TaxTMI 
TaxTMI 
2023 (4) TMI 163
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....83/2021] and (iii) the order imposing penalty on the appellant under the KVAT Act for the assessment years 2016-17 and 2017-18 [W.P(C).No.18443/2020]. While W.A.No.374 of 2021 arises from the judgment of a learned Single Judge in W.P(C).No.18443/2020, W.A.Nos.73 and 91 of 2022 arise from the common judgment of another learned Single Judge in W.P(C).Nos.17451/2021 and 18783/2021. Since the issue involved in all these appeals is common, they are taken up together for hearing and disposed by this common judgment. THE FACTS IN BRIEF 2. The appellant is stated to be a private limited company involved, inter alia, in the activity of production and sale of industrial gases such as Hydrogen, Nitrogen and HP Steam. It is a wholly owned subsidiary company of Air Products and Chemicals Inc., USA. It is also a registered dealer under the Kerala Value Added Tax Act [hereinafter referred to as the 'KVAT Act'] and an assessee on the rolls of the Asst. Commissioner (Assmt), Special Circle - II, Ernakulam. It is stated that for the purposes of implementing its Integrated Refinery Expansion Project, Bharath Petroleum Corporation Limited [BPCL] found it necessary to ensure a continuous ....
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....ne that effected a transfer of property in the plant and specified gases in the course of execution of a works contract. The assessing authority, like the intelligence officer who imposed the penalty, referred to the proviso to Rule 10 (2) of the KVAT Rules, 2005 which, in the context of determination of taxable turnover in relation to works contracts in which transfer of property takes place not in the form of goods but in some other form, mandates that 'when the turnover arrived at after deducting the amounts mentioned in clause (a) falls below the cost of goods transferred in the execution of the works contract, an amount equal to the cost of the goods transferred in the execution of the works contract together with profit, if any, shall be the taxable turnover in respect of such works contract.' He then proceeded to find that the contract price shown as received by the appellant, which was the sum of the fixed and variable charges, was less than the cost of the plant that was brought to the site and hence the cost of the plant, together with a component of gross profit, would be taken as the taxable turnover for the purpose of levying tax @ 14% applicable to works contracts (as....
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....C 1893]). That apart, when the issue in the writ petition relates to the interpretation of a contract which is a pyre question of law, the petitioner need not be relegated to an alternate remedy (See: ABL International Ltd. and Another v. Export Credit Guarantee Corporation of India Ltd. and Others - [(2004) 3 SCC 553]; Deputy Commissioner, Central Excise and Another v. Sushil and Company - [(2016) 13 SCC 223]. As for the challenge to a show cause notice, it is contended that where the issue has been decided by the authority for earlier years, it would be futile for an assessee to prefer a reply and the remedy of a writ petition is always available. Reliance is placed on the decision in Siemens Ltd. v. State of Maharashtra and Others - [(2006) 12 SCC 33]. * A reference to the various clauses in the agreement between the appellant and BPCL would clearly reveal that the agreement was to build, own and operate a Hydrogen and Nitrogen Plant and to effect sales of Hydrogen, Nitrogen and HP Steam to BPCL. The agreement was only for the sale of gases and the ownership of the plant continues to be with the appellant. There was no justification, therefore, to infer a transfer of go....
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....e assessment as to whether or not the assessee has executed a works contract. The decision so taken by the assessing authority cannot be termed as without jurisdiction as jurisdiction only refers to the authority of a person to decide the matter and that authority to decide the matter in the instant case is admittedly conferred on the assessing officer by Section 25 (1) of the KVAT Act. Reliance is placed on the decision in Smt. Ujjam Bai v. State of U.P. and another - [AIR 1962 SC 1621] and Embassy Property Development Private Limited v. State of Karnataka & Others - [(2020) 13 SCC 308] to point out that lack of jurisdiction has to be differentiated from errors committed within the available jurisdiction and that in the latter case, interference under Article 226 of the Constitution of India is not warranted. * There are ample provisions under the KVAT Act to correct erroneous orders of the assessing authorities and in the absence of any pleading to that effect or material to demonstrate that the statutory remedies are not adequate, efficacious or meaningful, this court ought not to interfere with the orders of the assessing authority, or the penalty orders, through the e....
