Works contract turnover estimation: Madras HC upheld 10% notional gross profit where proper accounts were not produced.

In works contract assessments under the Tamil Nadu VAT regime, the Tribunal accepted the conventional use of 10% notional gross profit to estimate deemed sales turnover where proper accounts and supporting records were not maintained or produced. It also noted that the value of goods transferred can include purchase cost, transport and incidental expenses, together with the relatable profit element. The natural justice challenge failed because the estimate was not treated as separately disclosed material requiring further procedural safeguards, and no statutory basis was shown for insisting on additional disclosure before applying the conventional percentage. The Tribunal's orders were upheld and the revisions were dismissed.

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Issues: Whether the adoption of 10% notional gross profit for arriving at deemed sales turnover in works contract assessments under the Tamil Nadu Value Added Tax Act, 2006 was correct, and whether the assessment was vitiated for want of furnishing of material or breach of natural justice.

Analysis: The revision related to works contract assessments where the dealer relied on chartered accountant certificates and claimed a lower gross profit based on its books. The Tribunal, after examining the audited profit and loss statements, balance sheets, input-output particulars and the material produced, found that proper accounts as required by Rule 8(5) of the Tamil Nadu Value Added Tax Rules, 2007 had not been maintained or produced to support the claimed figures. It also found that in works contract cases the value of goods transferred includes purchase cost, transport and incidental expenses, and the relatable profit element, and that the department had followed a long-accepted conventional method of applying 10% gross profit for estimating deemed sales turnover. The plea based on natural justice was rejected because the conventional estimate was not treated as material gathered through enquiry requiring separate disclosure under the cited income-tax provisions, and no statutory requirement was shown for furnishing a separate basis before applying the conventional percentage.

Conclusion: The adoption of 10% notional gross profit was held to be correct, the Tribunal's orders were upheld, and the revisions were dismissed against the assessee.

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