VAT | Assessment Proceedings - Jurishour No. 1 Latest Tax

The Madras High Court has held that assessment proceedings cannot be considered time barred as revision notice issued in time.

The bench of Justice R.Suresh Kumar and Justice C.Saravanan has observed that since notices were issued on 05.03.2011 i.e., within three years contemplated under Section 24(5) of the Puducherry Value Added Tax Act, 2007 (PVAT Act 2007), the assessment orders passed on 12.12.2014, 22.12.2014 and 31.12.2014 are held to have been passed in time.

Background

The Respondent/Assessee had suffered adverse assessment orders for the Assessment Years 2007-2008 to 2009-2010 in the hands of the Commercial Tax Officer.

The Assessment Orders also preceded a Pre- Assessment Notice dated 25.09.2014 which were replied to by the Assessee. In the notice dated 25.09.2014, it was proposed to reject the Nil returns filed by the Assessee for the above said years and also to levy tax on the sale of goods involved in the execution of works contract at the rate specified in the schedule for such goods.

The notices also proposed to levy a penalty on the Assessee as provided under Section 24(3) of the Puducherry Value Added Tax Act, 2007.

The dispute related to powder coating process on the products like yokes, links and tubes etc supplied by local industries like Lucas TVS, Rane Madas and Remi Electricals to the Assessee.

The Assessee had earlier filed Nil (Returns) stating that the activity carried out by it was only a job work and did not involve any sale i.e. works contract. The Assessee was procuring materials, both from local dealer as well as from suppliers located outside the State by making Inter-State purchases for its powder coating activities on job work.

The materials procured include chemical’s used for pre-cleaning the materials to remove rust and dust, ‘powder’ used for powder coating, ‘sprays’ for Touch-up purposes etc.

The Commercial Tax Department concluded that since the materials purchased by the Respondent-Assessee both locally and Inter- State purchases were used in the process for powder coating and resulted in transfer of these materials in the execution of work, the job work carried out by the Petitioner is in the nature of Works Contract of powder coating and was liable to pay tax under Section 15(1) of the Puducherry Value Added Tax Act, 2007.

Thus, the Nil returns filed by the Respondent-Assessee were proposed to be rejected as incorrect. The notice also proposed to assess by scrutiny of accounts as provided under proviso to Section 24(2) of the PVAT Act, 2007.

In response to the pre-assessment notices, the Respondent- Assessee had given a representation dated 07.10.2014 which was rejected by the Assessing Officer. It is in this background that the Assessment Orders were passed for the Assessment Years 2007-2008 to 2009-2010 against which, the Respondent-Assessee had preferred appeals before the Appellate Assistant Commissioner.

These appeals were also dismissed by Appellate Assistant Commissioner vide order dated 29.06.2015, along with Appeals filed for the Assessment Years 2010-11 and 2011-12 on the ground that there was transfer of property involved in the job works executed by the Respondent.

Thus, the Appellate Assistant Commissioner concluded that the activity carried by the Respondent–Assessee involved works contract and thus upheld that the Assessment Orders passed by the Assessing Officer for the respective Assessment Years.

In so far as imposition of penalty under Section 24(3) of the PVAT Act, 2007, the Appellate Assistant Commissioner also held that it did not warrant any interference.

The Assessee has preferred Tax Appeal before the Sales Tax Appellate Tribunal, Puducherry for the Assessment Years 2007-08 to 2009-10. These Appeals were allowed by the Sales Tax Appellate Tribunal, Puducherry, vide Impugned Order dated 02.03.2016, on the ground that the Assessment Order was passed after a period of three years from the end of the year to which returns relates and therefore the order passed by the Appellate Assistant Commissioner (CT), Commercial Taxes Department was set aside.

The Appellate Tribunal thus reversed the order of the Appellate Assistant Commissioner and held that the Assessment Orders passed by the Commercial Taxes Department for the Assessment Year 2007-2008 were hit by Section 24(5) of the PVAT Act, 2007.

Arguments

The Petitioner-Commercial Tax Department contended that the Tribunal had failed to appreciate the fact that the assessing officer had issued a notice on 05.03.2011 for the respective Assessment Years viz., 2007-2008 to 2009-2010, directing the Respondent-Assessee to explain the basis for claiming exemption.

The department contended that since the department had initiated action within three years of the close period to which the return relates, Assessment Orders passed on various dates covered in the appeals, were not time barred under Section 24(5) of the PVAT Act, 2007.

The department contended that the Assessing Authority had come to a correct conclusion that the powder coating job works carried out by the Respondent-Assessee was taxable, as it involved transfer of property in the course of execution of the job work and passed the Assessment Orders.

The department contended the Commercial Tax Officer-IAC was empowered to levy penalty under Section 24(3) of the Puducherry Value Added Tax Act, 2007 on the Assessment Orders.

Relevant Provisions – Assessment Proceedings Under VAT

The expression ‘works contract’ has been defined in Section 2 (zp) of the Puducherry Value Added Tax Act, 2007. It is an inclusive definition. It includes any agreement to carry out for cash, deferred payment or other valuable consideration, building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning, of any movable or immovable property.

After the 46th Amendment to the Constitution, the Hon’ble Supreme Court, had initially, in the case of Rainbow Colour lab and Another vs. State of M.P. and Others (2000) 2 SCC 385 espoused the “dominant intention” of the contract, to hold an activity exigible under the extended definition of “ tax on the sale or purchase of goods” in clause 29A of the Article 366 of the Constitution of India.

As per Section 24(1) of the Puducherry Value Added Tax Act, 2007, the Respondent–Assessee was required to file a tax return within a period of 15 days after end of the period in such manner as may be prescribed. A return submitted by the dealer along with tax due is to be accepted as self-assessed.

As per proviso to Section 24(2) of the Act, the Assessing Authority may select either at discretion or as directed by the Commissioner any dealer for detailed assessment.

As per proviso to Section 22 of the TNVAT Act, 2006 , the assessment years were deemed to have been completed on 30.06.2012. Thus, any proceedings to revise the assessment which is deemed to have been completed under proviso to Section 22 of the TNVAT Act, 2006 had to be initiated within six years for the deemed assessment under Section 27 of the TNVAT Act, 2006.

Conclusion

The court noted that the definition of work-contract in Section 2(zp) is very wide. It includes any improvement, modification, repair or commissioning or any movable or immovable property.

The court held that without doubt the work undertaken by the Respondent-Assessee for ‘powder coating’ the products like yokes, links and tubes etc amounts to works contract. Since the activity of powder coating is in the nature of works contract, it is to be construed that there is a transfer of property in the execution of works contract. Therefore, the Respondent-Assessee is liable to pay tax under Section 15(1) of the PVAT Act, 2007.

The court held that a limitation is prescribed under Section 24(5) of PVAT Act, 2007 for completing assessment. As per Section 24(5), no assessment shall be made after a period of three years from the end of the year to which the return under the VAT Act relates.

The court allowed the tax appeals and answered the substantial questions of law framed in favour of the Petitioner- Commercial Tax Department.