Lloyd Insulations India Ltd. v. State of Kerala

O.T.Rev.Nos.69, 70 and 72 of 2021 1 ``` IN THE HIGH COURT OF KERALA AT ERNAKULAM ``` ``` PRESENT ``` ``` THE HONOURABLE MR.JUSTICE S.V.BHATTI ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE BASANT BALAJI ``` ``` TUESDAY, THE 27[TH] DAY OF SEPTEMBER 2022 / 5TH ASWINA, 1944 ``` ``` OT.REV NO.69OF 2021 ``` ``` AGAINST THE ORDER IN TAVAT 224/2016 OF KERALA VAT APPELLATE TRIBU- NAL, ERNAKULAM ``` ## **`REVISION PETITIONER/RESPONDENT:`** ``` LLOYD INSULATIONS INDIA LTD. DOOR NO.CC 33/1691, 1ST FLOOR, B2, PALAKKAL BUILDING, VIVEKANANDA ROAD, N. H. BYPASS, VENNALA P. O., ERNAKU- LAM - 682 028., REPRESENTED BY ITS DEPUTY GENERAL MAN- AGER - CS MR. VINOD MENON. BY ADVS. ANIL D. NAIR R.SREEJITH TELMA RAJU SANGEETH JOSEPH JACOB CHRISTINA ANNA PAUL ``` ## **`RESPONDENT/APPELLANT:`** ``` STATE OF KERALA REPRESENTED BY ITS FINANCE SECRETARY TO GOVERNMENT, DEPARTMENT OF TAXES, SECRETARIAT, THIRUVANANTHAPURAM - 695 001. BY SR.GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN ``` ``` THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 27.09.2022, ALONG WITH OT.Rev.72/2021, 70/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` O.T.Rev.Nos.69, 70 and 72 of 2021 2 # **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ``` PRESENT ``` ``` THE HONOURABLE MR.JUSTICE S.V.BHATTI ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE BASANT BALAJI ``` ``` TUESDAY, THE 27[TH] DAY OF SEPTEMBER 2022 / 5TH ASWINA, 1944 ``` ``` OT.REV NO.72 OF 2021 ``` ``` AGAINST THE ORDER IN TAVAT 225/2016 OF KERALA VAT APPELLATE TRIBU- NAL, ERNAKULAM ``` ## **`REVISION PETITIONER/RESPONDENT:`** ``` LLOYD INSULATIONS INDIA LTD DOOR NO CC 33/1691, 1ST FLOOR, B2 PALAKKAL BUILDING, VIVEKANANDA ROAD, N.H BYPASS, VENNALA P.O, ERNAKULAM 682 028 REPRESENTED BY ITS DEPUTY GENERAL MANAGER CS MR. VINOD MENON BY ADVS. ANIL D. NAIR SREEJITH R.NAIR TELMA RAJU SANGEETH JOSEPH JACOB CHRISTINA ANNA PAUL ``` ## **`RESPONDENT/APPELLANT:`** ``` STATE OF KERALA REPRESENTED BY ITS FINANCE SECRETARY TO GOVERNMENT, DE- PARTMENT OF TAXES, SECRETARIAT, THIRUVANANTHAPURAM BY SR.GOVERNMENT PLEADER V.K.SHAMSUDHEEN ``` ``` THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 27.09.2022, ALONG WITH OT.Rev.69/2021 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` O.T.Rev.Nos.69, 70 and 72 of 2021 3 # **`IN THE HIGH COURT OF KERALA AT ERNAKULAM`** ``` PRESENT ``` ``` THE HONOURABLE MR.JUSTICE S.V.BHATTI ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE BASANT BALAJI ``` ``` TUESDAY, THE 27[TH] DAY OF SEPTEMBER 2022 / 5TH ASWINA, 1944 ``` ``` OT.REV NO.70OF 2021 ``` ``` AGAINST THE ORDER IN TAVAT NO.226/2016 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM ``` ## **`REVISION PETITIONER/RESPONDENT:`** ``` LLOYD INSULATIONS INDIA LTD. DOOR NO CC 33/1691, 1ST FLOOR B2 PALAKKAD BUILDING, VI- VEKANANDA ROAD, N.H BYPASS BY ITS DEPUTY GENERAL MAN- AGER-CS MR. VINOD MENON BY ADVS. ANIL D. NAIR R.SREEJITH TELMA RAJU SANGEETH JOSEPH JACOB CHRISTINA ANNA PAUL ``` ## **`RESPONDENT/APPELLANT:`** ``` STATE OF KERALA REPRESENTED BY ITS FINANCE SECRETARY TO GOVERNMENT, DE- PARTMENT OF TAXES, SECRETARIAT, THIRUVANANTHAPURAM 693 001 BY SR.GOVERNMENT PLEADER SRI V.K.SHAMSUDHEEN ``` ``` THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 27.09.2022, ALONG WITH OT.Rev.69/2021 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` O.T.Rev.Nos.69, 70 and 72 of 2021 4 ## **ORDER** ``` [OT.Rev Nos.69/2021, 72/2021, 70/2021] ``` ## _S.V.Bhatti, J._ Heard learned counsel Mr.Anil D.Nair and Mr.Shamsudheen for the petitioner and the respondent respectively. 2. The revisions are at the instance of M/s Lloyd Insulations (India) Ltd., a dealer registered under the Kerala Value Added Tax Act, 2003 (for short ‘the Act’), against the common order dated 16.01.2020 in T.A.(VAT) Nos.224, 225 and 226 of 2016 of KVAT Appellate Tribunal, Ernakulam. O.T.Revision No.69 of 2021 has been treated as the lead case by the counsel appearing for the parties and reference to the circumstances in O.T.Revision No.69 of 2021, it is stated, would be sufficient for disposing of other revisions as well. ## **O.T.Revision No.69 of 2021** 3. The revision relates to the annual return filed for the year 2011-2012 declaring total turnover of Rs.5,63,29,292/- and O.T.Rev.Nos.69, 70 and 72 of 2021 5 claimed exemption of Rs.19,00,068/- and the dealer has paid compounded tax at 3% for the turnover covered by the works contract of Rs.5,44,29,224/-. The assessee declared sale of goods at Rs.77.33 lakhs under 4% taxable rate and Rs.26.98 lakhs under 12.5%. By referring to the entries in KVATIS the department stated that the turnover details submitted by the dealer are incorrect and the dealer has suppressed the purchases made from outside the State both interstate purchase and stock transfer and transported the same through the check post in the State of Kerala. On the alleged suppression of turn over, the