The petitioner, a works contractor, registered under the Kerala Value Added Tax Act, 2003 [for brevity “KVAT Act”], is before this Court challenging two penalty orders, respectively of the years 2006-07 and 2007-08, produced as Exhibits P22 and P23. The petitioner has bypassed the statutory remedies and filed a writ petition under Article 226 of the Constitution, since, according to the learned counsel for the petitioner, there are gross illegalities, which, on the face of it, would render the penalty proceedings illegal. 2. Admittedly the petitioner had applied for and granted compounding under Section 8(a)(ii) of the KVAT Act, for both the aforesaid years. The petitioner is a sub-contractor for a work awarded to its principal; by the Ministry of Shipping, Road Transport and Highways, Government of India. The petitioner commenced its work in January, 2007 and filed its returns for the 4th quarter of the assessment year 2006-07 on 29.10.2007, disclosing the turnover; but, however, showing the turnover as “receivables”, since only the bills were raised and no amounts were received as such. For the assessment year 2007-08 also, the petitioner filed its returns and revised returns, disclosing the received amounts as also the receivable. In fact, the dichotomy in the returns for both the years was for reason of an amendment brought to Rule 9(1)(c) of the KVAT Rules, which, as it stood for the assessment year 2006-07, made only the contract amounts received; exigible to tax, while the amendment brought in to the Rule with effect from 01.04.2007 took in both the received and receivable amounts.
3. For the assessment year 2006-07, the proposals for the penalty were on three grounds. The Intelligence Officer found the claim of exemption, being payments to sub-contractors, as irregular, for the reason that the petitioner had obtained Form 20H from such contractors, which form is a declaration to be made by the sub-contractors who are liable to tax; and not by the sub-contractors of the petitioner who claim only labour contract.
The next ground found a suppression of more than Rupees Twenty Nine crores, since the return disclosed only Thirty Three and odd crores of rupees. The third ground was, with respect to a secondary cone crusher supplied to M/s.Eskay Industries; which, according to the Intelligence Officer, amounted to a sale; but was suppressed. For the year 2007-08, the very same claim of exemption regarding the sub-contractors was raised as also suppression of turn over; i.e., the returns having disclosed lesser turn over of around Rupees Two crores. On conclusion of proceedings, penalty was levied at double the amount of tax, computing the rate at 12.5% and not at the compounded rate of 4%.
4. The petitioner has the following submissions with respect to the said penalty orders. Primarily on the rate; which could have been only at twice the amount of tax at the rate of 4% (the compounded rate) on the alleged suppression. As far as the exemption claimed for sub-contractors being irregular, the petitioner's contention is that the petitioner's sub-contractors were also works contractors and the transfer of goods, occasions only once, in a works contract; which is on accretion of goods in the works contract. In one single works contract where the principal awarder appoints sub-contractors, who again appoints other sub-contractors, there could be only one transfer of goods and the tax exigibility would also be only on that transfer being effected, is the argument. In fact the sub-contractors have also issued Form 20H and they being registered, it is the contention that the Department could definitely verify such payment of tax and, in any event, the statute provides for exclusion of amounts paid to such sub-contractors, as per Explanation II to Section 8(a)(ii), which absolves the petitioner's liability. On the suppression of turnover, the short submission made by the petitioner is that, for both the years the petitioner had filed revised returns before the penalty proceedings were issued.
5. The petitioner primarily seeks to challenge the proposals made as also the final liability being cast at the higher rate of 12.5% rather than at the compounded rate of 4%. On a reading of the penalty orders, the Intelligence Officer has taken a view that the sub-contractors have not paid any tax, which, however, has to be examined in the context of the petitioner's submission that the liability itself would not arise, since the transfer of goods occur only once and that is only on accretion of goods in the works contract. The alternative contention is that, the sub-contractors having issued Form No.20H, it would not be proper for the Department to initiate penalty proceedings against the petitioner, since he is absolved from such liability. This has not been taken into consideration by the Intelligence Officer before the penalty orders were issued.
6. The suppression of turnover has been finalised as per the proposal on the ground that the revised returns were not filed within time. However, the petitioner's contention is only that even before the notice was issued, the revised returns were filed and, hence, by the voluntary act, despite being belated, there can be no contumacious conduct found on the petitioner.
7. If the writ petition is to be considered on the merits, then necessarily this Court would have to look into the various aspects, which definitely could have been looked into by the statutory authorities, where a two tier system of appeal is provided, one to the first Appellate Authority and then to the Tribunal. Since the writ petition was admitted long back and there was a stay of recovery proceedings as per the penalty order, it may not be proper for this Court to relegate the petitioner to statutory remedies at this stage. This Court is also not persuaded to take a final decision; pre-empting the original authority and entering into a finding on merits on factual disputes with respect to the declarations, revised returns and so on and so forth.
8. It is also pertinent that, the self assessment of the petitioner, re-opened and concluded for the year 2006-07, was challenged in appeal by the petitioner. The first appellate authority set aside the same and remanded it by Exhibit P28. The assessment order itself, according to the learned counsel for the petitioner, proceeded on the basis of the findings of the Intelligence Officer and not on any other considerations. Though an appeal to the Tribunal is said to be pending against Exhibit P28, necessarily if the penalty order goes, that appeal would be rendered infructuous, is the argument. Exhibit P28 in fact considered the assessment re-opened on the basis of the penalty order for the year 2006-07. The pre-amended provision making taxable only contract receipts was found to be a compelling argument, but not raised before the assessing officer. Hence, the issue was remanded for fresh consideration; so was remanded the alleged suppression of sale of a cone-crusher. The payments made to sub-contractors, were considered on the aspect of deduction claimed. The deductions claimed were found to have been rightly rejected in some instances and in certain instances upheld. The discussions made therein also commends a de novo consideration.
9. In the above circumstances, it is deemed proper that the Intelligence Officer, the 2nd respondent herein, be directed to consider the matter afresh after hearing the petitioner. This Court does so. Only to facilitate such re-consideration, Exhibits P22 and P23 are set aside. The petitioner shall produce a certified copy of this judgment before the 2nd respondent-Intelligence Officer on or before 15.07.2014. The petitioner shall be granted sufficient time to produce materials and file objections; and the proceedings shall be completed as expeditiously as possible, after affording a reasonable opportunity of hearing to the petitioner. It is made clear that this Court has not looked into the merits of the case and the entire issue is left open for the consideration of the Intelligence Officer. The reference to Exhibit P28 is also incidental and not to be construed as this court having approved the views of the appellate authority who passed Exhibit P28.
Writ petition is disposed of with the above direction.
Parties are directed to suffer their respective costs.
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( true copy ) Sd/- K.Vinod Chandran Judge.