDS certificates from KPCL. In case NECL fails to submit the TDS certificates within such stipulated period, it is open to the respondents thereafter to recover the said amount, along with other tax dues, from them in accordance with law. The impugned orders of the revisional and assessing authorities subjecting NECL to tax under Rule 17(1)(e) of the Rules, on completion of the financial year, is upheld. With regards payment of tax, for the works executed by them for KPCL, the respondents shall consider the claim of NECL for composition, provided they have complied with the requirements of Rule 17(2) of the AP VAT Rules. It is made clear that this order shall not preclude the respondents from instituting penal proceedings, if they so choose, against NECL for their having suppressed the turnover, relating to the works executed for KPCL, in their returns. - Petition disposed of.

Summary

Issues Involved:

1. Liability of NECL to pay tax on the turnover relating to the works contract executed for KPCL.
2. Exercise of the power of revision when the order of the Sales Tax Appellate Tribunal (STAT) has attained finality.
3. Binding nature of the clarification of the Advance Ruling Authority under Section 67 of the A.P. VAT Act.
4. Denial of composition of tax under Rule 17(1)(g) of the Rules.
5. Applicability of the doctrine of promissory estoppel.

I. Liability of NECL to Pay Tax on the Turnover Relating to the Works Contract Executed for KPCL:

NECL, a company executing works contracts, argued that the materials used for the construction of the Krishnapatnam port were exempt from tax as per the agreement between the Government of Andhra Pradesh (GoAP) and KPCL, and the doctrine of promissory estoppel. The GoAP had issued G.O.Ms.No.609, refunding the tax paid on purchases by the port developer and its contractors. NECL did not disclose the turnover relating to the port construction in their returns, leading to a show-cause notice and subsequent tax assessment. The court held that NECL was liable to pay tax on the turnover relating to the execution of the works contract for KPCL, as the exemption claimed was not valid under the A.P. VAT Act. The court also emphasized that NECL must be given credit for the tax deducted at source by KPCL, provided they produce the necessary TDS certificates.

II. Exercise of the Power of Revision When the Order of the STAT Has Attained Finality:

NECL contended that the power of revision under Section 32(2) of the A.P. VAT Act was barred as the issue had been decided by the STAT in T.A. No.110 of 2012. The court examined whether the STAT's decision was binding and found that the STAT's interpretation was contrary to the law declared by the Supreme Court in Gannon Dunkerly and the Full Bench of the High Court in Seven Hills Constructions. The court held that the revisional authority was not barred from exercising its powers under Section 32(2) of the Act, as the STAT's decision was not a binding precedent on a question of law.

III. Binding Nature of the Clarification of the Advance Ruling Authority under Section 67 of the A.P. VAT Act:

The court noted that the ruling of the Advance Ruling Authority (ARA) in the case of M/s. Jaiprakash Associates Limited was binding on the officers of the Commercial Tax Department, except the Commissioner. The court held that the decision of the STAT on a question of law would bind the officers of the Commercial Taxes Department, even if there was a contrary ruling by the ARA. However, since the STAT's order was not a decision on a question of law, it did not bind the revisional or assessing authority.

IV. Denial of Composition of Tax under Rule 17(1)(g) of the Rules:

NECL argued that they were wrongly assessed under Rule 17(1)(d) and (e) instead of being allowed the benefit of composition under Rule 17(2). The court held that if NECL had opted for composition and notified the prescribed authority in Form VAT 250 before commencing the execution of the work, they should be allowed to pay tax under Rule 17(2)(b) at 4%/5% of the total consideration received or receivable. The revisional authority was directed to re-examine the matter to determine if NECL had exercised their option for composition.

V. Applicability of the Doctrine of Promissory Estoppel:

NECL invoked the doctrine of promissory estoppel, claiming exemption from tax based on the agreement between GoAP and KPCL. The court held that NECL, not being a party to the agreement, could not invoke the doctrine of promissory estoppel. The court also noted that a similar claim by KPCL had been rejected in a previous judgment.

Conclusion:

NECL is liable to pay tax on the turnover relating to the execution of the works contract for KPCL. The respondents must grant NECL reasonable time to produce TDS certificates from KPCL. The revisional and assessment orders subjecting NECL to tax under Rule 17(1)(e) are upheld. The respondents are directed to consider NECL's claim for composition under Rule 17(2) if they have complied with the requirements. The court clarified that this order does not preclude the respondents from instituting penal proceedings against NECL for suppressing turnover. The writ petitions were disposed of without costs.