M/S. Silver Line Villas & Apartments Pvt Ltd. v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE DEVAN RAMACHANDRAN** **WEDNESDAY, THE 21ST DAY OF DECEMBER 2016/30TH AGRAHAYANA, 1938** **OT.Rev.No. 125 of 2015** **------------------------------------** ## **T.A.(VAT)NO. 1493 OF 2013 OF THE KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD** **---------------** ## **REVISION PETITIONER(S)/APPELLANT/APPELLANT/ASSESSEE :** **------------------------------------------------------------------------------------------------** **M/S. SILVER LINE VILLAS & APARTMENTS PVT LTD., CENTURY PLAZA, V.H.ROAD, PALAKKAD, REPRESENTED BY ITS MANAGING DIRECTOR SRI.SHAILAKANTH P.K.** **BY ADVS. SRI.N.MURALEEDHARAN NAIR SRI.V.K.SHAMUSUDHEEN** **RESPONDENT(S)/RESPONDENT/RESPONDENT : -------------------------------------------------------------------------** ## **STATE OF KERALA** **BY SR. GOVERNMENT PLEADER SRI. MOHAMMED RAFIQ** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 21-11-2016, ALONG WITH OT.Rev.No. 127 OF 2015, THE COURT ON 21-12-2016 PASSED THE FOLLOWING:** Msd. ## **OT.Rev.No. 125 of 2015** ## **------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' ANNEXURES :** - **ANNEXURE A: TRUE COPY OF THE PERMISSION TO PAY COMPOUNDED TAX IN FORM NO. 4D FOR THE ASSESSMENT YEAR 2008-2009 DATED 27.03.2010.** - **ANNEXURE B: TRUE COPY OF THE ORDER PASSED BY THE INTELLIGENCE OFFICER (IB), COMMERCIAL TAXES, PALAKKAD, DATED 31.03.2010.** - **ANNEXURE C: TRUE COPY OF THE ASSESSMENT ORDER PASSED BY COMMERCIAL TAX OFFICER (WORKS CONTRACT), PALAKKAD, FOR THE ASSESSMENT YEAR 2008-2009 DATED 06.03.2012.** - **ANNEXURE D: TRUE COPY OF THE 1ST APPELLATE ORDER IN KVATA NO. 253 OF 2012 PASSED BY ASSISTANT COMMISSIONER (APPEALS), O/OF THE DEPUTY COMMISSIONER (APPEALS), DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD, DATED 23.10.2013.** - **ANNEXURE E: TRUE COPY OF THE COMMON TRIBUNAL ORDER PASSED BY KERALA VALUE ADDED TAX ADDITIONAL APPELLATE TRIBUNAL, PALAKKAD, IN T.A.VAT NO. 1493/2013 & 1494/2013 DATED 02.12.2014.** - **ANNEXURE F: TRUE COPY OF THE DEMAND NOTICE UNDER SECTION 7 OF THE REVENUE RECOVERY ACT ISSUED BY INSPECTING ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD FOR THE YEAR 2008-2009 DATED 16.10.2012.** ## **RESPONDENT(S)' ANNEXURES :** ## **NIL** ## **//TRUE COPY//** ## **P.S.TO JUDGE** Msd. ## **CR** Thottathil B. Radhakrishnan & Devan Ramachandran, JJ. ----------------------------------------------- O.T.Rev.Nos.125 & 127 of 2015 ----------------------------------------------- Dated this the 21[st] day of December, 2016 ## **ORDER** ## Devan Ramachandran, J. In its intended operational ambit and functional evaluation, the provisions for payment of tax at compounded rate is designed for ease, expedience and convenience. However, these very provisions are attempted by many assessees to be contrived as a device for evasion by resorting to interpretation that are cloaked with the accoutrement of legal justification, where there is none. 2. The facts of the cases at hand fall in a very narrow compass but would ineluctably illustrate how the provisions relating to payment of tax are attempted to be OTRV 125 & 127/15 2 interpreted in a manner never intended. We, therefore, deem it idoneous that we define for general application, the contours and circumscribed parameters of the provisions for payment of tax at compounded rates for works contracts for future interpretative reference. 3. First, a wood cut of the facts which are absolutely essential and unexpendable for resolution of the issues raised in these cases: The petitioner is a works contractor and an assessee on the files of the Commercial Tax Officer, Palakkad. For the assessment year 2009-10, the petitioner was permitted to pay tax at compounded rate for a particular works contract obtained by them. However, on verification of the books of accounts for the years 2008-09 and 2009-10 by the Intelligence Officer, Commercial Taxes, Palakkad, it was detected that the petitioner had not conceded the turnover relating to the sale of Villas and Flats and other works contract amounting to Rs.1,85,09,146/- and Rs.7,35,750/-, for the years 200809 and 2009-10 respectively. The petitioner was, therefore, OTRV 125 & 127/15 3 assessed for a total taxable turnover reckoned by adding the suppressions to the total turnover declared. The petitioner admitted the offence and pleaded for composition under Section 74 of the Kerala Value Added Tax Act ('the Act' for brevity) and prayed for payment of tax at compounded rates as provided under Section 8(a) read with Section 16(2) of the Act. This offer was accepted by the Intelligence Officer, who permitted the petitioner to discharge the tax liability at compounded rates in instalments. However, during the assessment proceedings, the Assessing Authority rejected the claim of the petitioner for payment of tax at compounded rates in respect of the suppressed turnover, since there was no option that was filed by the petitioner