Reserved on 6.11.2019
Delivered on 17.12.2019
Court No. - 35
Case :- WRIT TAX No. - 396 of 2019
Petitioner :- M/S. Chhatra Shakti Construction Company
Respondent :- State Of U.P. And 2 Others Counsel for Petitioner :- Aloke Kumar Counsel for Respondent :- C.S.C.
Hon'ble Bharati Sapru,J. Hon'ble Rohit Ranjan Agarwal,J.
(Delivered by Hon'ble Rohit Ranjan Agarwal,J.)
1. Heard Sri Aloke Kumar, learned Counsel for the petitioner and Sri C.B. Tripathi, learned Special Counsel for respondent- State.
2. Present petition has been filed assailing the authorization granted by respondent no.2 under Section 29(7) of the Value Added Tax Act, 2008 (hereinafter called as “VAT Act, 2008”) dated 15.03.2019 for assessment year 2010-11 and consequential notice dated 19.03.2019 issued by respondent no.3.
3. Facts in brief are that petitioner is in the business of construction of road and bridges and is registered under the provisions of the VAT Act, 2008. Petitioner had opted for Composition Scheme as announced by State Government for Civil Contractors for assessment year 2007-08, 2008-09 and 2009-10. However, petitioner did not enter into Compounding Scheme for assessment year 2010-11. While, during year under consideration i.e. 2010-11, it received payment of Rs.1,80,71,92,729/- from work executed in pursuance of contract obtained in assessment year 2007-08, 2008-09 and 2009-10. Petitioner also received Rs.58,14,86,048/- from contract obtained in assessment year 2010-11.
4. During year under consideration, 331 Form-38 was utilized by petitioner for importing machinery used for construction of road, machinery parts etc. including cement, saria and furnished oil. According to petitioner, he filed complete details of purchases against each Form-38 specifying details of raw material used in construction of road as well as details of machinery imported from outside the State of U.P. It has been stated that during year under consideration, raw material purchased from outside the State valuing Rs.3,36,13,446/-. Similarly machinery and tools required for construction was also purchased from outside the State amounting to Rs.55,19,53,672.74/-. An assessment order for year 2010-11 was made on 31.3.2014. The said assessment order took note about the quantum of turnover of Compounding Scheme as well as about the year under consideration and also use of 33 declaration form for import.
5. It has further been stated that as per Compounding Scheme, if imported goods used in execution of work contract, was to the extent of 5% of total contract money, then tax liability stood at 2%. Thus, total contract money required to be considered during assessment year 2010-11 of Composition Scheme was only Rs.1,80,71,92,729/- and petitioner had imported goods from outside the State for a value of Rs.3,36,13,446/- which was less than 5% of the total amount of contract money, therefore, assessing authority had rightly taxed the same at 2%. Further levy of tax at 2% was not disputed by Department in any manner either by filing any appeal before First Appellate Authority or before the Tribunal. It was on 21.01.2019 that respondent no.2 issued notice under Section 29(7) of the VAT Act stating that during year under consideration petitioner had purchased and imported plant and machinery from outside the State of U.P used in execution of work contract for 18.24% of total contract amount, and thus was required to pay tax @ 6%.
6. Petitioner-assessee submitted his reply to above notice, but respondent no.2 on 15.03.2019 exercising power under Section 29(7) of the VAT Act passed an order of authorisation for re- assessment. Pursuant to the said order, notices were issued for re- assessment by respondent no.3 on 19.3.2019.
7. Counsel for the petitioner submitted that once the quantum of goods imported from outside the State of U.P. was accepted by the Assessing Authority in the original assessment order and the same having been not questioned in any forum by filing any appeal, then the grant of authorization for passing re-assessment order under sub-section 7 of Section 29 of the VAT Act was illegal, as Section 29 clearly envisages specific circumstances under which the assessing authority has reason to believe that the whole or any part of the turnover of a dealer, for any assessment year or part thereof, has escaped assessment to tax or has been under assessed or has been assessed to tax at a rate lower than that at which it is assessable under the Act.
8. He further submitted that in present case, the entire raw material used for construction of road has been assessed by the assessing authority by excluding capital goods i.e. plant and machineries used for construction of road and the said exclusion has not been disputed by respondent-State at any stage, and this exclusion of plant and machinery has been affirmed by Tribunal in previous assessment year and now inclusion of plant and machinery only for purpose of grant of authorization for re- assessment amounts to unnecessary harassment of the petitioner.
9. Sri Alok Kumar, Counsel for the petitioner has relied upon a judgment of Apex Court in case of Koothattukulam Liquors Vs. Deputy Commissioner of Sales Tax, (2015) 12 SCC 794, wherein the Apex Court has dealt with the concept of payment of compounded amount of tax. Relevant para 19 is extracted here as under:-
“19. The concept of payment of compounded amount of tax is a bilateral agreement between the parties. The scheme of composition provides that the State Government is empowered to accept a lum sum amount in lieu of tax that may be payable by the dealer in respect of such goods or class of goods and for such period as may be agreed upon. For that purpose, the dealer is obliged to execute an agreement of undertaking to pay the sales tax in lump sum and the same is assessed at an agreed rate as envisaged under the Act itself. The scheme as introduced by the legislature provides for a bilateral agreement between the assessee and the Sales Tax Authorities with an object to dispense with the requirement of regular assessment and for the easy purpose of levy and collection of the tax payable under the Act. A dealer, who has opted for payment of lump sum amount in lieu of tax, is not required to file monthly, quarterly or annual returns of his turnover. It is the choice of a dealer to opt for compounded payment of tax and if the said choice is in accordance with the scheme and is ultimately accepted by the authority concerned, it becomes an agreed amount of tax. The department and the dealer are thereafter bound by the said agreement.”
