M/s Jaiprakash Gayatri Joint Venture v. The Assistant Commissioner (CT) Audit-II

Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to issue a Writ of Certiorari or any other appropriate writ or order or direction- (a) declare the proviso to Section 31(1) of the APVAT Act requiring pre-deposit of 12.5% of disputed tax as a condition precedent for filing appeal as violative of Article 14, 265 and 300A of the Constitution of India, (b) Quashing the order of the 1st Respondent in Form VAT 305, Dated 25.2.2009 as illegal, arbitrary, and contrary to the law declared by the Supreme Court in L&T case (17 VST Page 1) (c) declare that the order dated 25.2.2009 passed by 1st Respondent as in violation of principles of natural justice by referring to communications of the sub- contractor dated 22-8-2008 and 20.05.2006 to confirm the levy without putting the petitioner on notice, (d) declare that the Petitioner is not liable to tax under Section 4(7)(a) or 4(7)(b) by reason of sub-contracting the entire works to another VAT Dealer, and (e) direct the 1st Respondent to transfer tax of Rs.5,80,39,306/- collected at source to Gayatri Projects limited and refund the balance if any to Petitioner. Counsel for the Petitioner: MR. S. DWARAKANATH Counsel for the Respondents: MR. K. RAJI REDDY, SPECIAL STANDING COUNSEL COMMERCIAL TAXES The Court made the following : ORDER: (per Sri Ramesh Ranganathan, J) Heard Sri S. Dwarakanath, learned Counsel for the petitioner, and Sri K. Raji Reddy, learned Special Standing Counsel for Commercial Taxes and with their consent the Writ Petition is taken up for final disposal at the stage of admission. Aggrieved by the assessment order dt.25.2.2009, whereby the petitioner was called upon to pay tax of Rs.6,89,21,674/-, the present Writ Petition is filed. Sri S.Dwarakanath, learned counsel for the petitioner, would submit that the petitioner is a joint venture, that, as the principal contractor, they had sub-contracted their work to M/s. Gayatri Projects Limited, which, in turn, had sub-contracted the work to several other firms, details of which are reflected in the assessment order itself. Learned Counsel would submit that, based on the letter dt.20.5.2006 issued by M/s. Gayatri Projects Limited, the assessing authority had held that the petitioner was exigible to tax on Government irrigation contracts upto 31.8.2006. Learned Counsel would place reliance on State of Andhra Pradesh v. Larsen & Tourbo Ltd. wherein the [1] Supreme Court held:- “…..In this case we are concerned with the Andhra Pradesh Value Added Tax Act, 2005. Section 4 is the charging section. It comes in Chapter III which deals with “incidence, levy and calculation of tax”. In this case, we are concerned with the taxability of works contract. That subject is dealt with by section 4(7) of the said 2005 Act. In our view, section 4(7) is a code by itself. It begins with a non obstante clause. It, inter alia, states that every dealer executing a works contract shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the Act. The point to be noted is that section 4(7)(a) of the 2005 Act indicates that the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which constitutes the measure for the levy of the tax is the value of the goods at the time of the incorporation of the goods in the works. What is stated hereinabove also finds place in rule 17(1)(a) of the APVAT Rules, 2005, quoted hereinabove. It is important to note that each of the sub-contractors of L&T is registered dealer. None of them are unregistered. Under section 4(7)(a) read with rule 17(1)(c), quoted above, where a VAT dealer awards any part of the contract to a sub-contractor, such sub- contractor shall issue a tax invoice to the contractor for the value of the goods at the time of incorporation in such sub- contract. The tax charged in the tax invoice issued by the sub- contractor shall be accounted by him in his returns. Therefore, the scheme indicates that there is a “deemed sale” by the dealer executing the work, i.e., the sub-contractor. It is only the sub-contractor who effects transfer of property in goods as no goods vest in the respondent-company (contractor) so as to be the subject-matter of a retransfer. By virtue of article 366(29A) (b) of the Constitution once the work is assigned by the contractor (L&T), the only transfer of property in goods is by the sub-contractor(s) who is a registered dealer in this case and who claims to have paid taxes under the Act on the goods involved in the execution of the works. Once the work is assigned by L&T to its sub-contractor(s), L&T ceases to execute the works contract in the sense contemplated by article 366(29A)(b) because property passes by accretion and there is no property in goods with the contractor which is capable of a retransfer, whether as goods or in some other form…..” (emphasis supplied) It is evident from the afore extracted judgment that there is a ‘deemed sale’ by the dealer executing the work, i.e., the sub- contractor. It is only the sub-contractor who effects transfer of property in goods as no goods vest in the contractor so as to be the subject-matter of a retransfer and, once the work is assigned by the contractor, the only transfer of property in goods is by the sub- contractor concerned. With regards the letter dt.20.5.2006, said to have been issued by M/s. Gayatri Projects Limited, Sri S.Dwarakanath, learned Counsel for the petitioner, would submit that the said letter did not form part of the show cause notice and it is only for the first time in the assessment order that the said letter finds mention. Learned Counsel would submit that, in view of the law laid down by the Supreme Court in Larsen & Tourbo Ltd 1, the respondent authorities could proceed only against the sub-contractor concerned, and not against the petitioner who is the principal contractor. It is evident from a reading of the show cause notice and the impugned assessment order that the letter said to have been issued by M/s. Gayatri Projects Limited, dt.20.5.2006, did not form part of the show cause notice. As the liability to pay tax is on the sub-contractor, who executes the work, questions whether the petitioner had sub- contracted the work to others and what would be the effect of the letter alleged to have been addressed by M/s.Gayatri Projects Limited dated 20.5.2006 etc., are all matters which the assessing authority could have examined, while passing the final order of assessment, only after issuing a show-cause notice giving details thereof and thereafter giving the petitioner an opportunity of being heard. Ends of the justice would be met if the impugned order of assessment is set aside and the said order is treated as a show cause notice. The petitioner is given four weeks time from today to submit their objections. Sri S. Dwarakanath, learned Counsel for the petitioner would request that two more weeks be given to the petitioner to enable them produce the relevant records during the personal hearing before the authority. Since both counsel agree that a date be fixed by the Court itself with a view to avoid any further delay, we direct the petitioner herein to appear for a personal hearing before the assessing authority on 2.6.2009, along with all necessary records. After affording an opportunity of personal hearing to the petitioner, the assessing authority shall pass orders afresh in accordance with law. It is made clear that as this Court has fixed the date of hearing, at the request of the parties as 2.6.2009, the respondents need not issue any further notice in this regard to the petitioner. The vires of Section 31(1) of the A.P. Value Added Tax Act is left open for challenge by the petitioner, if need be, after an order is passed afresh by the assessing authority. With the above directions, the Writ Petition is disposed of. However, in the circumstances, without costs. ANIL R. DAVE, CJ RAMESH RANGANATHAN, J 29-04-2009 bnr/asp [1] [2008] 17 VST 1 (SC)