with respect to such works relating to which suppression was detected. The petitioner challenged the assessment before the first Appellate Authority, who confirmed it and therefore, the petitioner moved a second statutory appeal before the Kerala Value Added Tax Additional Appellate Tribunal, OTRV 125 & 127/15 4 Palakkad ('the Tribunal' for brevity). The learned Tribunal, after an assessment of all the facts before it, found that the concessions made by the Intelligence Officer in determining and levying tax at compounded rates when the petitioner had sought for composition of the offences would not in any manner deter or constrain the Assessing Authority from making a proper assessment. In short, the Tribunal concluded that since the petitioner was not entitled to pay tax at compounded rates with respect to the works relating to which suppression was found, such concession given by the Intelligence Officer would not inure to the benefit of the petitioner and that the assessments made by the Assessing Authority cannot, therefore, be found fault with. The petitioner has impugned the orders of the Tribunal for the assessment years 2008-09 and 2009-10 respectively in these revisions. 4. The singular contention of the petitioner is that they had already been granted an order to pay tax at OTRV 125 & 127/15 5 compounded rates under the provisions of Section 8(a)(ii) of the Act and that, therefore, they are eligible to pay tax at such rates for all the works that they had obtained for execution. The petitioner relies specifically on the third proviso to Section 8(a)(ii) of the Act and contends that the said proviso provides for a composite application for compounding of works by exercising a single option. The contention of the petitioner is very intumesce and can be best comprehended if the entire Section 8(ii) along with the first three provisos are read. Therefore, the same are extracted as under: **Section 8** . Payment of tax at compounded rates.Notwithstanding anything contained i Section 6,(a)(i) any works contractor not being a dealer registered under the provisions of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), and who is not an importer may, at his option, instead of paying tax in accordance with the provisions of the said section, pay tax at three per cent of the whole contract amount; (ii) any works contractor not falling under clause (i) above may, at his option, instead of paying tax in accordance with the provisions of the said section, shall pay tax at three per cent of the contract amount after deducting the purchase value of goods excluding freight and gross profit element consigned into the State on stock transfer or purchased from OTRV 125 & 127/15 6 outside the State and for the purchase value of goods to deducted shall pay tax at the scheduled rate applicable to such goods. Provided that notwithstanding anything contained in sub-clause (ii) above, the compounded tax payable by any works contractor under this clause in respect of works contracts awarded by Government of Kerala, Kerala Water Authority or Local Authorities shall be four per cent of the whole contract amount: Provided further that the provisions of this clause shall not apply to any works contract in which the transfer of material is in the form of goods: Provided also that notwithstanding anything contained elsewhere in this Act, a works contractor who intends to pay tax at compounded rate in accordance with this clause in respect of all works undertaken by him during a year, may, instead of filing separate application for compounding for individual works, file a single option for payment of tax under this clause before 30[th] day of April of the year to which the option relates, subject to eligibility: 5. The third proviso above makes it indubitable that a works contractor who intends to pay tax at compounded rates may, instead of filing separate applications for compounding of individual works, file a single option for payment of tax. It is this provision that is now interpreted by the petitioner to claim that they are entitled to pay tax for all the works they have undertaken OTRV 125 & 127/15 7 for the relevant assessment year because they had filed an option for payment of tax at compounded rates. We have said that this argument is intumesce because at first blush this would appear to be appealable. However, it is obvious from a proper perspective of the provisions that this interpretation was never intended and no such benefit was sought to be given to any assessee by the provisions. 