2016 (9) TMI 1084 - HC - VAT and Sales Tax

Court Remands Deemed Sale Value Issue for Fresh Review

The court remanded the issues concerning deemed sale value, cross verification, and the sale of fixed assets for fresh consideration. The respondent was ... Computation of taxable turnover for transfer of property in goods involved in execution of works contract - point of incorporation / point of accretion as the taxable event in works contracts - deemed sale value of goods incorporated in works contracts (inclusion/exclusion of profit and freight) - obligation to adhere to Rule 8(5) of the TNVAT Rules in computing taxable turnover - reversal of Input Tax Credit on cross verification of buyer's and seller's returns - treatment of sale of completed unsold flats as sale of immovable property not leviable to VAT - burden of proof on the assessee to establish genuineness of purchases and entitlement to ITCComputation of taxable turnover for transfer of property in goods involved in execution of works contract - point of incorporation / point of accretion as the taxable event in works contracts - deemed sale value of goods incorporated in works contracts (inclusion/exclusion of profit and freight) - obligation to adhere to Rule 8(5) of the TNVAT Rules in computing taxable turnover - Whether the Assessing Officer's computation of deemed sale value in the works contract requires fresh consideration in light of the legal principles governing point of taxation and the method of computing taxable turnover. - HELD THAT: - The Court held that the question turns on application of settled Supreme Court principles (including the rule that the taxable event for goods in a works contract is the transfer of property on incorporation/ accretion and that the value for levy is the value of goods at the time of incorporation) and on detailed factual enquiries. Given the complexity of transactions for the project and the necessity to ascertain how many flats were sold or remained unsold on issuance of the completion certificate, the matter cannot be resolved on the record before the Court. The petitioner must produce adequate documentary particulars and records so that the Assessing Officer can apply the legal tests (including the relevance of Rule 8(5) of the TNVAT Rules) and distinguish between value of goods and charges referable to labour/services. Consequently the Court declined to finally decide the issue on merits and remanded it for fresh consideration after personal hearing and perusal of documents. [Paras 13, 14, 15, 17]Remitted to the respondent for fresh consideration and recomputation in accordance with law after affording personal hearing and perusal of documents produced by the petitioner.Reversal of Input Tax Credit on cross verification of buyer's and seller's returns - burden of proof on the assessee to establish genuineness of purchases and entitlement to ITC - Whether the proposed reversal of Input Tax Credit based on cross verification with seller annexures is sustainable without further factual enquiry. - HELD THAT: - The Court observed that mismatch allegations arising from cross verification require factual determination. The initial burden to establish payment of purchase price, evidence of tax suffered by the selling dealer and other relevant records lies on the petitioner; if discharged, the burden may shift. The Assessing Officer must therefore examine documentary evidence, apply the accepted legal standards and only then decide on ITC reversal. Absent this factual exercise, the Court could not substitute its view for that of the Assessing Officer. [Paras 15, 16, 17]Remitted to the respondent for fresh consideration after personal hearing and examination of documents produced by the petitioner.Treatment of deletion of fixed assets in balance sheet as sale of assets - distinction between sale of assets and deletion due to theft/transfer to group entity - Whether the Assessing Officer's conclusion that deletion of fixed assets constituted taxable sale requires reconsideration. - HELD THAT: - The Court noted conflicting factual material (insurance records, FIR alleging theft, declarations of transfer to group company and monthly return disclosures) and held that the Assessing Officer must re-examine these materials. The question whether a deletion amounts to a taxable sale or is explained by theft/insurance recovery or intra-group transfer is factual and requires fresh enquiry and reconsideration in the light of documents and explanations furnished by the petitioner. [Paras 16, 17]Remitted to the respondent for fresh consideration with direction to afford personal hearing and peruse the documents produced by the petitioner.Final Conclusion: The Writ Petitions are partly allowed. Findings of the Assessing Officer on (i) deemed sale value in the works contract, (ii) reversal of Input Tax Credit on cross verification, and (iii) treatment of deletion of fixed assets are set aside and remitted for fresh consideration. The respondent is directed to afford personal hearing, apply the legal principles cited by the Supreme Court and redo the assessments under those three heads after perusal of documents produced by the petitioner; other liabilities stated to have been discharged are not contested. No costs. Issues Involved:1. Reversal of ITC for non-filing of C forms2. Reversal of ITC under Section 19(2)(v)3. ITC on purchases in returns without purchase4. ITC availed ineligibly on interstate purchases5. ITC reversal on purchases from RC cancelled dealers6. Sale of fixed assets7. Deemed sale value8. Cross verificationIssue-wise Detailed Analysis:1. Reversal of ITC for non-filing of C forms:The petitioner has discharged liabilities concerning this issue and does not raise any contention in the writ petitions.2. Reversal of ITC under Section 19(2)(v):Similarly, the petitioner has discharged liabilities for this issue and does not raise any contention.3. ITC on purchases in returns without purchase:The petitioner has also discharged liabilities for this issue and does not raise any contention.4. ITC availed ineligibly on interstate purchases:The petitioner has discharged liabilities for this issue and does not raise any contention.5. ITC reversal on purchases from RC cancelled dealers:The petitioner has discharged liabilities for this issue and does not raise any contention.6. Sale of fixed assets:The petitioner contests the finding that the deletion of assets in the balance sheet was due to theft and not a sale. The petitioner claims to have provided FIR and insurance documents to support this claim. The court found that this issue requires reconsideration and remanded it for fresh consideration.7. Deemed sale value:The petitioner argues that the tax computed on the deemed sale value of goods involved in the execution of works contract was erroneous. The petitioner cited the Supreme Court's decision in Gannon Dunkerley & Co. vs. State of Rajasthan, emphasizing that the taxable event is the transfer of property in goods at the time of incorporation into the works, not the cost of acquisition. The court acknowledged that the factual issue of how many flats were sold versus unsold at the time of the completion certificate needs thorough examination and remanded this issue for fresh consideration.8. Cross verification:The petitioner disputes the reversal of Input Tax Credit (ITC) based on cross-verification of purchases reported with annexure-1 of the selling dealer. The petitioner argues that the purchasing dealer should not be penalized for the fault of the selling dealer. The court noted that the petitioner must provide adequate information to establish their case and remanded this issue for fresh consideration.Conclusion:The court has remanded the issues related to deemed sale value, cross verification, and the sale of fixed assets for fresh consideration. The respondent is directed to afford an opportunity of personal hearing and redo the assessment under these heads in accordance with the law after reviewing the documents produced by the petitioner. The other issues have been resolved as the petitioner has discharged the liabilities.