K. Rajan v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 01ST DAY OF OCTOBER 2018 / 9TH ASWINA, 1940** ## **OT.Rev.No. 57 of 2016** **AGAINST THE ORDER/JUDGMENT IN TAVAT 25/2015 of VALUE ADDED TAX APPELLATE TRIBUNAL,ADDL.BENCH,PKD DATED 30-09-2015** ## **REVISION PETITIONER/S:** **K.RAJAN** **M/S.BUILTECH, SREE NAGAR COLONY, KUNNATHURMEDU, PALAKKAD.** **BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON** **RESPONDENT:** **STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT. SECRETARIAT, THIRUVANANTHAPURAM 695 001.** ## **OTHER PRESENT:** ## **SRI V K SHAMSUDHEEN SR GP** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 01.10.2018, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** O.T.Rev. No.57/2016 2 ## **O R D E R** **Vinod Chandran, J** **The revision arise from the order of the Tribunal which held against the assessee insofar as the assessee's contention, of there being no works contract with respect to 15 flats and two villas in a project of the assessee, having been negatived. The brief facts to be noticed are that the assessee, a builder, initiated two projects for construction of 136 apartments and three villas in contiguously lying properties. The assessee claimed that 15 flats and two villas in the project were not works contract for reason of no purchaser having entered into agreement for construction prior to its completion.** **2. The assessee admittedly filed a compounding application for the assessment year which was permitted** O.T.Rev. No.57/2016 3 **by the Department. However, while paying the compounded tax, the assessee excluded such payment on the sale consideration of 15 apartments and two villas. The discrepancy was noticed on inspection. The Assessing Officer issued notice and finalised proceedings after hearing the assessee, directing payment of tax at the compounded rate for the total consideration received for the said 15 apartments and 2 villas. The First Appellate Authority rejected the appeal and so did the Tribunal.** **3. The assessee filed the above revision on the following questions of law, which we extract hereunder:-** **a. Whether on the facts and in the circumstances of the case, has not the appellate tribunal gone wrong in rejecting the contentions of the petitioner as regards the 15 apartments and 2 villas which were sold as completed apartments?** - **b. Ought not the Tribunal have held** O.T.Rev. No.57/2016 4 **that the liability of the petitioner, if any as against the disputed 15 apartments and two villas, is only as against the construction activity carried on after the date of agreement entered into with the purchasers?** **c. Is not the finding of the Appellate Tribunal against the dictum of the Hon'ble Supreme Court in** _**L & T's case [(2013) 65 VST 1]**_ **?** **4. On facts, we have to notice Annexure A produced in the writ appeal. Annexure A shows the name of the purchaser, the total value received, the specific door numbers of the apartments and villas, the date of occupancy certificate, agreement date, document number, and date of document registration. There is also a date of Municipality ownership change specified in the last column. What we notice from the above table given by the assessee is that with respect to item numbers 4,10, 11, 12, 13, 14, 15 and 17, the** O.T.Rev. No.57/2016 5 **agreements itself have been entered into after the date of occupancy certificate received. The execution of sale deed is subsequent to the agreement. In the other cases, thought agreement is dated prior to the occupancy certificate, it is not far removed from the date of occupancy certificate.** **5. It is the contention of the assessee that an application for occupancy certificate was filed before the local authority long before the date on which it was received. Hence the entire construction was completed prior to all the agreements for construction itself. The assessee contends that primarily what has to be looked into, is whether there is a works contract with respect to the 15 apartments and 2 villas. The assessee had sold out all the other apartments and the solitary villa even prior to the completion of construction. The 15 apartments and 2 villas remained unsold when the construction was progressing. Only after the construction had been completed, the purchasers came forward and paid** O.T.Rev. No.57/2016 6 **consideration, which results in a transfer of the immovable property itself. The occupancy certificate insofar as the 15 apartments and 2 villas were obtained in the name of the builder itself and hence there is a change of ownership effected before the local authority after the deed of sale was executed. It is the compelling contention that with respect to the 15 apartments and 2 villas there has been a sale proper, of immovable property which cannot attract tax under the Kerala Value Added Tax Act, 2003(for brevity “the KVAT Act” only) and the transaction cannot be deemed to be a works contract, executed on behalf of the land owner.