6. The true purpose and import of the provisions relating to compounding of tax have been discussed and decided by the Hon'ble Supreme Court and by our own courts in several cases. In **State of Kerala and Another v. Builders Association of India and Other** s ((1997) 2 SCC 183), the Hon'ble Supreme Court, while considering the same provisions under the Kerala General Sales Tax At, declared the functional purpose of these provisions as under: “The first feature to be noticed is that the alternate method of taxation provided by sub-section (7) of (7A) of Section 7 is optional. The sub-sections expressly provide that the method of taxation provided OTRV 125 & 127/15 8 thereunder is applicable only to a contractor who elects to be governed by the said alternate method of taxation. There is no compulsion upon any contractor to opt for the method of taxation provided by subsection (7) or sub-section (7-A). It is wholly within the choice and pleasure of the contractor. If he thinks it is beneficial for him to so opt, he will opt; otherwise, he will be governed by the normal method of taxation provided by Section 5(1)(iv). Sub-section (8) provides that the option to come under sub-section (7) or (7-A) has to be exercised by the contractor “either by an express provision in the agreement for the contract or by an application to the assessing authority to permit him to pay the tax in accordance with any of the said sub-sections”. In these circumstances, it is evident that a contractor who had not opted to this alternate method of taxation cannot complain against the said sub-sections, for he is in no way affected by them. Nor can the contractor who has opted to the said alternate method of taxation, complain. Having voluntarily, and with the full knowledge of the features of the alternate method of taxation, opted to be governed by it, a contractor cannot be heard to question the validity of the relevant sub-sections or the rules.” 7. As early as in the year 1994, a Division Bench of ## this Court in **Jyothish Kumar v. State of Kerala** (1994 ## KHC 376) had clearly declared the ambit of the provisions in the following words: “As the compounded rate of tax is payable pursuant to the option exercised by the appellants and as a concluded contract has arisen when they exercised the option and when it was accepted by the Department, they cannot get exonerated of their liabilities and obligations under the Act. As rightly OTRV 125 & 127/15 9 observed by the learned Single Judge, writ petition under Art.226 of the Constitution is not the appropriate remedy for impeaching the contracted obligations especially when they exercised their option on their own accord.” 8. This position was reiterated by a Single Bench of this Court in the year 2000 in **Falcon Rock Products** ## **v. Sales Tax Officer, Ii Circle, Kannur and Others** (2000 (2) KLT 284) in the following manner: “That apart, the compounding provision is only optional. If an assessee feels that the application of the compounding provision may work hardship in a financial year, it is not necessary for such assessee to make application for payment of the tax at the compounded rate. It is for the assessee to consider as to whether the exercise of the option is advantageous to the assessee in any particular year. Only if it is found to be advantageous, the option need be exercised.” ## 9. Finally, in **Joy Alukkas Traders (I) Pvt. Ltd.** **(M/s.) v. State of Kerala** (2010 (1) KHC 844) the very same principles were re-stated with great vehemence in the following words, which are extracted from the judgment: “It is very clear from the above provisions that the payment of tax at compounded rate under S.7(1)(a) is an option given to the assessee to pay tax under the compounding scheme in lieu of tax payable under S.5 OTRV 125 & 127/15 10 (1) of the Act. Therefore, necessarily, the scope of S.7 (1) has to be considered with reference to the main charging section otherwise applicable to the assessee, which is S.5(1). There is no dispute that the liability for sales tax for a dealer under S.5(1) is on the total turnover under S.2(xxvi) which means the aggregate turnover in all goods of a dealer at all places of his business in the State.” 10. The binding nature of the permission granted to pay tax at compounded rates has been declared leaving no room for doubt at all by the Hon'ble Supreme Court in **Bhima Jewellery v. Assistant Commissioner (Assessment), Kerala and another** ((2014) 71 VST 110) as under: “The aforesaid proposition is in agreement with several decisions of this court, where the court has reached the conclusion that the option of composition of tax is like a bilateral agreement between the parties with an object to dispense with the rigors of regular assessment. The dealer is given the choice to opt for compounded payment of tax and once the option is exercised and the same is accepted by the concerned authority, it is no longer open to the dealer to request for a regular assessment as envisaged under section 5 or 5A of the KGST Act.” 11. It is, no doubt, true that all the above judgments have been delivered by the courts with respect to the provisions in the KGST Act. But we notice that the OTRV 125 & 127/15 11 provisions in that Act and in the VAT Act are virtually worded on identical terms. It is ineluctable that the provisions to pay tax at compounded rates is only in lieu of the obligation to pay tax under Section 6 of the Act. Therefore, the primary charging Section is always Section 6 of the Act and Section 8, which provides for payment of tax at compounded rates, is only an optional method offered to the assessee for ease and convenience in payment of tax. The main charging Section, namely, Section 6 of the Act, proposes levy of tax on sale or purchase of goods and is couched in the following words: **Section 6** . Levy of tax on sale or purchase of goods.