State of Kerala v. Gammon India Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 10TH DAY OF SEPTEMBER 2018 / 19TH BHADRA, 1940** ## **WA.No. 713 of 2015** **AGAINST THE ORDER/JUDGMENT IN WPC 12748/2010 of HIGH COURT OF KERALA DATED 17-11-2014** ## **APPELLANT/S:** **1 STATE OF KERALA REPRESENTED BY FINANCE SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM.** - **2 COMMISSIONER OF COMMERCIAL TAXES TRIVANDRUM.** **3 COMMERCIAL TAX OFFICER W(WCT & LT), MATTANCHERRY.** **BY SR. GOVERNMENT PLEADER V K SHAMSUDEEN** ## **RESPONDENT/S:** **GAMMON INDIA LTD** **GAMMON HOUYSE, VEER SARVARKAR MARG, PRABHADEVI, MUMBAI-400025** BY ADV.SRI. A.KUMAR **OTHER PRESENT:** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 10.09.2018, ALONG WITH WA.961/2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _WA 713 & 961 of 2015_ 2 ## **JUDGMENT** ## Vinod Chandran, J. The State is in appeal from a common judgment of the learned Single Judge. State of Kerala entered into a concessionaire agreement with the Greater Cochin Development Authority (GCDA) to build the Mattancherry Bridge. The GCDA decided to award the contract on build, operate and transfer (BOT) basis and invited tenders for the purpose of construction of the bridge, in which the assessee was the successful bidder. The assessee entered into a contract with the GCDA on BOT basis and sub-contracted the work to a Special Purpose Vehicle Company (M/s. Cochin Bridge Infrastructure Company Ltd.), which is a subsidiary Company of the assessee. The Special Purpose Vehicle Company awarded the contract work back to the assessee, but however retained the right to operate. The assessments are with respect to the works contract executed by the assessee. The assessments, subject matter of W.A.No.961/2015, are of the years 1999-2000, 2000-2001 and 2001-2002. 2. The assessment orders for all the three years were challenged in W.P.(C) No.28084/2008. W.P.(C) No.12748/2010 was filed seeking refund of the amounts paid at the time of admission of _WA 713 & 961 of 2015_ 3 W.A.No.1023/2008, which was disposed of by Ext.P2. The claim in both the Writ Petitions were that the assessee was entitled to compounding, which they had applied for, to the specific contract; in all the three years and hence there should be a refund from the amounts paid on the basis of an estimation made of the toll charges, which could have been collected on operation of the toll for a period of 19 years. 3. The learned Single Judge considered the issue for all the years and found that for the years 1999-2000 and 2000-2001 the assessee is entitled to compounding and quashed Exts.P3, P6, P6(a), P6(b) and P7 orders produced in W.P.(C) No.28084/2008. Ext.P3 is the order passed by the Deputy Commissioner (Commercial Taxes), Mattancherry exercising powers of suo motu revision under Section 35 of the Kerala General Sales Tax Act ('KGST Act' for short) canceling the assessment made for the year 1999-2000 finding that there is no audited balance-sheet filed in Form 50A and B for the subject year. It was also found that there was a short-fall in turnover which had to be assessed for the said year. Ext.P6 is the assessment order passed by the Assessing Officer (AO) for the year 1999-2000. Ext.P6(a) is the assessment for the year 2000-2001. Ext.P6(b) is the assessment order for the year 2001-2002. Ext.P7 is the order of the AO rejecting the compounding application filed for the year 2000-2001. As far as the assessment year 2001-2002, the AO had rejected the compounding application by Ext.P8. The learned Single Judge found that Ext.P8 is also _WA 713 & 961 of 2015_ 4 in terms of Ext.P3, but however, refused to interfere with the same in deference to Ext.P2 Division Bench judgment produced in W.A.No.713/2015. Hence, as far as 2001-2002, there is no issue pending in appeal, since the direction is only to carry out the assessment as per the Division Bench judgment of this Court in Ext.P2 produced in W.A.No.713/2015. 4. Before we go into the controversy in the present Writ Appeals, we have to look at the judgment in Ext.P2 produced in W.A.No.713/2015 as also the subsequent orders passed by the Hon'ble Supreme Court wherein the decisions were challenged. The Division Bench in Ext.P2 was concerned with a Writ Appeal and a Writ Petition. The Writ Appeal was against the judgment in the Writ Petition, wherein the learned Single Judge refused to interfere with the assessment made based on estimation of toll charges of 19 years, for reason of there being available an effective alternative remedy by way of appeal. The Writ Petition, which was earlier disposed of by Ext.P2 judgment, is one of the Writ Petitions from which W.A.No.961/2015 arises. The challenge in the said Writ Petition was against the assessments passed for the years 1999-2000 to 2001-02, adopting the regular mode of assessment, as against the assertion of the assessee that it should be under the compounding scheme. The Division Bench in Ext.P2 allowed W.A.No.1023/2008 finding that there could be no estimation made as was carried out by the AO. The AO was directed to carry out the _WA 713 & 961 of 2015_ 5 assessment of the value of the materials involved in the construction of the bridge, with reference to the original contract, design and technical details; after collecting the rates and tariff from various Governmental authorities involved in civil work of construction of bridges. The assessee was also given liberty to furnish materials to facilitate a reasonable estimation of value of materials supplied in the execution of the work. W.P.