ST.Rev.No.2 of 2017; ST.Rev.No.4 of 2017; ST.Rev.No.5 of 2017

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 04TH DAY OF FEBRUARY 2019 / 15TH MAGHA, 1940** ## **ST.Rev.No.2 of 2017** **AGAINST THE ORDER IN TA 71/2012 DATED 29-01-2016 OF KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM [ASSESSMENT YEAR 2002-03]** ## **REVISION PETITIONER/RESPONDENT/REVENUE:** **STATE OF KERALA, REP. BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES DEPARTMENT, ERNAKULAM.** **BY ADV. GOVERNMENT PLEADER** ## **RESPONDENT/APPELLANT/ASSESSEE:** **M/S. BHARATHI AIRTEL LIMITED, ERNAKULAM-682011.** **BY ADVS. SRI.A.KUMAR SMT. G.MINI(1748)** ## **OTHER PRESENT:** **SR. G.P. SRI MOHAMMED RAFIQ FOR PETITIONER** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 04.02.2019, ALONG WITH ST.Rev.4/2017, ST.Rev.5/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **S.T.Rev.2 of 2017 & - 2 - connected cases** # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR.JUSTICE ASHOK MENON** **MONDAY, THE 04TH DAY OF FEBRUARY 2019 / 15TH MAGHA, 1940** **ST.Rev.No.4 of 2017** **AGAINST THE ORDER IN TA 72/2012 DATED 29-01-2016 OF KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM [ASSESSMENT YEAR 2003-04]** ## **REVISION PETITIONER/RESPONDENT/REVENUE:** **STATE OF KERALA, REP. BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES DEPARTMENT, ERNAKULAM.** **BY SR. GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ.** ## **RESPONDENT/APPELLANT/ASSESSEE:** **M/S.BHARATHI AIRTEL LIMITED, ERNAKULAM-682 011.** **BY ADVS. SRI.A.KUMAR SMT. G.MINI(1748)** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 04.02.2019, ALONG WITH ST.Rev.5/2017, ST.Rev.2/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **S.T.Rev.2 of 2017 & - 3 - connected cases** ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR.JUSTICE ASHOK MENON** **MONDAY, THE 04TH DAY OF FEBRUARY 2019 / 15TH MAGHA, 1940** **ST.Rev.No.5 of 2017** **AGAINST THE ORDER IN T.A.73/2012 DATED 29-01-2016 OF KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM [ASSESSMENT YEAR 2004-05]** ## **REVISION PETITIONER/RESPONDENT/REVENUE:** **STATE OF KERALA, REP. BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES DEPARTMENT, ERNAKULAM.** **BY SR.GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ.** ## **RESPONDENT/APPELLANT/ASSESSEE:** **M/S. BHARATHI AIRTEL LIMITED, ERNAKULAM-682011.** **BY ADVS. SRI.A.KUMAR SMT.G.MINI(1748)** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 04.02.2019, ALONG WITH ST.Rev.4/2017, ST.Rev.2/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **S.T.Rev.2 of 2017 & connected cases** ## **- 4 -** ## **ORDER** **[ S.T.Rev.2/2017, S.T.Rev.4/2017, S.T.Rev.5/2017 ] Vinod Chandran,J.** **Three revisions, arising from a common order of the Tribunal, are with respect to the assessment years 2002-03 to 2004-05. One of the major issues arising in all the revisions was with respect to forfeiture of tax under Section 46A of the Kerala General Sales Tax Act, 1963 [for brevity “KGST Act”]. A Division Bench of this Court had, considering Section 72 of the Kerala Value Added Tax Act, 2003 [for brevity “KVAT Act”]; which is** _**in pari materia**_ **with Section 46A of the KGST Act, found, in** _**Tata Teleservices Ltd**_ **. v.** _**State of Kerala & Others**_ **[** _**W.P.(C) No.27445 of 2005 & connected cases, dated 13.02.2009**_ **] that such forfeiture is possible. A later Division Bench, considering the issue in the instant revisions, doubted the interpretation and declaration of law and referred the issue to the Full Bench. The Full Bench has now answered the reference upholding the view of the earlier Division Bench. Hence, on the question of forfeiture, respectfully following the declaration of the Full Bench, we answer the question against the assesses and in favour of the Revenue. To that extent, the order of the Tribunal is set aside and** **S.T.Rev.2 of 2017 & - 5 - connected cases** **the order of the Fast Track Team under Section 17D of the KGST Act restored.** **2. There are two other common issues arising in** **all the revisions and the questions of law arising from the order of the Tribunal are re-framed as follows:** - **(i) Ought not the Tribunal have found that the KGST Rules, 1963, specifically Rule 22A, stood amended with effect from 01.04.2000 enabling the deduction of tax to be made in a works contract excluding that portion relating to inter-State transfer of goods?** - **(ii) Whether the introduction of sub-section (7C) in Section 7 by KGST (Amendment) Ordinance, 2003 dated 24.04.2003 with retrospective effect from 05.08.2002 obliged the assessee to make deductions with respect to works contract from the contractor?** - **(iii) Whether the further amendment to sub-section (7C) of Section 7 with effect from 01.04.2004 obliged the assessee to make such deductions, excluding the portion of inter-State transfer of goods, on payment to the contractor?** - **(iv) Whether the additions made based on the penalty orders were liable to be deleted along with the actual evasion found in the penalty proceedings when the assessee had not produced any substantiating material to prove their contention of penalty having been imposed on capital goods?