TaxTMI 
TaxTMI 
TaxTMI 
2015 (2) TMI 473
X X X X Extracts X X X X
X X X X Extracts X X X X
....oner, a company incorporated under the Companies Act, executes works contracts and is an assessee on the rolls of the Assistant Commissioner (CT), LTU, Visakhapatnam. Pursuant to the agreement entered into between the Government of Andhra Pradesh (GoAP for short) and M/s.Krishnapatnam Port Company Limited (KPCL for short) on 17.09.2014, for building a deep water sea port at Krishnapatnam on build, operate, share, and transfer basis with a concession period of 50 years, KPCL awarded the works contract, for construction of the port, to the petitioner (hereinafter referred to as NECL); under Clause 3.16, the GoAP undertook to forego revenue streams from the project as per the Andhra Pradesh Infrastructure Development Enabling Act, 2001, (hereinafter called the 2001 Act), among others, regarding exemption of sales tax on all inputs required for project construction. It is the petitioners case that the materials required, directly or otherwise, for construction of the project are considered as inputs, and tax payable thereon is exempt; the GoAP, exercising powers conferred under Section 15(1) of the AP VAT Act, 2005 (the Act for short), issued G.O.Ms.No.609 dated 29.05.2006 refunding t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld only be levied after ascertaining the value of the goods; the earlier assessment orders were passed by the assessing authority, and the tax due was arrived at on the basis of the value of the materials incorporated in the works, adding transport charges, seigniorage charges, loading and unloading charges, and gross profit at 32% of the purchase value after allowing input tax credit at 90% on the purchases made from the AP VAT dealers; to arrive at the value of material at the time of its incorporation, when the work is not completed in the relative assessment period, the assessment is required to be finalized only by following the procedure laid down under Rule 17(1)(d); they have been executing works contract under the composite scheme; they have been paying tax on the turnover, derived as per Rule 17(1)(d), for the works in progress which extend beyond the tax period; tax has been paid, for the completed works, deriving the turnover as per Rule 17(1)(e), relying on the phrase finalization of accounts relating to particular work; a similar issue came up before the Authority for Advance Ruling which, by its order dated 16.08.2012, clarified that the element of profit, pertainin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereto; as there is no power under the Act to grant exemption, the petitioner cannot claim that exemption should be granted placing reliance on a clause in a contract; the doctrine of estoppel has no application as a clause in agreement cannot be enforced if it is contrary to a statute; in the present case, the said clause is contrary to the A.P. VAT Act which does not provide for exemption; while NECL received consideration, for execution of the contract works for the financial years 2006-07 to 2012-13, they did not disclose the said turnover in the respective tax periods nor did they disclose the turnover at the time of finalization of assessment before the assessing authority, though they had reported the said turnover to the Income Tax department in the respective years; they filed a letter before the Assistant Commissioner for the first time on 18.10.2013, and intimated the undisclosed turnover of Rs. 2120.44 crores as the escaped turnover for the seven financial years 2006-07 to 2012-13; after the petitioner disclosed the suppressed turnover of Rs. 2120.44 crores, the revisional authority had issued revised revision show cause notice dated 27.11.2013; thereafter the impugned o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iled by Sri G. Subba Rao, Learned Counsel for the petitioner and Sri P. Balaji Verma, Learned Special Standing Counsel for Commercial Taxes. It is convenient to examine the rival submissions under different heads. I. IS NECL LIABLE TO PAY TAX ON THE TURNOVER RELATING TO THE WORKS CONTRACT EXECUTED FOR KPCL? Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioners, would submit that KPCL has submitted written arguments explaining why there is no VAT liability in respect of the construction of the port, and consequently why they had no obligation to deduct taxes; KPCL has, inter alia, relied upon the concession agreement entered into between the GoAP and themselves; the petitioner, in these Writ Petitions, adopts the arguments and submissions of KPCL in so far as the liability to tax on the execution of the Works Contract is concerned; if KPCL were to succeed, the demand for tax, on the very same Works Contract, in the hands of the petitioner would also be illegal and incorrect, and would stand vacated; apart from the issue of the consequence and effect of a statutory contract, entered into in terms of the Andhra Pradesh Infrastructure Development Enabling Act, 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt construction, in their returns; in para 6 of the writ affidavit they stated that their auditors, while reviewing the revenue from all projects, noticed that the revenues relating to KPCL were not disclosed in their returns; by