BHARAT HEAVY ELECTRICALS LIMITED v. STATE OF KERALA

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE A.K.JAYASANKARAN NAMBIAR** **&** **THE HONOURABLE MR.JUSTICE MOHAMMED NIAS C.P.** **TUESDAY, THE 4[TH] DAY OF JANUARY 2022/14TH POUSHA, 1943** **ST.REV.NO.22 OF 2016 AGAINST THE ORDER IN T.A.NO.37/2012 OF AGRL.INCOME TAX 7 SALES TAX APPELLATE TRIBUNAL, ADDL. BENCH,KOZHIKODE** ## **REVISION PETITIONER/APPELLANT/APPELLANT ASSESSEE:** **M/S. BHARAT HEAVY ELECTRICALS LIMITED BHOPAL, MADHYPRADESH, REPRESENTED BY ITS ADDITIONAL, GENERAL MANAGER-FINANCE SUNIL PAHWA.** **BY ADV.SMT.S.K.DEVI BY ADV.SMT.P.K.MAYA DEVI** ## **RESPONDENT/RESPONDENT/RESPONDENTS/REVENUE:** **STATE OF KERALA REPRESENTED BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM.** **BY SRI.MOHAMMED RAFIQ, SPL. GOVERNMENT PLEADER** **THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 04.01.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **S.T.REV.NO.22/2016 :: 2 ::** ## **O R D E R** ## **A.K. Jayasankaran Nambiar, J.** This Sales Tax Revision Petition, filed under Section 41 of the Kerala General Sales Tax Act [hereinafter referred to as the 'KGST Act'], raises the following questions of law stated to be arising out of the order dated 11.6.2015 of the Kerala Value Added Tax Appellate Tribunal, Additional Bench, Kozhikode, in T.A.No.37/2012: I. As the turnover conceded by the petitioner was accepted was there any necessity to produce the accounts which comes to several volumes ? II. Is the rejection of the documents produced by the petitioner to prove the said turnover is not liable to be taxed at the hands of the petitioner, by holding that the petitioner failed to produce the accounts, correct ? III. Whether the profit earned on the work entrusted to sub contractor is liable to be taxed at the hands of the petitioner ? IV. Is the assessing authority empowered to take new grounds other than that directed to be verified by the Deputy **S.T.REV.NO.22/2016 :: 3 ::** Commissioner Suo moto ? V. As the demand raised in the original assessment order was paid in time, was the penal interest demanded @ 171% on the demand created by order dated 24.9.2009 correct ? 2. The brief facts necessary for disposal of the revision petition are as follows: The revision petitioner is an assessee on the rolls of the Commercial Tax Officer-1, Works Contract & Luxury Tax, Kozhikode. For the assessment year 1999-2000, the assessment under the KGST Act was initially completed by accepting the return of the petitioner in terms of Section 17(2) of the KGST Act. The said assessment was however the subject matter of a suo motu revision invoked by the Deputy Commissioner, Kozhikode, in terms of Section 35 of the KGST Act. In the order that was passed by the Deputy Commissioner, the assessment order under Section 17(2) was cancelled, and the matter remitted to the Commercial Tax Officer for de novo assessment in accordance with law. It is not in dispute before us that, against the said order of the Deputy Commissioner, no further proceedings were carried by the petitioner herein. The Commercial Tax Officer thereafter completed the de novo assessment under Section 17(3) of the KGST Act, and found that there was a short assessment of **S.T.REV.NO.22/2016 :: 4 ::** turnover to the extent to Rs.15,45,03,210/- with a corresponding tax effect of Rs.1,42,34,615/-. 3. Aggrieved by the assessment order, the petitioner preferred an appeal before the First Appellate Authority. The said appeal was however dismissed by the First Appellate Authority. In a further appeal carried before the Appellate Tribunal, the order impugned in this revision petition came to be passed. 4. We have heard the learned counsel for the revision petitioner and also the learned Special Government Pleader for the respondent. 5. The learned counsel for the revision petitioner would refer to the questions of law raised in the revision petition to contend that the authorities below erred in rejecting the claim for non-inclusion of the profit earned by the petitioner from amounts paid to subcontractors, in the turnover of the petitioner that was subjected to tax. It is his contention, placing reliance on the decision of the Supreme Court in **Builders' Association of India v. State of Karnataka and Others - [1993 (88) STC 248 (SC)]** that the profit earned in the course of sub-contracting some portion of the work **S.T.REV.NO.22/2016 :: 5 ::** undertaken for KSEB to two companies, namely, M/s. Wartsila and M/s. KAP India, could not have been brought to tax at the hands of the petitioner. It is further contended that the claim of the petitioner has been rejected by the authorities below for the sole reason that the petitioner was not able to prove its claim with reference to its books of accounts, since the books were never produced before the lower authorities. The learned counsel submits that since the petitioner had produced statements prepared based on the books of account, that ought to have sufficed for the purposes of deciding the merit of its claim. Secondly, it is contended that the Assessing Authority was not legally correct in considering new grounds, other than those that formed the basis of the suo motu revision exercised by the Deputy Commissioner in terms of Section 35 of the KGST Act, while completing the assessment pursuant to the remand made to the Assessing Authority. The learned counsel relies on the Division Bench judgment of the Gujarat High Court in **Commissioner of IncomeTax v. D.N. Dosani – [(2006) 280 ITR 275 (Guj)]** in support of the said contention. Thirdly, he would contend that there was no scope