State of Kerala represented by the Deputy Commissioner (Law), Commercial Taxes, Ernakulam v. Zee Co India Pvt Ltd, Kochi

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 07TH DAY OF JUNE 2019 / 17TH JYAISHTA, 1941** **OT.Rev.No.177 of 2015** **AGAINST THE ORDER IN TA(VAT) no. 804/2011 of KERALA VALUE ADDED TAX ACT APPELLATE TRIBUNAL, ERNAKULAM DATED 26-02-2015** ## **REVISION PETITIONER/RESPONDENT/RESPONDENT/REVENUE:** **STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM.** **BY SR.GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN** ## **RESPONDENT/APPELLANT/APPELLANT/ASSESSEE:** **M/S.ZEECO INDIA PVT LTD KOCHI-682031.** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 07.06.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **OT.Rev.No.177 of 2015** **2** ## **C.K.ABDUL REHIM & R. NARAYANA PISHARADI,JJ.** = = = = = = = = = = = = = = = = = = = = = ## **O.T. Rev. No. 177 of 2015** - - - - -- - - - - - - - - - - - - - - - – - - - - _Dated this the 7[th] day of June, 2019_ ## **O R D E R** ## **C.K.Abdul Rehim,J** The State had filed the above revision petition challenging the order of the Kerala Value Added Tax Appellate Tribunal, Ernakulam in TA(VAT)No.804/2011, dated 26.02.2015. The order of assessment passed against the respondent by the Commercial Tax Officer, Ernakulam with respect to the year 2005-06, which was confirmed in appeal by the Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam, was reversed by the Tribunal. 2. Brief facts are as follows: M/s.Kochi Refineries Limited (hereinafter referred to as 'M/s.KRL') had entered into a contract with M/s.Zeeco Inc, USA (hereinafter referred to as 'the foreign company') for execution of the work, “Reduction Furnace Expansion cum Modernization Projects Phase-I” at Ambalamugal. The agreement of the work was executed on 27.03.2004. It was a composite contract which included design, engineering, procurement, supply, fabrication, erection, modification of existing incinerator, refractory works, pre- **OT.Rev.No.177 of 2015** **3** commissioning, commissioning, performance guarantee run and guaranteeing of reduction furnace etc. The value of the work originally included was an amount of US Dollars, $574576.94 and Indian money Rs.13423682.30. The foreign company had assigned a portion of the work namely, supply including procurement service of the equipment/materials, construction, fabrication, erection, installation including consumables and other items of equipments etc. as per the schedule, to M/s.Zeeco India Private Ltd., who is the assessee herein (hereinafter referred to as 'the assessee company'). Subsequently there occurred modification of the original contract in which the payment in foreign money was reduced to $465803 and the payment of Indian money was enhanced to Rs.18174925.00. The assignment of a portion of the work in favour of the assessee company was admittedly with the concurrence of M/s.KRL. 3. The assessing authority had rejected the return filed by the assessee company and issued an order of assessment on 29.06.2007. Out of the payment made in foreign money of $465803, an amount of $315803 was exempted by the assessing authority, since that amount related to the charges for design and engineering. The balance portion of $150000, which pertains to payment made for supply of equipments and consumables, was included in the turn over of the **OT.Rev.No.177 of 2015** **4** assessee company chargeable to tax, on the basis that the assessee company had raised bill to M/s.KRL for reimbursement of the customs duty paid by the assessee company on clearance of the equipments from the customs barrier. The assessment is made on the assumption and that assessee company had procured the goods and transferred it to M/s.KRL in the course of execution of the work undertaken. 4. The assessment made and levy of tax imposed on the equipments and consumables imported was upheld by the Deputy Commissioner (Appeals) reiterating the very same reasons mentioned by the assessing authority. But in the second appeal before the Appellate Tribunal, the above said findings were reversed. Based on the conclusion that there existed a privity of contract with respect to the supply of materials between M/s.KRL and the foreign company and the supply of materials was effected in pursuance to the order placed by M/s.KRL and that the movement of goods from USA to India had occasioned in pursuance to a purchase order placed by M/s.KRL. It was found that, the transactions in question will fall under Section 5(2) of the Central Sales Tax Act, which is evident from the 'bill of entry' produced in support of the claim made by the assessee company. It was also found that, the customs duty paid by the assessee company on behalf of the importer at the Chennai Port has **OT.Rev.No.177 of 2015** **5** been reimbursed by M/s.KRL to the assessee company, it being the expenses incurred in connection with the import of goods in the name of M/s.KRL, for their own use. Hence it was found that the turnover relating to supply of equipments and consumables imported from USA has to be exempted from the turn over of the assessee company. 