M/S. OCEANUS DWELLINGS (P) LTD. v. COMMERCIAL TAX OFFICER (WORKS CONTRACT), PALAKKAD; INSPECTING ASST. COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD; THE COMMISSIONER OF COMMERCIAL TAXES, THIRUVANANTHAPURAM

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **TUESDAY, THE 9TH DAY OF AUGUST 2016/18TH SRAVANA, 1938** **WP(C).No. 30021 of 2015 (C) ----------------------------** **PETITIONER(S): ------------------------** **M/S. OCEANUS DWELLINGS (P) LTD., PRIYADARSINI NAGAR, PUTHOOR, PALAKKAD-678 001, REPRESENTED BY K.A. FRANCIS, REGIONAL MANAGER.** **BY ADVS.SRI.HARISANKAR V. MENON, SMT.MEERA V.MENON.** |**RESPONDENT(S):**|**RESPONDENT(S):**| |---|---| |**----------------------------**|| |**1.**|**COMMERCIAL TAX OFFICER**| ||**(WORKS CONTRACT), PALAKKAD-678 001.**| |**2.**|**INSPECTING ASST. COMMISSIONER,**| ||**DEPARTMENT OF COMMERCIAL TAXES,**| ||**PALAKKAD-678 001.**| |**3.**|**THE COMMISSIONER OF COMMERCIAL TAXES,**| ||**THIRUVANANTHAPURAM-695 002.**| ||**BY GOVT. PLEADER SRI.BOBBY JOHN PULICKAPPARAMBIL.**| ||**THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD**| ||**ON 09-08-2016, THE COURT ON THE SAME DAY DELIVERED**| ||**THE FOLLOWING:**| rs. ## **WP(C).No. 30021 of 2015 (C)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:-** **EXT.P1: COPY FO NOTICE ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DATED 05/08/2014. EXT.P2: CPY FO REPLY FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 11/09/2014. EXT.P3: CPY FO ORDER ISSUED BY THE 1ST RESPONDENT TO THE PETITIONER DATED 23/09/2014. EXT.P4: COPY OF APPLICATION FILED BY THE PETITIONER BEFORE THE 1ST RESPONDENT DATED 12/11/2014. EXT.P5: COPY OF JUDGMENT IN WP(C)NO.33478/14 OF THIS HON'BLE COURT DATED 16/12/2014. EXT.P6: COPY OF ORDER ISSUED BY THE 1ST RESPONDENT DATED 18/08/2015.** **RESPONDENT'S EXHIBITS:NIL.** ## **//TRUE COPY//** ## **P.S. TO JUDGE** rs. ## **A.M. SHAFFIQUE, J.** **-------------------------------------** W.P.(C) No. 30021 of 2015 -------------------------------------Dated this the 9[th] day of August, 2016 ## **JUDGMENT** Petitioner challenges Ext.P6 an order passed in a rectification application filed by the petitioner before the Commercial Tax Officer (Works Contract), Palakkad. 2. Petitioner is a works contractor registered under the Kerala Value Added Tax Act, 2003 (hereinafter referred to as 'KVAT Act' for short). He had undertaken construction and sale of nine apartment complexes. The issue relates to the assessment year 2010-2011. Ext.P1 is a notice issued under Section 25 (1) of the KVAT Act. The main objection raised by the petitioner to Ext.P1 was in regard to the taxable turnover, which according to the respondents, should be based on the total purchase made by the petitioner during the assessment year. As per the annual return submitted by the petitioner, the turn over reported was .7,84,44,241.99 and the total₹ purchase was shown as 13,09,24,806/-. The proposal was to₹ W.P.(C) No. 30021 of 2015 -2- treat the purchase cost as the basis for assessment and to add 25% towards gross profit in terms of proviso to Rule 10 (2) (a) of the KVAT Rules. The petitioner filed an objection _inter alia_ stating that out of the total units of 624 apartments, during the year 2010-2011, the petitioner sold only 151. During the previous year, petitioner sold 167 units and there is a balance of 306 units, for which the petitioner had not entered into any contract with purchasers. Therefore, the contention was that as far as the 306 units were concerned, though the petitioner had purchased materials for construction purposes, there is no works contract. However, Ext.P3 assessment order came to be passed. In Ext.P3, the officer asserted the position that the assessment has been made with reference to the total taxable turnover on the basis of the value of goods purchased in terms of proviso to Rule 10 (2) (a). However, nothing has been mentioned with reference to the number of units which remains unsold or for which no agreement was executed by the petitioner with the purchasers. W.P.(C) No. 30021 of 2015 -3- Petitioner, therefore, filed an application under Section 66 of the KVAT Act, 2003 for rectification insofar as no reason had been stated for making such an assessment without considering their specific objection regarding the number of units of apartments which remains unsold. Reference was also made in judgment of the Apex Court in **Larsen and Toubro Limited and another v. State of Karnataka and another [2013 (65) VST (1) SC]** in order to bring home the position that the absence of any contract being executed with potential purchasers by a builder, there is no works contract. However, by Ext.P6 order, without making any reference to the said contention, the application is rejected. 3. The learned counsel for the petitioner submits that there is error apparent on the face of record insofar as the contention of the petitioner that no contract had been executed with reference to 306 apartments has not been considered by the authority and therefore, Ext.P6 is liable to be set aside and the matter requires fresh consideration. W.P.