their letter dated 07.10.2013, addressed to the assessing authority, NECL disclosed the turnover relating to the works executed for KPCL; at para 6 of the affidavit filed in each of the writ petitions, while referring to the letter dated 07.10.2013, they had mentioned only one year, whereas in the said letter they had referred to the seven year period from 2006-07 to 2012-13, and a total turnover of Rs. 2120,44,25,290/-; they did not file any returns; they did not disclose the turnover of the works contracts executed for KPCL; they are disentitled from claiming benefits, under G.O.Ms. No.609, as they have not complied with the provisions of the statute; they have not followed the procedure for obtaining relief under the AP VAT Act; as G.O.Ms. No.609 expired on 01.04.2010, NECL is not entitled to claim benefits in terms thereof; a person, who claims exemption or concession, must establish that he is entitled thereto; if any exemption is available on complia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect them to tax on the suppressed turnover relating to the execution of the works contract; and, thereafter, the revisional order dated 31.01.2014 was passed wherein the Deputy Commissioner (CT) held that KPCL had entered into an agreement with GoAP for construction and provision of facilities such as navigation channels, harbour basins, break waters, aids to navigation, dock berths jetties, internal roads etc., for the development of the Krishnapatnam Port; during the personal hearing, NECL had produced copies of Form 250, a copy of the agreement between KPCL and GoAP, and a copy of the certificate of the Chartered Accountant; from the records, produced by them, it was seen that, in terms of the revised concession agreement, GoAP had agreed to grant KPCL exemption from sales tax on all inputs required for project construction (Clause 3.16(a)(i)); the material, required directly or otherwise for construction of the project, was considered as inputs and the sales tax payable on such inputs was exempt; the tax paid on purchases was refunded in terms of G.O.Ms. No.609 dated 29.05.2006; NECL was also given refund, as per the said G.O, on the inputs purchased by them; NECL had availed t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce as a similar relief claimed by KPCL has been negatived by this Court in W.P.No.34680 of 2013. Rule 18 of the AP VAT Rules relates to deduction of tax at source. Rule 18(1)(bc) stipulates that, in case of works other than those falling under sub-Rule (bb), the VAT dealer is required to obtain Form 501 with unique ID from the Assistant Commissioner/Commercial Tax Officer concerned, and supply the same to the contractee; the contractee is required to complete Form 501, supplied by the contractor, indicating the TIN of the contractor, the amount of tax deducted at source, and details of the related contract, and to supply the same to the contractor within three months from the date of each payment. Rule 18(1)(bd) stipulates that the contractor shall submit Form VAT 501, duly certified by the contractee together with Form VAT 200, by the 20th of the month, following the month in which the payment was received. Rule 18(2) stipulates that any amount or any sum deducted, in accordance with Section 22(3) of the Act and paid to the State Government, shall be treated as a payment of tax on behalf of the dealer executing the works contract, and credit shall be given to the said dealer, fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dues, from them in accordance with law. II. CAN THE POWER OF REVISION BE EXERCISED WHEN THE ORDER OF THE STAT HAS ATTAINED FINALITY? Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioners, would submit that the primary issue in these Writ Petitions is in relation to determination of the turnover for levy of tax under Section 4(7)(a) of the Act; the method of computing the turnover is specified in Rule 17(1)(d) and (e) of the Rules; this Court is not being called upon, in these Writ Petitions to decide the appropriate basis for computing the turnover; by its order in T.A. No.110 of 2012 dated 23.04.2012 the Sales Tax Appellate Tribunal (STAT for short) (in the petitioners own case for the assessment period 01.04.2008 to 31.03.2009), had taken the view that the element of profit, on the transfer of goods incidental to the execution of works contracts, is to be reckoned in the year in which the execution of work is completed; the view of the STAT was that, in all years anterior thereto, the turnover must be determined in terms of Rule 17(1)(d) of the Rules; this is eminently a justifiable view; the revenue was called upon to state whether any revision was prefe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, must be declared which would include profit; Rule 17(1)(e) provides for deduction of profit on labour and services, as profit on labour charges and services is not liable to tax; this shows that the rule contemplates inclusion of the profit element at the stage of incorporation itself; and the impugned order which has been passed, applying the law declared by the Supreme Court and the Full Bench of this Court, is valid even if it is in deviation of the order of the STAT as alleged by the petitioner. A. PROVISO TO SECTION 32 OF THE A.P. VAT ACT: ITS