2016 (2) TMI 842 - HC - VAT and Sales Tax

Levy of vat / taxability of sale of land after plotting - While so, it had incurred certain expenses for the leveling of the land, laying of roads and for the creation of other infrastructural facilities, before the plots were advertised and sold. The petitioner had not constructed any flats or residential apartments for its customers. The petitioner had sold 213 plots in phase I and 89 plots in phase II of its development scheme, for which sale deeds had been registered - the first respondent had considered the land development and construction charges incurred by the petitioner, up to the period 2011-12, as the sale consideration, for the construction of the flats and had determined the deemed sales value and had levied tax and also levied penalty, under Section 27(3) of the Act, in the impugned proceedings, when there was no proposal to levy such penalty in the pre-revision notices, dated 20.8.2015. Held that - order set aside - matter remanded back for fresh decision.

Summary

Issues involved:
- Interpretation of tax laws regarding the sale of land and construction charges
- Application of principles of natural justice in tax proceedings
- Granting of personal hearing and extension of time for objections in tax assessment
- Consideration of objections and supporting documents in tax assessment
- Validity of penalty imposition under the tax laws

Interpretation of Tax Laws Regarding Sale of Land and Construction Charges:
The case involved a public limited company engaged in land development and sale, registered under tax laws. The company had incurred expenses for land development and infrastructure before selling plots without constructing flats. The tax authority considered these expenses as sale consideration for construction, levied tax, and imposed penalties. The petitioner argued that land sale cannot be considered goods under the Act, and no construction was involved. The Court found the tax authority's decision erroneous and set aside the proceedings for reassessment.

Application of Principles of Natural Justice in Tax Proceedings:
The petitioner contended that the tax proceedings were arbitrary, illegal, and void as no personal hearing was granted. Despite the petitioner's request for an extension and personal hearing, the tax authority proceeded without considering these requests. The Court held that principles of natural justice were not followed, setting aside the proceedings and directing a fresh assessment with a personal hearing opportunity.

Granting of Personal Hearing and Extension of Time for Objections in Tax Assessment:
The petitioner had requested an extension for filing objections and a personal hearing, but the tax authority proceeded without granting the extension. The Court noted the failure to provide a personal hearing before passing the impugned proceedings, emphasizing the importance of allowing the petitioner to present its case adequately. The Court directed the tax authority to conduct a personal hearing and consider further objections filed by the petitioner.

Consideration of Objections and Supporting Documents in Tax Assessment:
The tax authority had imposed penalties without considering the petitioner's objections and supporting documents adequately. The Court found that the tax authority did not give due consideration to the petitioner's objections and directed a reassessment, instructing the petitioner to file objections and relevant documents for proper assessment.

Validity of Penalty Imposition Under the Tax Laws:
The tax authority had imposed penalties under the Act without sufficient basis, leading to the Court setting aside the penalties and directing a reassessment with proper consideration of objections and supporting documents. The Court emphasized the need for a fair assessment process in line with the tax laws and principles of natural justice.

This detailed analysis covers the key issues involved in the judgment, focusing on the interpretation of tax laws, procedural fairness, and the validity of penalties imposed in the tax assessment process.