TaxTMI 
TaxTMI 
2017 (3) TMI 155
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....nt year 2009-10(U.P.). The petitioner M/s. Bharat Heavy Electrical Limited is a company incorporated and established by the Government of India. It is engaged in manufacture of heavy electrical machineries, equipment etc. Also, during the year in question, admittedly, it executed various work contracts described in the sanction order as supply, erection and commissioning of complete power plant on turn key basis. While entertaining this writ petition, the Court on 24.03.2014 had passed the following order:- "We direct the respondents to file a counter affidavit specifically clarifying (i) whether the original contracts pertaining to the Assessment Year 2009-10 were produced by the petitioner before the Assessing Authority during the course of assessment proceedings; (ii) whether the account books which were produced by the petitioner do as a matter of fact disclose the labour component separately. It is necessary for the State to clarify both these aspects since the submission of the petitioner, based on the original order of assessment, is that as a matter fact contracts were produced and the account books would indicate that the labour component was separa....
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....l and cement as disclosed by the petitioner. Thereafter, upon such a factual inquiry the assessment was concluded. No disallowance and no consequential addition was made to the taxable turnover was made on account of labour charges as claimed by the petitioner. Thereafter, on 10 September, 2013 the Additional Commissioner (Commercial Tax), Gautam Budh Nagar, Noida issued a notice to the petitioner proposing therein to initiate the re-assessment proceedings for the assessment year 2009-10 (U.P.). It is based on a proposal received by the said authority from the petitioner's Assessing Authority Joint Commissioner (Commercial Tax) Range A, Noida. A perusal of the said proposal indicates that the Assessing Officer entertained a belief of the petitioner's turnover having escaped assessment for the assessment year 2009-10, impressed, at least in part by certain findings recorded by the said authority in the course of provisional assessment proceeding for the assessment year 2012-13 (March 2013). Also, he observed as a fact that during the course of the original assessment proceedings the assessee had not produced the contract documents pertaining to the work contracts performe....
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....ty at the time of making the original assessment order. Statement to the contrary in the proposal for reassessment made by the petitioner's assessing authority is factually incorrect and jurisdiction cannot be claimed on such incorrect statement of fact established/apparent on record. In this regard he has taken us through the original assessment order and relied on observations made therein that clearly suggest that the assessing authority was cognizant of the contract documents and various clauses in the contract as also that authority had examined the books of account of the petitioner. He thus relies on passages in the original assessment order to submit that the same could not have found place in the assessment order unless its author i.e. the assessing authority had before him those documents. It is true, the assessment order itself records details namely, the nature and value of various contracts executed by the petitioner as also it contains such extracts of the specific clauses of the contracts as the assessing authority choose to notice/record in that order. Further, we have been taken to paragraph 6 at internal page 19 of the assessment order wherein it has been spec....
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....ct as such it cannot be said that the petitioner is maintaining true and correct books of accounts. 8. That with regard to the contents of paragraph nos. 8 and 9 of the writ petition it is stated that before the assessing officer the petitioner has produced only bills of purchase and sale had not produced the entire books of account the petitioner did not produce the copy of contract by which the nature of contract as well as the work relating to the petitioner could be examined by the assessing officer. The assessment order was passed on the basis of the material produced before the assessing officer. On non production of the whole copy of the agreement/contract the assessing officer was not in a position to examine the nature of contract and the work carried out by the petitioner." Therefore, according to him the petitioner is liable to be reassessed in accordance with Rule 9(3) of the Rules as the petitioner was not entitled to claim by way of labour charges etc. any amount in excess of 10% of the payments received against the civil work contracts executed by it. He further submits that the issue of value of labour and service charges and profit thereon is required t....
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....t years after expiry of assessment year to which such assessment or re-assessment may involve a change of opinion: Provided that it shall not be necessary for the Commissioner to hear the dealer before authorising the assessing authority." Rule 9(1) and (3) of the Rules which is read as below:- 9. Determination of turnover of sale of goods involved in the execution of a works contract.---(1) Subject to other provisions of these rules, the tax on turnover of sale of goods where such sale is affected by way of transfer of property in goods (whether as goods or in some other form) involved in the execution of a work contract shall be computed on the taxable turnover of sale of taxable goods. For the purposes of determining the taxable turnover of sale of such goods, the amounts specified below shall be deducted if included in the gross amount received or receivable in respect of the works contract. (a)...... (b)...... (c)...... (d) all amounts representing the value of service and labour and profit thereon; (2)------ (3) Where accounts maintained by the contractor do not show separately the value of labou....