(C) No.28084/2008 in which the claim was for consideration of assessment under the compounding scheme was rejected finding the assessee was not entitled to compounding under Section 7 of the KGST Act. The assessee filed S.L.P's. from the common order. The S.L.P. filed against W.A.No.1023/2008 was dismissed by order dated 01.02.2010 in S.L.P.No.9691/2009. However, the S.L.P. filed against the judgment arising from the Writ Petition was converted to a Civil Appeal bearing C.A.No.432/2010. Therein, there was a remand made directing fresh consideration of the Writ Petition, uninfluenced by the decision of the Division Bench in W.A.No.1023/2008. 5. The issue arising is insofar as the assessments for the years 1999-2000 and 2000-2001, which the learned Single Judge directed to be taken up under the compounding scheme. The learned Senior Government Pleader submits that the compounding application was belated and that there could not have been consideration of the same. It is the submission of the learned Senior Government Pleader that for the _WA 713 & 961 of 2015_ 6 assessment years 1999-2000 and 2000-2001, the compounding application is filed in the year 2004. The learned Counsel for the respondent-assessee however submits that a compounding application was filed earlier itself as evidenced from Ext.P13 and Ext.P16 issued by the Deputy Commissioner. These documents clearly indicate that an application for compounding was filed prior to 2001 and the acceptance of the tax payment under the compounded rate further evidences the fact of a permission having been granted. It is submitted that the AO not being able to trace out the compounding application filed earlier, had requested the assessee to file a fresh one in the year 2004 on which the entire exercise was carried out by the AO finding the delay and permission for compounding not having been granted. The learned Counsel would contend that the Division Bench judgment of this Court in 2009 (23) VST 274 (Ker) [Johnson & Johnson Limited v. Assistant Commissioner (Assessment), Special Circle, Ernakulam and others], which was relied on by the learned Single Judge, applies squarely on facts. The learned Senior Government Pleader would, however, rely on three decisions of the different Division Benches of this Court to contend that the assessing authority ought not have considered the compounding at all for reason of the gross delay occassioned: S.T.Rev.No.297/2007 [M.P.Raju v. State of Kerala], S.T.Rev.No.319/2003 [State of Kerala v. M/s.Reliance Construction Company] and S.T.Rev.No.189/2008 [M/s.Sivasakthi Traders, Pala v. State of Kerala] . _WA 713 & 961 of 2015_ 7 6. As far as the year 1999-2000 is concerned, we see that the AO had first passed Ext.P2 order of assessment produced in W.P.(C) No.28084/2008, by which order the application for compounding was allowed. The compounding application has not been referred to in the order, nor is the date clear. Suffice it to notice that there was a compounding application and the same was allowed by the AO as per Ext.P2 order. Ext.P3 is the suo motu revision order under Section 35 by the Deputy Commissioner and there is no interference caused to the permission for compounding having been allowed as seen from the assessment order. The direction was only for denovo disposal, in accordance with law. Hence, if there is any short-fall of turnover, necessarily, the AO would have to take into account such short-fall and after hearing the assessee and also considering the objections, he has to again pass a fresh assessment order under the compounding scheme. The compounding permission as such having not been interfered with by the Deputy Commissioner under Section 35, the State cannot contend that the AO would have to proceed under the regular assessment. 7. M.P.Raju (supra) was a case in which a civil contractor filed an application for compounding before the assessing authority even before getting registration under the KGST Act. The assessing authority rejected the application, which was interfered with by the first appellate authority directing the assessing authority to accept payment made by the assessee as per Section 7(7) of the KGST Act. The Tribunal reversed _WA 713 & 961 of 2015_ 8 the findings against which the assessee filed a revision before this Court. The Division Bench relied on Rule 30A of the Rules of 1963 providing the procedure for making an application by a civil contractor. Sub-Rule (2) specifically stipulated that such an application shall be filed before the assessing authority in duplicate; before the receipt of the contract amount or any installment thereof. Reading sub-Rule (2) of Rule 30A, the Division Bench found that there is an obligation on the part of the contractor to file an application in duplicate before receipt of the contract amount. On facts, it was found that the assessee had received the contract amount even before registration under the KGST Act and had after the registration filed an application for compounding. 