** ## **S.T.Rev.2 of 2017 & - 6 - connected cases** **3. The first three questions we re-framed, are interlinked and the judgment of a Division Bench of this Court relied on by the Tribunal has a bearing on the issue. Sub-section (7B) of Section 7 was challenged as being** _**ultra vires**_ **the Constitution insofar as it directed deduction of tax at source on the consolidated payments made in a works contract including inter-State transfer of goods. The challenge was upheld by a Division Bench of this Court in** _**Siemens Ltd**_ **.** _**v**_ **.** _**State of Kerala**_ **[** _**2002 (3) KLT 443**_ **]. The learned Senior Government Pleader Sri.Mohammed Rafiq would specifically point out that the said decision has been rendered for the assessment year 1999-2000 and there are substantial amendments made in the rules with effect from 01.04.2000 which removes the very substratum of the challenge made before this Court. It is also argued that the Division Bench did not strike down sub-section (7B) and merely found it to be** _**ultra vires**_ **insofar as the inter-State transactions having not been excluded when directing deduction of tax at source. Hence, when such exclusion is made by prescription in the Rules, the provision gets a new lease of life in the statute. Alternatively it is also argued that sub-section (10) of Section 7 in any event remained in tact, in the statute and** **S.T.Rev.2 of 2017 & - 7 - connected cases** **that continued the obligation on the assessee to deduct tax at source.** **4. We cannot accept the contention raised by the learned Government Pleader especially looking at the decision placed before us.** _**Siemens Ltd**_ **. found so in the concluding paragraph:** **“In the above circumstances, we declare that sub-s.(7B) of S.7 of the KGST Act and R.22A(2) of the KGST Rules brought into force on 1.4.1994 are** _**ultra vires**_ **as beyond the legislative competence of the State so long as it enables the State to collect tax inclusive of turnover covered by inter-State sales, sales in the course of import, sales outside the State etc. for which State has no jurisdiction to collect sales tax. Revisional authorities are directed to dispose of the revision petitions filed by the petitioner as per the law declared”.** **The thrust of the argument of Sri.Mohammed Rafiq is on the words used “** _**so long as it enables the State to collect tax inclusive of turnover covered by inter-State sales**_ **”. The argument seems to be that the declaration of the provision as** _**ultra vires**_ **is only so long as inter-State transactions are also included in the provision. At the outset, we have to notice that this Court having held the provision to be** _**ultra vires,**_ **it no longer has existence in the statute. The** ## **S.T.Rev.2 of 2017 & - 8 - connected cases** **provision could have been amended to exclude inter-state transfer component available in the works contract, to direct deduction on that component taxable within the State. This obviously was not done.** **5. The contention then raised is on the ground that Rule 22A as it existed in the assessment year under the consideration of the Division Bench in** _**Siemens Ltd**_ **. had a proviso which read so:** **“Provided that no amount shall be deducted under sub-section (7B) of section 7 if there is no transfer of goods involved in the execution of the works contract”.** **By S.R.O.NO.298/2000, with effect from 31.03.2000, the proviso stood substituted as follows:** **“Provided that no amount shall be deducted under sub-section (7B) of section 7 if there is no transfer of goods involved in the execution of the works contract or where the payment relates to that portion of a contract which does not relate to transfer of goods involved in the execution of the works contract within the State”.** **The said proviso as amended, adding the underlined portion, was available when the decision was rendered. We do not see the amended proviso having been pointed out to the Division** ## **S.T.Rev.2 of 2017 & - 9 - connected cases** **Bench. In any event, we cannot understand sub-section (7B) having been retained in the statute as** _**ultra vires**_ **till a machinery provision is brought in, for excluding the component of inter-State transfer of goods. When the Court declares a provision as** _**ultra vires**_ **, it stands deleted from the statute book. The State definitely could have brought a provision in the statute providing such exclusion, thus removing the infirmity pointed out by the Constitutional Court and to bring in past transactions could have also brought in a validation clause. The State having not done so, the prescription in the Rules for exclusion would not enable a proceeding for failure of deduction of tax at source; which obligation is no longer there by reason of the declaration by a Constitutional Court as is seen in** _**Siemens Ltd**_ **. We, hence, answer question No.(i) against the Revenue and in favour of the assessee.