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TMI Blog2017 (3) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... m jurisdiction to reassess the petitioner, the burden was solely on the assessing authority to categorically bring on record such information or material as may establish presence of the pre-condition for application of Rule 9 (3) of the Rules. In the context of reassessment proceedings initiated by the Assessing Authority, it was mandatory to record such a fact by way of a reason (based on some material or evidence) that one of the three statutory pre-condition for application of Rule 9 (3) existed - In absence of any material it was not open to the authorities to assume existence of such facts for the purpose of acquiring jurisdiction and to later, in the course of reassessment proceedings to conduct an inquiry as to its existence or otherwise. The petitioner's Assessing Authority had not fulfilled the requirement of recording a reason to believe to apply Rule 9 (3) of the Rules. The assessing authority is clearly wrong in treating it to be a mandatory rule of normal application and not a rule of exception. In absence of any fact or reason recorded to establish existence, of either three mandatory pre-conditions for applicability of Rule 9 (3) of the Rules, the Assessing Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Year 2009-10 were produced by the petitioner before the Assessing Authority during the course of assessment proceedings; (ii) whether the account books which were produced by the petitioner do as a matter of fact disclose the labour component separately. It is necessary for the State to clarify both these aspects since the submission of the petitioner, based on the original order of assessment, is that as a matter fact contracts were produced and the account books would indicate that the labour component was separately shown. The counter affidavit shall be filed within a period of three weeks. Rejoinder affidavit shall be filed within a period of two weeks thereafter. In the meantime, we direct that until the next date of listing, the reassessment proceedings in pursuance of the impugned order dated 5 February 2014 shall remain stayed. List this petition on 5 May 2014. We have heard Sri Bharat Ji Agrawal, learned Senior Advocate assisted by Sri Shubham Agrawal, learned counsel for the petitioner and Sri C.B.Tripathi, learned Special Counsel for the State appearing on behalf of the respondents no. 1, 2 and 3 and have perused the record. From the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposal indicates that the Assessing Officer entertained a belief of the petitioner's turnover having escaped assessment for the assessment year 2009-10, impressed, at least in part by certain findings recorded by the said authority in the course of provisional assessment proceeding for the assessment year 2012-13 (March 2013). Also, he observed as a fact that during the course of the original assessment proceedings the assessee had not produced the contract documents pertaining to the work contracts performed by it and had also not produced its account books and that later, upon inquiry made during the provisional assessment proceedings for assessment year 2012-13 (March 2013)it became clear to him that in the year in question petitioner had executed work contracts for supply, erection and commissioning of complete power plant on turn key basis. On these facts it has been inferentially reasoned that the petitioner had been wrongly allowed the deduction of labour charges in excess of 10% of the payments received for work contracts executed by it and that the amount in excess of 10% should have been included in its taxable turnover and assessed to tax in view of Rule 9(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could not have found place in the assessment order unless its author i.e. the assessing authority had before him those documents. It is true, the assessment order itself records details namely, the nature and value of various contracts executed by the petitioner as also it contains such extracts of the specific clauses of the contracts as the assessing authority choose to notice/record in that order. Further, we have been taken to paragraph 6 at internal page 19 of the assessment order wherein it has been specifically recorded vyapari ki lekha pustakon say, civil nirmaan hetu, kharidi gayi steel, cement satyapan yogyey hain . Thus, according to the learned senior counsel, the petitioner's account books had not only been produced but also examined by the assessing authority in those proceedings and the reassessment proceedings initiated against the petitioner are truly review in the garb of a reassessment. Third, it has been strenuously urged on behalf of petitioner that there is neither any information nor material on record nor any reason has been recorded to that effect not it is the case of the petitioner's assessing authority that the accounts maintained by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer was not in a position to examine the nature of contract and the work carried out by the petitioner. Therefore, according to him the petitioner is liable to be reassessed in accordance