** **6. The learned Government Pleader, however, takes us through the provisions of the KVAT Act, and asserts that compounding application has to be filed for the assessment year as the provision available in the relevant assessment year. Here the assessee had filed compounding application for the year and the Department had permitted compounding. It is also** O.T.Rev. No.57/2016 7 **submitted that the application was not for a particular project but for the year 2007-08. All projects hence carried out in the year would come within the compounding scheme and the assessee cannot wriggle out of the binding contract with the Department on grounds of sale of certain apartments and villas having not been materialized prior to the completion of the projects. The agreements produced by the asesessee which are stated to be just prior to the issuance of occupancy certificate or after the occupancy certificate was issued, does not also specify as to the stage of construction or even the completion of the project. There could be no interference caused to the order of the Tribunal; is the argument of the learned Senior Government pleader.** **7. We look at the provisions of the KVAT as it stood then. The assessee had filed application for the year 2007-08 under Section 8(a)(ii) of the KVAT Act, as it existed then which is extracted herein:** O.T.Rev. No.57/2016 8 **(ii) any works contractor, other than those undertaking electrical, refrigeration or air conditioning** **contracts or contracts relating to supply and installation of plant, machinery, rolling shutters, cranes, hoists, elevators (lifts) escalators, generators, generating sets, transformers, weighing machines, air conditioners and air coolers, deep freezers, laying of all kinds of tiles (except brick tiles), slabs and stones (including Marble) and not falling under clause (i) above, may at his option, instead of paying tax in accordance with the provisions of the said sections, pay tax at four percent of the whole contract amount** **Provided that the provisions of this clause shall not apply to any works contract in which the transfer of** O.T.Rev. No.57/2016 9 **material is in the form of goods.** **8. The aforesaid provision has to be read along with Rule 11 of the Kerala Value Added Tax Rules which speaks of filing option by dealers for payment of compounded tax. The Rule as it existed at the commencement of the year 2007-08, provided for filing an application for compounding only for that year and not with respect to projects. The assessee could have carried out different projects in the year, which were works contract and labour contract. There is no difficulty insofar as works contracts being assessed under the provision of Section 8 and the other contracts being assessed as per the regular books of accounts. However, in this case, it is to be noticed that the separate labour contracts asserted by the assessee of 15 apartments and 2 villas was in the very same project which was carried out by the assessee. The apartments were part of the two towers constructed by the assessee. There is no separate** O.T.Rev. No.57/2016 10 **books of accounts maintained by the assessee for the 15 apartments and 2 villas. The assessee had paid tax at the compounded rates under Section 8, for the projects. Only on an inspection carried out in the business premises, excess amounts having been received by the assessee was revealed, which led to the present proceedings.** **9. The assessee did not produce the** **agreements now relied on, either before the Assessing Officer or the First Appellate Authority; is the contention of the Senior Government Pleader. The learned Counsel appearing for the assessee disputes that. The learned Counsel points out that the Assessing Officer itself has referred to both sale agreement and sale deed executed in 2007-08 in computation of the escaped turnover, which according to the learned Senior Government Pleader is the objection extracted in the assessment order. The assessment order also contains the gross amounts received for the year 2007-08 for the two projects named Golden Palm** O.T.Rev. No.57/2016 11 **project and Builtech Greens, in page 3 of the assessment order. There is absolutely no** **differentiation shown as to the amounts received in pursuance to the works contract and that received on the sale of immovable property.** **10. The assessee had not at any time claimed before the Assessing Officer that 15 apartments and 2 villas were not sold prior to completion and hence there was only a sale of immovable property. If that was the case of the assessee then, the assessee ought to have filed a return specifically showing the completion of construction of 15 apartments and 2 villas and claimed exemption insofar as no sale having been effected prior to its completion. The assessee having not attempted to make such a claim before the Assessing Officer cannot turn around and claim sale of immovable property with respect to a project for which he had paid compounded tax for the other flats and villas constructed.** **11. The learned Tribunal had specifically** O.T.Rev. No.57/2016 12 **looked at** _**Raheja Development Corporation v. State of Karnataka [(2005) 5 SCC 162]**_ **, where there is a reference to a larger Bench and the answer given by a larger Bench in** _**Larsen and Toubro Limited and another v. State of Karnataka and another [(2013) 65 VST 1 (SC)]**_ **. The Tribunal relied on the specific finding of the Hon'ble Supreme Court that when there is an agreement between the promoter and developer and the flat purchaser to construct a flat and eventually sells the flat with title of the undivided share in land, it is obvious that such a transaction involves the activity of construction in as much as it is only when the flat is constructed that it can be conveyed. The assessee had a claim that with respect to 15 apartments and 2 villas, in two projects, there was no purchaser prior to the completion of construction and there was absolutely no works contract. Admittedly there was an agreement for construction, which clearly indicates that there is a works contract.