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.... law in a modern day democratic republic. The many instances where courts have thought it fit to interfere with decisions of non-statutory bodies that have an impact on the rights of citizens, and where the doctrine of ultra vires has no role to play, clearly reveal that the said doctrine is not the sole basis for the exercise, by courts, of the power of judicial review. Judicial review is no longer seen based solely on principles of statutory interpretation, but on the application of some general principles of good administration to the exercise of power, irrespective of the source of that power. [Dawn Oliver, 'Is the Ultra Vires Rule the Basis of Judicial Review? - 1987 Public Law, 543] 9. Tom Bingham [Tom Bingham, 'The Rule of Law', Penguin Books, London, 2011] observes that Ministers and public officers at all levels must exercise the powers conferred on them in good faith, fairly, for the purpose for which the powers were conferred, without exceeding the limits of such powers and not unreasonably. Judicial review is the tool that the courts use to ensure this standard. Review is an appropriate judicial function since the law is the judges' stock-in-trade, the field in which....
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.... out a sound legal point it would be against public interest for it to entertain and adjudicate the matter. 12. While it is fairly well settled that when confronted with disputed questions of fact, the writ court will not ordinarily entertain a writ petition, but leave it to the civil courts or statutory forums to adjudicate the matter, it is equally well settled that the existence of an alternate remedy is not a bar to the entertainment of a writ petition where (i) the writ petition seeks the enforcement of any of the fundamental rights, (ii) where there is a violation of the principles of natural justice, (iii) where the order or the proceedings are wholly without jurisdiction or (iv) where the vires of an Act is challenged. [Whirlpool Corporation v. Registrar of Trade Marks, Mumbai & Ors - (1998) 8 SCC 1] That apart, as observed in State of UP & Ors. v. Indian Hume Pipe Co. Ltd. [(1977) 2 SCC 724] and UOI v. State of Haryana [(2000) 10 SCC 482], and re-iterated most recently in M/s Godrej Sara Lee Ltd v. Excise & Taxation Officer-cum-Assessing Authority [JT (2023) 2 SC 32] where the controversy is a purely legal one and it does not involve disputed questions of fact but only ....
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....of the KVAT Act as in the case of transfer of goods involved in execution of works contract, where the transfer is not in the form of goods, but in some other form, at the rate of 14.5%. Section 2(Iv) of the KVAT Act 2003 "works contract includes any agreement for carrying out for cash or deferred payment or other valuable consideration the construction, fitting out, improvement, repair, manufacture, processing, fabrication, erection, installation, modification, or commissioning of any movable or immovable property. The dealer signed an agreement with Bharat Petroleum Corporation Ltd on August 21 2013 to build a Hydrogen, Nitrogen and HP steam plant to supply BPCL's requirements for industrial gas products as BPCL owns and operates a refinery at Kochi, Kerala, India and has a requirement for Hydrogen, Nitrogen and HP Steam. BPCL also intends to form a joint venture to build and operate a petrochemical plant to be located near BPCL's Plant (as defined herein). In response to BPCL's invitation for bid (bid document BPCL/IREP/BOO/01 dated 14 September 2012 and its Amendments), Air Products and Chemicals, Inc. (APCI), BOO OPERATOR's parent company, submitted an....
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....mited for deferred payment of cash in monthly installment for 15 years as Fixed charges on BPCL vide Article 15 of the agreement entered into between the parties. Further the assessee himself awards contracts to various dealers in its own name and purchases made from both local and interstate using its own TIN, and no goods were stock transferred in from their parent company, in whose name the agreement was entered into from interstate which proves the same as a local works contract. Further Article 3.5 of the agreement entered into between the parent company of the dealer with BPCL provides that the construction and commissioning of the Production Plant shall be under periodical inspection of representatives of BPCL undertaken with reasonable notice and in accordance with the safety rules of BOO OPERATOR. Article 5.4 of the agreement "the authorised representatives of BPCL shall have free access to BOO Operators Production Plant during erection and commissioning and during operation phase throughout the term of this agreement subject to reasonable notice and compliance with safety rules" makes it clear that BPCL is not only interested in ensuring regular and timely supply....
