Hi-Rise Builders & Developers v. Intelligence Officer (Investigation Branch) (Special Squad), Commercial Taxes, Kannur; and Deputy Commissioner (Appeals), Commercial Taxes, Eranjipalam, Kozhikode

## IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT: THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON TUESDAY, THE 25TH DAY OF MARCH 2014/4TH CHAITHRA, 1936 WP(C).No. 3358 of 2014 (T) -------------------------------------- PETITIONER(S): --------------------- HI-RISE BUILDERS & DEVELOPERS, KAYYATH ROAD, THALASSERY REPRESENTED BY ITS PARTNER SHRI C.K.EASSA BY ADV. SRI.DALE P.KURIEN RESPONDENT(S): ------------------------ 1. THE INTELLIGENCE OFFICER (INVESTIGATION BRANCH) (SPECIAL SQUAD), COMMERCIAL TAXES, KANNUR 670 006. 2. DEPUTY COMMISSIONER (APPEALS), COMMERCIAL TAXES, ERANJIPALAM, KOZHIKODE-1, PIN 673 001. R1 & R2 BY GOVERNMENT PLEADER SMT. K.T. LILLY THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 25-03-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 3358 of 2014 (T) ------------------------------------- ## APPENDIX ## PETITIONER’S EXHIBITS : ---------------------------------- EXHIBIT P1 COPY OF THE PENALTY NOTICE DATED 11/9/2012 ISSUED BY THE IST RESPONDENT. EXHIBIT P2 COPY OF THE REPLY TO EXT.P1 SUBMITTED BY THE PETITIONER DATED 17/10/2012. EXHIBIT P3 COPY OF THE PENALTY ORDER DATED 27/11/2012 PASSED BY THE IST RESPONDENT. EXHIBIT P4 COPY OF NOTICE OF DEMAND IN FORM NO.12 DATED 10/5/2013 ISSUED BY THE IST RESPONDENT. EXHIBIT P5 COPY OF MEMORANDUM OF APPEAL WITH GROUNDS DATED 7/1/2013, FILED BY THE PETITIONER BEFPORE THE 2ND RESPONDENT. EXHIBIT P6 COPY OF THE STAY PETITION DATED 7/1/2013 FILED BY THE PETITIONER ALONG WITH EXHIBIT P5 APPEAL. EXHIBIT P7 COPY OF THE CONDITIONAL STAY ORDER DATED 25/7/2013 PASSED BY THE 2ND RESPONDENT. EXHIBIT P8 COPY OF THE DECISION IN THE CASE OF M/S.U.K.MONU TIMBERS REPORTED IN (2012) KHC 111 (DB). EXHIBIT P9 COPY OF THE JUDGMENT DATED 6/8/2008 IN WA NO.1641/2008. EXHIBIT P10 COPY OF THE AGREEMENT FOR SALE DATED 23/11/2009 BETWEEN THE PETITIONER AND MR.ISMAIL VAYALIL, THE APARTMENT BUYER. EXHIBIT P11 COPY OF THE DECISION IN THE CASE OF M/S.ASSOTECH REALTY (P) LTD. REPORTED IN (2007) 10 STT 36 (ALL). EXHIBIT P11(A) COPY OF THE DECISION IN THE CASE OF M/S.LARSEN AND TURBO LTD REPORTED IN (2008) 17 STT 460 (SC). EXHIBIT P12 COPY OF THE DECISION IN THE CASE OF M/S.EID PARRY LTD REPORTED IN 117 STC 457 (SC). RESPONDENT’S EXHIBITS : ------------------------------------ NIL // True Copy // DSV/16/04 P.A. To Judge ## P.R. RAMACHANDRA MENON, J. --------------------------------------------W.P.(C). No. 3358 of 2014 -------------------------------------------Dated this the 25[th] day of March, 2014 ## JUDGMENT The petitioner is stated as aggrieved of Exhibit P3 penalty order passed under Section 67(1) of the Kerala Value Added Tax Act by the 1[st] respondent for the assessment year 2009-2010. The specific case of the petitioner is that the 1[st] respondent is not the competent authority to pass any assessment order and that there is no assessment order as well. The insinuation made against the petitioner is that the petitioner is not a registered dealer and hence penalty to an extent of nearly 26 lakhs has been imposed, after computing the extent of tax liability which stands fixed by the 1[st] respondent himself as about 13 lakhs. 2. The learned counsel for the petitioner submits that the petitioner, for want of registration, is liable to suffer the punishment only to a maximum extent of 10,000/- when the tax is not liable to be computed. It is stated that the petitioner has already taken up the matter in appeal by W.P.(C). No. 3358 of 2014 2 raising various grounds, both on the question of facts and on the question of law, as borne by Exhibit P5 before the 2[nd] respondent also fling Exhibit P6 Interlocutory Application for stay. After considering the Interlocutory Application for stay, a mechanical order was passed as borne by Exhibit P7 directing the petitioner to satisfy 30% of the disputed liability (about `7.6 lakhs) which is not liable to be sustained in the eye of law and hence the challenge. 4. Heard the learned Government Pleader as well, who sought to effect the submissions with reference to the statement filed as to the merits of the case. The version of the respondents, as discernible from paragraphs 2 and 3 of the statement, is in the following terms: “2. It is submitted that the main contention putforth by the Builder that they are not liable for registration under KVAT Act is not legally sustainable. On investigation it is revealed that the petitioner had received advance payment from Prospective buyers for construction of Flat/Apartments. They admitted the fact that there is an agreement between the owner and builders and purchaser. The Hon’ble High Court of W.P.