8. Reliance Construction Company (supra) is a case in which the question arose as to whether the assessee is entitled to payment of tax under the compounding scheme under sub-Section (7) or (7A) of Section 7 of the KGST Act. The revision by the State was only challenging the order of the Tribunal directing the AO to permit the assessee to pay tax under Section 7(7). The Division Bench, however, framed a question as to whether the application under Section 7 itself was maintainable finding therein that the AO on receipt of an application under Section 7 for payment of tax at the compounded rate under subsection (7) informed the assessee that the application was defective and he could only opt under sub-section (7A). No such application having been filed, the AO proceeded to tax the assessee as per the provisions _WA 713 & 961 of 2015_ 9 of sub-section (7A) of Section 7. The Division Bench deprecated the procedure adopted by the assessing authority while completing the assessment, since there was no permission granted to the assessee. Pertinent is the fact that there was no specific rejection of the application for compounding filed by the assessee. It is also of some significance that in the said case, the assessee had filed an application under Rule 30A of the KGST Rules, after a remand of the regular assessment under Section 5. 9. Sivasakthi Traders (supra) was a dealer in arrack, who claimed that there was an application for compounding filed under Section 7(14); on the evidence only of two receipts issued for the months of August and October showing payment of tax at the compounded rate. The application itself was not proved. The first appellate authority and the Tribunal in unison found, after examining the records, that there is no application filed under Section 7(14). The Division Bench found that since there is no application filed and merely because an officer of the Department had accepted tax at the compounded rate, there cannot be found a permission having been granted by the Department. 10. In the present case, it is not clear from the assessment order as to the date on which the application for compounding was filed in the year 1999-2000. Further, the application stood allowed by the AO when the assessment order was passed in the year 2004. There was admittedly payment before the AO of the tax at the compounded rate on _WA 713 & 961 of 2015_ 10 receipts by the assessee. What distinguishes the present case from the decisions cited by learned Senior Government Pleader, is the fact that here the AO had allowed an application for compounding. The Deputy Commissioner, invoking powers of suo motu revision had merely directed denovo assessment for reason of audited balance-sheet having not been filed and there being a shortfall of turnover. Denovo assessment can only be under the compounding scheme/provision, since admittedly tax was paid at the compounded rate and in any event, atleast, at the time of assessment the application for compounding was allowed by the AO; which was not the subject of suo motu revision. 11. With respect to the assessment year 2000-01, the AO proceeded to reject the permission for compounding, as is seen from Ext.P7 and proceeded for regular assessment for the said year. The learned Senior Government Pleader points out that Ext.P7 is dated 23.03.2005 and the same was not challenged by the assessee. The learned Counsel for the assessee, however, submits that an objection was raised before the AO and the regular assessment was challenged under Article 226 specifically taking the ground of lack of jurisdiction for reason of the very same contract having been permitted to be compounded in the earlier year. To buttress the above contention, the learned Counsel for the assessee has also taken us through the provisions in the KGST Act. _WA 713 & 961 of 2015_ 11 12. Admittedly compounding is permissible of the works contract of the assessee as available in sub-section (7) of Section 7 of the KGST Act; the work being one of civil work of construction of a bridge. The procedure for making an application and granting permission to a works contractor under the compounding scheme, when such works contract is covered under sub-section (7) of Section 7 is prescribed in Rule 30A of the KGST Rules, 1963. Rule 30A(1) speaks of every contractor engaged in civil works being entitled to pay tax in accordance with sub-section (7) of Section 7 in respect of each such contract. Sub-rule (2) also speaks of an application having to be filed before the assessing authority in duplicate before the receipt of the contract amount or any installment thereof. Sub-rule (3) is an enabling provision in so far as not insisting for a specific application, but requiring only the copy of the contract to be filed before the AO. The only condition is that the contract should contain a clause for payment of tax under the compounding scheme. We have to immediately notice that the assessee does not have a case that there is such a condition available in the contract of the assessee. Even then the contention is that the facts for the first assessment year would clearly indicate that the assessee had filed the application prior to the receipt of the amount and there was a deemed permission granted insofar as the acceptance of the amounts based on the receipts of the assessee for that first year. This would enure to the assessee for paying tax under Section 7(7), in the _WA 713 & 961 of 2015_ 12 subsequent years too wherein the specific contract is continued, is the compelling argument. 