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....ost invoice values 24826899.52 3,103,362.44 1,39,6513.1 29,326,775.06 Variable Cost invoice values 8,905,220.24 1,113,152.53 500,918.64 10,519,291.41 Mar- 17 Fixed Cost invoice values 306,245,992.56 38,280,749.07 17,226,337.08 361,753,078.71 Variable Cost invoice values 262,714,798.49 31,290,250.12 15,877,568.19 309,882,616.81 Apr - 17 Fixed Cost invoice 17,221,83 values 306,165,870.32 38,270,733.79 0.21 361,658,434.32 Variable Cost invoice values 552,145,985.82 64,119,303.34 34,536,462.67 650,801,751.82 May - 17 Fixed Cost invoice values 306,230,345.84 38,278,793.23 17,225,456.95 361,734,596.02 Variable Cost invoice values 633,664,622.68 71,598,885.15 41,046,161.84 746,309,669.66 Jun - 17 Fixed Cost invoice values 306,390,298.56 38,298,787.32 17,234,454.29 361,923,540.17 Variable Cost invoice values 525,189,209.88 55,889,103.18 36,471,172.17 617,549,485.23 Total 3,232,520,215.91 380,248,241.66 198,739,179.82 ....
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....d was limited for 15 years, and with a nominal lease value of Rs.1/acre. All the above facts proves that the agreement entered into between the parent company of Prodair and BPCL was for a works contract, for setting up a production plant for BPCL's exclusive purpose and the consideration was given as deferred payment through the Fixed monthly charges of around Rs.30 crores per month, which help the dealer to recoup their investment in 15 years and also collected the value of industrial gases supplied to them as variable charges based on actual reading. Since the goods which was suppressed from the books of accounts became the part of the goods used for works contract and its transfer was made not in the form of goods the suppressions established by this order is taxed @ 14.5%." 14. As against that, the relevant clauses in the agreement that deal with the scope of the work and the payment terms read as follows: "A. BPCL owns and operates a refinery at Kochi, Kerala, India and has a requirement for Hydrogen, Nitrogen and HP Steam. BPCL also intends to form a joint venture to build and operate a petrochemical plant to be located near BPCL's Plant....
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.... the Production Plant and in no case shall BOO OPERATOR delay commissioning of the Production Plant due to any reason whatsoever other than BPCL delaying commencement of the First Delivery Date, Force Majeure and subject to BPCL fulfilling its obligations under this Agreement. 3.7 For any delay in commissioning of the Production Plant and meeting the First Delivery Date of Products for reasons attributable to BOO OPERATOR and not due to any event of Force Majeure, BOO OPERATOR shall compensate BPCL for the loss suffered by BPCL in the form of genuine liquidated damages in accordance with Article 26. 3.8 BPCL assumes responsibility for MoEF clearance to enable BOO OPERATOR to undertake construction of the Production Plant and supply Products to BPCL. Any delay on account of MoEF clearance will not affect the compensation to BOO OPERATOR from the agreed or rescheduled First Delivery Date. BOO OPERATOR shall follow all the norms and regulations of the Central Pollution Control Board / State Pollution Control Board and guidelines stipulated under MoEF clearance of BPCL's Integrated Refinery Expansion Project at Kochi. BOO OPERATOR shall obtain all necessary permis....
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....er, potable water, fire water will be measured in cubic meters. Back-up power to and from BOO OPERATOR will be measured through TOD Energy Meters. 3.14 BOO OPERATOR shall also ensure that materials of construction of all pipelines and various systems at BOO OPERATOR's Delivery Point are compatible with BPCL's pipelines and systems. ARTICLE 4 - OWN 4.1 The Production Plant along with all other systems, pipelines, metering system, etc. installed by BOO OPERATOR to meet its obligations under this Agreement shall be the property of BOO OPERATOR at all times during the Term of this Agreement and alter the termination of this Agreement unless transferred or removed in accordance with the terms herein, and BPCL will not create liens, mortgages or charges over any property of BOO OPERATOR. 4.2 BOO OPERATOR shall take all necessary steps for the registration of the Production Plant and obtaining the necessary licenses and permissions from all the appropriate authorities for owning the Production Plant. 4.3 BOO OPERATOR shall notify BPCL regarding the readiness of the Production Plant separately for Hydrogen and Nitrogen. BPCL will, therea....
