Works contract composition turnover excludes capital goods, and reassessment needs fresh material showing escaped assessment.

Plant and machinery used in executing a works contract remained capital goods and could not be added to composition turnover merely because they were employed in the contract; only goods involved in the execution of the works contract formed part of the taxable value, so the attempted higher-rate reassessment was unjustified. Reassessment authorization was also unsustainable because the original assessment had taxed the assessee at the composition rate, the imported goods value was below the relevant threshold, and no fresh material showed escaped assessment or underassessment. The impugned reassessment notice and authorization therefore could not stand in law.

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Issues: (i) whether plant and machinery, being capital goods used in execution of a works contract, could be included in the turnover for the composition scheme so as to justify reassessment at a higher rate; (ii) whether authorization for reassessment under Section 29(7) was sustainable in the absence of material showing escaped assessment or underassessment.

Issue (i): whether plant and machinery, being capital goods used in execution of a works contract, could be included in the turnover for the composition scheme so as to justify reassessment at a higher rate.

Analysis: The relevant provisions defined sale, capital goods and works contract separately. On a conjoint reading, only goods involved in execution of the works contract could form part of the taxable value, while plant and machinery used for construction remained capital goods and did not become part of the sale value merely because they were employed in the contract. The exclusion of such machinery had already attained finality in earlier proceedings and could not be reopened indirectly for the composition turnover.

Conclusion: The inclusion of plant and machinery in the composition turnover was not justified and was against the assessee.

Issue (ii): whether authorization for reassessment under Section 29(7) was sustainable in the absence of material showing escaped assessment or underassessment.

Analysis: The original assessment had already taxed the assessee at the composition rate on the basis of the goods actually used in execution of the works contract. The value of imported goods was found to be below the relevant threshold, and there was no new material to form a reason to believe that turnover had escaped assessment or been assessed at a lower rate. Reopening on the same settled premise amounted to an impermissible attempt to revisit a concluded issue.

Conclusion: The authorization for reassessment under Section 29(7) was unsustainable and was against the assessee.

Final Conclusion: The impugned authorization and consequential reassessment notice could not be sustained in law, and the writ petition succeeded.

Ratio Decidendi: Capital goods used in executing a works contract cannot be included in the taxable turnover for composition purposes, and reassessment cannot be authorized without fresh material showing escaped assessment or underassessment.

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