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....nting and polishing 40% It is settled law that the jurisdiction to initiate reassessment proceedings arises only after the assessing authority records his reason to believe that any turnover has escaped assessment Thus, not only is the belief of escapement essential but more importantly, it is necessary for the Assessing Authority to record his reason/s as to existence of the belief of such escapement. In Commissioner of Sales Tax Vs. Bhagwan Industries (P) Ltd. (1973) 31 STC 293 (SC) the phrase "reason to believe"appearing in a similar provision in Section 21 of the U.P, Sales Tax Act, 1948 providing for reassessment was interpreted thus: "The words "reason to believe" in Section 21 of the U.P. Sales Tax Act convey that there must be some rational basis for the assessing authority to form the believe that the whole or any part of the turnover of a dealer has, for any reason, escaped assessment to tax for some year. If there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of the turnover of a dealer has escaped assessment, it can take action under the section. Reasonable grounds necessarily postulate t....
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....d by relying on Rule 9(3) of the Rules. In other words according to the petitioner's assessing authority: (i) petitioner had not produced the entire work contract documents during the original assessment proceedings for Assement Year 2009-10 (U.P.) (ii) in the course of provisional assessment proceedings for subsequent period for March 2013, the entire contract documents were produced wherefrom it appeared to the petitioner's assessing authority that the petitioner had been awarded contracts for Supply, Erection and Commissioning of complete Power Plants on turnkey basis. Based, upon these two fact allegations it has been inferred (iii) the petitioner was liable to deduction (on account of value of labour and service charges and profit thereon) at the rate 10% only on all payments received against such contracts in view of Rule 9 (3) of the Rules. In this regard, we notice-neither in the reason to believe recorded by the petitioner's assessing authority (contained in the proposal annexed at pages 65 and 66 of the writ petition nor in the impugned order of sanction dated 05.02.2014 passed by the Additional Commissioner, there is disclosure of any fact or figure or det....
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....n allowed to the petitioner is compared with the amount equal to 10% of the value of contracts received or receivable by the petitioner and that figure has a negative value (i.e.it is less than the value reached by applying the rule of 10%) then in such a case no inference of escapement may ever arise. If on the other hand the differential amount is a positive figure then the assessing authority may entertain a belief in respect of that amount. An assessing officer, faced with such a situation may therefore be expected, in normal course to mention a figure or amount which according to him has escaped assessment as otherwise it cannot be accepted that he had a belief of escapement. Only, then and in respect of such an amount he may further show existence of reasons so as to assume jurisdiction to reassess the petitioner. In absence of any quantification whatsoever, it is difficult to accept Shri Tripathi's contention that escapement of turnover is a necessary consequence of Rule 9 (3) because the said rule restricts the deduction on account of labour charges to 10% of amount received or receivable. Such a conclusion is presumptive and over simplistic. It presumes without basis t....
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....count of value of labour and service and profit thereon is to be allowed at actual figures claimed by any assessee. However, a rule of exception is contained in Rule 9 (3) which comes into play either if (i) the assessee does not show separately the value of labour and service and amount of profit accrued on such labour and service or (ii) the accounts maintained by the assessee are not worthy of credence or (iii) if the assessee does not maintain any accounts. Plainly, Rule 9 (1) and Rule 9 (3) cannot and they do not apply or operate simultaneously, rather, Rule 9 (3) applies only if application of Rule 9 (1) is excluded on account of presence of any of the three preconditions mentioned in Rule 9 (3). Here, in this case no information, material or fact or reason has been recorded to establish the satisfaction of any of the three pre-conditions of the applicability in Rule 9 (3) inasmuch as it has not been alleged by the Assessing Authority in the reason to believe recorded by him that the petitioner had not maintained its books of account or that they were not worthy of credence. On the contrary, while the reason to believe recorded by the petitioner's assessing authority i....
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....cordingly rejected. It is also not the case of the department that the accounts maintained by the petitioner do not show separately the value of labour and service charges and amount of profit accrued thereon. Neither in the reason to believe as recorded and proposed by the Assessing Authority nor in the sanction order dated 05.02.2014 there exists anything to suggest such a state of affairs so as to justify application of Rule 9 (3) against the petitioner for that reason. It is also not possible to accept the contention of Sri Tripathi that it would be open to the petitioner to contest the applicability of Rule 9 (3) of the rules during the course of reassessment proceedings inasmuch as existence of such a fact allegation is a sine qua non for assumption of jurisdiction to reassess the petitioner. While in a regular assessment proceedings it may have been open to the Assessing Authority to issue a simple notice to the assessee to show cause why Rule 9 (3) may not be applied or to show whether the value of labour and services etc. have been separately shown in its books of accounts and no infirmity could be alleged against such a notice, the same cannot be the position for cl....
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.... it is clear that existence of "jurisdictional fact" is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of "jurisdictional fact", it can decide the "fact in issue" or "adjudicatory fact". A wrong decision on "fact in issue" or on "adjudicatory fact" would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present." Thus we accept the contention of the petitioner that in this case, in the state of the reason to believe as contained in the proposal made by the petitioner's assessing authority, the jurisdictional fact of applicability of Rule 9 (3) of the Rules is not established. In this regard the further argument of Sri Tripathi that there is no finding recorded in the original assessment order to the effect that the value of labour charges etc. had not shown separately in the account books produced by the petitioner is also not of any consequence inasmuch as absence of such a finding may not ....