2025 (11) TMI 1793 - HC - VAT / Sales Tax

Service tax paid on full works contract receipts; VAT reassessment ordered under Telangana VAT Act, 2005 after remand

HC held that the Assessing Authority, first Appellate Authority, and Appellate Tribunal failed to properly consider whether the petitioner, having paid ... Payment of service tax on gross receipts - petitioner not paid the value added tax on the works contract executed by it, the Assessing Officer adopted the gross receipts and passed an order - levy of value added tax on the service portion - HELD THAT:- The first Appellate Authority had taken note of the ground raised by the petitioner so far as the petitioner having paid the service tax on the entire gross receipts is concerned and since the petitioner has paid the service tax, whether the petitioner would simultaneously be exigible to VAT ought to had been considered by the Assessing Authority when the matter stood remanded back. When the matter was remanded by the first Appellate Authority to decide the claim after due verification of the books of accounts and other relevant documentary evidence to be produced by the petitioner, the opportunity was granted upon the Assessing Authority to pass such orders as deemed fit in accordance with the provisions of law, which includes the verification of the fact whether the petitioner has paid service tax for the entire gross receipts or not and if he has paid, what would be the consequence. The order of the first Appellate Authority as regards the remand of matter, seems to have not been properly appreciated by the Assessing Authority after the remand stage and also by the first Appellate Authority and the Appellate Tribunal, all of whom had strictly adopted the same stand that which has been taken by the Assessing Authority. This order having been passed by the Assessing Authority which has been confirmed by the subsequent two appellate forums does not seem to be proper, legal and justified, particularly in the teeth of the observations made by the first Appellate Authority and the observations made by the first Appellate Authority while making the remand in his order dated 25.09.2013. It is inclined to set aside the order passed by the Assessing Authority, the first Appellate Authority as also by the Appellate Tribunal and remand the matter back to the Assessing Authority only so far as the verification of the records to ascertain whether the petitioner has paid service tax on the entire gross receipts paid by the HPCL in the course of execution of the works contract and if he has paid, what would be the consequence, and appropriate decision be taken strictly in accordance with the provisions of the Telangana Value Added Tax Act, 2005. The tax revision case is, accordingly, is allowed and disposed of. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, upon remand by the first appellate authority, the Assessing Authority was required to verify the assessee's claim of payment of service tax on the entire gross receipts under the works contract and to determine the consequent liability, if any, to value added tax. 1.2 Whether the orders of the Assessing Authority, the first appellate authority and the Tribunal, which failed to deal with the assessee's contention regarding service tax having been paid on the entire contract value, are legal and sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of remand and obligation to verify payment of service tax and its consequence on VAT liability Legal framework (as discussed): 2.1 The judgment proceeds on the basis of the contentions recorded by the first appellate authority, including the asserted legal principle that service tax and value added tax are mutually exclusive and that once the entire contract value has suffered service tax, the same cannot be subjected to VAT, and on the requirement that any fresh decision by the Assessing Authority be taken 'in accordance with the provisions of law' under the Telangana Value Added Tax Act, 2005. Interpretation and reasoning: 2.2 The Court noted that the first appellate authority, in its earlier order, had explicitly recorded the assessee's contention that (a) the contract was predominantly labour and service oriented, (b) the entire contract value had suffered service tax without abatement, and (c) in view of the principle that service tax and VAT are mutually exclusive, the same turnover should not again be subjected to VAT. 2.3 The Court observed that, notwithstanding these explicit observations, the first appellate authority remanded the matter to the Assessing Authority to verify the assessee's claim 'with reference to the books of account and other relevant documentary evidence' and to pass such orders 'as deemed fit in accordance with the provisions of law'. 2.4 On a 'plain reading' of the remand order, the Court held that the scope of the remand necessarily included verification of the factual assertion whether the assessee had paid service tax on the entire gross receipts from the contract and, depending on such verification, determination of the legal consequence on VAT liability. 2.5 The Court rejected the contention of the revenue that, since the remand order did not expressly direct verification of service tax payment, the Assessing Authority and appellate authorities were justified in confining themselves only to re-quantification of turnover. The Court reasoned that the remand direction to verify the assessee's claim with reference to books and documents, and to pass orders in accordance with law, implied an obligation to consider all material aspects raised, including payment of service tax and its effect on VAT exigibility. 2.6 The Court found that the Assessing Authority, in the order passed after remand, re-quantified VAT liability but did not examine or decide the issue of service tax having been paid on the entire gross receipts or the legal consequence thereof. Likewise, the first appellate authority and the Tribunal, in subsequent proceedings, confirmed the Assessing Authority's order without addressing this specific contention. 2.7 The Court held that such omission to consider the service tax aspect, despite it being a central ground raised and recognised in the earlier remand order, amounted to non-appreciation of a relevant factor and failure to exercise jurisdiction vested in the authorities. Conclusions: 2.8 The Court concluded that the Assessing Authority, the first appellate authority, and the Tribunal erred in law in not verifying and deciding the assessee's claim that service tax had been paid on the entire gross receipts and in not determining the VAT liability, if any, in light of that fact. 2.9 The orders of the Assessing Authority, the first appellate authority, and the Tribunal were held to be not proper, legal, or justified in view of the observations and remand directions contained in the earlier order of the first appellate authority. 2.10 The Court set aside the orders of all three authorities and remanded the matter to the Assessing Authority only for the limited purpose of: (i) verifying, on the basis of records, whether service tax was paid on the entire gross receipts received from the contract; and (ii) determining, in the light of such verification, 'what would be the consequence' and taking an appropriate decision strictly in accordance with the provisions of the Telangana Value Added Tax Act, 2005.