IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST Rev No. 319 of 2003()
1. STATE OF KERALA.
... Petitioner
Vs
1. M/S. RELIANCE CONSTRUCTION COMPANY,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent :SRI.S.SANTHOSH KUMAR
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.M.JOSEPH
Dated :01/12/2007
O R D E R
H.L.Dattu, C.J. & K.M.Joseph, J.
------------------------------------------------
S.T.Rev.No.319 of 2003
------------------------------------------------
Dated, this the 1st day of December, 2007
ORDER
H.L.Dattu,C.J.
Assessee is a works contractor. For the assessment year 1993-94,
he had executed certain works entrusted to him by Kerala Water Authority. The
assessing authority had completed the regular assessment under Section 5(1) of
the Kerala General Sales Tax Act, 1963 (“Act” for short) by its order dated
17.3.1999. The assessee had filed an appeal against the said assessment order.
The appellate authority had allowed the appeal and had remanded the matter to the
assessing authority to pass fresh assessment order in accordance with law.
(2) After such remand, the assessee had filed an application under
Rule 30A of the Kerala General Sales Tax Rules (“Rules” for short) in Form 21B,
requesting the assessing authority to permit him to pay the tax at the compounded
rate.
(3) After receipt of that application, the assessing authority had
issued a notice dated 24.7.2000, informing the assessee that he is not eligible and
entitled for payment of tax at the compounded rate, since the application filed by the
assessee is a defective application. In the show cause notice, the assessing
authority had noticed as under:-
“I therefore request you to opt for payment of tax as
mentioned in sub section 7(A) of section 7. Since the
option exercised by you is not complete it is proposed
to reject the same and to complete the assessment as
provided under section 5(1) of the KGST Act ’63 as
already proposed in this office notice dated 4.7.2000.
Objection if any against the proposal may be filed at 11
AM on 31.7.2000 in my office at Kollam with supporting
documents”.
S.T.Rev.No.319 of 2003 – 2 –
(4) After receipt of the notice, petitioner had filed his reply dated
8.8.2000. In that, once again, he had requested the assessing authority to
complete the assessment only under Section 7(7) of the Act and not under
Section 7(7A) of the Act.
(5) After receipt of the reply so filed, the assessing authority has
proceeded to complete the assessment by his order dated 8.8.2000 under
Section 7(7A) of the Act.
(6) Aggrieved by the aforesaid order, the assessee was before the
first appellate authority, who, by his order dated 15.2.2001, has rejected the
appeal.
(7) The assessee had carried the matter by way of second appeal
before the Tribunal in T.A.No.103 of 2001. The Tribunal by its order dated
12.12.2001 has directed the assessing authority to complete the assessments in
the petitioner’s case under Section 7(7) of the Act and not under Section 7(7A) of
the Act. Aggrieved by the aforesaid order passed by the Tribunal, the Revenue is
before us in this Sales Tax Revision.
(8) The Revenue has framed the following question of law for our
consideration and decision. It is as under:
“Whether the Tribunal was correct in levying tax under
Section 7 clause (7A) of the KGST Act?”
(9) In our view, after going through the show cause notice dated
24.7.2000 and the reply filed by the assessee dated 8.8.2000 and also the orders
of assessment passed by the assessing authority and the orders of the Tribunal,
the only question that would arise for consideration is, whether the assessing
authority was justified in completing the assessment under Section 7 of the Act?
Be it under Section 7(7) or under Section 7(7A) of the Act?
S.T.Rev.No.319 of 2003 – 3 –
(10) Section 7(7) of the Act permits a contractor in civil works of
construction of buildings, bridges, roads, etc. to offer his option for payment of tax
instead of paying tax in accordance with Clause (iv) of that sub-section, pay tax at
the rate of two percent on the whole amount of contract. The procedure for
payment of tax at the compounded rate etc., is as provided in the Act and the
rules framed thereunder. Sub-section 7(7A) of the Act carves out an exception.
That is, a contractor, who is not covered by sub-section (7) of Section 7, may also
offer to pay tax in stead of paying tax under sub-section (7) of Section 7 on the
whole amount of contract at the rate of seventy five per cent of the rates shown in
the Fourth Schedule against such contract, less any tax paid by him under this
Act on the purchase of any goods used in such contract, the transfer of which to
the works contract was effected without any processing or manufacture.
(11). Rule 30 of the rules provides for the procedure of making an
application for permission to pay tax at the compounded rate and its acceptance
by the assessing authority. Every dealer other than a contractor who is eligible to
pay tax at the compounded rate under Section 7 of the Act and who desires to
exercise his option under the Section may apply to the assessing authority in
Form 21 for permission to pay tax at the rates specified therein on or before the
first day of May of the year to which the option relates.
(12). The assessing authority on receipt of such application and
after making sufficient enquiries and after affording an opportunity of hearing shall
pass an order either accepting or rejecting the application. The other sub-clauses
need not be noticed by us, since they are not necessary for the purpose of
disposal of the revision petition.