5. Another aspect disputed with respect to the assessment relates to the exigibility of tax on the value of goods supplied by the assessee company in execution of the work, to which the supply was effected through inter-state sale. The assessing authority found that if such goods were purchased by M/s.KRL from outside the State on paying tax applicable in the respective States and handed over to the contractor for execution of the work, no tax could be leviable on the transfer value of such goods. But the argument raised by the assessee company that the purchase bills were drawn in the name of the awarder was not accepted, by observing that M/s.KRL had not even paid the entry tax applicable with respect to such purchases. On assuming that the awarder is denying ownership of the goods before incorporating the same in the execution of the works contract, it was held that the purchases were made by the contractor and the contractor had taken delivery of the goods. Based on finding that there occurred a transfer of property in goods either as goods or in **OT.Rev.No.177 of 2015** **6** some other form in the execution of the work in question and that a transfer of goods occurred within the State, it was held that the turn over in this respect is chargable to tax. The first appellate authority had confirmed the said portion of assessment on the finding that the appropriation of goods in the work within the State is liable to local sales tax. It was found that the transfer of property took place within the State and there occurred movement of goods in the State and therefore turnover is liable to be taxed. The appellate authority had relied on a judgment of this Court in support of such finding, _**M/s.Dosal Ltd v. State of Kerala[18 KTR 2011 (Ker.)]**_ . In the second appeal the Tribunal found that the assessee company had failed to prove that the sale of material from outside the State was effected is by virtue of an inter State sale transaction. It was found that the invoices were raised in the name of the site office of the assessee company at Kochi, which is within the State of Kerala itself. Therefore it is found that, the transaction is a local sale and is exigiable to tax. It was found that the claim of the assessee company that the sales were effected from Mumbai and the movement of goods from outside the State was in pursuance of the sale effected to M/s.KRL was discarded on the basis of the finding that, the invoices were seen raised in the name of the site office of the assessee **OT.Rev.No.177 of 2015** **7** company at Ambalamugal, Ernakulam. Therefore it was held that the dictum contained in _**M/s. Dosal's case (supra)**_ would squarely apply in the case of the turnover in question. 6. Yet another aspect which was disputed is regarding the application of Rule 9(2A)(a) of the KVAT Rules. The assessing authority made the assessment with respect to the value of goods transferred in execution of the work based on its purchase value along with incidental charges incurred thereon, despite the fact that the turnover conceded by the assessee company is lesser in amount. The first appellate authority had concurred with the view taken in this regard by the assessing officer. But the Tribunal had reversed the assessment on this aspect by observing that the assessee company was maintaining proper books of account and the turnover was ascertainable from the books of account of the assessee. Therefore, the rejection of the return and the books of account and an estimation of the turnover was not warranted in the case. 7. There is also a dispute with respect to the denial of input tax credit claimed by the assessee Company. The Assessing Authority disallowed the claim for credit of the input tax, by assigning the reason that the purchase bills produced are drawn in Form.No.8B, which pertains to invoices to be drawn in the case of sale to end **OT.Rev.No.177 of 2015** **8** consumers. In the order of the first appellate authority, the said issue was not considered. In the second appeal, the Tribunal had allowed the claim of the assessee Company finding that the claim for input tax against the out put tax for the returned period cannot be denied, when it is supported by valid evidence. Therefore the Assessing Authority was directed to give credit with respect to the input tax paid by the assessee company. 8. In the present revision petition the challenge raised by the State is against the findings of the Tribunal in granting exemption with respect to the turn over involved in the import of equipments from the foreign country, by accepting that the transaction will fall under Section 5(2) of the CST Act. The revision petitioner has also challenged the finding of the tribunal to the extent it reversed estimation of turn over made on the basis of Rule 9(2A) (a) of the KVAT Rules. The credit of input tax allowed by the tribunal is also assailed in this revision petition. 9. Despite service of notice the respondent in this revision petition has not chosen to enter appearance or to contest the matter. Therefore the revision petition is disposed of on the basis of arguments advanced by the learned Government Pleader on behalf of the State. **OT.Rev.No.177 of 2015** **9** 10. With reference to exempting the turn over relating to value of the equipments imported, learned Government Pleader had drawn our attention to the observations contained in the order of assessment. It is pointed out that, finding of the assessing authority is that the awarder of the work (M/s KRL) has not honoured the claim made by the assessee company for reimbursement of the customs duty paid at the time of clearance of the equipments. The assessing authority therefore concluded that the assessee company had procured the goods and transferred the same to M/s. KRL, during execution of the work. It is also observed that M/s KRL had denied ownership of the goods imported from outside the country, even though they were shown as the consignee in the Bill of Entry and other documents. Fact that the clearance of the imported goods was by the assessee company, coupled with the denial made by the M/s KRL with respect