2015 (2) TMI 473 - HC - VAT and Sales Tax

NECL liable for tax on turnover; Revisional authority's powers upheld; Advance Ruling Authority's decisions binding

NECL is held liable to pay tax on the turnover related to the works contract for KPCL, as the claimed exemption was deemed invalid under the A.P. VAT Act. ... Transfer of property in goods involved in execution of works contract - value of goods at the time of incorporation - Rule 17(1)(d) and Rule 17(1)(e) of the AP VAT Rules - Section 4(7)(a) of the AP VAT Act - tax deduction at source - credit under Rule 18(2) - proviso to Section 32 - bar on revision where issue decided by STAT - decision on a question of law (binding effect) - Advance Ruling Authority binding on officers under Section 67 - composition scheme under Rule 17(2) of the AP VAT Rules - doctrine of promissory estoppelTransfer of property in goods involved in execution of works contract - value of goods at the time of incorporation - Rule 17(1)(d) and Rule 17(1)(e) of the AP VAT Rules - Section 4(7)(a) of the AP VAT Act - tax deduction at source - credit under Rule 18(2) - Liability of the contractor to pay VAT on turnover relating to works contracts executed for KPCL and the manner of giving credit for TDS. - HELD THAT: - The Court held that NECL is liable to pay tax on the turnover relating to execution of works contracts for KPCL, the taxable event being the transfer of property in goods when goods are incorporated in the works and the measure of tax being the value of those goods at the time of incorporation. Rules 17(1)(d) and 17(1)(e) must be read subject to Section 4(7)(a); Rule 17(1)(d) prescribes minimum incorporation value (purchase value plus specified incidental charges) and Rule 17(1)(e) provides an alternative computation by taking total consideration receivable less specified deductions. The revisional and assessing authorities were upheld in applying Rule 17(1)(e) and assessing tax on completion of the financial year by finalisation of accounts. Separately, Rule 18(2) requires that tax deducted at source by the contractee and paid to Government be treated as payment of tax on behalf of the contractor; upon production of TDS certificates furnished by KPCL, NECL shall be given credit for amounts so certified and only the balance tax (after giving such credit) may be recovered from NECL.NECL liable to pay tax under Section 4(7)(a) computed in accordance with Rules 17(1)(d)/(e); respondents must allow credit for TDS on production of certificates.Proviso to Section 32 - bar on revision where issue decided by STAT - decision on a question of law (binding effect) - Whether the revisional authority was barred from exercising revision because the Sales Tax Appellate Tribunal (STAT) had earlier decided the point in T.A. No.110 of 2012. - HELD THAT: - The Court analysed the proviso to Section 32 and the jurisprudence on when an appellate decision binds subordinate authorities. The proviso bars revision only in respect of an issue which was decided on appeal by the STAT on a question of law after consciously considering the relevant statutory provisions and binding precedents. A STAT order that is rendered in ignorance of the relevant statutory provisions or contrary to binding decisions of the Supreme Court or jurisdictional High Court does not constitute a binding decision on a question of law for purposes of the proviso. The STAT's construction of the second proviso to Rule 17(1)(e) was held to be in ignorance of statutory provisions (including Rule 31 and accounting standards) and contrary to the law in Gannon Dunkerley and the Full Bench in Seven Hills; accordingly the proviso to Section 32 did not disable the revisional authority from exercising revision in these cases.Proviso to Section 32 does not bar revision here; revisional and assessing authorities validly exercised powers notwithstanding the STAT order.Advance Ruling Authority binding on officers under Section 67 - decision on a question of law (binding effect) - Extent to which clarifications/rulings of the Advance Ruling Authority (ARA) bind departmental officers and affect the present proceedings. - HELD THAT: - The Court explained that under Section 67 the ARA's rulings bind officers of the Commercial Tax Department below the rank of Commissioner, and officers must not decide issues in respect of which an ARA application is pending. However, the Commissioner and STAT are not bound by an ARA ruling; STAT decisions bind departmental officers even if contrary to an ARA ruling. In the present matters the Court noted the ARA and revisional authority correctly interpreted 'finalisation of accounts' with reference to a financial year, but the STAT's contrary view did not bind the revisional/assessing authorities because it was in ignorance of relevant statutory provisions and binding precedents.ARA rulings bind departmental officers (other than Commissioner); they do not prevent the Commissioner/revisional authority from acting in accordance with law or binding higher precedents.Composition scheme under Rule 17(2) of the AP VAT Rules - Rule 17(1)(g) - assessment where accounts not maintained - Whether NECL is entitled to the composition scheme under Rule 17(2) and, if so, whether escaped turnover can be assessed under Rule 17(1)(g). - HELD THAT: - The Court held that a dealer who validly exercised the option for composition under Rule 17(2) (by registering and notifying on Form VAT 250 before commencing work) is liable only under the composition provisions (Rule 17(2)(b)) and cannot be assessed under Rule 17(1)(g) merely because turnover was not disclosed. There is no statutory power to deny composition solely on that ground. The revisional authority was directed to examine afresh whether NECL had validly opted for composition prior to commencement of work; if so, benefit of composition