2023 (3) TMI 1269 - HC - VAT / Sales Tax

Works Contract Taxed at 4% Under O.S.T. Act; Reassessment Under Section 12(8) Declared Invalid

The HC held that the contract involving supply, erection, and installation of machinery constituted a works contract taxable at 4% under the O.S.T. Act, ... Reopening of assessment under Section 12(8) of the O.S.T. Act, 1947 - rate of tax - turnover relating to payments received towards supply of goods - taxable at 4% or 13%? - works contract or transaction of sale - HELD THAT:- The law regarding contract for supply, erection and thereafter installation of machinery was entertained as contract work and no independent sale had ever been made since the principles of law have already been decided in number of cases also and the petitioner is deriving the principles from the case of COMMISSIONER OF SALES TAX, MAHARASHTRA STATE, BOMBAY VERSUS BRIMCO PLASTIC MACHINERY PRIVATE LIMITED [1995 (2) TMI 379 - BOMBAY HIGH COURT] had categorically stated that the works contract executed along with supply installation etc. will be taxed as works contract exigible to Orissa Sales Tax @ 4%. In the case of STATE OF ORISSA VERSUS UGRATARA BHOJANALAYA [1992 (7) TMI 300 - ORISSA HIGH COURT], it has been held that if the assessing authority initiates proceeding under Section 12(8) of the O.S.T. Act in respect of assessment which has merged with the appellate order, it would be without jurisdiction. Since the assessment for the subject-year framed under Section 12(4) has already attained finality at the second appellate level, there was no scope to initiate proceeding under Section 12(8) of the O.S.T. Act. The reopening of the case basing on the A.G. audit report has further negated the issues, as held in the case of COMMISSIONER OF INCOME-TAX VERSUS LUCAS TVS. LTD. [2000 (12) TMI 102 - SC ORDER] by the apex Court that if the Assessing Officer accepts the audit report, it would be vulnerable and report of the audit party cannot make the basis to issue notice for reassessment under Section 148 of the of the I.T. Act, which is pari materia to Section 12(8) of the O.S.T. Act, 1947, since the common issues were involved on erection and installation of machinery, which constituted works contract but not for sale. Once the Full Bench of the Odisha Sales Tax Tribunal held that the petitioner being a contractor executed works which were indivisible contract and came to a conclusion that works executed by the dealer during the period were entertained as works contract and made exigible to tax @ 4%, a different view should not have been taken on the basis of the audit report submitted before the Assessing Officer and notice should not have been issued under Section 12(8) of the O.S.T. Act, 1947 for reassessment and the order of reassessment, which has been passed by him by holding that contract is divisible and, therefore, the petitioner is liable to pay higher tax @ 13%, which has been confirmed in First Appeal and Second Appeal, should not have been passed. The reason being, once the Full Bench as well as Coordinate Bench of the Tribunal has come to a definite conclusion that it should be treated as works contract and exgible to tax @ 4%, instead of 13%, thereby, the questions formulated in this revision petition are answered in favour of the petitioner and against the Revenue. The revision petition is allowed. Issues Involved:1. Classification of the contract as 'Works Contract' or 'Contract for Sale.'2. Justification for reopening assessment under Section 12(8) of the O.S.T. Act based on A.G. Audit Party's opinion.3. Application of the 'Doctrine of Merger.'4. Requirement for the Tribunal to examine contentions and case laws.5. Justification for not providing the certified copy of the order sheet.Summary:Issue 1: Classification of ContractThe petitioner argued that the work undertaken was an indivisible 'Works Contract' involving supply, erection, installation, and commissioning of a humidification plant, which had been consistently treated as such in previous years. The Tribunal, however, classified it as a 'Contract for Sale' and upheld the higher tax rate of 13% instead of 4%. The Court noted that similar contracts in preceding and succeeding years were treated as 'Works Contracts' by the Full Bench and Division Bench of the Odisha Sales Tax Tribunal, which applied a 4% tax rate.Issue 2: Reopening Assessment Based on A.G. Audit Party's OpinionThe assessment for the year 1989-90 was reopened under Section 12(8) of the O.S.T. Act based on an objection from the A.G. Audit Party, which suggested that the contract was divisible and should be taxed at a higher rate. The Court found that reopening the assessment based on the audit report was not justified, as the original assessment had attained finality and the audit report alone could not constitute valid information for reopening.Issue 3: Doctrine of MergerThe Court observed that the original assessment had merged with the appellate orders, invoking the 'Doctrine of Merger.' Therefore, initiating reassessment proceedings under Section 12(8) was without jurisdiction.Issue 4: Examination of Contentions and Case LawsThe petitioner contended that the Tribunal failed to consider important contentions and case laws. The Court agreed, noting that the Tribunal should have examined these aspects and recorded definite conclusions.Issue 5: Non-Providing of Certified Copy of the Order SheetThe petitioner argued that the Assessing Officer did not provide the certified copy of the order sheet, which was requested. The Court found this to be unjustified.Conclusion:The Court concluded that the works executed by the petitioner were indivisible 'Works Contracts' and should be taxed at 4%, not 13%. The reopening of the assessment based on the A.G. Audit Party's opinion was invalid. Consequently, the revision petition was allowed, and the Tribunal's order was quashed.