SCOPE: Section 32(1) of the A.P. VAT Act enables the Commissioner to, suo moto, call for and examine the record of any order passed or proceeding recorded by any authority, officer or person subordinate to it under the provisions of the Act, including sub- section (2), and, if such order or proceeding recorded is prejudicial to the interests of revenue, he may make such enquiry or cause such enquiry to be made and, subject to the provisions of the Act, initiate proceedings to revise, modify or set aside such order or proceeding and to pass such order in reference thereto as he thinks fit. Under Section 32(2) the powers, of the natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... APGST Act, a Full Bench of this Court, in Indo-National Limited v Commissioner of Commercial Taxes , held that, if the question or issue is of a fact, the same may be confined to that particular order but, if the issue or question related to a point of law, the intention of the Legislature was that the assessee should not be vexed on such a question again and again and the bar, under Section 20(2-A) of the APGST Act, would apply. The Full Bench judgment in Indo National Ltd. (2004) 136 STC 586 (AP) was followed in the Division Bench judgments of this Court in Vorion Chemicals and Distillers Ltd., v. Commissioner of Commercial Taxes (2008) 47 APSTJ 87 ; M/s. S.L.S. Power Limited, Nellore v. Joint Commissioner, Commercial Taxes Judgment in W.P. No.8174 of 2009 dated 29.04.2009 ; Amulya Publications, Vijayawada v. Commissioner Judgment in W.P. No.15069 of 2009 dated 08.10.2009; and Seven Hills Constructions (2012) Vol.54 APSTJ 1. As Section 20(2-A) of the APGST Act is in pari-materia with the proviso to Section 32 of the A.P. VAT Act before its amendment by Act 21 of 2011 with effect from 15.09.2011 and, except for a part thereof, is identical to the proviso to Section 32 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tribunal, whose judgment or proceedings are sought to be revised. The superior forum has the jurisdiction to reverse, confirm, annul or modify the order of the forum appealed against and, in the event of a remand, the lower forum is required to rehear the matter and comply with such directions as may accompany the order of remand. The appellate jurisdiction inherently carries with it a power to issue corrective directions binding on the forum below and failure on the part of the latter to carry out such directions or to question the propriety of such directions would be destructive of the hierarchical system in the administration of justice. (Tirupati Balaji Developers (P) Ltd.). The hierarchy of Courts/Tribunals requires an authority, lower in order, to adhere to the orders passed and the law declared by a higher Court/Tribunal. (Royal Aquarium and Summer and Winter Garden Society v. Parkinson (1892) 1 QB 431(452) ; Harinagar Sugar Mills Ltd. v. Shyam Sunder: Jhunjhunwala AIR 1961 SC 1669 ; Union of India v. Namit Sharma (2013) 10 SCC 359 ). It is necessary for each lower tier, in the hierarchical system of courts which exists in our country, to accept loyall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ater Bombay (2005) 6 SCC 404 ; Paisner v. Goodrich (1955) 2 All ER 330, 332; Cull v. IRC (1939)3 All ER 761, Morelle Ltd. v. Wakeling (1955)1 All ER 708). A decision is on the question involved in the case in which it is rendered and, while applying the decision to a later case, the Court must ascertain and determine the true principle, laid down by the decision, by analysing all the material facts and issues involved in the case. (ICICI Bank; CIT v. Sun Engg. Works (P) Ltd. (1992) 198 ITR 297). The decision of the STAT would bind the revisional authority, and bar him from exercising his revisional jurisdiction, only if it is rendered after considering the relevant statutory provisions and binding precedents. The view, if any, expressed without analysing the statutory provision cannot be treated as a binding precedent. (N. Bhargavan Pillai v. State of Kerala (2004) 13 SCC 217). A decision not expressed and accompanied by reasons, and not preceded by a conscious consideration of the issue, cannot be deemed to be a law declared to have binding effect. (Arnit Das v. State of Bihar ; Director of Settlements (2000) 5 SCC 488 , A.P. v. M.R. Apparao (2002) 4 SCC 638 ; Stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctive of the nature of the order of the STAT, the power of the revisional authority is excluded in view of the proviso to Section 32 of the A.P. VAT Act, and the exercise of the revisionary jurisdiction is barred. It is only if the STAT renders its decision on a question of law, after noticing and considering the relevant statutory provisions, would the decision bind the revisional authority and disable him from taking a different view, that too only if, and as long as, there is no judgment of the Supreme Court and the jurisdictional High Court, on the said question of law, to the contrary. If, however, the relevant statutory provisions have not been noticed by the STAT, the decision rendered by it in ignorance thereof would not be a decision on a question of law under the proviso to Section 32 of the A.P. VAT Act; and would not disable the revisional authority from exercising jurisdiction under Sections 