Assessing Officer issued notice and under Section 24 completed the assessment by order dated 30th of May 2015. The dealer filed an appeal and the Appellate Authority, by order dated 28.3.2016 allowed the appeal. We find it convenient to excerpt the operative portion of the said order to appreciate the grounds urged against the view taken by the Tribunal. “The learned counsel brought to my attention on the judgement of Hon'ble Supreme Court in the case of Hyderabad Engineering Industries Vs State of Andra Pradesh that, "the consistent view of this court appears to be that even if there is no specific stipulation or directions in the agreement for interstate movement of goods. If such movement is an incident of that agreement, or if the facts O.T.Rev.Nos.69, 70 and 72 of 2021 6 and circumstances of the case denoted, the conditions of section 3(a) would be satisfied." The appellant produced before me invoices and other documents to show that the goods have been transported for a particular work in state of Kerala and copies of invoices and LR's for movement of materials from outside the state. The LR copies filed show that the interstate movement of goods from outside the state of Kerala are direct to the work spot without any possibility of diversion for any other purpose. The appellant also filed work order copies. It is also learnt that inspection of materials takes place in work contract during the receipt of materials or application of the material or at the final completion of work. In some other contracts, the inspection of the materials are at the stage of submission of samples. Hence it is not pertinent that the inspection of materials before dispatch. The opening stock value of Rs. 5,73,438/- is found correct as per audit report of the appellant. The amount of interstate purchase are gathered from KVATIS data is Rs.6,85,68,564/-. This turnover includes declared goods, tools and tackles, machineries, and consumables, which are not taxable and the declared goods are taxable only @5%. These materials were brought from outside the state of Kerala u/s 3(a) of CST Act which are not taxable under KVAT Act. The appellant had brought this to the notice of the assessing authority as per letter 18/KER/EXEC/14/153 dt. 22/4/2015. The learned counsel produced the copy of the letter for my perusal. It is seen that the assessing authority has not considered the letter or made any remarks regarding the appellants submission with regard to the assessment of this turnover at higher rate. This is clearly in violation of principles of natural justice. The assessing authority assessed a turnover of Rs.1,17,52,275/being interstate stock transfer out. But no details were furnished in the assessment order. The appellant as per letter dt. 22/4/15 objected this proposal. No details of such Interstate stock transfer were provided to the appellant nor discussed the details of such interstate stock transfer out with particular data of crossing the O.T.Rev.Nos.69, 70 and 72 of 2021 7 boarders. More over this turnover cannot be added to KVAT turnover as it is pertaining to CST turnover. With regard to the arrival of sales turnover of Rs. 88,68,413/it is seen that the appellant had already declared the sales turnover of Rs. 1,04,33,427/- on which tax has already been paid. But the assessing authority understated the sales turnover to Rs. 88,68,413/- after deduction of Rs. 15,65,014/- (15% as G.P. on Rs. 1,04,33,427/-). But the actual declared sale value is Rs. 1,04,33,427/-. The assessing authority computed the balance material cost used in the execution of works contract as Rs. 7,15,58,222/-. This turnover has been arrived after deducting Rs. 4,67,642/-(closing stock) and Rs. 88,68,413/-(material sold) from Rs. 8,08,94,277/-. Since the turnover of Rs. 1,17,52,275/- which is not KVAT turnover the computation of cost of materials used in works contract arrived is also not correct. The appellant had duly filed returns in Form 10 and 10B and the taxes have been fully paid. The appellant has also maintained materials stock register, sales register, sales invoices and delivery chalans. The only defect was the non declaration of Interstate transactions, that too was according to the appellant not wilful. The assessing authority could have invoked penal action for the said default, instead proceeded with a best judgment assessment with contradicting and wrong computation of turnovers as discussed above. Based on that illegal and wrong computation the assessing authority added 20% for probable omission and suppression. Addition based on a wrong and unsustainable turnover is also found unsustainable. Moreover the broad reading of the section 2(xx), the goods are defined to be the one involved in the execution of works contract. It means the materials which are used only are to be treated as goods liable for taxation, as far as works contract is concerned. Hence the footing of the assessing authority to assess the materials which are going to be used is bad in law and against the provisions of KVAT Act.” O.T.Rev.Nos.69, 70 and 72 of 2021 8 4. Revenue filed T.A.