(C) No. 30021 of 2015 -4- 4. The learned Government Pleader on the other hand while supporting the stand taken in Ext.P6, submitted that when the assessing officer had already taken a decision based on the value of goods purchased as the basis for assessment in terms of proviso to Rule 10 (2) (a) of the KVAT Rules, there is no reason why an order of rectification should be passed under Section 66 and therefore the officer was justified in rejecting the said application, as there was no error apparent on the face of the record. He also referred to the judgment of the Apex Court in **M/s. Deva Metal Powders Pvt. Ltd v. Commissioner, Trade Tax, U.P. [2008 (16) KTR 482 (SC)],** wherein the Supreme Court had considered as to what amounts to a mistake or error apparent on the face of the record and it is held at paragraph 11 as under: “ “Mistake” is an ordinary word but in taxation laws, it has a special significance. It is not an arithmetical error which, after a judicious probe into the record from which it is supposed to emanate is discerned. The word “mistake” is inherently indefinite in scope, as to what may be a mistake for one may not W.P.(C) No. 30021 of 2015 -5- be one for another. It is mostly subjective and the dividing line in border areas is thin and indiscernible. It is something which a duly and judiciously instructed mind can find out from the record. In order to attract the power to rectify under Section 22, it is not sufficient if there is merely a mistake in the power to rectify under Section 22, it is not sufficient if there is merely a mistake in the order sought to be rectified. The mistake to be rectified must be one apparent from the record. A decision on a debatable point of law or a disputed question of fact is not a mistake apparent from the record. The plain meaning of the word “apparent” is that it must be something which appears to be so ex facie and it is incapable of argument of debate. It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectifications.” 5. Having regard to the respective contentions of the parties, the question to be considered is whether there is any error apparent on the face of the record to enable the officer concerned to reconsider the matter. 6. There is no dispute about the fact that as far as the assessment is concerned, the officer proceeded on the basis W.P.(C) No. 30021 of 2015 -6- that the purchase value of the material has to be considered in terms of proviso to Rule 10 (2) (a) of the KVAT Rules. But in a case where the assessee contends that the said procedure cannot be adopted in view of the fact that there is no sale or agreement to sell the apartments in order to make the assessee a works contractor, the assessing officer is bound to consider the said issue also before arriving at a final finding. If there is non-consideration of relevant materials which are pleaded, it definitely amounts to an error apparent on the face of the record, which requires adjudication. 7. Reference to the judgment in _Larsen and Toubro Limited (supra)_ would clearly indicate that there is justification on the part of the petitioner in contending that as far as the 306 apartment of units are concerned, the petitioner does not become works contractor, unless there are materials to indicate that the petitioner had already entered into a contract with potential purchasers. Paragraphs 94, 115 and 117 of the said judgment are relevant, which reads as under: W.P.(C) No. 30021 of 2015 -7- “94. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contracts are species of the works contract.” “115. 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.” “117. The submission of Mr.K.N.Bhat that the view in _Raheja Development_ that when a completed building is sold, there is no work contract and, therefore, no liability to tax is not correct statement of law, does not appeal to us. If at the time of construction and until the W.P.(C) No. 30021 of 2015 -8- construction was completed, there was no contract for construction of the building with the flat purchaser, the goods used in the construction cannot be deemed to have been sold by the builder since at that time there is no purchaser. That the building is intended for sale ultimately after construction does not make any difference.” 8. Therefore, I am of the view that when the Apex Court had settled the law in this regard and when the same is brought to the notice of the assessing officer, the assessing officer was bound to consider the same especially when a rectification application was filed. Perusal of Ext.P6 order would show that the assessing officer had merely rejected the same by forming an opinion that all the points raised had been considered. In fact, when questions are specifically raised by the petitioner in this regard as stated above, the same cannot be ignored by the officer while considering rectification application. Therefore, I am of the view that this matter requires a re-consideration. Accordingly, this writ petition is disposed of as under: W.P.(C) No. 30021 of 2015 -9- (i) Ext.P6 is set aside. (ii) The first respondent shall re-consider Ext.P4 rectification application in accordance with law and in the light of the observations made as above. (iii) This shall be done within a period of two months from the date of receipt of a copy of this judgment. (iv) Until such time, the recovery steps shall be kept in abeyance. **Sd/A.M. SHAFFIQUE JUDGE** Scl/09.08.2016