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....5 Representatives of B00 OPERATOR and BPCL shall meet to co-ordinate, as far as reasonably possible for planning Scheduled Maintenance of the Hydrogen and Nitrogen Plants. 5.6 At least 6 (six) Months prior to the expected First Delivery Date, the Parties shall develop and agree upon an Operating Protocol which shall include emergency response procedures to be applicable during the Production Plant operating period. ARTICLE 6 - SUPPLY 6.1 From the First Delivery Date and thereafter continuously during the Term and in accordance with the stipulations of this Agreement, BOO OPERATOR shall operate the Production Plant to supply BPCL requirements of Hydrogen, Nitrogen and HP Steam. Supply of the products to other consumers is not envisaged in this Agreement. However BOO Operator and BPCL / PETCHEM-JV may consider such option on mutually agreed terms later. 6.2 Representatives of BOO OPERATOR and BPCL shall meet to coordinate, as agreed, for planning scheduled requirements of the Hydrogen, HP Steam and Nitrogen. 6.3 On receiving communication from BPCL, BOO OPERATOR shall adjust the production level to match with change in demand within the tu....
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....BOO OPERATOR, at its own expense, will construct, operate and maintain the Production Plant on the land allocated by BPCL under lease for use for the purpose of setting up the Production Plant for the period required for the construction of the Production Plant plus 15 years from the date of First Delivery of last delivered Product unless terminated earlier in accordance with this Agreement and any extension of this Agreement as may be agreed between BOO OPERATOR and BPCL. The Production Plant will remain the property of BOO OPERATOR at all times and may be removed by BOO OPERATOR within 12 twelve months of the expiry or termination of the Agreement. Should BOO OPERATOR fail to remove the Production Plant or any part thereof from the leased site or to vacate the site within the said 12 (twelve) month period, BOO OPERATOR's Production Plant or such part thereof as remains unremoved and BOO OPERATOR's property whatsoever remaining on the Production Plant Site shall vest in BPCL free from any mortgage, charge, pledge, hypothecation or other encumbrance or third party rights whatsoever and/or liabilities whatsoever and shall be entitled to take such measures as it considers nec....
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....cash or for deferred payment or other valuable consideration the construction, fitting out, improvement, repair, manufacture, processing, fabrication, erection, installation, modification or commissioning of any movable or immovable property; 16. What the assessing officer completely overlooks, however, is the fact that there has been no transfer of the property in the goods involved in the execution of the works contract. The taxable event under the KVAT Act is not the execution of a works contract but the transfer of the property in the goods involved in the execution of the works contract. The latter aspect being absent in the transaction between the appellant and BPCL, as evident from the findings of the Intelligence Officer in the penalty orders, based on which the assessing officer rendered similar findings in the assessment orders, the assessing officer virtually usurped to himself the jurisdiction to tax a 'works contract' by erroneously assuming the existence of the jurisdictional fact/taxable event that would have conferred him with such a jurisdiction. The Intelligence Officer who confirmed the penalty on the appellant, as also the assessing officer who followed the s....
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....axing authority assumed a jurisdiction that it did not have and hence it would be a case of palpable injustice to the appellant herein to force it to adopt the remedies provided by the statute. [State of HP v. Gujarat Ambuja Cement Ltd - (2005) 6 SCC 499] 18. While on this subject, and going by the number of instances that we have come across of assessing authorities passing orders in a mechanical manner without showing how the taxable event is attracted in a given case or without giving reasons for denying the claim of an assessee for exemption or deduction, we deem it appropriate to observe that in matters of assessment under a taxing statute, the requirement of fairness, that is an integral aspect of the rule of law in our country, mandates that an assessing authority should apply its mind to the various factors that influence an assessment and give sufficient indication in the assessment order of having done so. This would necessitate his/her giving reasons for the finding regarding the existence of the taxable event that attracts the charge of tax as also other factors that result in a demand from an assessee of more tax than what has been admitted by him/her as payable. Th....