M/s.Schindler India Private Limited V. TheCommercial TAx officer(Int)

WP/8083/2011

AI Insights

M/s. Schindler India Private Limited filed writ petitions against the Commercial Tax Officer, challenging the Show Cause Notices issued for the assessment of VAT on installation charges for the tax periods 2009-10 and 2010-11. The petitioner argued that the installation charges were labor charges and should not be subjected to VAT but only to service tax. The Commercial Tax Officer defended the notices, citing authorization from the Deputy Commissioner (Commercial Taxes) and argued that the matter was still at the preliminary stage of inquiry. The court dismissed the petitions, emphasizing that the petitioner should respond to the Show Cause Notices and that the statutory authority should be allowed to complete the assessment process.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 740142 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 02-11-2011
• Assessment Year: misc
• Other Referred Cases: SPECIAL DIRECTOR v. MOHD. GHULAM GHOUSE, FLEMINGO (DFS) PVT. LTD., MUMBAI v. COMMISSIONER OF CUSTOMS, CUSTOM HOUSE, PORT AREA, VISAKHAPATNAM
• Laws Referred To: Andhra Pradesh Value Added Tax Act, 2005
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Keywords: Installation charges; Jurisdiction; Service tax; Show cause notice; Value Added Tax; VAT
• Section: 21(7)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION NOS.8073 AND 8083 OF 2011 DATED 2ND NOVEMBER, 2011 BETWEEN M/s.Schindler India Private Limited, “Saideep”, 3-9-50/B, Sayeed Jalal Gardens, West Marredpally, Secunderabad, Rep. by its Head – Operations (Hyderabad) Mr.Satish Bhat. …Petitioner And The Commercial Tax Officer (Int), Secunderabad Division, Hyderabad and another. …Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT PETITION NOS.8073 AND 8083 OF 2011 COMMON ORDER: (Per SK,J) These writ petitions are filed assailing the individual Notices of assessment of Value Added Tax in Form VAT 305 A dated 16.03.2011 issued to the petitioner company proposing assessment of Value Added Tax (VAT) to the tune of Rs.19,27,023/- and Rs.1,72,35,820/- for the tax periods 2009-10 and 2010-11 respectively. In W.P.No.8073 of 2011, the petitioner company seeks a writ of prohibition forbearing the Commercial Tax Officer (Intelligence), Secunderabad Division, Hyderabad, from proceeding further pursuant to the Show Cause Notice dated 16.03.2011 in so far as the tax period 2009-10 is concerned. In W.P.No.8083 of 2011, the petitioner company prays for a writ of prohibition forbearing the Commercial Tax Officer (Intelligence), Secunderabad Division, Hyderabad, from proceeding further pursuant to the Show Cause Notice dated 16.03.2011 for the tax period 2010-11 (upto November, 2010) and also a writ of mandamus declaring that it is not liable to pay VAT on imports made by Lanco or any other customer from foreign countries and on installation charges for erection of lifts and to interdict the authorities from levying tax on such transactions. Pleadings being complete, the matters are amenable to disposal at the admission stage. It is the case of the petitioner company that it is a 100% subsidiary of the Schindler Group of Companies, a worldwide leading manufacturer of elevators and lift products. The Head Office of the Schindler Group of Companies is stated to be situated in Ebikon, Switzerland, with its operations spread over 1000 branches and 42,000 employees. The petitioner company offers supply, erection, installation and commissioning of lifts and elevators to its clients. It is a registered VAT dealer on the rolls of the Commercial Tax Officer, Musheerabad Circle, Hyderabad. During the relevant tax period, the petitioner company executed contracts for supply, erection, installation and commissioning of elevators/lifts and claims to have paid VAT on the sale component and service tax on the erection, installation and commissioning components of its operations. While so, the jurisdictional Commercial Tax Officer (Intelligence), the first respondent in the writ petitions, inspected the petitioner company’s premises on 19.01.2011 for the purpose of audit and during the course thereof found that the petitioner had not paid VAT on the installation charges received by it for installing the lifts/elevators. It is the case of the petitioner company that such installation charges are in the nature of labour charges and would not be liable for taxation under the Andhra Pradesh Value Added Tax Act, 2005 but would be exigible only to service tax. The petitioner company filed letter dated 05.02.2011 explaining its stand but the first respondent is alleged to have mechanically issued Show Cause Notices dated 16.03.2011 for the two assessment years, without considering its objections, proposing to levy VAT on the installation charges. Two primary grounds are urged in support of the challenge laid by the petitioner company to the Show Cause Notices dated 16.03.2011. Firstly, the petitioner company alleges that the same are without jurisdiction as the first respondent had no authority to undertake the proposed assessment. This ground forms the basis for the prayer for writs of prohibition. The second ground urged by the petitioner company is that the impugned Show Cause Notices demonstrate that the jurisdictional facts required for the proposed assessment were not established and they further indicate that the first respondent had