L. Satheek v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR.JUSTICE T.R.RAVI** **TUESDAY, THE 10TH DAY OF NOVEMBER 2020 / 19TH KARTHIKA, 1942** **O.T.Rev.No.4 OF 2018** **AGAINST THE ORDER IN T.A.(VAT) No.207/2015 DATED 03-11-2017 OF KERALA VALUE ADDED TAX APPELLATE TRIBUNAL** **[ASSESSMENT YEAR 2009-10]** ## **REVISION PETITIONER/ APPELLANT/ASSESSEE:** **L.SATHEEK, AKKAVILA, ERAVIPURAM, KOLLAM.** **BY ADVS. SRI.HARISANKAR V.MENON SMT.K.KRISHNA SMT.MEERA V.MENON SRI.MAHESH V.MENON.** ## **RESPONDENT/ RESPONDENT/REVENUE:** **STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT.SECRETARIAT, THIRUVANANTHAPURAM-695001.** **BY SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN.** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 10-11-2020, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **- 2 -** **O.T.Rev.No.4 of 2018** **“C.R”** **K. Vinod Chandran & T.R.Ravi, JJ. ----------------------------------O.T.(Rev.) No.4 of 2018 -----------------------------------Dated, this the 10[th] day of November, 2020** ## **ORDER** **Vinod Chandran, J.** **Two questions arise from the order of the Tribunal, which are re-framed as under:** - **(i) Ought not the Tribunal have excluded crushed metal used for tarring, from the levy of tax since it is only a consumable for which deduction is allowable under Rule 10(2)(k)(iv) of the KVAT Rules?** - **(ii) Ought not the Tribunal have held that in case of closing work in progress, the transfer of property is yet to be finalized, on account of which there is no liability under the KVAT Act and Rules?** **2. The assessee is a works contractor and had** **compounded certain works. In the present revision for the relevant year we are concerned with works which were not compounded. The assessee had been awarded work of road tarring, wherein crushed metals were used. The crushed metal was admittedly mixed with hot bitumen and used in tarring. The assessee's claim that crushed metal is a** **O.T.Rev.No.4 of 2018 - 3 -** **consumable was rightly rejected by the Tribunal. While tarring, there is accretion of the crushed metal in the work and, hence, it cannot be treated as a consumable. We, hence, answer the first question in favour of the Revenue and against the assessee.** **3. With respect to the next question, the learned Counsel for the assessee mainly relies on the assessments carried out in the previous years. The assessee admittedly had continuous work for consecutive years. At the close of the year, there were works which were in progress, for which there were no payments received also. The assessee had been offering only the the work for which payments are received in that assessment year for the purpose of taxation. The Assessing Officer in the previous years took the proportion of the payment received as against the total of such payments received and the closing work in progress, for the purpose of computing the percentage of the work carried out in an year. This percentage was applied to the cost of materials, wages paid for labour, hire charges and consumables to arrive at the total expenditure. From the contract receipt and total expenditure, the gross profit was arrived at, and this percentage was applied to the cost of materials. The primary fallacy in the said computation of taxable turnover is that the tax would only be levied on** **- 4 -** **O.T.Rev.No.4 of 2018** **the basis of the contract receipt and not on the basis of transfer of goods which in a works contract is occasioned by accretion of goods in the works. The method adopted in the previous years also gives short shrift to the definition of turnover and taxable turnover as found in the statute. When there is accretion of goods there is a transfer of property in goods and incidence of tax thus arise; despite the fact that the payment stands deferred.** **4. The assessee cannot rely merely on the factum of the assessment in the earlier years having been completed in a particular manner. Reliance can be placed on the decision of the Hon'ble Supreme Court in** _**CIT v. British Paints India Ltd**_ **. [** _**(1991) 188 ITR 44 (SC)**_ **] wherein it was held that it is incorrect to say that the officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past. It is trite that every assessment year brings about a fresh cause of action and the Assessing Officer is not bound by a method followed in the earlier years; especially if it is demonstrably wrong. It was also held that any measure adopted by the assessee to shift the profits of one year to another year gives a distorted picture of the true state of affairs resulting in incorrect computation.