** **6. The learned Government Pleader also relied on sub-section (10) of Section 7, which reads as under:** **“If the awarder affects any payment without deduction of the tax payable or without the permission of the assessing authority in case application is presented before him, the whole amount of tax payable shall be recovered from the awarder and all provisions of this Act for the recovery of** ## **S.T.Rev.2 of 2017 & - 10 - connected cases** **tax including those relating to levy of penal interest and penalty shall apply as if the awarder is the assessee for the purposes of this Act”.** **The sub-section cannot have any relevance when there is no obligation for deduction of tax at source. Sub-section (10) only speaks of the consequences on a failure to deduct tax at source, which has absolutely no significance when there is no obligation as such to deduct tax at source.** **7. With respect to sub-section (7C) of Section 7, as it was brought in with retrospective effect from 05.08.2002; we would not answer the question raised since the issue has been remanded to the Assessing Officer as to whether the contractor of the assessee had applied for compounding or not. We, hence, refuse to answer question No.(ii) framed by us above.** **8. As to the amendment brought in which gave rise to question No.(iii), we have to notice that again the amended sub-section (7C) did not have an obligation for deduction of tax at source. In such circumstances, we answer question No.(iii) framed by us against the Revenue and in favour of the assessee.** **9. The last question is with respect to the actual addition and further additions for probable omission and** ## **S.T.Rev.2 of 2017 & - 11 - connected cases** **suppression made on the basis of the penalty imposed on the assessee. The assessee had taken up a specific contention that the goods detained were capital goods, not exigible to tax. However, the fact remains that the penalty orders were never challenged and the same have attained finality. It is also the submission of the learned Government Pleader that no evidence was adduced by the assessee to substantiate their contention. We, however, find from the order of the Assessing Officer that there is no independent consideration as to the addition of the turnover on allegation of tax evasion and the addition made with respect to probable omissions and suppressions. This goes against the principle as laid down in** _**Velimparambil Hardwares v**_ **.** _**State of Kerala**_ **[** _**1993 (2) KLT 394**_ **] and** _**Kalika Hotel and Bar, Amballur (M/s.) v**_ **.** _**State of Kerala**_ **[** _**2012 (3) KHC 85**_ **]. We, hence, set aside the deletion of the additions as such made by the Tribunal and direct the Assessing Officer to look into it afresh after verifying the books of accounts, the certificate of registration and any other substantiating materials. We make it clear that the original certificate of registration of the KGST regime having been already surrendered, the Assessing Officer would look into the records and the copy of the** ## **S.T.Rev.2 of 2017 & - 12 - connected cases** **certificates produced by the assessee.** **10. One another question is with respect to the rent received by the assessee for enabling other telecommunication operators to use the towers set up by the assessee. The learned Government Pleader points out that the issue has been remanded back to the Assessing Officer. The learned Counsel for the assessee, however, would submit that the issue stands covered by a decision of this Court that there could be no right to use alleged tinsofar as the permission granted for erecting equipments in a tower owned by the assessee. The learned Government Pleader submits that there is a Division Bench decision to the contrary. In any event, all these matters can be agitated before the Assessing Officer and the Assessing Officer would definitely look into the precedents of this Court before finding tax liability.** **The revisions are partly allowed, leaving the parties to suffer their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE Sd/ASHOK MENON JUDGE** **Vku/-** ## **S.T.Rev.2 of 2017 & - 13 - connected cases** ## **APPENDIX OF S.T.Rev.2/2017** **PETITIONER'S ANNEXURES:** ## **ANNEXURE-A** **A TRUE COPY OF ASSESSMENT ORDER UNDER SECTION 17D OF KGST ACT DATED 29/03/2011 FOR THE ASSESSMENT YEAR 2002-03 PASSED BY THE FAST TRACK TEAM, SPECIAL CIRCLE III, COMMERCIAL TAXES, ERNAKULAM.** ## **ANNEXURE-B** **CERTIFIED COPY OF THE COMMON ORDER OF THE TRIBUNAL IN T.A.(VAT) NO.71/2012 TO 73/2012 DATED 29/01/2016.** ## **S.T.Rev.2 of 2017 & - 14 - connected cases** ## **APPENDIX OF S.T.Rev.4/2017** **PETITIONER'S ANNEXURES:** ## **ANNEXURE-A** **A TRUE COPY OF ASSESSMENT ORDER UNDER SECTION 17D OF KGST ACT DATED 29/03/2012 FOR THE ASSESSMENT YEAR 2003-04 PASSED BY THE FAST TRACK TEAM, SPECIAL CIRCLE III, COMMERCIAL TAXES, ERNAKULAM.** ## **ANNEXURE-B** **PHOTO COPY OF THE COMMON ORDER OF THE TRIBUNAL IN T.A.(VAT) NO.71/2012 TO 73/2012 DATED 29/01/2016.** ## **S.T.Rev.2 of 2017 & - 15 - connected cases** ## **APPENDIX OF S.T.Rev.5/2017** **PETITIONER'S ANNEXURES:** ## **ANNEXURE-A** **A TRUE COPY OF ASSESSMENT ORDER UNDER SECTION 17D OF KGST ACT DATED 29/03/2012 FOR THE ASSESSMENT YEAR 2004-05 PASSED BY THE FAST TRACK TEAM, SPECIAL CIRCLE III, COMMERCIAL TAXES, ERNAKULAM.** ## **ANNEXURE-B** **PHOTO COPY OF THE COMMON ORDER OF THE TRIBUNAL IN T.A.(VAT) NO.71/2012 TO 73/2012 DATED 29/01/2016.** ## **[TRUE COPY]**