with Rule 9(3) of the Rules as the petitioner was not entitled to claim by way of labour charges etc. any amount in excess of 10% of the payments received against the civil work contracts executed by it. He further submits that the issue of value of labour and service charges and profit thereon is required to be examined and in the facts of the case the applicability of Rule 9 (3) computing that deduction at 10% of the contract price received or receivable is just and proper. Before examining the merits of the contention raised on either side, we may notice the relevant provision of the Act and the Rules with respect to initiation of reassessment proceedings and determination of turnover of sale of goods involved in the execution of work contracts. In this regard Section 29(1) and (7) of the U.P. Value Added Tax Act, 2008 are relevant to this issue, which is quoted as under:- 29. (1) If the assessing authority has reason to believe that the whole or any part of the turnover of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of determining the taxable turnover of sale of such goods, the amounts specified below shall be deducted if included in the gross amount received or receivable in respect of the works contract. (a)...... (b)...... (c)...... (d) all amounts representing the value of service and labour and profit thereon; (2)------ (3) Where accounts maintained by the contractor do not show separately the value of labour and services and amount of profit accrued on such labour and services, or accounts maintained by the dealer are not worthy of credence or if the dealer has not maintained accounts, for the purpose determining turnover of goods in which transfer of property in goods has taken place, in cases other than those mentioned in the table below, an amount, representing twenty percent of gross amount received or receivable, shall be deducted towards labour and services and amount of profit accrued thereon and in the cases described or mentioned in the Column 2 of the table given below, amount of deduction towards such labour and services and amount of profit accrued thereon shall be computed at the rate percentages, given in the Column 3 against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for plumbing, for drainage or sewerage system 30% 16. Whitewashing, painting and polishing 40% It is settled law that the jurisdiction to initiate reassessment proceedings arises only after the assessing authority records his reason to believe that any turnover has escaped assessment Thus, not only is the belief of escapement essential but more importantly, it is necessary for the Assessing Authority to record his reason/s as to existence of the belief of such escapement. In Commissioner of Sales Tax Vs. Bhagwan Industries (P) Ltd. (1973) 31 STC 293 (SC) the phrase reason to believe appearing in a similar provision in Section 21 of the U.P, Sales Tax Act, 1948 providing for reassessment was interpreted thus: The words reason to believe in Section 21 of the U.P. Sales Tax Act convey that there must be some rational basis for the assessing authority to form the believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. If there are, in fact, some reasonable grounds for the assessing authority to believe that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have entertained the belief that the petitioner was not entitled to claim deduction towards labour charges over and above 10% of the payments received by relying on Rule 9(3) of the Rules. In other words according to the petitioner's assessing authority: (i) petitioner had not produced the entire work contract documents during the original assessment proceedings for Assement Year 2009-10 (U.P.) (ii) in the course of provisional assessment proceedings for subsequent period for March 2013, the entire contract documents were produced wherefrom it appeared to the petitioner's assessing authority that the petitioner had been awarded contracts for Supply, Erection and Commissioning of complete Power Plants on turnkey basis. Based, upon these two fact allegations it has been inferred (iii) the petitioner was liable to deduction (on account of value of labour and service charges and profit thereon) at the rate 10% only on all payments received against such contracts in view of Rule 9 (3) of the Rules. In this regard, we notice-neither in the reason to believe recorded by the petitioner's assessing authority (contained in the proposal annexed at pages 65 and 66 of the writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not give rise to inference of escapement. If for example, in a given case the actual claim of value of labour and service charges and profit thereon allowed to the petitioner is compared with the amount equal to 10% of the value of contracts received or receivable by the petitioner and that figure has a negative value (i.e.it is less than the value reached by applying the rule of 10%) then in such a case no inference of escapement may ever arise. If on the other hand the differential amount is a positive figure then the assessing authority may entertain a belief in respect of that amount. An assessing officer, faced with such a situation may therefore be expected, in normal