32(1) and (2) of the Act. E. ORDER OF THE STAT IN T.A. NO.110 OF 2012 DATED 23.04.2012: Notwithstanding the submission of Sri S. Ravi, Learned Senior Counsel appearing on behalf of NECL, that this Court is not being called upon to decide upon the correct basis for computing the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct under the Act and not decide its validity; the Deputy Commissioner was not competent to hold that Rule 17(1)(d) and (e) were inconsistent with Section 4(7)(a) of the Act; in Assistant Commissioner of Commercial Taxes v. Dharmendra Trading Company(1988) 70 STC 59, the Supreme Court had held that functionaries of the State could not hold that the State did not have the power to grant concession; the Karnataka High Court, in Manjunatha Roller Flour Mills Private Limited v. Assistant Commissioner of Commercial Taxes, Mysore (2003) 133 STC 222 , had held that creatures of a statute, or functionaries of the State Government, could not hold that the corrigendum, issued by the State Government, was ultra vires its powers under the Act; Rule 17(1)(d) and (e) stipulated that, in the case of a dealer executing works contract, he is required to pay tax on the value of the goods at the time of its incorporation; this Rule had been newly introduced in the VAT Rules in order to compute the correct and exact value of the goods; in the light of the decision of the Supreme Court in Gannon Dunkerley, the High Court of A.P, in Seven Hills Constructions, had held that profit should be added for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7(1)(e); while filing the returns, he has to declare the true value of the additional taxable turnover and the tax due thereon, and pay the same; gross profit is not referred to in Rule 17(1)(d); the dealer is not expected to receive gross profit in the initial months while executing the works contract; he would generally derive and receive net profit only after finalisation and completion of the contract; the government, in its wisdom, has specifically framed the second proviso to Rule 17(1)(e) stating that the dealer is liable to declare the additional taxable turnover, and the additional tax paid, in the return for the month for which the accounts are finalised after completion of the works contract; the assessing authority and the Deputy Commissioner had erred in holding that the dealer had to add gross profit also under Rule 17(1)(d), while computing the taxable turnover for the works which were not completed at all; whenever the work is completed in a month, every dealer has to declare the additional taxable turnover; while doing so, he is also expected to show the gross profit or the net profit earned; he has to add the same to the value of the goods, and has to pay the bala....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rks contract would constitute the measure for imposition of the tax; keeping in view the legal fiction introduced by the Forty Sixth Amendment to the Constitution whereby the works contract, which are entire and indivisible, are deemed to have been divided into two contracts ie., one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract, on which tax is leviable, must exclude the charges which appertain to the contract for supply of labour and services; to ascertain the value of the goods involved in the execution of a works contract, for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods; the cost of establishment, relatable to supply of material involved in the execution of the works contract, must be included in the value of the goods; the profits, relatable to the supply of materials, should be included in the value of the goods, and the profits relatable to supply of labour and services must be excluded; and the value of the goods involved in the execution of a works contract will have to be determined....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of such contract in that year. Section 4(7)(a) of the AP VAT Act stipulates that every dealer executing works contracts shall pay tax on the value of the goods, at the time of incorporation of such goods in the works executed, at the rates applicable to the goods under the Act. Under the proviso thereto, where accounts are not maintained to determine the correct value of the goods at the time of incorporation, such dealer shall pay tax at the rates specified in Schedule V on the total consideration received or receivable subject to such deductions as may be prescribed. Rule 17(1)(d) of the Rules stipulates that the value of the goods, used in the execution of a works contract, declared by the contractor shall not be less than the purchase value and shall include seigniorage charges, blasting and breaking charges, crusher charges, loading, transport and unloading charges, stacking and distribution charges, expenditure incurred in relation to hot mix plant and transport of hot mix to the site and distribution charges. Rule 17(1)(e) provides that, subject to Rule 17(1)(d), the following amounts should be allowed as deductions, from the total consideration received or receivable, fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e taxable event is the transfer of property in goods involved in the execution of a works contract, and the transfer of property in such goods