must be extended and the escaped turnover assessed accordingly. If NECL had not validly exercised the option, Rule 17(1)(g) may apply provided books were not maintained.Matter remitted for limited fresh consideration: if NECL had validly exercised composition option before commencement, they must be allowed composition; otherwise Rule 17(1)(g) may be applied consistent with law.Doctrine of promissory estoppel - statutory power and contractual promise - Whether NECL (not party to concession agreement) can invoke promissory estoppel to claim exemption from VAT. - HELD THAT: - The Court rejected NECL's plea of promissory estoppel. NECL is not a party to the concession agreement between the State and KPCL and no promise was made to NECL by the State. Further, this Court had already negatived a similar claim by KPCL. The doctrine cannot be invoked to enforce contractual provisions or representations that are contrary to the statutory scheme of the AP VAT Act.Promissory estoppel not available to NECL; claim for exemption on that basis is rejected.Final Conclusion: The writ petitions are disposed of: the revisional and assessment orders subjecting NECL to tax under Rule 17(1)(e) are upheld; NECL must be given credit for TDS on production of certificates; the revisional authority shall reconsider only the limited question whether NECL validly opted for composition under Rule 17(2) and, if so, grant composition relief; promissory estoppel claim is rejected; respondents remain free to initiate penal proceedings for suppression of turnover. Issues Involved:1. Liability of NECL to pay tax on the turnover relating to the works contract executed for KPCL.2. Exercise of the power of revision when the order of the Sales Tax Appellate Tribunal (STAT) has attained finality.3. Binding nature of the clarification of the Advance Ruling Authority under Section 67 of the A.P. VAT Act.4. Denial of composition of tax under Rule 17(1)(g) of the Rules.5. Applicability of the doctrine of promissory estoppel.I. Liability of NECL to Pay Tax on the Turnover Relating to the Works Contract Executed for KPCL:NECL, a company executing works contracts, argued that the materials used for the construction of the Krishnapatnam port were exempt from tax as per the agreement between the Government of Andhra Pradesh (GoAP) and KPCL, and the doctrine of promissory estoppel. The GoAP had issued G.O.Ms.No.609, refunding the tax paid on purchases by the port developer and its contractors. NECL did not disclose the turnover relating to the port construction in their returns, leading to a show-cause notice and subsequent tax assessment. The court held that NECL was liable to pay tax on the turnover relating to the execution of the works contract for KPCL, as the exemption claimed was not valid under the A.P. VAT Act. The court also emphasized that NECL must be given credit for the tax deducted at source by KPCL, provided they produce the necessary TDS certificates.II. Exercise of the Power of Revision When the Order of the STAT Has Attained Finality:NECL contended that the power of revision under Section 32(2) of the A.P. VAT Act was barred as the issue had been decided by the STAT in T.A. No.110 of 2012. The court examined whether the STAT's decision was binding and found that the STAT's interpretation was contrary to the law declared by the Supreme Court in Gannon Dunkerly and the Full Bench of the High Court in Seven Hills Constructions. The court held that the revisional authority was not barred from exercising its powers under Section 32(2) of the Act, as the STAT's decision was not a binding precedent on a question of law.III. Binding Nature of the Clarification of the Advance Ruling Authority under Section 67 of the A.P. VAT Act:The court noted that the ruling of the Advance Ruling Authority (ARA) in the case of M/s. Jaiprakash Associates Limited was binding on the officers of the Commercial Tax Department, except the Commissioner. The court held that the decision of the STAT on a question of law would bind the officers of the Commercial Taxes Department, even if there was a contrary ruling by the ARA. However, since the STAT's order was not a decision on a question of law, it did not bind the revisional or assessing authority.IV. Denial of Composition of Tax under Rule 17(1)(g) of the Rules:NECL argued that they were wrongly assessed under Rule 17(1)(d) and (e) instead of being allowed the benefit of composition under Rule 17(2). The court held that if NECL had opted for composition and notified the prescribed authority in Form VAT 250 before commencing the execution of the work, they should be allowed to pay tax under Rule 17(2)(b) at 4%/5% of the total consideration received or receivable. The revisional authority was directed to re-examine the matter to determine if NECL had exercised their option for composition.V. Applicability of the Doctrine of Promissory Estoppel:NECL invoked the doctrine of promissory estoppel, claiming exemption from tax based on the agreement between GoAP and KPCL. The court held that NECL, not being a party to the agreement, could not invoke the doctrine of promissory estoppel. The court also noted that a similar claim by KPCL had been rejected in a previous judgment.Conclusion:NECL is liable to pay tax on the turnover relating to the execution of the works contract for KPCL. The respondents must grant NECL reasonable time to produce TDS certificates from KPCL. The revisional and assessment orders subjecting NECL to tax under Rule 17(1)(e) are upheld. The respondents are directed to consider NECL's claim for composition under Rule 17(2) if they have complied with the requirements. The court clarified that this order does not preclude the respondents from instituting penal proceedings against NECL for suppressing turnover. The writ petitions were disposed of without costs.