Larsen & Toubro Ltd. v. State of Kerala and Others

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR MONDAY, THE 24TH DAY OF NOVEMBER 2014/3RD AGRAHAYANA, 1936 WP(C).No. 36148 of 2007 (C) ---------------------------- PETITIONER(S): ------------- M/S. LARSEN & TOUBRO LTD., REGD. OFFICE AT L & T HOUSE, BALLARD ESTATE P.O.BOX 278, MUMBAI-400 001 AND BRANCH AT "SKYBRIGHT" BUILDINGS, RAVIPURAM JUNCTION, M.G.ROAD KOCHI-682 016, REPRESENTED BY ITS BRANCH ACCOUNTANT ISWARAN BY ADVS.SRI.K.SRIKUMAR SRI.K.MANOJ CHANDRAN SRI.P.R.AJITHKUMAR RESPONDENT(S): -------------- 1. STATE OF KERALA, REPRESENTED BY FINANCE SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM. 2. THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM. 3. THE ASST. COMMISSIONER OF COMMERCIAL TAXES, SPECIAL CIRCLE-II (KVAT), ERNAKULAM. 4. THE ASST.COMMISSIONER(AUDIT ASSESSMENT), DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM. 5. M/S.GEO FOUNDATION & STRUCTURE PVT.LTD., 6TH FLOOR, ALPHA PLAZA, K.P.VALLON ROAD KADAVANTHRA, KOCHI-622 020. R5 BY ADV. SRI.ABRAHAM JOHN R1 -R 4 BY GOVERNMENT PLEADER SMT. LILLY THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 24-11-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX ## PETITIONER'S EXTS: EXT.P1: TRUE COPY CERTIFICATE DATED 3-12-2007 EXT.P2: TRUE COPY OF THE DETAILS OF VARIOUS CONTRACTS DONE BY THE COMPANY EXT.P3: TRUE COPY OF THE LETTER DATED 20-07-2005 EXT.P4: TRUE COPY OF THE LETTER DATED 26-7-2005 EXT.P5: TRUE COPY OF THE LETTER DATED 10-12-2005 EXT.P6: TRUE COPY OF THE LETTER DATED 21-3-2006 EXT.P7: TRUE COPY OF THE NOTICE DATED 3-4-2007 EXT.P8: TRUE COPY OF THE REPLY DATED 10-5-2007 EXT.P9: TRUE COPY OF THE LETTER DATED 27-6-2007 EXT.P10: TRUE COPY OF THE LETTER DATED 10-7-2007 EXT.P11: TRUE COPY OF THE LETTER DATED 28-4-2006 EXT.P12: TRUE COPY OF THE CERTIFICATE DATED 30-112007 EXT.P13: TRUE COPY OF THE LETTER DATED 31-10-2007 EXT.P14: TRUE COPY OF THE SPECIMEN PURCHASE DETAILS OF THE PETITIONER COMPANY EXT.P15: TRUE COPY OF THE ASSESSMENT ORDER DATED 31-7-2007 EXT.P16: TRUE COPY OF THE DEMAND NOTICE DATED 1211-2007 EXT.P17: TRUE COPY OF THE RECTIFICATION APPLICATION DATED 30-11-2007 /true copy P.S. To Judge ## **A.K.JAYASANKARAN NAMBIAR, J. --------------------------------W. P. (C ) No. 36148 of 2007 - C ----------------------------------Dated this the 24[th] day of November, 2014** ## **JUDGMENT** The petitioner is a Company engaged in the execution of works contract. In connection with the said work, it procures goods from vendors and incorporates the same, either as such or after precasting in the works contract. It is stated that on pre-cast items, the tax is paid at the rate of 12.5% while incorporating the same in the works contract. In respect of the other items, the tax liability is discharged at the rates shown in the respective schedules under the Kerala Value Added Tax Act . For the assessment year 2005-06, the petitioner filed returns disclosing a total and taxable turnover of ` 59,11,44,211 and ` 28,94,52,959/- respectively. The petitioner had also claimed deduction of ` 2,35,40,032/- towards the sum paid to Contractors and ` 27,81,51,220/- towards labour and like charges. The assessment for the said year was, however, completed by the 4[th] W. P. (C ) No. 36148 of 2007 - C 2 respondent by Ext. P15 order dated 31-7-2007, by denying the petitioner the benefit of deduction claimed as also by adopting a uniform rate of 12.5% in cases were declared goods had been transferred, in the course of the execution of the works contract, in other forms and not as such. Ext. P16 dated, 12-11-2007 is the demand notice that was served on the petitioner consequent to the assessment order passed against it. In so far as the 4[th] respondent had, while completing the assessment, also erred in taking the figure representing tax paid as ` 1,83,24,109/-, in lieu of ` 2,28,75,176/-. that was actually paid by the petitioner, the petitioner preferred Ext. P17 rectification application before the 4[th] respondent. In the Writ Petition, the petitioner is essentially aggrieved by the provision under the KVAT Act which stipulated payment of tax at the rate of 12.5 % where