(C). No. 3358 of 2014 3 Karnataka as per judgment in the case of M/s.Raheja Development Corporation Vs. State of Karnataka has observed that if the developer has undertaken to build for the prospective purchaser for cash payment or a valuable consideration pursuant to a contract there to that extent, the contract is work contract and there is deemed sale of material(goods) used in the construction of building. 3. It is submitted that for sustaining levy of tax on the goods deemed to have been sold in execution of a works contract three conditions are to be fulfilled. That is, there must be a works contract, the goods should have been involved in the execution of works contract and the property in those goods transferred to a third party either as goods or in some other form. The presence of the three conditions are ascertained in this case and the builders cannot be exempted from liabilities to tax under KVAT Act. The constitution Bench of the Apex Court has upheld the ratio of M/s. Raheja Development Corporation. All these points have been elaborately discussed by the constitution Bench in the case of M/s. L&T and another Vs. State of Karnataka and another vide judgment in Civil Appeal No.8672/2013, (Arising out of SLP (C) No. 17741/2007). In the light of the above judgment it is crystal clear that the action of the Builders come under the purview of works contract and they are liable to pay tax under KVAT Act 2003.” ## 5. The contention sought to be raised from the part of W.P.(C). No. 3358 of 2014 4 the petitioner stating that the petitioner is not liable to take out registration and that there cannot be any taxable event, for the fact that the tax on the goods supplied/ordered by the petitioner has been effected on the registered dealers and that the commodity has already suffered tax. It is also pointed out that the concerned contractor, who effected the construction in Kannur has already satisfied the tax in respect of the work contract involved and deposited the amount payable to the Government. In so far as the petitioner is concerned, it is stated that there is no further question of any work contract. The position under such circumstances in fact has been considered by the Apex Court in M/s. K. Raheja Development Corporation Vs. State of Karnataka in Civil Appeal No.2766/2000 dated 05.05.2005. This Court finds that the law declared by the Apex Court in Raheja’s case was subsequently doubted by another Bench in M/s. L&T and another Vs. State of Karnataka and another, in Civil Appeal No.8672/2013 and the issue was referred to Larger Bench. It is also brought to the notice of this Court W.P.(C). No. 3358 of 2014 5 that the issue has been subsequently answered by the Larger Bench, whereby the dictum in Raheja’s case has been upheld. This is a matter for the Appellate Authority to consider in the proceedings which are pending consideration. 6. Coming to the limited question involved, the issue to be looked into is, whether the case projected by the petitioner has been considered or discussed while passing Exhibit P7 order. It has been made clear by this Court on many an occasion that, even in the case of passing interim orders, the issue projected has to be looked into, while imposing a condition and that it cannot be mechanical order. Such course has been deprecated by the Apex Court as well, as per the decision in Ravi Gupta v. Commissioner of Sales Tax, Delhi 22 VST 529 (SC). On going through the contents of Ext.P7, this Court finds that, but for the reference to the main contention raised from the part of the petitioner (given under serial No.1 to 3), there is absolutely no discussion at all. The observation that, for considering the said question, W.P.(C). No. 3358 of 2014 6 it may require some time, thus seeking to impose the condition directing the petitioner to satisfy 30% cannot but be deprecated. In the said circumstance, Ext.P7 is set aside and the second respondent is directed to reconsider the matter and pass appropriate orders in the light of the above observations, which shall be done at the earliest at any rate within ‘one month’ from the date of receipt of a copy of this judgment. Coercive proceedings shall be kept in abeyance till such time. The petitioner shall produce a copy of this judgment along with a copy of the writ petition before the second respondent for further steps. Writ petition is disposed of. Sd/- P.R. RAMACHANDRA MENON, JUDGE. DSV/27/03