takes place when the goods are incorporated in the works; the value of the goods, which would constitute the measure of tax, is its value at the time of its incorporation in the works; the point of levy of tax is on the transfer of property in the goods involved in the execution of the works contract, and not on the purchase of goods by a dealer; the turnover liable to tax under Section 5-F of the APGST Act is the taxable turnover of the dealer for one year; Rule 6(2) of the APGST Rules provides for the manner in which the turnover, liable to tax under Section 5-F of the Act, is to be arrived at; where books of accounts are maintained by the assessee-dealer, the gross receipts less the deductions of the nature specified in Rule 6(2) determine the turnover to be taxed as works contracts; where the deductions specified in Rule 6(2) are not ascertainable from the accounts of a dealer, the turnover has to be determined after reducing the standard deduction, prescribed for different types of contracts under Rule 6(3)(ii), from the amounts paid or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terpreted in a way as to come into conflict with the parent Act, in which case the Act will prevail; a piece of subordinate legislation should be read in the light of the statutory scheme of the Act; the Rules should be interpreted in a manner so as to be in conformity with the provisions of the Act, and not the other way round; Rules made, for carrying out the purposes of the Act, cannot be so framed as not to carry out the purposes of the Act, and cannot be in conflict therewith; and if a rule goes beyond, or is contrary to, what the Section contemplates, the rule must yield to the Statute. The law declared by the Supreme Court in Gannon Dunkerly2 is that the charge to tax is on the transfer of property in goods i.e., on the transfer of the right in the goods; it is only the value of the goods, when it is incorporated in the works which would constitute the measure for imposition of the tax; and the taxable event is the transfer of property in goods involved in the execution of the works contract, and the transfer of property in such goods takes place when the goods are incorporated in the works. The law declared by the Full Bench of this Court in Seven Hills Constructions3 is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contents of the impugned orders of the revisional authority. On the question of levy of tax, on works under progress, NECL had contended before the revisonal authority that, for the completed works, tax was paid deriving the turnover as per Rule 17(1)(e), after deducting the tax already paid on the turnover derived and reported as per Rule 17(1)(d); and this procedure was followed in view of the second proviso to Rule 17(1)(e) especially the phrase finalization of accounts relating to the particular work. In the impugned orders of revision, the revisional authority held that self- assessment is provided for dealers under the Act; the dealer is required to file returns every month, and to disclose the tax payable towards works contract; in cases where the work extends beyond the period, the VAT dealer is required to file monthly returns provisionally in accordance with Rule 17(1)(d) of the Rules; for works which are completed, tax has to be paid deriving the turnover as per Rule 17(1)(e), after deducting the tax already paid on the turnover derived and reported as per the provisions of Rule 17(1)(d); the term finalization of accounts relating to particular work in the proviso must b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to labour and services. Rule 17(1)(e) of the Rules is subject to Rule 17(1)(d) thereof. The phrase subject to conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. (Chandavarkar Sita Ratna Rao v. Ashalata S. Guram ; South India Corpn. (P) Ltd. v. Secy., Board of Revenue, Trivandrum ). As Rule 17(1)(e) must yield place to Rule 17(1)(d) to which it is made subject, the value of the goods used in the execution of the works contract, computed in terms of Rule 17(1)(d), shall be the minimum value. Subject to this minimum, Rule 17(1)(e) stipulates that, for arriving at the value of the goods, at the time of incorporation, the total consideration received or receivable shall be taken as the basis from out of which the amounts referred to in items (i) to (viii) thereof shall be allowed as deductions, and the net amount (i.e., the difference between the total consideration received or receivable and the permissible deductions under items (i) to (viii)) shall be the value of the goods, at the time of incorporation, liable to tax under the Act. If this net amount, arrived at under Rule 17(1)(e), is lower than the value determin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nactment. (Dwarka Prasad v. Dwarka Das Saraf ). As a general rule, in construing an enactment containing a proviso, it is proper to construe the provisions together without making either of them redundant or otiose. The enacting clause and the proviso should be reconciled to avoid repugnancy between the two. (Tahsildar Singh v. State of U.P. ). In the impugned orders of revision, the revisional authority relied on the clarification given by Advance Ruling Authority, in the case of M/s. Jaiprakash Associates