State of Kerala v. M/S Neema Builders Pathanamthitta

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **FRIDAY ,THE 14TH DAY OF SEPTEMBER 2018 / 23RD BHADRA, 1940** ## **OT.Rev.No. 138 of 2015** **AGAINST THE ORDER IN TAVAT 11/2014 of KVAT APPELLATE TRIBUNAL, ADDL. BENCH, THIRUVANANTHAPURAM DATED 30-03-2015** ## **REVISION PETITIONER/S:** **STATE OF KERALA** **BY SR. GOVERNMENT PLEADER SRI V.K SHAMSUDHIN** ## **RESPONDENT/S:** **M/S. NEEMA BUILDERS PATHANAMTHITTA. PIN-689 645.** **BY ADV. SRI.ANIL D. NAIR** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 14.09.2018, ALONG WITH OT.Rev.7/2016, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** O.T Rev.Nos138/2015 & 07/2016 ::2:: **O.T.Rev Nos.138 of 2015 & 07 of 2016** **O R D E R** **Vinod Chandran, J** **The respective revisions by the State and the assessee are against the common order of the Tribunal. The assessee a works contractor for the year 2008-09 had applied for compounding and the same was permitted. The assessee had been filing quarterly returns and also paid compounded tax in accordance with the permission granted. Notice was issued under Section 22(3) directing production of the works contract agreement, work schedule and related documents in support of the conceded contract amount of Rs.30,00,000/-, as per the returns filed by the assessee.** **2. The assessee failed to produce the books of accounts in which event, the Assessing Officer made a best judgment assessment and estimated the probable** O.T Rev.Nos138/2015 & 07/2016 ::3:: **omission and suppression at Rs.30,00,000/-; an equal addition. In the process of making the assessment, the Assessing Officer merely proceeded for regular assessment without taking into account the permission granted for compounding. In appeal, the First Appellate Authority dismissed the appeal and the assessee was before the Tribunal. Before the Tribunal, the contention raised by the assessee was that the contracts entered into by the assessee were labour contracts and they were entitled to exemption. The Tribunal found that such a stand cannot be taken at this point and that the assesssee is bound by the terms of the compounding permission granted in the application of the assesee. The Tribunal found that the binding nature of the compounding permission is applicable to the Assessing Authority also. Finding that the Assessing Authority had not conducted any enquiry nor relied on any material to discredit the compounding application, it was directed that the assessment would be completed under the compounding** O.T Rev.Nos138/2015 & 07/2016 **==> picture [20 x 10] intentionally omitted <==** **scheme and also directed deletion of addition of Rs.30,00,000/-.** **3. The State has filed the revision on the following questions of law:** **1. Whether the Tribunal was right in having directed the assessment to be made under the** **compounding scheme especially when there was absolutely no substantiating evidence produced by the assessee to support the turnover disclosed in the returns?** **2. Whether the Tribunal was right in having deleted the estimation made which the assessing Authority was duly empowered to make under best of judgment.** **4. The assessee is in revision on the following question of law:** **Whether the Tribunal was right in having confirmed the assessment under the compounding scheme as per the returns when the assessee had specifically claimed an** O.T Rev.Nos138/2015 & 07/2016 ::5:: ## **exemption with respect to the labour** **contracts carried out by the assessee?** **5. We will deal first with the assessee's revision which we are of the opinion poses no question of law. The assessee had applied under the compounding scheme under Section 8 of the KVAT Act, 2003 and had been granted permission to pay tax at the compounded rates. As has been found by the Tribunal, the assessee cannot turn around and challenge such benefit availed on the assessee's own application especially after the assessment year is over. Further but for the bland assertion the assessee produced nothing to substantiate the contention of labour contracts. In such circumstance, we reject O.T.Rev.No. 7/2016.** **6. On the question of law raised by the State in its revision it has to be noticed that the Assessing Officer had not attempted to cancel the compounding permission granted to the assessee. On notice issued and the failure of the assessee to produce the books of accounts the Assessing Officer had straight away** O.T Rev.Nos138/2015 & 07/2016 ::6:: **proceed to assess under the regular scheme, totally ignoring the compounding permission already given. The assessee had filed returns and had paid tax at the compounded rate at least on the conceded turnover as per the returns. True there was no substantiating material to prove the turnover; but the turnover conceded would necessarily have to be taxed at the rate applicable under Section 8 of the Act.** **7. However, with respect to the addition made on suppression and omission, the Assessing Officer had granted an opportunity to the assessee to produce books of accounts and the agreements evidencing the turnover, of the contracts awarded to the assessee. The assessee had failed to produce the same. It was in such circumstances that the Assessing Officer had made an addition for probable omission and suppression. The addition made for probable omission and suppression would be akin to the addition made on an actual detection of suppression; especially when it is on account of failure of the assessee to produce the books** O.T Rev.Nos138/2015 & 07/2016 ::7:: **of accounts. When the addition is on the basis of suppression detected** _**Silver Line Villas & Apartments Pvt. Ltd. v. State of Kerala [2017 (2) KLT 770]**_ **squarely applies. We do not think that the Tribunal could have deleted the addition made for reason of nonproduction of books of accounts. We also do not see any reasoning for such deletion. The Tribunal had merely noticed that there was no reason to discredit the compounding permission granted and that alone would not be sufficient ground to delete the addition made by the Assessing Officer on best of judgment. We hence restore the addition made for probable omission and suppression at the equal amount.** **8. For the estimation made, the tax would have to be levied at the regular rates. In that context, necessarily deductions have to be made under Rule 10 of the Kerala Value Added Tax Rules, 2005 for which alone the matter is remanded to the Assessing Authority.** **We hence answer the question of law framed partly in favour of the State and partly in favour of** O.T Rev.Nos138/2015 & 07/2016 ::8:: **the assessee. O.T.Rev.No. 138/2015 is partly allowed restoring the estimation made but however, making it clear that for the conceded turnover, tax would be levied under Section 8 and for the quantum made addition of; tax would be levied at the regular rate but after giving deduction under Rule 10 of the KVAT Rules. Parties to suffer their respective costs.** **Sd/-** **K. Vinod Chandran, Judge** **Sd/-** **Ashok Menon, Judge** **jma** O.T Rev.Nos138/2015 & 07/2016 ::9:: ## **APPENDIX** ## **(in O.T.Rev.No. 138/2015)** ## **PETITIONER'S/S EXHIBITS:** |**ANNEXURE A**|**A TRUE COPY OF THE ASSESSMENT ORDER**| |---|---| ||**DATED 22.7.2009.**| |**ANNEXURE B**|**A TRUE COPY OF THE ORDER IN TAX APPEAL**| ||**NO.VAT 922/2009.**| |**ANNEXURE C**|**A TRUE COPY OF THE ORDER DATED**| ||**20.6.2010.**| |**ANNEXURE D**|**A TRUE COPY OF THE ORDER DATED**| ||**14.7.2014.**| |**ANNEXURE E**|**A TRUE COPY OF THE ORDER DATED**| ||**30.3.2015.**| |**RESPONDENTS**|**ANNEXURES: NIL**| ||**//TRUE COPY//**|