IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 27189 of 2009(P)
1. M/S DLF HOME DEVELOPERS LTD.,
... Petitioner
Vs
1. STATE OF KERALA, REPRESENTED BY THE
... Respondent
2. COMMISSIONER OF COMMERCIAL TAXES,
3. ASSISTANT COMMISSIONER (WORKS CONTRACT),
4. DEPUTY COMMISSIONER (APPEALS),
For Petitioner :SRI.SHAJI THOMAS PORKKATTIL
For Respondent : No Appearance
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :21/10/2009
O R D E R
C.K.ABDUL REHIM,J.
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WP(C).NO. 27189 of 2009
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Dated this the 21st day of October , 2009
JUDGMENT
Challenge in this writ petition is against Ext.P18
interlocutory order of the 4th respondent, passed on a stay
petition filed along with Ext.P17 appeal, in which Ext.P16
assessment for the year 2007-08 issued under the Kerala Value
Added Tax Act 2003 (KVAT Act) is under challenge. Petitioner
who is a registered dealer under KVAT Act is engaged in
developing land, constructing apartments and selling fully
constructed apartments to individual buyers. It is submitted that
all the construction activities undertaken by the petitioner is
being done through contractors registered under KVAT Act and
materials required for such construction is supplied free of cost to
such contractors. No consideration has been attached to the
materials thus entrusted, on the basis of proper documentation,
and therefore the title and ownership of such materials remains
with the petitioner company itself. Further the contract amount
does not include value of such materials entrusted. Therefore
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there is no sales with respect to such materials and hence the
transaction will not attract liability of tax under the KVAT Act, is
the contention. Further contention is that they are selling fully
completed apartments as immovable property to the customers
on execution of Sale Deeds on payment of stamp duty on the
entire value of title.
2. But the third respondent issued proposal and confirmed
assessment rejecting returns filed on the ground that turn over
relating to the transaction between the petitioner and the
contractors are liable to be taxed, treating the same as ‘works
contract’. Relying on the definitions of ‘dealer’ under section (2)
(xv) and ‘works contract’ under section 2 (xliii)of the KVAT Act,
the third respondent held that any agreement for carrying out
building or construction activity for cash or deferred payment or
valuable consideration, will come within the purview of ‘works
contract’ and therefore the petitioner company is carrying out
‘works contract’ and will be liable to pay tax on transfer of
property in goods involved in such works contract. Further it is
alleged that the petitioner company is undertaking to build as
developers for the prospective purchasers, and such
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construction/development is to be on payment of price in various
instalments set out in the agreement. Hence the transaction
amounts to ‘works contract’ within the meaning of the term
defined under the Act, especially because the agreement is
entered into before the construction is completed. Accordingly it
is held that the petitioner company is liable to pay tax on the
turn over after deducting eligible deductions stipulated under the
KVAT Rules from the receipt of prospective buyers. Third
respondent held that the decision of the Hon’ble Supreme Court
in K.Raheja Development Corporation vs. State of
Karnataka (2005 141 STC 298(SC) is squarely applicable in
the case of the petitioner. Therefore, on rejecting the turn over
conceded, estimation was made treating the turn over pertaining
to the supply of materials used for the construction as taxable.
3. According to the petitioner, they have filed application
under section 94 of the KVAT Act before the 2nd respondent
seeking clarification as to whether they are making any sale while
supplying materials free of cost to its contractors and as to
whether petitioner is liable to pay tax under the KVAT Act with
respect to such transactions. In Ext.P7 order the 2nd respondent
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held that the entire transaction of the petitioner has to be taken
into account for deciding the issue and since the petitioner is
accepting advance from prospective buyers before completion of
the construction, the transaction will amount to a works contract
as between the buyers and the developer. But it is clarified that
the free supply of materials to the contractors, is not taxable,
since it does not acquire the quality of contractors materials.
The order further clarified that, since the petitioner is stepping
into the shoes of the contractor with regard to the prospective
buyers such materials are taxable on its transfer value. It is
submitted that, against Ext.P7 order the petitioner had already
filed appeal before this court and it stands admitted and pending
disposal.
4. Contention of the petitioner is that K.Raheja’s case is
not at all applicable with respect to the transaction of the
petitioner since they are selling completely constructed flats and
that they are not entering into any agreement for construction
with the prospective buyers. Further it is pointed out that the
Hon’ble Apex Court had doubted correctness of the judgment in
Raheja’s case and referred the matter to a larger Bench as per
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the decision reported in Larsen & Tourbo Limited and
another vs. State of Karnataka reported in (2008) 17 VST
460(SC).
5. While considering the stay petition by the 4th respondent,
the petitioner had raised all the above contentions. The matter
was dealt with elaborately by the 4th respondent in Ext.P18 order.
But after adverting to the various contentions the appellate
authority observed that the clarification issued by the
Commissioner of Commercial Taxes now stands valid, since this
court has not granted any stay in the appeal filed against the said
order. It is further observed that the matter involved is only a
pure question of law and the Hon’ble Supreme Court has only
doubted correctness of Raheja’s case. Therefore the appellate
authority observed that eventhough the appellant had established
a prima facie case, it cannot be accepted as a case in which
absolute stay can be granted. Hence payment of 50% of the tax
amount in dispute is insisted as a condition for granting stay.
6. Going by the impugned order it is noticed that
eventhough contention of the appellant has been discussed in
detail, the 4th respondent has not gone into merits of such
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contentions. On the other hand emphasis is given only to the
clarification issued by the Commissioner and to the decision in
Raheja’s case. But it is the specific case of the petitioner
company that Reheja’s case is not applicable since they are not
entering into any agreement for sale of the flat prior to the
execution of the sale deed. It is also contended that even
assuming Raheja’s case is applicable, the question involved
therein has not attained finality, having been pending
consideration in a larger Bench of the Hon’ble Apex Court. The
authority also has not considered the contention that while
issuing clarification under section 94 of the KVAT Act the
Commissioner of Commercial Taxes has exceeded beyond the
issue on which clarification was sought for, and the findings
entered therein with respect to the nature of the transaction of
the petitioner is without any basis, and that appeal is pending
against such decision. Proper application of the mind to the
above said contentions is lacking, as reflected from Ext.P18
order. Under the above mentioned circumstances, I am of the
opinion that condition for payment of 50% of the tax amount is
insisted in a quite mechanical manner. Such imposition of
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condition in a mechanical manner is abdicated through various
decisions of this court and the Hon’ble Supreme Court. Hence the
matter requires consideration for modification of the condition. After
adverting to the various contentions, I am of the opinion that there is
a strong prima facie case established by the appellant. But the matter
need elaborate consideration while disposing of the appeal. In the
circumstances to meet the ends of justice a lessor onerous condition
can be imposed while granting stay, till the disposal of the appeal.
7. Accordingly the writ petition is disposed of quashing Ext.P18,
and directing the 4th respondent to consider and dispose of Ext.P17
appeal after affording opportunity of hearing to the petitioner, as early
as possible, at any rate within a period of two months from the date of
receipt of a copy of this judgment. Respondents are directed to keep
in abeyance realisation of the amounts covered under Ext.P16
assessment pertaining to the year 2007-08, on condition of the
petitioner making payment of an amount of Rs.5 lakhs within a period
of three weeks from today and on condition of furnishing security
bond for the balance amount.
C.K.ABDUL REHIM,JUDGE
pmn/
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