already pre-decided the issue against the petitioner company and that no purpose would be served by responding to the Show Cause Notices and inviting an order from the first respondent on merits. In his counters, the first respondent stated that the Deputy Commissioner (Commercial Taxes), Secunderabad Division, by proceedings in Ref.No.Audit/86/2011 dated 09.03.2011 authorized him to assess the case of the petitioner company for the years 2009-10 and 2010-11. A copy of the said proceedings is placed on record. It is on the basis of this authorization that the first respondent claims to have issued the impugned Show Cause Notices to the petitioner company proposing to levy tax on the turnover relating to installation and commissioning charges received by the petitioner company for installation of lifts/ elevators. He raised a preliminary objection as to the maintainability of the writ petitions on the ground that the matter was still at the stage of showing cause and that a writ petition would not lie against a Show Cause Notice unless the same was shown to be ex facie without jurisdiction. As such a ground was not made out in the present case in the light of the authorization dated 09.03.2011, the first respondent sought dismissal of the writ petitions on this short ground. The first respondent also made submissions on the merits of the proposed levy of tax, which are irrelevant for the purpose of deciding the cases on hand. Be it noted however that the first respondent made it clear that as no final decision had been taken as yet and only Show Cause Notices had been issued, a final decision would be taken only after considering the objections of the petitioner company and after providing it an opportunity of personal hearing. In its reply affidavits filed in both the writ petitions, the petitioner company addressed the merits of the proposed assessment. Significantly, it did not dispute the authorization of the first respondent by the Deputy Commissioner (Commercial Taxes), Secunderabad Division, to undertake the proposed assessment except to the extent of stating that nothing prevented the first respondent from mentioning the same in the Show Cause Notices or filing the same with the counters. With regard to the averment that it would be given an opportunity to put forth its objections before a final decision is taken in the matter, the petitioner company alleged that it had reason to believe that the first respondent was bent upon levying the proposed tax and that it could not be made to undergo this exercise when the documents speak for themselves. Sri S.Dwarakanath, learned counsel for the petitioner company, when faced with the authorization proceedings dated 09.03.2011, asserted that the same did not contain reasons as to why the first respondent had been authorized to undertake the proposed assessment. He therefore submitted that such authorization could not be held to be valid. Rule 59(1) of the Andhra Pradesh Value Added Tax Rules, 2005, dealing with authorities prescribed under the Act and the Rules for various purposes, to the extent relevant, reads as under: “59. Authority prescribed: 1) For the purpose of exercising powers specified in column (1) of the table below, the authorities specified in column (2) therein, shall be the authorities prescribed: Authority prescribed under the Act and the Rules Sl. No. Column(1) Powers Column (2) Authority Column (3) Sec./Rule 4. Assessments VAT–– i) Unilateral assessment under Rule 25(1) ii) Assessment under Rule 25(5) ……… ……… ii) a) ……… b) Commercial Tax Officer or Deputy Commercial Tax Officer in case of dealers in the territorial jurisdiction o f the circle as authorized by Deputy Commissioner concerned. ……… ……… Sec.20(3)(a) & (b), Sec.21(3), 21(4), 21(5), 24(2), Rule 25(5) ……… Pertinent to note, the Rule does not require the Authorizing Officer to record the reasons for such authorization. The authorization dated 09.03.2011 therefore does not suffer from any procedural violation rendering it invalid. Consequently, the impugned Show Cause Notices issued by the first respondent pursuant to such authorization do not suffer from lack of jurisdiction. The prayers of the petitioner company in both the writ petitions in so far as it seeks writs of prohibition against the first respondent from proceeding further in the matter for want of jurisdiction must therefore fail. As regards the second ground of challenge that the first respondent mechanically issued the impugned Show Cause Notices without examining whether the necessary foundation had been established for even proposing assessment to VAT, this Court cannot lose sight of the fact that the matter is still at the preliminary stage of enquiry and the petitioner company is yet to respond to the Show Cause Notices impugned in these writ petitions. The observations of the Supreme Court in SPECIAL DIRECTOR v. MOHD. GHULAM GHOUSE[1] are relevant in this regard: “5. This Court in a large number of cases has deprecated the practice of the High Courts entertaining writ petitions questioning legality of the show-cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless the High Court is satisfied that the show-cause notice was totally non est in the eye of the law for absolute want of jurisdiction of the authority to even investigate into facts, writ petitions should not be entertained for the mere asking and as a matter of routine, and the writ petitioner should invariably