(13). Rule 30A of the rules provides the procedure for filing an
application seeking permission to pay tax at the compounded rate in accordance
with sub-section (7) of Section 7 by every contractor engaged in civil works of
S.T.Rev.No.319 of 2003 – 4 –
construction of building, bridge, road or dam. The application shall be in Form
21 B and shall be filed before the assessing authority before the receipt of the
contract amount or instalment thereof.
(14). The rule making authority has provided Form No.21B for
making an application by a contractor seeking permission to pay tax under the
compounded rate both under sub-section (7) and (7A). Once such application is
filed and received by the assessing authority, he is expected to make enquiries
and pass orders either granting or rejecting the application, he has to issue form
No.21 BA to the applicant/contractor. The forms prescribed under the Rules has
relevancy for the purpose of the case, and therefore, they are noticed:-
“Form No. 21 B
APPLICATION FOR PERMISSION FOR PAYMENT OF TAX UNDER
SUB-SECTION 7/(7A) OF SECTION 7 BY A CONTRACTOR
(See Rule 30A)
To
The Assessing authority,
………………………………..
………………………………..
I, ………………. being a registered dealer holding
registration certificate No……… dated ………. under the Kerala General
Sales Tax Act, 1963 and carrying on the business of works contract,
the details of which are given below do hereby apply for permission to
pay the tax at the rates specified in sub-section 7/7(A) of Section 7.
Details of contract:
1. Name and address of the awarder :
2. Nature of contract :
3. Date of contract :
4. Period of contract :
5. Amount of contract :
Remarks:
I do hereby declare that the particulars furnished above
are true, correct and complete.
Place: Signature:
Date : Name:
Status:
NB: 1. Particulars of each contract shall be given separately along
with copy of the agreement.
2. Application shall be filed in duplicate, and shall be accompanied by
permission in Form 21BA”.
S.T.Rev.No.319 of 2003 – 5 –
“Form No. 21 BA
(See Rule 21)
PERMISSION TO PAY TAX UNDER SUB-SECTION 7/(7A) OF SECTION 7Whereas on examination I am satisfied that the applicant Sri………. is
eligible for payment of tax under sub-section (7) / (7A) proviso to sub-section
(7A) of Section 7 in respect of the following contracts, permission is hereby
granted to pay tax on the whole contract amount on the following contracts
at the rates noted against each:-
Details of contract:
——————————————————————————————————–
Name of Address of Nature of Period of Amount of Rate of compounded
the the Contract Contract contract tax (percentage to
awarder awarder contract amount)
——————————————————————————————————–
(1) (2) (3) (4) (5) (6)
——————————————————————————————————–
——————————————————————————————————–
Conditions:
1. In respect of the contract mentioned above:
(a) The permission holder shall not collect any amount in excess of
the rate specified in sub rule 7 / 7A of Section 7 of the K.G.S.T. Act.
(b) The permission holder shall regularly file the return in the
prescribed form within the prescribed time limit and pay the tax.
2. This permission is liable to be suspended or cancelled if the permission
holder contravenes any of the provisions of the Act and the rules made
thereunder or the conditions mentioned above.
Place: Signature:
Date: (Seal). Designation of Assessing authority".
(15). Having seen the relevant provisions, the procedure
prescribed under the rules, now let us get back to the facts of the present case.
(16). The undisputed facts are, the assessee is a contractor and
he had filed an application before the assessing authority for granting permission
to pay tax at the compounded rate as provided under sub-section (7) of Section 7
of the Act. The assessing authority after receipt of the application and after
making enquiries and before rejecting the application had informed the assessee
that he is not eligible for permission to pay tax at the compounded rate under
S.T.Rev.No.319 of 2003 – 6 –
sub-section (7) of Section 7 of the Act and therefore, he should make an
application for payment of tax at the compounded rate under sub-section (7A) of
Section 7 of the Act and otherwise, he would be completing the assessments for
the assessment year in question under Section 5(1) of the Act.
(16). The assessee after receipt of the aforesaid notice dated
24.7.2000, had filed his reply, reiterating the earlier request and accord
permission to pay tax at the compounded rate under sub-section (7) of section 7
of the Act.
(17). The assessing authority after receipt of the reply dated
8.8.2000 has not passed any order on the application filed by the assesee in
Form 21B appended to Rule 30A of the Rules, 1963. That only means the
assessing authority has neither accepted the request of the assessee for
permission to pay tax at the compounded rate nor has rejected the application.
However, if we may say so, very strangely has proceeded to complete the
assessment for the assessment year 1993-94 under sub-section (7A) of Section 7
of the Act. When the said order was questioned by the assesee before the
Tribunal, after exhausting the other statutory remedies provided under the Act,
the Tribunal while allowing the assessee’s appeal has directed the assessing
authority to re-compute the tax liability of the assessee under sub-section (7) of
Section 7 of the Act.