Limited, Hyderabad , to hold that the words finalization of accounts, in the second proviso to Rule 17(1)(e), would mean the accounts which are finalized at the end of the financial year. The STAT, in its order in T.A. No.110 of 2012 dated 23.04.2012, however interpreted the said proviso to require payment of the balance tax on completion of the entire work. The second proviso to Rule 17(1)(e) is not an independent provision, and only carves out an exception to Rule 17(1)(e). The words subject to, which is also used in the second proviso, makes it subject to (i) filing of returns and (ii) payment of tax as per Rule 17(1)(d). On compliance with the aforesaid twin requirements, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....though thin, which separates adjudication from legislation. That line should not be crossed or erased. Courts expound the law, they do not legislate. (State of Kerala v. Mathai Verghese , Union of India v. Deoki Nandan Aggarwal ). A Judge is not entitled to add something more than what is there in the Statute by way of a supposed intention of the legislature. (Union of India v. Elphinstone Spinning and Weaving Co. Ltd ). The legislative casus omissus cannot be supplied by judicial interpretative process. (Maruti Wire Industries Pvt. Ltd. v. S.T.O., I.S.T. Circle, Mattancherry , State of Jharkhand v. Govind Singh ). Even otherwise the second proviso, when both its limbs are read together, clearly shows that the balance tax payable, and the requirement of the additional taxable turnover and the taxes payable to be declared in the return, is in the month in which the accounts are finalized, and not when the entire work is completed. The second proviso to Rule 17(1)(e) is not an independent provision. It is merely a proviso to Rule 17(1)(e) and carves out an exception thereto. It cannot be elevated to a charging Section to postpone the point of levy, (which is at the stage of incorpor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the course of execution of a works contract, (vi) cost of establishment of the contractor to the extent it is relatable to supply of labour and services, (vii) other similar expenses relatable to supply of labour and services, (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services, (ix) all amounts for which goods exempt under Schedule I are transferred in execution of the works contract, and (x) turnover of goods involved in the execution of works contract which are transferred in the course of inter-State trade or commerce under Section 3 of the Central Sales Tax Act, 1956 or transferred outside the State under Section 4 or transferred in the course of import or export under Section 5 of the said Act. Rule 31 of the Rules makes it clear that the dealer is required to maintain records project wise. The records required to be maintained, in terms of items (i) to (viii) of Rule 31(3)(d), are the very same items (i) to (viii) which, under Rule 17(1)(e), are required to be allowed as deductions, from the total consideration received or receivable, for arriving at the value of goods at the time of incorporation. The statutory requirement ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Advance Ruling Authority in M/s. Jaiprakash Associates Hyderabad53, and the revisional authority in the impugned orders of revision, have held, rightly so, that the term finalisation of accounts relating to a particular work, used in second proviso to Rule 17(1)(e), must be understood with reference to a particular financial year, and not on completion of the project several years thereafter, as the works contractors are required to finalise their accounts every year for each work, and report revenue profit as per the accounting standards prescribed under the Companies Act. The STAT, in its order in T.A. No.110 of 2012 dated 23.04.2012, has also failed to notice the aforesaid provisions of the Companies Act. The object, for which the second proviso to Rule 17(1)(e) was provided, is evident if the distinction in the provisions, relating to assessment, under the APGST Act and the A.P. VAT Act, is noticed. Section 2(u) of the APGST Act defined 'Year' to mean the twelve months ending on the 31st day of March. Section 5(1) of the APGST Act requires a dealer to pay tax, under the Act, for each year on his turnover of sales or purchases of goods in each year. Under Section 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the best of his judgment, within four years of the due date of the return, or within four years of the date of filing of the return, whichever is later. Section 21(4) enables the prescribed authority, based on any information available or on any other basis, to conduct a detailed scrutiny of the accounts of any VAT dealer and where any assessment, as a result of such scrutiny, becomes necessary, such assessment shall be made within a period of four years from the end of the period for which the assessment is to be made. Even in the absence of a provision, similar to the proviso to Section 32, the decision of the STAT, on a question of law, would bind the assessing authority. However, as noted hereinabove, the order of the STAT was passed in ignorance of the relevant statutory provisions, and is contrary to the law declared by the Supreme Court in Gannon