2018 (9) TMI 628 - HC - VAT and Sales Tax

Sub-contract - levy of tax - Whether the Tribunal was justified in confirming levy of tax on the balance amount of profit arising out of expenses, when 1% of the amount was earmarked for meeting the expenses of the consortium and when the entire contract was given to the subcontractor for execution? Held that - It is evident that the documentary evidence required for a proper and correct determination of the controversy could have been called for by the Tribunal or it could have given an opportunity to the appellant to do so. This is not a satisfactory and happy manner to deal with the Appeals, particularly in tax matters involving complex transactions. In the event tax is payable or any deduction claimed, but has to be disallowed, then, the Tribunal is obliged to consider the matter in a holistic manner. It must not, as a last fact finding authority, leave anything to the parties. If a point is squarely raised or a point is framed by the Tribunal itself on the pleadings, then, on the basis of the record, the Tribunal must render complete justice or atleast attempt to do it. We do not find this to be done in the present case. We remand the matter to the Joint Commissioner of Sales Tax, who shall pass a fresh order on merits and in accordance with law, after giving the appellant a full opportunity to produce any documents other than, which are already on record - appeal allowed by way of remand.

Summary

Issues Involved:
1. Justification of the Tribunal in confirming the levy of tax on the balance amount of profit arising out of expenses.
2. Deductibility of bank charges and interest as financial expenses versus establishment charges.
3. Deductibility of the amount paid to M/S Zangas for services along with service tax.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in Confirming the Levy of Tax on the Balance Amount of Profit Arising Out of Expenses:
The appellant, a joint venture between a Russian company and an Indian company, was awarded a contract by M/S Gail (India) Limited for laying a gas pipeline. The joint venture partners had separate registrations under the Maharashtra Value Added Tax Act 2002 (MVAT Act) and filed returns for the financial years 2007-2008 and 2008-2009. The Deputy Commissioner of Sales Tax assessed the appellant for these years, allowing 96% of the receipts as deductions and levying tax on the balance amount without allowing deductions for certain expenses. The Joint Commissioner of Sales Tax confirmed this assessment. The Maharashtra Sales Tax Tribunal, upon appeal, partly allowed the appeals and remanded the matter back to the Joint Commissioner for correct computation of tax liability. The Tribunal concluded that the assessing officer erred in calculating the turnover of sales liable to tax and that the principal contractor and subcontractor together are considered sellers for the purpose of sales tax. The Joint Commissioner, upon remand, held that no deduction is admissible due to the lack of documentary evidence from the appellant. The Tribunal, in a subsequent appeal, dismissed the appellant's case without referring to its previous detailed order, leading to the present appeal in the High Court.

2. Deductibility of Bank Charges and Interest as Financial Expenses versus Establishment Charges:
The Tribunal, in its initial order, held that bank charges and interest paid are financial expenses and not establishment charges, hence they are not deductible under Rule 58 of the MVAT Act. The appellant argued that these charges should be considered as establishment expenses and thus deductible. The Joint Commissioner, upon remand, reiterated that these charges are financial expenses and not deductible. The High Court found that the Tribunal and the Joint Commissioner failed to adequately address the appellant's arguments and documentary evidence. The High Court emphasized that the Tribunal, as the last fact-finding authority, should have thoroughly examined the evidence and provided a clear rationale for its decision.

3. Deductibility of the Amount Paid to M/S Zangas for Services Along with Service Tax:
The Tribunal, in its initial order, allowed the deduction of the amount paid to M/S Zangas for services along with the service tax paid thereon from the sale proceeds. The Joint Commissioner, upon remand, acknowledged this deduction but still concluded that the appellant failed to provide sufficient evidence to claim other deductions. The High Court noted that the Joint Commissioner did not adequately clarify what additional evidence was required from the appellant and failed to consider the appellant's written submissions comprehensively.

Conclusion and Directions:
The High Court allowed the appeals and remanded the matter back to the Joint Commissioner of Sales Tax for a fresh order on merits, emphasizing the need for a thorough examination of all documentary evidence and clarifications from the appellant. The Joint Commissioner was directed to complete this exercise within two months. The High Court clarified that it had not expressed any opinion on the merits of the case and that all contentions were kept open for consideration. The High Court also noted that the appellant would restrict its submissions to specific questions and that the Joint Commissioner should re-examine the deductibility of 1% expenses, including bank charges and interest, afresh and uninfluenced by previous conclusions.