(VAT) No.224 of 2016 and it is allowed by order dated 16.01.2020. Hence the revisions at the instance of the dealer. 5. Adv.Anil D Nair argues that the Tribunal fell in a serious error by assuming as correct every circumstance stated against the dealer. The dealer for the subject assessment years is permitted to take compounded rate of tax as a person executing the works contract. The turnover to the extent of works contract is reflected and the alleged suppression is not relatable to the dealer in any manner. He argues that the details referred to either by the Assessing Officer or by the Tribunal are interstate purchases effected by the respective awarders of the contracts, the invoices for purchasing the equipment were in the name of the awarders of the contract. The dealer has extended services and such purchase of goods by the awarder cannot be included in the turnover of the dealer. The findings recorded by the Tribunal in paragraph-11 of the order under revision are completely unsustainable and prejudicial to the dealer. 6. It is further contended that the dealer has placed the copies O.T.Rev.Nos.69, 70 and 72 of 2021 9 of invoices, books of accounts etc. before the Deputy Commissioner (Appeals) and the Appellate Authority recorded a finding after verifying the material produced by the dealer. It may be true that the said findings are under challenge before the Tribunal. The Tribunal has called upon the dealer to place the entire materials before the Tribunal and the Tribunal, in spite of the fact that the entire materials placed before the Tribunal, picked up two instances for verification whether the claim of the dealer for excluding any turnover in the return filed for the subject year is valid or not and recorded the findings. The Tribunal did not give reasons for disagreeing with the findings recorded by the Deputy Commissioner (Appeals). According to him, the Tribunal either recorded the findings contrary to the material or interpreted the material in an illegal and erroneous way. Therefore, he prays the Court to set aside the common order and remit the matter to the Tribunal for consideration and disposal afresh in accordance with law by the Tribunal. 7. Before adverting to the argument of Mr.Shamsudheen, we would excerpt the very findings on which forceful argument has O.T.Rev.Nos.69, 70 and 72 of 2021 10 ## been put forward by Adv.Anil D.Nair. “The respondent-assessee has at no stage produced evidence to prove that they have remitted tax in terms of Section 8(a)(ii) of the Act in respect of the purchase value of goods effected by way of inter- State purchase as well as brought into the State by way of stock transfer. Xxxxx Xxxx 16. We have extracted at Para 13 above the findings of the Deputy Commissioner (Appeals) that he has verified the invoice and other documents to show that the goods have been brought for the particular work in the State of Kerala and the goods have been brought to work spot without any possibility of diversion. At the time of hearing of these appeals on 08.11.2019, we directed the respondent-assessee’s learned counsel to produce before us all the documents which were produced before the first appellate authority. On 13/11/2019, a paper book was filed containing the copy of the judgment of the Hon’ble High Court of Kerala in R.P.No.144 of 2015 dated 16/02/2015, copy of the judgment of the Hon’ble Supreme Court of India in Hyderabad Engineering Industries v State of Andra Pradesh and copies of 30 agreements entered into by the respondent-assessee with various awarders in the State of Kerala. However, the documents referred to by the Deputy Commissioner (Appeals) such as the copies of the invoice, LR etc. were not filed before us. 17. To ascertain whether the transaction of stock transfer in as well as inter-state purchase was one falling under Section 3(a) of the CST Act, xxxx xxxx 19. In this connection, we may point out that neither the assessing authority nor the first appellate authority have recorded in the assessment order or the appellate order the O.T.Rev.Nos.69, 70 and 72 of 2021 11 nature of work carried out by the respondent-assessee. In the reply dated 22/04/2015 the respondent-assessee explained that they have carried out the following two types of contract:- - (1) Structural contracts. - (2) Thermal Insulation. Under Structural contracts, the following types of structural contracts were carried out:- 1. Pre-Engineered Building. 2. Structural Roofing and Cladding. 