to import of the goods, was taken as a ground to deny the exemption. But contrary to the said findings the Tribunal found that M/s KRL has reimbursed the customs duty to the assessee company. It was also found that there exists privity of contract between the foreign company and M/s KRL and therefore the movement of goods from the foreign countries was against and in pursuance of the order of purchase made by M/s KRL. Learned **OT.Rev.No.177 of 2015** **10** Government Pleader pointed out that, for arriving at such a finding there was no materials available on record. It is noticed that, the assessing authority had not perused the terms of the contract or the purchase order or the documents with respect to the import. Further, we take note of the contradictions on the factual findings with respect to reimbursement of the customs duty. In such circumstances, we are of the considered opinion that the materials available on record need to be re-evaluated in order to arrive at a conclusion as to whether the import was made pursuant to a contract between the awarder and the foreign company and as to whether the import was in pursuance of a purchase order issued by the awarder etc. It is also need to ascertain whether the goods were transmitted in the name of the awarder and whether it was cleared on behalf of the awarder, M/s KRL. We are of the considered opinion that the Appellant Tribunal can be directed to reconsider the above aspects and to arrive at a clear finding on the said aspect. 11. Regarding sustainability of the return based on estimation of turnover relying on Rule 9 (2A)(a), it was contended that, the Tribunal went highly erred in holding that the Rule in question is not applicable. Learned Government Pleader had drawn our attention to the provisions contained in Rule 9 which existed prior to the **OT.Rev.No.177 of 2015** **11** amendment effected through SRO 385/2007, dated 24.04.2007. In Rule 9(1) the total turnover of a dealer engaged in works contract is stipulated as the contract amount received or receivable. Under subrule (2) of Rule 9, in clause (b) it is provided that, in relation to a works contract in which the transfer of property in goods had taken place not in the form of goods, but in some other form, the value of such goods at the time of incorporation into the work shall be considered as total turnover. Under sub-rule (2A)(a) of Section 9, it is provided that, for the purpose of computing the turnover as provided under sub-rule (2)(b), the value of the goods transferred in execution of the works contract shall not be less than the purchase value and shall include the incidental char instantly purchase mentioned therein. Based on the above provisions, it is contented by the learned Government Pleader that the assessing authority had estimated the turn over by taking note of the provisions contained in Rule 9 (2A) (a). Therefore it is contended that, the finding of the Tribunal in this regard is illegal and incorrect. It is pointed out that the Rule quoted by the Tribunal is Rule 9(3) (in the un-amended form) and not Rule 9(2A) (a). Since we have decided to remit the matter to the Tribunal to look into the question of exemption with respect to the goods imported, we think it only appropriate to direct the Tribunal to **OT.Rev.No.177 of 2015** **12** consider and decide this issue also afresh, on the basis of the relevant Rule applicable. 12. Lastly, question is with respect to denial of the claim for input tax credit. Learned Government Pleader had pointed out that, in Form 8B provided under Rule 58(10) it is clearly mentioned that the invoices drawn in the said Form is intended for whom input tax credit is not required. On the otherhand it is pointed out that, the invoice which ought to have been raised with respect to sale of the goods to the registered dealers, is Form No.8. But question remains as to whether the credit of input tax against the output tax can be denied based on the fact that the Form of invoice on the strength of which purchase was made by the assessee company was drawn in Form No.8B. Since the other questions are remanded for fresh decision, we are of the opinion that the above issue also can be left open for consideration and for a fresh decision by Appellate Tribunal. Under the above circumstances, the above Revision Petition is hereby allowed. The impugned order of the Kerala Value Added Tax Act Appellate Tribunal in T.A(VAT) No.804/11 is hereby set aside to the extent of the three specific issues mentioned above. The tribunal shall restore the appeal on its file and dispose of the same afresh, after affording opportunity of hearing to both sides, on the above referred **OT.Rev.No.177 of 2015** **13** issues. We make it clear that the findings with respect to other issues arrived by the Tribunal shall stand confirmed and no re-opening of those issues is warranted. The tribunal shall take all earnest endeavour to dispose of the appeal at the earliest possible. ## **C.K.ABDUL REHIM , JUDGE** **R.NARAYANA PISHARADI,** **JUDGE** lsn/ds **OT.Rev.No.177 of 2015** **14** ## **APPENDIX** ## **PETITIONER'S EXHBITS** **ANNX.ACOPY OF THE ASSESSMENT ORDER NO.32072098282/2005-06 PASSED BY THE COMMERCIAL TAX OFFICER (AA), OFFICE OF THE DEPUTYCOMMISSIONER, COMMERCIAL TAXES, ERNAKULAM DATED 29.6.2007.** **ANNX.BCOPY OF THEORDER IN KVATA NO.1485/07 DATED 30.11.2010 PASSED BY THE DEPUTY COMMISSIONER (APPEALS) COMMERCIAL TAXES, ERNAKULAM.** **ANNX.CCOPY OF THE ORDER DATED 26.02.2015 IN TA(VAT) NO.804/11 PASSED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM** ## **RESPONDENTS EXHIBITS: NIL** ## **TRUE COPY** **P.A TO JUDGE** ## **LSN**