** **12. The learned Counsel for the assessee would** O.T.Rev. No.57/2016 13 **submit with specific reliance on paragraph 115 of the judgment of the** _**L & T Ltd. (supra)**_ **, that only construction carried on after the agreement could be taxed as a works contract. We notice paragraph 115 of the decision which is extracted herein below:** **“It may, however, be clarified that activity of construction undertaken by the developer would be works contract only from the stage the developer enters into a contract with the flat purchaser. The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State Government.”** **13. Such a benefit could have been granted to** **the assessee if there was separate books of accounts maintained with respect to construction of those flats for which there was no purchaser available before the completion of the contract. The 15 flats form part of** O.T.Rev. No.57/2016 14 **a project with two towers, of 136 apartments and it is difficult to maintain separate books of accounts for the construction of what has not been purchased prior to construction; though not impossible. The appellant never attempted in the course of the assessment year to produce such accounts, nor was there any available. Even if we accept the contention of the assesee that the agreements were produced before the Assessing Officer, specifically shown in Annexure A, it was produced after two years of expiry of the year of assessment. The assessee also did not produce such agreement at the time of inspection and the same was not available in the books of accounts. The assessee being a builder would have in their possession stamp papers issued in various dates which could be executed, in a subsequent date, with a prior date shown, to circumvent the statutory provisions. We cannot place any reliance on the agreements produced; which was an attempt to wriggle out of the liability on a notice being issued, on the basis of the inspection.** O.T.Rev. No.57/2016 15 **14. It is also to be noticed that if the entire apartments were constructed when the purchasers approached the assessee, then there would have been no requirement to enter into an agreement for construction and it could just be an agreement of sale. We also notice that nothing was produced before the authorities to substantiate the contention of the assessee and evidence entire payment of amounts having been made by the purchaser after the agreement was entered into. We hence, do not find any reason to interfere with the orders of the Tribunal. We only make an observation insofar as the remand made as seen from point No.3 of the Tribunal, which can be mistakenly construed as an open remand; which it is not. The Assessing Officer while adding on the entire excess amount received by the assessee, found on inspection, added on the entire consideration shown in the document, which also takes in the price of undivided interest in land and transfer of right to use of specifically allotted car sheds. The remand is only to that extend and not on any other** O.T.Rev. No.57/2016 16 **issues arising in the matter which has been settled by the order of the Tribunal, as affirmed by us in the revision.** **We hence answer the questions of law raised against the assessee and in favour of the Revenue and** **we dismiss the revision. No costs.** **Sd/K. Vinod Chandran, Judge** **Sd/Ashok Menon, Judge** **jma** O.T.Rev. No.57/2016 17 ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE A** **COPY OF STATEMENT GIVING THE DETAILS OF SALES OF APARTMENTS AND VILLAS.** **ANNEXURE B1 COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH LAKSHMI VAIDYANATHAN DATED 18.4.2007.** **ANNEXURE B2 COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH BHANUMATHY RAMACHANDRAN DATED 11.6.2007.** - **ANNEXURE B3 COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH G.PRADEEP DATED 22.6.2007.** **ANNEXURE C1 COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH LAKSHMI VAIDYANANTHAN DATED 14.9.2007.** **ANNEXURE C2 COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH BHANUMATHY RAMACHANDRAN DATED 11.1.2008. ANNEXURE C3 COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH G.PRADEEP DATED 17.12.2007.** **ANNEXURE D1 COPY OF OCCUPANCY CERTIFICATE ISSUED BY THE PALAKKAD MUNICIPALITY FOR LAKSHMI VAIDYANATHAN DATED 26.11.2007.** - **ANNEXURE D2 COPY OF OCCUPANCY CERTIFICATE ISSUED BY THE PALAKKAD MUNICIPALITY FOR BHANUMATHY RAMACHANDRAN DATED 1.2.2008.** **ANNEXURE D3 COPY OF OCCUPANCY CERTIFICATE ISSUED BY** O.T.Rev. No.57/2016 18 **THE PALAKKAD MUNICIPALITY FOR G. PRADEEP DATED 15.2.2008.** **ANNEXURE E COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER (WC), PALAKKAD DATED 16.8.2010.** **ANNEXURE F COPY OF ORDER ISSUED BY THE DEPUTY COMMISSIONER(APPEALS), ERNAKULAM DATED 30.8.2014.** **ANNEXURE G COPY OF ORDER ISSUED KERALA VALUE ADDED TAX APPELLATE TRIBUNAL PALAKKAD IN TA(VAT) NO.25/2015 DATED 30.9.2015.**