K.Farook Mohammed.. v. The State of Tamil Nadurep

In the High Court of Judicature at MadrasDated : 11.06.2009Coram :-THE HONOURABLE MRS.JUSTICE F.M.IBRAHIM KALIFULLAandTHE HONOURABLE MR.JUSTICE B.RAJENDRANTax Case (Appeal) Nos.2012 & 2014 of 2006K.Farook Mohammed.. Appellant in both T.Cs.v.The State of Tamil Nadurep. by the Joint Commissioner of Commercial Taxes, Suo Moto Revision, Chepauk, Chennai 5... Respondent in both T.Cs.Tax Case Appeals filed under Section 37 of the TNGST Act to setaside the orders passed by the Joint Commissioner (CT) Suo MotoRevision in T1/10433/95 (SMR Nos.152 and 151 of 1997) dated26.09.1997 against the Appellate Assistant Commissioner (CT)Thanjavur common order passed in Appeal Nos.256/94 and 68/94 dated15.12.1994 respectively and in Deputy Commercial Tax Officer I,Pudukottai dated 13.12.93 and made in TNGST No.541210/86-87(T.C.No.2012/06) and Deputy Commercial Tax Officer No.I, Pudukkottaidated 01.02.94 and made in TNGST No.541210/85-86 T.C.No.2014/06respectively. For appellant: Mr.K.Soundara RajanFor respondent: Mr.Haja Nazruddin, Spl.G.P.(T)J U D G M E NT (Judgment of the Court was delivered by B.RAJENDRAN, J.)The assessee has preferred these appeals as against the orderpassed by the Joint Commissioner (CT) Suo Moto Revision inT1/10433/95 (SMR Nos.152 and 151 of 1997) dated 26.09.1997 for theassessment years 1985-86 and 1986-87.

The assessee is a contractor and he has reported a total turnover for the year 1985-86 and 1986-87. Based on the recordsproduced, the Assessing Officer had levied tax taking into accountthe railway contract for supply and doing contract work in respect ofremoval and filling of the ballasts (jelly) and in view of the fact https://hcservices.ecourts.gov.in/hcservices/ the the assessee had not chosen to disclose the contract entered intothe railways for the supply and working of the ballasts in therailway line, a penalty was also imposed at 1-1/2 times the tax ofthe undisclosed sales under Section 12(3) of the TNGST Act. Aggrieved against such assessment, the assesee preferred an appealbefore the Appellate Assessment Commissioner in both the cases.

The appellate authority taking into consideration the letterissued by the Divisional Railway Manager dated 19.10.1994 in letterNo.T/W.148/Genl/WA II concluded that the contract which was allottedto the assessee is not which included supply of materials, but onlyis of works contract. They heavily relied upon one letter issued bythe railway authorities much belatedly after the contract period, namely in the year 1994. Based on this letter, the First AppellateAuthority has set aside the order of the Assessing authoritycancelling both the tax liability as well the penalty. TheDepartment, pursuant to the order of the First Appellate Authoritysuo moto called for explanation and sent a show cause notice to theassessee contemplating action for the undisclosed income in respectof the contract including the supply of materials to the railways. The assessee had given a reply basing upon the letter issued by the Divisional Office would contend that the contract was not in thenature of supplying of materials, but only would include labourcontract and there was never any supply of materials as assessed bythe original authority. Based on the reply, the Joint Commissionerexamined in detail and conferred an opportunity to the assesseethrough his Chartered Accountant to report the matter and by way of asuo moto revision taking into consideration terms of the contractbetween the assessee and the railway authorities came to a conclusionthat the contract which was involved is inclusive of supply ofmaterials and there was an involvement of supply of materials in thiscontract.

On this finding, the authority came to a final conclusion thatthe assessee is liable not only to pay tax, but also is to be leviedpenalty. But giving concession reduced only the penalty from 1-1/2times to 50% which is the mandatory minimum required penalty ascontemplated as the law then existed under Section 12(5)(3) of the Act. Aggrieved against this order of the suo moto revision made bythe Joint Commissioner – III, the assessee came forward with thepresent appeals. An attempt was made by the assessee herein toclearly point out that the railway authorities had given a letterwhich would read as follows: "The above said work was purely related to dumpingwork (i.e.) Labour work. Hence the question ofreimbursement of Sales Tax does not arise in this case. The collection of stone ballast was not contemplated onthe above agreement for the year 1985-86.The agreement mentioned in your letter cited aboveis not correct. This should be correctly read as TPJ72/84, instead of TPJ 572/84."

The only contention raised by him was when a GovernmentalOrganisation, namely Railway would categorically indicate by virtueof this letter that there was no supply involved and what was the https://hcservices.ecourts.gov.in/hcservices/ work awarded was only the labour contract, the finding of the suomoto enquiry is legally sustainable.

At this juncture, the original agreement between the SouthernRailway and the assessee which was produced before the Court wasperused by us and the following three clauses in the originalagreement between the Southern Railway and the assessee would berelevant and important to decide the issue in this case, because themain issue is only with regard to whether the supply of material wasmade under the contract or only the labour work was given to theassessee/appellant herein. The following three clauses are relevant.