(1) Every dealer whose total turnover for a year is not less than ten lakhs rupees and every importer or casual trader or agent of a non-resident dealer, or dealer in jewellery of gold, silver and platinum group metals or silver articles or contractor or any State Government, Central Government or Government of any Union Territory or any department thereof or any local authority or any autonomous body whatever ben his total turnover for the year, shall be liable to pay tax on his sales or purchases of goods as provided in this Act. The liability to pay tax shall be on the taxable turnover.” As has been already settled and re-stated by this Court in the judgments referred to above, the option to pay tax at OTRV 125 & 127/15 12 compounded rates is an option available to the assessee to be chosen by him at his own volition as an alternative method of payment of tax which is charged by Section 6 but allowed to be paid in a different manner under Section 8 of the Act. 12. We have no doubt that Section 8 provides for an alternative method of payment which is in lieu of the tax charged under Section 6 and, therefore, the same will have to be interpreted and applied in exactly the same manner, without deviation, from the specific prescriptions and requirements contained under the said Section. The third proviso to Section 8, if read carefully, would show that a works contractor is given an option to make a single option instead of filing separate application for compounding of individual works. This one line in the proviso is sought to be interpreted by the petitioner to say that they have to make only one option for a particular year and that if that option is accepted, then it would cover all the works that have been obtained by OTRV 125 & 127/15 13 them for execution without reference to the nature of such works. As we have stated above, this looks very appealing at first blush. But looses its sheen when the relevant Rules of the Kerala Value Added Tax Rules ('the Rules' for brevity) are also read in adjunct. The relevant Rules are Rules 24 and 24B, which, for ease of reference and for the purpose of comprehension, would require to be extracted and they are so: “24. Submission of quarterly returns:- (1) Every dealer who has opted to pay presumptive tax under sub-section (5) of Section 6 or compounded tax under section 8, other than those paying tax under item (ii) of clause (c) or under clause (e) of section 8, or under clause (f) of section 6 every dealer dealing exclusively in goods included in the First Schedule, every Central or State Government or any Union Territory and any Department therefor, Local Authority and any Autonomous Body and every works contractor shall file quarterly returns in form Nos.10, 10A, 10D or 10F, as te case may be, for the quarter ending the 30[th] June,30[th] September, 31st December and 31[st] March to the assessing authority on or before the 25[th] of the month following the respective quarter.” 24B. Contractors to file Declaration.-(1) Every contractor or/promoter/developer or by whatsoever name called who undertakes construction or development of flats or apartments or villas shall file a declaration in form No.49 along with returns containing the details of ongoing projects, transfer or apartments/flats/villas made and the works contract tax paid under the Act etc in respect of every OTRV 125 & 127/15 14 ## purchaser/intending purchaser. (2) Where such contractors are holding flats or apartments or villas the contract of which was undertaken prior to 1[st] April, 2007 but pending to be transferred as on the 1[st] April, 2007 and a portion of or full tax for its construction under the Act has already been paid by them, such contractors shall have to file the declaration in form No.49 on an annual basis relating to the years in which such payment of tax have been made.” 13. The Rules quoted above are extremely clear. It gives no room for doubt that every dealer who has opted to pay tax at compounded rates under Section 8 is obligated to file quarterly returns in Form Nos.10, 10A, 10B or 10F for the quarters ending 30[th] June, 30[th] September, 31[st] December and 31[st] March to the Assessing Authority. It is, therefore, obvious that the dealer has to prepare and present quarterly returns with respect to the works for which he has applied for payment of tax at compounded rates. The permission to pay tax under the Compounding Scheme is issued in Form No.1E available along with the Rules. The form obligates the