2014 (10) TMI 810 - HC - VAT and Sales Tax

Court dismisses writ petitions challenging VAT Act notice, emphasizes assessing authority's role in contract classification

The court dismissed the writ petitions challenging a show-cause notice under Section 33 of the VAT Act, emphasizing that the assessing authority should ... Writ petition against the SCN issued under VAT - SCN issued for rectification of the exemption fees certificate in prescribed form VAT-14 - Held that:- While the jurisdiction of the assessing authority under section 33 of the Act of 2003 to rectify the apparent mistake as such is not challenged and possibly cannot be challenged also, the mixed questions of facts and law including certain complex questions, if decided by this court at this stage, would be like putting the cart before the horse. The assessing authority has the quasi-judicial discretion and authority to decide all these questions, which are raised in the present writ petitions and this court is at loss to understand how without even replying the show-cause notice, the petitioner-company chose to straightway invoke the extraordinary jurisdiction of this court under article 226 of the Constitution of India for challenging the impugned rectification proceedings. Taking a view in favour of the Revenue is within the discretion of the assessing; authority and to contend otherwise is the pain of such proceedings for the assessee but it cannot mean that every such show-cause notice or appealable order passed upon such show-cause notice has to be adjudged as right or wrong in writ jurisdiction. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to be seen. If the major component of the end-product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end-products, and the skill and labour are, only incidentally used, the delivery of the end-product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail of the skill and labour of the seller though some material or components may be incidentally used during the process of the end-product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour. While the exemption fees in lieu of tax on works contract is admittedly based on the total value of the contract, which total value may comprise of the taxable portion (supply of goods) of works contract as well as non-taxable (labour and service) of such works contract, still the exemption fee is levied on the gross total value of the contract, therefore, the question of imposition of tax on taxable portion of works contract does not arise in the present case of question of relating to exemption fees on gross value of the contract and, therefore, the judgments relied upon by the learned counsel for the petitioner seeking to contend that the assessing authority is not entitled to levy higher amount of exemption fee on the basis of law propounded in these judgments is an argument, with respects, is an argument off the mark and, therefore, the same is liable to be rejected. Court is not inclined to pronounce upon the identity of two contracts as one and the same is left open for the assessing authority to do so after the assessee files its reply along with relevant evidence and the assessing authority adjudicates upon the said issues, this court cannot agree with the contention of learned counsel for the petitioner that the two contracts in question lie in a water tight separate compartment and cannot be treated as one integrated contract. The said integrated one contract from the stage of designing to commissioning of plant and equipments, if it is ultimately held to be one integrated contract, may fall under clause (3) of the notification dated August 11, 2006 rather than clause (2). Be that as it may, since all these questions are open questions yet to be decided by the assessing authority, this court, advisedly, does not want to go into the finer details of the questions of facts and apply, the law propounded by the superior courts at this stage. - Decided against Assessee. Issues Involved:1. Validity of the show-cause notice for rectification under Section 33 of the Rajasthan Value Added Tax Act, 2003.2. Classification of contracts for exemption fee purposes under the VAT Act.3. Jurisdiction of the assessing authority to rectify apparent mistakes.4. Maintainability of the writ petitions against the show-cause notice.5. Determination of whether contracts are integrated or separate for VAT purposes.Detailed Analysis:1. Validity of the Show-Cause Notice for Rectification under Section 33 of the VAT Act:The petitioner challenged the show-cause notice dated May 12, 2011, issued for rectification under Section 33 of the VAT Act, 2003. The notice aimed to rectify the exemption certificate to charge a higher exemption fee of 2.25% of the total contract value. The petitioner argued that the assessing authority erroneously treated two separate contracts as one integrated contract. The court held that the jurisdiction of the assessing authority under Section 33 to rectify apparent mistakes is not challenged and should be first decided by the assessing authority.2. Classification of Contracts for Exemption Fee Purposes:The petitioner had two contracts for the Suratgarh and Chhabra power projects, one for supply and another for erection, testing, and commissioning. The petitioner applied for exemption under the Notification dated August 11, 2006, paying a 1.50% exemption fee. The Revenue argued that the contracts should be classified under a higher exemption fee category of 2.25%, as they were integrated contracts. The court noted that the classification involves mixed questions of fact and law, which the assessing authority should first decide.3. Jurisdiction of the Assessing Authority to Rectify Apparent Mistakes:The court emphasized that the assessing authority has the quasi-judicial discretion to decide whether the contracts are integrated or separate and whether the exemption fee was correctly applied. The court found that the assessing authority's view that the contracts could be integrated is plausible and within its discretion to decide.4. Maintainability of the Writ Petitions Against the Show-Cause Notice:The court held that it was premature to challenge the show-cause notice in writ jurisdiction without first replying to the notice. The petitioner should have exhausted the alternative remedies provided under the VAT Act, including appeals and revisions. The court refused to invoke its extraordinary jurisdiction under Article 226 of the Constitution of India at this stage.5. Determination of Whether Contracts are Integrated or Separate:The court found that the determination of whether the contracts are integrated or separate involves complex questions of fact and law. The court noted that the contracts' details, including terms, nature of supplies, delivery conditions, and payment conditions, need to be examined by the assessing authority. The court did not agree with the petitioner's contention that the contracts are in separate compartments and left the issue open for the assessing authority to decide.Conclusion:The court dismissed the writ petitions, holding that the issues raised involve complex and mixed questions of fact and law that should first be addressed by the assessing authority. The petitioner should have responded to the show-cause notice and exhausted alternative remedies before approaching the court. The court refused to decide the merits of the case at this stage and emphasized the need for the assessing authority to adjudicate the issues in the first instance.