be directed to respond to the show-cause notice and take all stands highlighted in the writ petition.” Perusal of the Show Cause Notices reflects that the first respondent was of the opinion that as the petitioner company had designed, supplied, erected and commissioned high-rise lifts for M/s.Lanco Hills Projects but had not reported turnover of sale of lifts on the pretext that the lifts were purchased by the customer from the Schindler Group of Companies at China, it had avoided payment of legitimate VAT. He accordingly proposed assessment to VAT as indicated therein. The petitioner company claims that it had only undertaken installation and erection of the lifts and that the purchase of the lifts took place outside the country and it was not a party to such sale. Copy of the purchase order dated 23.09.2009 placed by M/s.Lanco Hills Technology Park Private Limited, Hyderabad, on M/s.Suzhou Schindler Elevator Company Limited, China, a Schindler Group Company, is placed on record. Relevant to note, the technical specifications of service-cum-fire lift elevators for residential towers which forms part of the purchase order speaks of execution under Part 2. Clause 2.01 thereunder deals with installation and reads as under: “Supply, transportation, loading and unloading, keep your material in secure lockable place, installation with all necessary scaffolding for erecting of lift, builders work and civil work should be included in the scope of work. Including light points and fitting and power socket for each floor in the lift shaft for the maintenance requirement. (FXC 101 or equivalent) Shaft lighting, 3 phase cabling & power in stores to be provided by Customer & not in Schindler’s scope.” It is therefore for the petitioner company to respond to the impugned Show Cause Notices and establish its case on merits. As pointed out by the first respondent in his counters, the issue is yet to be decided and there is no reason to suspect that the first respondent would not give a fair hearing to the petitioner company and decide the matter with an unbiased and open mind. Such exercise by the jurisdictional authority cannot be circumvented by the petitioner company at this preliminary stage on mere apprehensions. This Court would be chary of interfering in such matters when the statutory machinery is yet to process the case. The observations of this Court in FLEMINGO (DFS) PVT. LTD., MUMBAI v. COMMISSIONER OF CUSTOMS, CUSTOM HOUSE, PORT AREA, VISAKHAPATNAM[2], a Judgment rendered by one of us (VVSR,J), are of guidance: “10. Further, in tax matters, ordinarily Courts have declined to exercise writ jurisdiction. In C.A.Abraham v. I.T.Officer, AIR 1961 SC 609, the appellant along with another was partner in M/s.M.P.Thomas and Company engaged in food grains business. The firm submitted Returns to Income Tax Officer (ITO). On the ground that the firm was carrying transactions in fictitious names, and had suppressed income for AY 1948-1949, show-cause notice was issued for imposing penalty under Section 28 of Income Tax Act, 1922. Explanation was submitted. ITO passed orders imposing penalty for AYs 1950-1951 and 1951-1952. Appeals were dismissed by the appellate authority. The same was assailed in Certiorari proceedings before the Kerala High Court. The Court rejected relying on a Judgment of the A.P.High Court in Mareddi Krishna Reddy v. Income Tax Officer, Tenali, AIR 1957 AP 368. In Appeal with Certificate of High Court, the Supreme Court considered two questions, namely, whether High Court could have entertained a writ petition ignoring alternative remedy provided by the Act and whether the provisions imposing penalty can be interpreted by pointing out deficiencies. On the first question, it was held that, “assessee cannot abandon to resort to machinery provided under the Act and directly invoke remedy under Article 226 of Constitution of India”. The observations are as follows (para 3). In our view, the petition filed by the appellant should not have been entertained. The Income Tax Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed by the Income Tax authorities, and the appellant could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Tribunal.” On the above analysis, we are of the considered opinion that no case is made out to interfere at this stage of the matter. The impugned Show Cause Notices dated 16.03.2011 do not suffer from illegality, be it for want of jurisdiction or otherwise. As the petitioner company chose to approach this Court by way of the present writ petitions without responding to the impugned Show Cause Notices, we are of the view that the ends of justice would be sufficiently served by permitting the petitioner company, in addition to filing an application before the Commissioner under Section 21(7) of the Andhra Pradesh Value Added Tax Act, 2005, to submit its response to the impugned Show Cause Notices within two (2) weeks from the date of receipt of a copy of this order. Thereupon, the first respondent shall decide the matter in accordance with law after considering the petitioner company’s objections and after giving it due opportunity of personal hearing. The Writ Petitions are dismissed subject to the above observations. There shall be no order as to costs. ______________ V.V.S.RAO, J. ____________________ SANJAY KUMAR, J. 2ND NOVEMBER, 2011. VGSR Note: Despatch order copy in one week. B/O YS [1] (2004) 3 SCC 440 [2] 2011 (2) ALD 245 (DB) "