Dunkerly2 and the Full bench of this Court in Seven Hills Constructions3, and is not a decision on a question of law which alone would bind the revisional and assessing authorities. As the orders of the revisional and assessing authorities are in accordance with the statutory provisions both plenary and subordinate, and the law de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses or amounts from the total consideration received or receivable; these deductible amounts include labour charges, administrative expenses relatable to supply of labour, any similar expenses relatable to labour, and profit relatable to supply of labour etc; it goes without saying that administrative and similar expenses, relatable to material and profit, are also required to be added to the cost price of material in order arrive at the value of the goods incorporated at the time of execution of the works contract, if the method prescribed in Rule 17(1)(d) is adopted; the applicant had claimed that it was not possible to ascertain the correct value of the material at the time of incorporation before the finalization of accounts, and the yearly accounts closure would not reflect the correct value of the material at the time of incorporation, except by the end of the project; in this regard Rule 31(3) of the AP VAT Rules mandated that the works contractors, not opting to pay tax by way of composition, should keep the records, mentioned therein, showing all relevant details such as labour charges, administrative expenses relatable to supply of labour, any similar expenses relatab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commercial Taxes department, including the Commissioner, notwithstanding a ruling of the Advance Ruling Authority to the contrary, more so as an appeal lies to the STAT against the ruling of the Advance Ruling Authority. (Tirupati Chemicals16). The decision of the STAT on a question of law would bind officers in the commercial taxes department even if there be a decision of the ARA to the contrary. However as noted hereinabove the order of the STAT, in T.A. No.110 of 2012 dated 23.04.2012, is not a decision on a question of law and would not, therefore, bind the revisional or the assessing authority. IV. DENIAL OF COMPOSITION OF TAX UNDER RULE 17(1)(G) OF THE RULES: Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioners, would submit that the only ground on which the petitioner has been assessed to tax, by resorting to Rules 17(1)(d) and 17(1)(e) of the Rules, is that they did not disclose the turnovers, in relation to the Works Contract executed for KPCL; this is not a permissible ground for denial of the benefit of composition; and the petitioners registration for composition not being in dispute, the turnovers relating to the KPCL Works Contract cannot be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder Rule 17(1) and not those falling under Rule 17(2). Section 4(7)(b) of the AP VAT Act enables a dealer executing works contract, in lieu of the amount of tax payable under Section 4(7)(a), to opt to pay, by way of composition, at the rate of 4%/5% of the total amount received or receivable by himself towards execution of the works contract. Rule 17(2) relates to treatment of works contract under composition. Rule 17(2)(a) stipulates that any VAT dealer, who executes a contract and opts to pay tax as specified in Section 4(7)(b), must register himself as a VAT dealer. Rule 17(2)(b) requires the said VAT dealer to pay tax at the rate of 4%/5% of the total consideration received or receivable whichever is earlier. Rule 17(2)(c) stipulates that, in cases where the VAT dealer opts for composition, he shall, before commencing execution of the work, notify the prescribed authority, on Form VAT 250, of the details including the value of the contract on which the option has been exercised. Rule 17(2)(d) stipulates that, on receipt of any payment related to the contract, the contractor VAT dealer shall calculate the tax due at 4%/5% of the amount received and shall enter such details on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n before commencement of the execution of the work and has notified the authority on Form VAT 250 prior thereto, consider extending them the benefit of composition, and for payment of tax under Rule 17(2)(b) & (c) of the Rules. If, however, they have not exercised their option, as stipulated under the aforesaid Rules, the authorities cannot then be faulted for subjecting NECL to tax under Rule 17(1)(g) provided that they have not maintained books of accounts to determine the correct value of the goods at the time of its incorporation in the works. V. IS THE DOCTRINE OF PROMISSORY ESTOPPEL APPLICABLE? NECL is, admittedly, not a party to the revised concession agreement entered into between the GoAP and KPCL. They have invoked the doctrine of promissory estoppel on the ground that KPCL, which is the employer for whom NECL is executing works as a contractor, is entitled to invoke the said doctrine; they are, consequently, entitled to exemption from tax on all inputs; and there would be no tax liability, on the turnover relating to execution of works for KPCL, on them also. As NECL is not a party to the revised concession agreement, they are not entitled to invoke the doctrine of pr....