assessee to declare the works order number and date, the description of work, the name of the OTRV 125 & 127/15 15 awarder, the amount of contract and the period of contract in explicit terms. The provision is, therefore, very clear that the permission to pay tax under the compounding scheme is given to a particular work covered by a particular work order. The third proviso to Section 8, which talks about individual works is, therefore, only in relation to the individual components of work in a particular works contract awarded to or obtained by the assessee. In other words, once the assessee makes an application for permission to pay tax at compounded rates for a particular works contract and permission is granted under Form No.1E with respect to that particular contract, it would only mean that all the individual components of such works contract would be included in such permission and that it would not be then incumbent upon the assessee to make separate applications with respect to individual components of such works contract, such components being an integral part of the work order mentioned in the year granting OTRV 125 & 127/15 16 permission to pay tax at compounded rates. 14. We must say that contrary to the assertion of the petitioner, it is not the intention of the statute that a person who makes an application for a particular work in a particular year and who is granted such permission would then be entitled without reservation to avail such benefit for payment of tax for all the works contract or other works obtained by them during that relevant year at the compounded rates. What is granted to the assessee is the permission to pay tax at the compounded rate with respect to a composite works contract covered by a particular work order and not to all the contracts or works unrelated to such work order, that may be obtained and executed by the assessee during that relevant year. This becomes all the more clear from a reading of Rule 24B, which makes it obligatory for every contractor or promoter or developer to file a declaration in Form No.49 along with the returns containing all the details of on going projects, transfer of apartments/flats/ OTRV 125 & 127/15 17 villas. Form No.49 requires the assessee to give the details of on going projects being executed by them in Part-A of the Form, the details of transfer of flats, apartments etc. in Part-B thereof and the name of the project, description of the apartment and name and address of the intending purchaser in Part-C of the Form. It is, therefore, inscrutable that what is intended is that the contractor discloses all the works that had been carried on by them, pay tax individually for such works under the provisions of Section 6 or under Section 8 at compounded rates for such each individual work wherever it is so granted. To make it absolutely clear, wherever the assessee has applied for payment of tax at compounded rates with respect to individual works declared in Form No.49, they would be so entitled to pay but for those works relating to which no such application was made or permission granted, they would be obligated to pay tax in terms of Section 6 of the Act. 15. In the cases at hand, it is admitted by the OTRV 125 & 127/15 18 petitioner and is evident from the permission granted under Section 8 of the Act, which orders are produced as Annexure-A in the revisions, that they had applied for compounding of certain works contracts covered by a particular work order but not for other works that were being undertaken by them. They had, however, claimed that going by the third proviso to Section 8(ii), they are entitled to pay tax even for those works at the compounded rates. This is totally unacceptable and against the express intendment of the provisions of the section. The petitioner, having accepted the orders of the Assessing Authority under Section 8(a)(ii) of the Act to pay tax at compounded rates for certain works, cannot renege from the obligation cast upon them under the statute and then try to interpret the provisions to suit its convenience and its cause to claim benefits which they were never entitled to and which was never intended by the statute to be granted. The petitioner would be entitled to pay tax at the compounded rates only for the OTRV 125 & 127/15 19 works for which permission was granted and not for the others. The petitioner is bound to the express and specific terms of the orders granting them permission to pay tax at the compounded rates and cannot unilaterally and by making a misinterpretation of the proviso seek benefits which they are not entitled to under the provisions. For the above reasons, we dismiss these revisions confirming the orders of the Tribunal, in TA (VAT)Nos. 1493/2013 and 1494/2014, impugned by the petitioner. In the facts and circumstances of these cases, we make no order as to costs and leave the parties to suffer their respective costs. Thottathil B. Radhakrishnan, Judge Devan Ramachandran, Judge tkv