13. The Forms relevant to Rule 30A are Form Nos.21B and 21BA. The application has to be made in Form No.21B and permission is granted in Form No.21BA. The contention of the assessee is that the provisions of Rule 30A and the Forms prescribed has to be looked at in juxtaposition with Rule 30 and the Forms prescribed thereunder. Rule 30 prescribes the procedure when the payment of tax at compounding rates is applied under Section 7 of the Act by any dealer other than a works contractor. For the works contractors applying under Sub-section (7) of Section 7, a specific prescription is brought in Rule 30A. In contrast, sub-rule (1) of Rule 30 speaks of an application to be filed at the commencement of the year, at least before the first of May of that assessment year. Form Nos.21 and 21A also indicate that the permission is granted for a specific period; mostly the assessment year. Rule 30 and the Forms prescribed thereunder are period specific; while Rule 30A and the Forms prescribed thereunder are contract specific, is the contention of the assessee, which we are inclined to accept. If that be so, when the compounding has been applied for the first year, necessarily, it has to be applied in the second year also, when the very same contract is continued in the second year. 14. In such circumstances, we do not find any reason to interfere with the order of the learned Single Judge for the year 2000-01 also. _WA 713 & 961 of 2015_ 13 With respect to the year 2001-02 the learned Single Judge has directed the AO to proceed under regular assessment and since there is no appeal from that portion of the order, we do not think that there could be any interference caused to the same. We, hence, reject the appeals of the Government, subject only to any short-fall in turnover being entitled to be assessed in 1999-2000 and 2000-01; but levying tax only under Section 7(7). The regular assessments made for the said years would stand set aside. As for the regular assessment in the year 2001-02, the assessment shall be only with respect to the turnover for that year, after deducting the turnover already assessed under Section 7(7) in the previous two years. 15. We, hence, partly allow the appeal of the Government in W.A.No.961/2015 setting aside the cancellation of the suo motu order. We have made it clear that the suo motu order only interferes with the assessment made and not the compounding permitted by the AO. Hence, the short-fall in quantum shall be determined and the assessment completed under the compounding scheme itself. Likewise, for the year 2000-01, the assessment shall be completed again under the compounding scheme adopting estimation of the turnover only if the assessee fails to produce the turnover details, including the work carried out and the receipts received for the said year. For the subsequent year of 2001-02, the assessment shall be carried out under the regular scheme, but, however, the turnover already reckoned for the earlier _WA 713 & 961 of 2015_ 14 years be granted deduction. The refund shall be only after the working of the assessments under the compounding scheme and under the regular scheme as directed herein above. 16. The learned Senior Government Pleader also argues that earlier, Ext.P6(a) assessment order for the year 2000-01 was challenged by the assessee in a Writ Petition, wherein the assessee was relegated to the appellate remedy. An appeal was filed and in judgment dated 02.04.2008 in W.A.No.696/2008 the relegation to the appellate remedy was upheld. We have seen the judgment as produced by the learned Senior Government Pleader, across the bar. We see that the assessee in the aforesaid proceedings had taken two contentions before the learned Single Judge,- one of limitation and the other of violation of principles of natural justice, insofar as no hearing having been afforded. On the question of limitation, the assessee conceded that it was within time, before the Division Bench. On the question of violation of principles of natural justice, the assessee was relegated to the alternative remedy finding it to be a mixed question of law and facts. We are of the opinion that this does not preclude us from considering afresh the issue. Here there is a new ground raised of the compounding of the contract having been allowed in the earlier order. When we have found that the specific contract has been permitted compounding in the previous year, necessarily, the said benefit shall enure to the assessee in the subsequent year also in which the contract has been carried on. As we _WA 713 & 961 of 2015_ 15 noticed herein above, we would have allowed the compounding in the next year also, but for the fact that the assessee has not filed an appeal from the judgment of the learned Single Judge. 17. The assessments as directed herein above, shall be completed within a period of six months from the date of receipt of the certified copy of the judgment. W.A.No.961/2015 is partly allowed and W.A.No.713/2015 is closed as unnecessary. No order as to costs. **Sd/-** **K.VINOD CHANDRAN** **JUDGE** **Sd/-** **ASHOK MENON JUDGE** _dkr_