goods were not separately ascertainable and such goods, including declared goods, were transferred in the course of execution of the works contract in other forms and not as such. The petitioner is also aggrieved by the assessment done by the 4[th] respondent on amounts representing the turnover of materials, that had passed directly from the Sub contractor to the awarder in the course of execution of the works contract. It is on account W. P. (C ) No. 36148 of 2007 - C 3 of the said contentions regarding the Constitutional validity of the provisions of the Act that the petitioner chose to approach this Court through a Writ Petition under Article 226 of the Constitution of India, rather than pursue his remedy by way of an Appeal against Ext. P15 order of assessment of the 4[th] respondent. 2. A counter affidavit has been filed on behalf of the respondent wherein it is stated that the assessment, with regard to the turnover pertaining to the goods supplied by the Subcontractors, was done on the petitioner in view of the fact that the petitioner had not disclosed the details regarding registration numbers, etc. of the sub-contractor while submitting his returns. It is further pointed out that no amount representing the turnover of the sub-contractor has been included in the assessment of the petitioner and further, that there was no legal flaw in the State taxing goods that had been transferred in the course of execution of works contract in other forms, at the higher rate of 12.5%, since the goods, even W. P. (C ) No. 36148 of 2007 - C 4 declared goods, lost their identity when they were converted to other forms before incorporating them in the works contract. On the basis of the said contention, it is urged that the Writ Petition as such is not maintainable and the petitioner ought to pursue his alternate remedies under the KVAT Act. 3. I heard the learned Sr. Counsel Sri. Sreekumar appearing on behalf of the petitioner as well as the learned Government Pleader Smt. Lilly on behalf of the respondents. 4. On a consideration of the facts and circumstances of the case and also the submissions made across the bar, I note that in Ext. P15 assessment order of the 4[th] respondent, the assessment in respect of declared goods, which were incorporated during the course of execution of the works contract in other forms and not as such had been assessed at the uniform rate of 12.5 percent. This was done in accordance with the provisions of Sec. 6 (1)(f) as it stood during the relevant time. I note, however, that by an amendment introduced with effect from 1-4-2008 by W. P. (C ) No. 36148 of 2007 - C 5 the Kerala Finance Act, 2008, a 9[th] proviso was incorporated under Section 6 (1)(f) of the KVAT Act which clarified that the tax payable under clause (f), in respect of transfer of declared goods not in the form of goods but in some other form, shall be at the rate described under the respective schedules. The effect of the said amendment with regard to the transfer of declared goods in some other form, prior to the date of the amendment, was clarified by a Division Bench Judgment of this Court in **Jose v. Assistant Commissioner (Assessment) - 2010 (1) KLT 816** . In the said case, the Division Bench clarified the scope of the amendment as follows: “32. In the above facts and circumstances and on the basis of the reasons as given above, we hold that (i) S.6 (1)(f) as introduced by Act 22/2006 is well within the legislative competency of the State, (ii) that the retrospective operation given from 1.7.2006 to 24.10.2006 does not impose any unreasonable restriction in the matter of freedom of trade or impose any undue hardship and (iii) merely because S. 6(1)(f) was introduced without a previous Bill being introduced with the recommendation of the Governor, the infirmity, if any, stands cured once the assent is obtained under Art. 200 of the Constitution of India in the light of the specific provision contained in Art. 255N of the Constitution, (iv) that in so far as the rate of tax in respect of declared goods in excess of the rate as provided under S.15 of the Central W. P. (C ) No. 36148 of 2007 - C 6 Sales