Both in the agreements for the year 1985-86 and 1986-87,though the clauses numbering is different, but the clauses areidentical which read as follows: "1. In the first clause, in the very contract itself, the assessee has agreed as per clause V "It is herebyagreed and declared that all the provisions of the saidspecifications, conditions of contract which have beencarefully read and understood by the Contractor, andprinted Schedule of Rates including the GeneralInstructions contained in pages 8 and 9 thereof, shall beas binding upon the Contractor and upon the RailwayAdministration as if the same had been repeated herein andshall be read as part of these presents. "As per this clause the petitioner is bound by the generalinstructions contained in the tender.

The second clause for consideration is in the GeneralInstructions which form part and parcel of the agreement clause 20:"In case of Tender's for collection and supply ofballast stone metal of not less than 14 cubic decimeterin quantity should be submitted along with the Tender assample to show the quality for the approval of the Engineer before accepting tender. The samples should besent in three sealed glass jars from each depot. "which would clearly indicate and stipulate that the contractor isbound to supply materials and he was expected to show or produce thequality of material to be supplied by giving any specific quantitybefore the tender.

The next clause is clause 23, which reads as follows: "The Tenderer has to make his own arrangements for obtainingballast from outside the Railway limits and necessary seignoragewages etc., if any will be borne by him. The ballast shall beerected on Railway land as directed by the Engineer'sRepresentatives, which clause also would indicate that in thecontract as agreed to between the parties, a specific recital hasbeen made to show that the tenderer or the contractor has to make hisown arrangements for obtaining ballast and also to pay the seignoragefee to the Government for removal of ballast" which clearlyestablishs beyond any reasonable doubt that the contractor at thetime of entering into the contract has specifically agreed to for thesupply of materials also. https://hcservices.ecourts.gov.in/hcservices/

Above all these things, we were also able to see in thecontract the very description of work which would also categoricallyinclude removal of existing stone ballast from the running track anddumping and also putting back clean ballast into track and levellingthe track including boring and tidying of stone ballast which willcategorically show beyond any reasonable doubt that the work allottedto them was to remove old ballast fill in new ballast which willnecessarily mean that the new ballast should come only from thetenderer or the contractor for filling up. In fact, the suo motoassessment, the authority has rightly come to the conclusion that thereading of the clauses in the agreement would mean and include onlythat of supply as well as work in respect of the contract has beenentered into between the railway and the assessee.

Apart from this, from the original assessment order itself wewere able to see from the books of accounts as produced by theassessee that the assessee has purchased jelly to the tune ofRs.36,200/-. If the contract is only for a works contract, therewill be no necessity for the assessee to purchase jelly. This willalso clearly indicate that the purchase of jelly was made for thepurpose of supplying it to the railways and thereafter to completethe work. These three factual aspects coupled with the agreemententered into by the assessee clearly would indicate that the natureof contract is nothing but supply of material also. Therefore, thereliance placed by the First Appellate Court and the appellant hereinon the letter issued by the Railway Authorities much belatedly inrespect of the contract that it would only denote the works contractcannot be accepted and this has been rightly done by the suo motoauthority during the suo moto order.12. The letter issued by the authority relied upon by theappellant cannot be accepted as a material fact and it will not haveany sanctity as against the original agreement or the tender contractas entered into between the railway authority and the assessee. TheJoint Commissioner-III (SMR) of Commercial Taxes, had given aspecific finding that it is an undisputed fact that jelly wassupplied for carrying out various types of works whether it isrenewal of track or track sleeper renewal.

Apart from that, he has also given a finding that theextracts taken from Southern Railway had clearly indicated that thedealer had supplied jelly worth Rs.2,24,518/- to the RailwayDepartment during the relevant year and that the assessee soldcondemned articles for Rs.7,000/-. Such findings on fact have beenclearly extracted by the authorities below. We are not able in anyway, to assail the factual findings coupled with the clauses found inthe agreement. We do not find any valid reason to interfere with theorders of the authority below as the reasoning are well founded. Hence, the appeal filed by the assessee is dismissed.

Apart from this, the appellant is not able to produce anyrecords before us to establish any question of law for interferenceat this stage. Hence we do not find any reason to interfere with the https://hcservices.ecourts.gov.in/hcservices/ order of the appellate authority. Accordingly these appeals fail andthe same are dismissed. No costs. Sd/Asst. Registrar/true copy/Sub Asst. RegistrarTo1. The Joint Commissioner III(SMR) Commercial Taxes, O/o.The Special Commissioner and Commissioner of Commercial Taxes, Chepauk, Chennai 5.2. The Appellate Assistant Commissioner(CT) Thanjavur3. The Deputy Commercial Tax Officer, Pudukkottai.2 ccs To The Special Government Pleader (Taxes)SR.22748 & 227501 cc To Mr.K.Soundarajan, Advocate, SR.22716T.C.(A) No.2012 and 2014 of 2006NTK(CO)SRA(28/7/2009)