2022 (6) TMI 671 - HC - VAT and Sales Tax

Court invalidates tax notices against civil contractor, upholding composition scheme; emphasizes jurisdiction & legality

The court ruled in favor of the petitioner, a civil contractor, in a tax dispute case. It found that the urgent payment notice demanding a substantial sum ... Composition scheme - statutory contract - treatment of works contracts under composition - best judgment assessment - regular assessment - jurisdictional factComposition scheme - statutory contract - treatment of works contracts under composition - regular assessment - best judgment assessment - jurisdictional fact - Whether respondents could make regular assessments and levy tax at a higher rate after the petitioner had opted for and paid tax under the composition scheme for works contracts for the assessment years 2014-15 to 2016-17, and whether the urgent payment notice and garnishee notices based on such assessments were valid. - HELD THAT: - The Court examined the statutory scheme for composition of tax for works contracts and Rule 17 of the TVAT Rules which requires registration, notification in Form VAT 250 and payment/entry of tax at 5% in Form VAT 200 upon receipt of payment. Reliance was placed on the Supreme Court decision in Koothattukulam Liquors which held that payment under a composition scheme, once accepted by the taxing authority, constitutes a bilateral/statutory contract binding both parties and ordinarily precludes a regular assessment for the same period. Applying that principle, the Court found no dispute that the petitioner had opted for and paid tax under the composition scheme for the years in question and that respondents did not dispute the turnover figures disclosed by the petitioner. In those circumstances the assessing authority could not validly resort to regular assessment and levy tax at a much higher rate; such action goes to jurisdiction and is void. Consequently, the validity of pre-assessment service or of best judgment assessment procedures was held to be immaterial where the foundational jurisdictional fact - acceptance of composition payment - precluded regular assessment. The Court therefore concluded that the urgent payment notice and the subsequent garnishee notices, being founded on such regular assessments, were untenable in law and liable to be quashed. [Paras 25, 26, 29, 32, 33]Impugned urgent payment notice dated 20.07.2019 and garnishee notices dated 24.02.2022 quashed; assessments purporting to levy tax at a higher rate after acceptance of composition payment were without jurisdiction and set aside.Final Conclusion: Both writ petitions are allowed; the urgent payment notice and consequential garnishee notices are quashed as untenable in law, and there shall be no order as to costs. Issues Involved:1. Legality of the urgent payment notice dated 20.07.2019.2. Legality of the garnishee notices dated 24.02.2022.3. Jurisdictional validity of fresh assessment proceedings after opting for composition scheme.4. Compliance with procedural requirements for pre-assessment notices and assessment orders.Detailed Analysis:Issue 1: Legality of the urgent payment notice dated 20.07.2019The petitioner, a special class civil contractor, registered under the Telangana Value Added Tax Act, 2005 (TVAT Act) and GST, received an urgent payment notice dated 20.07.2019 from the Commercial Tax Officer, Bhongir Circle. The notice demanded payment of Rs.6,52,46,001-00 for the assessment periods 2014-2017 based on assessment orders dated 02.07.2019. The petitioner contended that it had already paid tax under the composition scheme and had not received any pre-assessment notices or assessment orders. The court found that the petitioner had indeed paid tax under the composition scheme, and the respondents could not initiate fresh assessment proceedings to levy a higher tax rate.Issue 2: Legality of the garnishee notices dated 24.02.2022While the writ petition challenging the urgent payment notice was pending, the respondents issued arrear and garnishee notices dated 24.02.2022 to the petitioner's bank. The garnishee notices sought to enforce payment of Rs.6,56,52,213-00 under Section 29 of the TVAT Act. The court held that these notices were untenable as the petitioner had already paid tax under the composition scheme, and fresh assessments were not permissible.Issue 3: Jurisdictional validity of fresh assessment proceedings after opting for composition schemeThe petitioner argued that once tax was paid under the composition scheme at 5%, the respondents could not levy tax at 14.5% through fresh assessments. The court referred to the Supreme Court's decision in Koothattukulam Liquors v. Deputy Commissioner of Sales Taxes, which held that payment of tax under the composition scheme is a bilateral agreement binding both parties. The court concluded that the respondents' actions were without jurisdiction as the petitioner had already opted for and paid tax under the composition scheme.Issue 4: Compliance with procedural requirements for pre-assessment notices and assessment ordersThe respondents claimed that pre-assessment notices and assessment orders were sent to the petitioner's business address by registered post. However, the petitioner denied receiving them. The court found that the core issue was the jurisdictional validity of the fresh assessments, not the procedural compliance of notice delivery. Since the fresh assessments were without jurisdiction, the procedural aspects were deemed irrelevant.Conclusion:The court set aside and quashed the urgent payment notice dated 20.07.2019 and the garnishee notices dated 24.02.2022, declaring them wholly untenable in law and fact. Both writ petitions were allowed, and no costs were awarded.