** **- 5 -** **O.T.Rev.No.4 of 2018** **5. In the present case, we see from the assessment order that the assessee had a closing work in progress of Rs.4,00,00,000/- in the assessment year 2009-10, which closing work in progress is as on 31.03.2010. The opening work in progress of that year, as on 01.04.2009, is Rs.85,00,500/-; being the closing work in progress of the previous year. The total contract receipt was added to the closing work in progress, from which opening work in progress was deducted. This is the very same computation carried out in the case of sale of goods, by reference to the opening and closing stock of a relevant assessment year.** **6. The assessee cannot argue that that the contract receipts are not with respect to the work in progress. The incidence of tax arises when there is transfer of goods and in a works contract at the time of accretion of goods. The terms of payment in the contract, which regulates the affairs of the awarder and awardee, cannot shift the levy, as fixed by the statute. The assessee before the lower authorities did not have any case with respect to the goods having not been transferred at all in the case of the closing work in progress. The contract receipts would be on terms agreed between the** **- 6 -** **O.T.Rev.No.4 of 2018** **assessee and the awarder, which does not determine the taxable event; especially when the definition of turnover takes in the aggregate amounts for which** _**inter alia,**_ **sale supply or distribution of goods are occasioned by a dealer … whether for cash or deferred payment. The determination of total turnover is prescribed in Rule 9 of the KVAT Rules, 2005 which, in the case of works contract, is the aggregate of contract amount received or receivable. Similarly, determination of taxable turnover under Rule 10(2)(a) is in respect of transfer of property involved in the execution of works contract after permissible deductions. The assessee had no contention on facts before any of the lower authorities as to the transfer of goods having been not effected or even of the payments for the goods transferred not having been received. Moreover the closing work in progress of this year, amounting to Rs.4,00,00,000/- was treated as the opening work in progress of the next assessment year and allowed deduction. The assessee has accepted the said assessment and it has become final. We hence answer the second question also in favour of the Revenue and against the assessee.** **- 7 -** **O.T.Rev.No.4 of 2018** ## **The revision is dismissed, leaving the parties to** **suffer their respective costs.** **==> picture [117 x 123] intentionally omitted <==** **----- Start of picture text -----**<br> Sd/-<br>K.VINOD CHANDRAN<br>JUDGE<br>Sd/-<br>T.R.RAVI<br>JUDGE<br>**----- End of picture text -----**<br> **==> picture [37 x 10] intentionally omitted <==** **----- Start of picture text -----**<br> Vku/-<br>**----- End of picture text -----**<br> **- 8 -** **O.T.Rev.No.4 of 2018** ## **APPENDIX** ## **PETITIONER'S/S ANNEXURES:** **ANNEXURE A COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER (WC), KOLLAM FOR THE YEAR 2009-10 DATED 29/08/2013. ANNEXURE B COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, WORKS CONTRACT, KOLLAM DATED 18/09/2014.** **ANNEXURE C COPY OF ORDER ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), KOLLAM DATED 23/06/2015.** **ANNEXURE D COPY OF ORDER ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, THIRUVANANTHAPURAM IN TA (VAT) 207/15 DATED 03/11/2017.** **ANNEXURE E COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER (WC), KOLLAM DATED 02/05/2014 [ANNEXURE-D PRODUCED ALONG WITH I.A.NO.450 OF 2018 RE-NUMBERED AS ANNEXURE-E VIDE ORDER IN THE SAID I.A. DATED 10.11.2020].** **ANNEXURE F COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER (WC), KOLLAM DATED 31/12/2016 [ANNEXURE-E PRODUCED ALONG WITH I.A.NO.450 OF 2018 RE-NUMBERED AS ANNEXURE-F VIDE ORDER IN THE SAID I.A. DATED 10.11.2020].** ## **[ TRUE COPY ]**