10. Reliance has also been placed on judgment of this Court in case of Project Manager Construction and Design Services U.P. Jal Nigam Vs. Commissioner of Trade Tax, 2019 U.P.T.C. [Vol.101]-279.
11. Sri C.B. Tripathi, learned Special Counsel appearing for the respondent-State apart from the stand taken in the counter affidavit could not dispute that assessee had accepted Compounding Scheme for assessment year 2007-08, 2008-09 and 2009-10. Further the order of authorization for assessment year 2010-11 on the basis of inclusion of plant and machinery in the total amount of contract was also not disputed by him, rather he placed before this Court a judgment of Division Bench in case of Seema Construction Company Vs. State of U.P. & 2 Ors, 2016 NTN (Vol.62)-319. Relevant part 4 is extracted here as under :-
“4. It is contended that once Compounding Scheme has been accepted and tax has been paid thereunder, question of re- assessment by taking recourse to Section 29(7) does not arise and hence impugned proceeding of re-assessment is wholly illegal and without jurisdiction. It is further contended that under Compounding Scheme, Para 2(a), import was permitted upto 5 per cent against total cost of executed contract and if import is upto 5 per cent, tax payable was only 2 per cent but it is more than 5 per cent, then tax payable was 6 per cent. Respondents-authorities, in the case in hand, by reading aforesaid terms as total payment received by Contractor, have completely misread the said scheme and, therefore, even otherwise proceeding of re-assessment is wholly illegal and amounts to change in opinion, which is not permissible.”
12. We have heard learned Counsel for the parties and perused the material on record.
13. It is not in dispute that petitioner-assessee had applied for the Composition Scheme for previous years, however in the year under consideration, petitioner had received Rs.1,80,71,92,729/- for the work executed for contracts obtained in assessment year 2007-08, 2008-09 and 2009-10. In the year under consideration assessment has been made for the entire raw material used for construction of road excluding machineries used. The exclusion of machinery had never been disputed at any stage by the Department, while in previous assessment year 2009-10, exclusion of plant and machinery used for construction of road was considered by the department in proceedings under Section 56 and the matter was carried upto the Tribunal, wherein it was held that plant & machinery is not covered under sale as defined in Section 2(ac)(ii).
14. It is also evident that plant and machinery is only used for construction of road, which is capital goods and the same remains with the petitioner-assessee, even after construction of road, and, thus it cannot be included in value of work contract executed by petitioner.
15. Section 2(ac) defines “sale”. Sub-section (ii) of Section 2(ac) provides that sale with its grammatical variations and cognate expressions means any transfer of property in goods by person to another, for cash or for deffered payment or for any other valuable consideration and includes a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. Section 2(f) defines “capital goods” which includes plant, machine, machinery, equipment, apparatus, tool, appliance or electrical installation used for manufacture of processing of any goods for sale. Section 2(au) defines “works contract” which includes any agreement for carrying out, for cash, deferred payment or other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property.
16. Thus from the conjoint reading of the aforesaid provision, it is clear that plant and machinery used in work contract cannot be included as sale and only those goods involved in the execution of work contract will qualify under the definition of sale. This issue has already been settled by the Tribunal for assessment year 2009-10, against which no appeal was preferred by department and the said order attained finality.
17. Thus, the action of respondent no.2 proceeding to grant authorisation for re-assessment for including capital goods for value of work contract purchased from outside the State along with raw material to the quantum of turnover of Compounding Scheme for the year under consideration is highly unjustified, as the assessee had already been taxed @ 2% for work done as the goods used in execution of work contract, was to the extent of 5% of the total contract money.
18. Apart from that total contract money under consideration for assessment year 2010-11 of the composition scheme was only Rs.1,80,71,92,729/- and petitioner-assessee having imported goods valuing Rs.3,36,13,446/- which is less than 5% of total contract money, therefore, the assessing authority had rightly taxed @ 2%, thus the order of authorization for re-assessment under Section 29(7) of the VAT Act cannot be sustained on the premises that plant and machinery has not been included.
19. Once the matter of the assessee for previous year was accepted by the Tribunal as far as the capital goods are concerned, which were outside the Composition Scheme, the respondent- authority was not correct to pass order of authorisation under sub- section 7 of Section 29 for the re-assessment, as the same had attained finality and was binding in view of the Apex Court decision in case of Union Of India & Others Vs. Kamlakshi Finance Corporation, 1992 Supp(1) SCC 648.
20. As the order of authorisation for re-assessment is based on the fact that the capital goods should have been included in the value of work contract and was liable to be assessed @ 6%, respondent no.2 had no other material on record to form the basis for reason to believe that the income has escaped assessment.
21. In view of the above, we are of the considered opinion that the order dated 15.3.2019 authorising the respondent no.3 for re-
assessment for assessment year 2010-11 is against the well settled principle of law and is unsustainable. Once the Assessing Authority has assessed the value of work contract and passed assessment order and taxed the assessee @ 2%, since the value of goods imported from outside the State, was less than 5% of the total amount of contract money, the respondent no.2 did not have any material to believe that whole or any part of turnover of dealer has escaped assessment to tax or has been under assessed or assessed to tax at a lower rate than at which it was assessable.
22. In view of the above, we are of the firm opinion that the order impugned dated 15.3.2019 for assessment year 2010-11 and consequential notice dated 19.3.2019 for re-assessment are unsustainable and are hereby quashed and the writ petition stands allowed.
Order Date :-17.12.2019
S. Singh