(18). In our view, after going through the assessment records, the
whole procedure adopted by the assessing authority while completing the
assessment for the assessment year in question is contrary to the provisions of
the Act and the Rules framed thereunder. Therefore, we cannot sustain any of
the orders passed by the authorities under the Act nor that of the Tribunal. We
say so, for the following reasons.
S.T.Rev.No.319 of 2003 – 7 –
(19) In the instant case, an assessment for the assessment year
1993-94 had been completed by the assessing authority under Section 5(1) of the
Act. Being aggrieved by that order, the assessee had carried the matter in
appeal. The appellate authority has remanded the matter to the assessing
authority to re-frame the order in accordance with law. It is only thereafter that the
petitioner had filed an application for payment of tax at the compounded rate.
(20) Under sub-rule (2) of Rule 30A of the Rules, a contractor can
make an application for permission to pay tax under sub-sections (7) or (7A) of
Section 7 in Form No.21B before receipt of the contract amount or instalment
thereof. In the present case, admittedly, when the petitioner had filed his
application for permission to pay tax at the compounded rate, he had already
received the contract amount. In view of sub-rule (2) of Rule 30A of the Rules,
the assessee could not have filed such an application under Section 7(7) of the
Act, nor could have been accepted by the assessing authority. Be that as it may.
(21) Secondly, the assessee had filed an application before the
assessing authority in Form No.21B dated nil, inter alia, requesting the assessing
authority to permit him to pay the tax at the compounded rate. That application of
the petitioner had not been accepted by the assessing authority. In fact, the
assessing authority had directed the assessee to make a fresh application opting
to pay tax as envisaged under sub-section (7A) of Section 7 of the Act. It was
also informed to the petitioner-assessee, that if the petitioner does not file such
an application, he would be left with no other alternative, but to proceed to
complete the assessment under Section 5(1) of the Act.
(22) After receipt of the notice, the petitioner did not choose to file
any fresh application. In fact, the assessing authority has also not permitted the
assessee to pay the tax at the compounded rate under Section 7(7) of the Act or
under sub-section (7A) of Section 7 of the Act.
S.T.Rev.No.319 of 2003 – 8 –
(23) The assessee is a registered dealer under Kerala General
Sales Tax Act, 1963 and is liable to pay tax under Section 5(1) of the Act. By
virtue of the amendment in the Act, Section 7 is also introduced, whereby a dealer
could exercise his option of composition of payment of tax at the rate or rates
specified in the Act and the Schedules appended to the Section. Under
sub-section (7) of Section 7 of the Act, a contractor in civil works may at his
option, instead of paying tax in accordance with clause (iv) of that sub-section,
pay tax at the rate of 2% on the whole amount of contract. The other sub-section
is (7A) of Section 7 of the Act. The other contractors not covered under
sub-section (7) may also opt to pay tax, instead of paying tax under sub-section
(1) of Section 5 of the Act, on the whole amount of contract at the rate of seventy
five per cent of the rates shown in the Fourth Schedule against such contract,
less any tax paid under the Act on the purchase of any goods used in such
contract, the transfer of which to the works contract was effected without any
processing or manufacture. The compounding scheme is the alternate method of
discharging the tax liability under the Act. The intention of the law makers is to
provide ‘hassle-free’ tax compliance scheme as an alternative to actual basis
which is popularly known as Regular Assessment Procedure. To get the
concession of paying tax under Rule 30A of the Kerala General Sales Tax Act,
1963, a contractor had to make an application to exercise his option before the
concerned assessing authority in Form 21B appended to the Rules. The
assessing authority on receipt of the application, after making enquiries has to
pass an order granting or rejecting the application; if the prayer in the application
is granted, the assessing authority is bound to issue to the contractor Form 21BA
permitting to pay tax either under sub-sections (7) or (7A) of the Act. In the
present case, though an application is filed by the assessee seeking permission
to pay tax at the compounded rate, such an application is not accepted by the
S.T.Rev.No.319 of 2003 – 9 –
assessing authority. Therefore, the assessee was bound to complete the
assessment for the assessment year 1993-94 under Section 5(1) of the Act.
Instead of that, the assessing authority completes the assessment levying tax as
provided in sub-section (7A) of Section 7 of the Act. The procedure adopted by
the assessing authority, in our view, is contrary to the provisions of the Act and
the rules framed thereunder. Therefore, the order of assessment passed by the
assessing authority and the subsequent orders passed by the first appellate
authority and the Tribunal requires to be set aside and the matter requires to be
remanded to the assessing authority to redo the matter in accordance with law.
Accordingly, the following:
O r d e r
(i) Revision Petition is allowed. The order passed by the assessing authority
and the subsequent orders passed by the first appellate authority and the
Tribunal are set aside.
(ii) The matter is remanded to the assessing authority to re-do the matter in
accordance with law, in the light of the observations made by us in the
course of our order.
(iii) In the facts and circumstances of the case, parties are directed to bear
their own costs.
Ordered accordingly.
H.L.Dattu
Chief Justice
K.M.Joseph
Judge
vku/DK.