course to mention a figure or amount which according to him has escaped assessment as otherwise it cannot be accepted that he had a belief of escapement. Only, then and in respect of such an amount he may further show existence of reasons so as to assume jurisdiction to reassess the petitioner. In absence of any quantification whatsoever, it is difficult to accept Shri Tripathi's contention that escapement of turnover is a necessary consequence of Rule 9 (3) because the said rule restricts the deduction on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of deduction of value of labour and service and profit thereon may be applied. Read together, normally, under Rule 9 (1) deduction on account of value of labour and service and profit thereon is to be allowed at actual figures claimed by any assessee. However, a rule of exception is contained in Rule 9 (3) which comes into play either if (i) the assessee does not show separately the value of labour and service and amount of profit accrued on such labour and service or (ii) the accounts maintained by the assessee are not worthy of credence or (iii) if the assessee does not maintain any accounts. Plainly, Rule 9 (1) and Rule 9 (3) cannot and they do not apply or operate simultaneously, rather, Rule 9 (3) applies only if application of Rule 9 (1) is excluded on account of presence of any of the three preconditions mentioned in Rule 9 (3). Here, in this case no information, material or fact or reason has been recorded to establish the satisfaction of any of the three pre-conditions of the applicability in Rule 9 (3) inasmuch as it has not been alleged by the Assessing Authority in the reason to believe recorded by him that the petitioner had not maintained its books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r information or belief as also reason to entertain a belief of escapement, is nothing but a self serving statement that cannot be accepted and is accordingly rejected. It is also not the case of the department that the accounts maintained by the petitioner do not show separately the value of labour and service charges and amount of profit accrued thereon. Neither in the reason to believe as recorded and proposed by the Assessing Authority nor in the sanction order dated 05.02.2014 there exists anything to suggest such a state of affairs so as to justify application of Rule 9 (3) against the petitioner for that reason. It is also not possible to accept the contention of Sri Tripathi that it would be open to the petitioner to contest the applicability of Rule 9 (3) of the rules during the course of reassessment proceedings inasmuch as existence of such a fact allegation is a sine qua non for assumption of jurisdiction to reassess the petitioner. While in a regular assessment proceedings it may have been open to the Assessing Authority to issue a simple notice to the assessee to show cause why Rule 9 (3) may not be applied or to show whether the value of labour and services etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qua non or condition precedent for the exercise of power by a court of limited jurisdiction. 84. From the above decisions, it is clear that existence of jurisdictional fact is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of jurisdictional fact , it can decide the fact in issue or adjudicatory fact . A wrong decision on fact in issue or on adjudicatory fact would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present. Thus we accept the contention of the petitioner that in this case, in the state of the reason to believe as contained in the proposal made by the petitioner's assessing authority, the jurisdictional fact of applicability of Rule 9 (3) of the Rules is not established. In this regard the further argument of Sri Tripathi that there is no finding recorded in the original assessment order to the effect that the value of labour charges etc. had not shown separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining the belief do not even remotely suggest that the Assessing Authority has any material or information that the petitioner had not shown separately the value of labour and services and amount of profit accrued on such labour and services. Thus, we conclude that the petitioner's Assessing Authority had not fulfilled the requirement of recording a reason to believe to apply Rule 9 (3) of the Rules. The assessing authority is clearly wrong in treating it to be a mandatory rule of normal application and not a rule of exception. In absence of any fact or reason recorded to establish existence, of either three mandatory pre-conditions for applicability of Rule 9 (3) of the Rules, the Assessing Authority could never assume jurisdiction to compute the deduction on account of labour and service charges and profit thereon in accordance with Rule 9 (3). This is a clearly impermissible course and the action of the Assessing Authority is without jurisdiction. Moreover, even if Rule 9 (3) were to be applied, even then, at this stage, there is complete absence of any belief and reason or application of mind as to the amount, which in the opinion of the assessing authority has escaped ..... 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