Tax will be unconstitutional, we hold that the 9[th] proviso added to S. 6 (1)(f) was brought into force and thus save the provision from being ultra vires of the Constitution and consequently we declare the rate of tax applicable to declared goods shall always be at the same rate as provided under the C.S.T. Act and that (v) prescription of uniform rate of tax in the transfer of goods and execution of works contract where transfer is not in the form of goods but in some other form at the rate of 12.5% and when the transfer is in the form of goods at the rate prescribed for the respective schedules, is legal and valid”. 5. It is apparent, therefore, that to the extent Ext. P15 assessment order of the 4[th] respondent has been passed, by taking the rate of tax applicable on transfer of declared goods in some other form as 12.5% and not at the rate prescribed for the goods under the respective schedules to the KVAT Act, the same cannot be legally sustained. Further, the 4[th] respondent would also have to take into account the subsequent decision of the Supreme Court in the case of **State of Andhra Pradesh and Others v. Larsen & Tourbo Ltd. And Others - (2008) 17 VST 1 (SC)** where it was held as follows:- "If one keeps in mind the above quoted observation of this Court in the case of Builders Association of India (1989) 73 STC 370 the position becomes clear, namely, that even if there is no privity of contract between the contractee and the sub-contractor, that would not do away the principle of transfer of property by the sub-contractor by employing the same on the W. P. (C ) No. 36148 of 2007 - C 7 property belonging to the contractee. This reasoning is based on the principle of transfer of property by the sub-contractor by employing the same on the property belonging to the contractee. This reasoning is based on the principle of accretion of property in goods. It is subject to the contract to the contrary. Thus, in our view, in such a case, the work executed by a sub-contractor, results in a single transaction and not multiple transactions. This reasoning is also borne out by Section 4 (7) which refers to value of goods at the time of incorporation in the works executed. In our view, if the argument of the Department is to be accepted it would result in plurality of deemed sales which would be contrary to article 366 (29A)(b) of the Constitution as held by the impugned judgment of the High Court. Moreover, it may result in double taxation which may make the said 2005 Act vulnerable to challenge as violative of articles 14,19(1)(g) and 265 of the Constitution of India and held by the High Court in its impugned judgment". 6. As the 4[th] respondent, while completing the assessment against the petitioner vide Ext. P15 order, did not have occasion to consider the effect of the aforesaid judgment of the Supreme Court in the instant case, which involves an identical issue with regard to the same assessee, I am of the view that it is necessary to direct the 4[th] respondent to re-do the assessment on the petitioner for the assessment year 2005 - 06 after taking note of the decisions referred to above. It would also be necessary for the 4[th] respondent to consider the claims of the petitioner for deduction towards labour W. P. (C ) No. 36148 of 2007 - C 8 and like charges which, on a perusal of Ext. P15 assessment order, appears to have been done on the basis of estimation rather than by placing reliance on any documents and other material that were produced by the petitioner. Thus, taking into account the over all circumstances, I feel that the 4[th] respondent must consider the material on record and re-do the assessment for the assessment year 2005-2006 on the petitioner. To enable him to do this, I quash Ext. P15 order passed by him as also Ext. P16 demand notice and direct him to complete the assessment afresh, after affording the petitioner an opportunity of being heard, within a period of three months from the date of receipt of a copy of this judgment. The Writ Petition is disposed of as above. ## **A.K.JAYASANKARAN NAMBIAR JUDGE** **ani/24** 9 W. P. (C ) No. 36148 of 2007 - C ## **xxx**