3. Structural PU Panelling. xxxxx xxxx 22. By order dated 23.11.2012 Ahalia International Foundations placed an order with the Cochin office of the respondent-assessee for “Roofing sheet supply laying work at the Engineering College in Palakkad”. The material approved by the awarder was “Lloyd tile Profiled Sheet”. There is nothing on record to show that for the execution of the above work, the respondent-assessee had purchased the sheet from outside the State of Kerala and brought the same to the site in Palakkad. Inter-State movement has not been proved in this case. We find that several such work orders relate to roofing work with Lloyd Profile Sheet. Similarly, in the case of insulation work carried out by the respondent-assessee, there is nothing on record to indicate that the materials required for carrying out the insulation work have moved from outside the State of Kerala either by way of inter-State purchases or by way of stock transfer to the particular work site.” ## 8. Mr.Shamsudheen argues that the dealer is permitted to pay tax at compounded rate under Section 8(a)(ii) of the Act. The dealer is under obligation to pay tax at the rates specified in the ## O.T.Rev.Nos.69, 70 and 72 of 2021 12 schedule applicable to the goods purchased, interstate as well as on the purchase value brought into the State, by way of stock transfer. The agreements were examined by the Tribunal and findings of fact were recorded. The Tribunal is justified in examining a few of the agreements placed before it as a litmus test and the dealer failed in both the examinations. It is further argued that the dealer does not dispute the obligation to pay tax under Section 8(a)(ii) of the Act and by reading the findings recorded by the Tribunal, he argues with considerable force that firstly, the revisions are to be dismissed and the revisions do not warrant interference of this Court even for the limited purpose of remitting the matters to the Tribunal. 9. We have perused the orders and noted the rival submissions canvassed by the counsel. We would like to examine two aspects on which arguments have been put forward by the counsel. The first aspect relates to suppression or non-inclusion of interstate purchase, stock transfer etc. For the purpose of appreciating the illegality in the finding recorded by the Tribunal, we will not refer to the findings recorded by the Appellate Authority. The Tribunal ought to have examined, firstly, whether the turnover alleged to O.T.Rev.Nos.69, 70 and 72 of 2021 13 have been suppressed by the dealer is the turnover from the perspective of any of the provisions under KVAT Act, liable to be included in the turnover of the dealer. Once such consideration takes place, the statutory obligation automatically attracted to such transactions. The dealer contends that the interstate purchases are made by the awarder. The invoices stand in the name of the awarder. The dealer has not become the owner of the goods covered by interstate purchases and thereafter deployed them as part of execution of the works contract. The awarder has made available the equipments covered by interstate purchases as part of works contract and services have been rendered by the dealer. Therefore, there is no obligation to remit tax in terms of Section 8(a)(ii) of the Act to that extent. We are of the view that the Tribunal ought to have first decided the turnover attributable to the dealer which was suppressed in the returns filed in the respective years and thereafter appreciated whether the obligation under Section 8(a)(ii) of the Act has been discharged or not. The said finding recorded by the Tribunal, in our considered view, is unsustainable. We are persuaded by the argument of Mr.Anil D.Nair only to the limited extent of recording a finding ## O.T.Rev.Nos.69, 70 and 72 of 2021 14 that without deciding the primary fact in issue on the obligation under Section 8(a)(ii) liability is determined and such finding is illegal and unsustainable. 10. The next contention is on the evidence produced before the Appellate Authority and the Tribunal. It is noted that the evidence produced by the dealer before the Appellate Authority and the Tribunal is one and the same. The Appellate Authority accepted the entire evidence produced by the dealer and recorded a finding in favour of the dealer. The error committed by the Tribunal is that it has taken up for consideration a few, viz. two or three instances juxtaposed the requirements set out by the v Supreme Court in _**Hyderabad Engineering Industries State of Andhra Pradesh**_ and reversed the findings. For examining the record now placed, the Tribunal would have afforded an opportunity to the dealer by recording a few findings which in fact are not the reason recorded by the Assessing Authority. We are of the view that such findings are unsustainable and warrant reexamination by the Tribunal. For the above reasons, common order dated 16.01.2020 in T.A.(VAT) Nos.224, 225 and 226 of 2016 of KVAT Appellate O.T.Rev.Nos.69, 70 and 72 of 2021 15 Tribunal, Ernakulam is set aside and the matter is remitted to Tribunal for disposal afresh expeditiously. Sd/- **S.V.BHATTI, JUDGE** Sd/- **BASANT BALAJI, JUDGE** css/