for the demand of penal interest on the demand created by the assessment order dated 24.9.2009 in terms of Section 23(3A) of the KGST Act. **S.T.REV.NO.22/2016 :: 6 ::** 6. Per contra, the learned Government Pleader would support the findings of the Tribunal in the order impugned in the revision petition and highlight the fact that the petitioner had not produced the books of accounts to substantiate his contentions on merits before any of the lower authorities, and it is under those circumstances that the claim as regards non-inclusion of amounts in the turnover could not be accepted by the Department. He would submit that as regards the legal proposition that amounts that have no nexus with the taxable transaction cannot be included in the turnover that is subjected to tax, there cannot be any serious dispute. The petitioner, however, failed to prove, with reference to his books of account, that the amount in dispute did not have any nexus to the taxable transaction. With regard to the challenge against the levy of penal interest, he would refer to the decision of a Full Bench of this Court in **State of Kerala v. Western India Cosmetic and Health Products Ltd. - [2010 (1) KLT 786 (F.B.)]** to sustain the findings of the Appellate Tribunal in the order impugned in this revision petition. 7. On a consideration of the rival submissions, we find that the questions of law referred to us for adjudication have to be answered against the petitioner and in favour of the revenue. As **S.T.REV.NO.22/2016 :: 7 ::** regards Question Nos.I, II and III, we find ourselves unable to accept the contention of the learned counsel for the petitioner that the claim for non-inclusion of the alleged profit element, arising from the amounts paid to the subcontractor for works subcontracted to the latter, ought to have been accepted even in the absence of the production of the relevant books of accounts that would have corroborated the claim of the petitioner. In matters of taxation, and especially in adjudication proceedings before the Assessing authorities, the burden of proof to show that any part of the admitted turnover is not liable to tax, is on the assessee, who has to establish its non-taxability by referring to the treatment accorded to the said turnover in the books of accounts maintained by him in the regular course of business. When an assessee refuses to produce his books of account to substantiate a claim for exemption/non-taxability of turnover, the assessing authorities cannot be faulted for denying the claim of the asseseee. 8. We also do not find merit in the submission of the learned counsel for the petitioner with regard to the IV[th] question raised as regards the power of the Assessing Authority to consider new grounds in the de novo assessment that was carried out pursuant to the remand by the Deputy Commissioner. As already **S.T.REV.NO.22/2016 :: 8 ::** noted above, the petitioner did not prefer any appeal/revision against the order of the Deputy Commissioner remanding the matter to the Commercial Tax Officer for a de novo assessment. The petitioner cannot therefore question the propriety of the open remand at this distance of time. As regards the de novo assessment itself, we find that the assessment was completed after issuance of a fresh pre-assessment notice, and after considering the objections of the petitioner to the proposals communicated to him by the said notice. We also find that there was in fact no fresh material introduced through the pre-assessment notice. In the de novo proceedings, pursuant to an open remand, the Assessing Authority was acting well within his jurisdiction in considering all materials relevant to the assessment, and so long as the petitioner was afforded an effective opportunity to counter the proposals in the preassessment notice, the Assessing Authority's actions cannot be seen as illegal or vitiated by a lack of jurisdiction. In this context, we also do not see how the judgment of the Division Bench of the Gujarat High Court rendered in the context of the Income Tax Act, and relied upon by the learned counsel, can come to the aid of the petitioner. 9. Lastly, with regard to Question No.V, dealing with the legality of the demand of penal interest @ 171% on the demand **S.T.REV.NO.22/2016 :: 9 ::** created by order dated 24.9.2009, we find that the issue is no longer res integra inasmuch as the Full Bench of this Court in **State of** ## **Kerala v. Western India Cosmetic and Health Products Ltd. -** **[2010 (1) KLT 786]** has clearly upheld the liability to pay interest under Section 23(3A) on the differential tax, namely, the difference between the assessed tax and the tax paid based on return. This question therefore has to be answered against the assessee. In the result, we dismiss the S.T. Revision, by answering the questions of law raised, against the assessee and in favour of the revenue. **Sd/A.K.JAYASANKARAN NAMBIAR JUDGE** **Sd/MOHAMMED NIAS C.P. JUDGE** **prp/5/1/22** **S.T.REV.NO.22/2016 :: 10 ::** ## **APPENDIX OF ST.REV.CASE NO.22/2016** ## **PETITIONER ANNEXURES:** **ANNEXURE I** **TRUE COPY OF THE ORDER NO.33210107/99-2000 DATED 21-3-2005** **ANNEXURE II** **TRUE COPY OF THE ORDER NO.KE1-4790/06 DATED 22-10-2008** **ANNEXURE III** **TRUE COPY OF THE REVISED ASSESSMENT ORDER NO.33210107 DATED 24-9-2009** **ANNEXURE IV** **TRUE COPY OF THE REPLY DATED 12-9-2009** **ANNEXURE V TRUE COPY OF THE ORDER NO.STA 130/2009 DATED 04-04-2012** **ANNEXURE VI TRUE COPY OF THE TRIBUNAL ORDER IN TA.NO. 37/2012 DATED 11-6-2015** ## **RESPONDENT'S ANNEXURES: NIL.** ## **//TRUE COPY//** **P.S. TO JUDGE**