M/s.Fortune Construction Private Limited V. The Commissioner of Commercial Taxes

SPLA/4/2012

AI Insights

The case involves a series of appeals concerning the revision of tax assessment orders under the Andhra Pradesh Value Added Tax Act, 2005. The appellant, a company engaged in the construction and sale of residential properties, contested the revisions made by the 1st respondent, which were based on a new interpretation of the appellant's business activities under different sections of the Act. The primary legal issue was whether the 1st respondent could revise the assessment orders beyond the prescribed four-year limitation period and whether the revisions were based on a valid interpretation of the applicable sections of the Act. The court concluded that the revisions were indeed beyond the permissible period and improperly applied, leading to the setting aside of the revisional orders.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 727482 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 25-02-2013
• Assessment Year: misc
• Other Referred Cases: HYDERABAD INSULATED WIRES (P) LTD v. COMMISSIONER OF COMMERCIAL TAXES, HYDERABAD, COMMISSIONER OF INCOME TAX V. ALAGENDRAN FINANCE LTD
• Laws Referred To: Andhra Pradesh Value Added Tax Act, 2005
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P VARMA
• Assessee Lawyers: S RAVI
• Keywords: Limitation Period; Revision of assessment order; VAT; Construction and sale of residential buildings; Composite tax
• Section: 23; 32(1); 32(2); 32(3); 4(7)(d); 4(7)(e)

Judgement Text

"HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO SPL.A.Nos.3 and 4 of 2012 COMMON JUDGMENT: (Per Hon’ble Sri Justice M.S.Ramachandra Rao) Heard Sri S. Ravi, learned Senior Counsel appearing on behalf of Sri Ch. Pushyam Kiran, learned counsel for the appellant and Sri P. Balaji Varma, learned Special Government Pleader for Commercial Taxes. 2. As a common issue arises for consideration in both the appeals, they are being disposed of by a common order. 3. The short point which arises for consideration in the appeals is whether the orders dated 16.7.2012 passed by the 1st respondent in exercise of the powers under Section 23 of the Andhra Pradesh Value Added Tax Act, 2005 ( for short “the Act”), in substance revising the orders of assessment dated 16.5.2007 for the assessment years 2005-06 (APVAT) and 2006-07 (APVAT) is barred by limitation. 4. The appellant is a company engaged in the business of sale and construction of residential properties. It is a registered VAT dealer on the rolls of the 2nd respondent. 5. For operational convenience, it executes a conveyance in favour of a purchaser in respect of the land on which a residential house is to be constructed for the purchaser. It undertakes construction of the residential house thereafter. 6. For the assessment year 2005-06, it opted to pay tax on composition basis under Section 4(7)(d) of the Act treating the transaction as construction and sale of residential building or apartments. Its accounts were audited by the 2nd respondent. By assessment orders dt.16.5.2007, he determined the turnover of the appellant at Rs.7,51,31,630/- for 2005-06 and at Rs.3,18,60,135/- for 2006-07 and determined the tax at Rs.65,74,018/- and Rs.27,87,761/- for 2005-06 and 2006-07 respectively. 7. Challenging the same, the appellant filed appeals before the Appellate Deputy Commissioner (CT), Secunderabad Division, Hyderabad. The appellant alleged that the 2nd respondent had treated it as an entity engaged in the business of construction and sale of residential/commercial buildings and apartments as per the option of the appellant and accordingly levied tax at 4% of 25% of the contract receipts under Section 4(7) (d) of the Act; that while arriving at the taxable turnover of the appellant, the 2nd respondent followed a different method than the one prescribed under Section 4(7)(e) of the Act which resulted in levy of more tax ; that the mode of computation of turnover by 2nd respondent for the purpose of computation of tax under Section 4(7)(d) of the Act ; and that the value of the CST purchasers should be first deducted from the 25% value of the contract instead of from 100% of the contract value as was done by the 2nd respondent. By orders dt. 8.11.2007, the appellate authority upheld the appellant’s contention and remanded the matter to the 2nd respondent for recomputation of the turnover and tax. 8. These orders of the Appellate Deputy Commissioner were revised by the 3rd respondent by orders dt. 17.7.2008 under sub-section (2) of Section 32 of the Act, on the ground that they are prejudicial to the interests of the Revenue. He set aside the appellate authority’s orders and restored the orders of assessment passed by the 2nd respondent. 9. Thereafter, the 1st respondent issued revision show cause notices dated 21.5.2012 proposing to set aside the orders dt. 16.5.2007, 8.11.2007 and 17.7.2008 on an altogether new issue i.e. that on further verification of the material available on record, it has come to light that the appellant had acted only as a contractor for construction of buildings on the land owned by the purchasers themselves and is not eligible to opt for compounding of its liabilities under Section 4(7)(d) of the Act; that the appellant is not a seller of flats and that it is only a deemed seller of goods incorporated in the construction works; that the agreement for construction falls under Section 4(7) (c) of the Act which is applicable to all works contracts other than Government contracts and other than construction and sale of residential apartments; that the appellant is liable to be assessed under Section 4(7)(c ) read with Section 4(7)(e) of the Act and not under Section 4(7)(d) of the Act. 10. The appellant submitted objections dt.11-06-2012 to the 1st respondent contending that the 2nd respondent had passed assessment orders on 16-05-2007 treating the subject transactions as falling under Section 4 (7) (d) of the Act and also levying tax under the said section after deducting CST purchases from the total value of the contract; the Appellate Deputy Commissioner (CT), Secunderabad allowed the appeal accepting the contention of the appellant that the value of the CST purchasers should be first deducted from the 25% value of the contract instead of from 100% of the contract value; that the 3rd respondent, in exercise of his powers under Section 32 (2) of the Act revised the order of the Appellate Deputy Commissioner (CT), Secunderabad and restored the orders of the 2nd respondent dt.16-05-2007; although 1st respondent has power to set aside/modify/revise the orders of the 3rd respondent under Section 32 (1) of the Act, he does not have jurisdiction revise orders of the 2nd respondent or the Appellate Deputy Commissioner beyond the period of four years from the date on which order of assessment was served on the appellant in view of sub section (3) of Section 32 of the Act; that the issue raised in revision show cause notices dt.21-05-2012 of the 1st respondent is a new one and is not one covered either under the orders of the Appellate Deputy Commissioner or of the 3rd respondent and in proposing the revision, what is in fact sought to be done is to revise the orders of assessment of the 2nd respondent which is impermissible; in any event the appellant having filed an appeal T.A.Nos.381 and 382 of 2009 before the Sales Tax Appellate Tribunal challenging the orders passed by the 3rd respondent, the 1st respondent is denuded of power to revise the orders of the 3rd respondent. 11. The 1st respondent passed the impugned orders dt.16-07-2012 overruling the objections of the appellant and holding that he is exercising the powers conferred by sub-section (1) of Section 32 of the Act for the first time; in the appeals before the Sales Tax Appellate Tribunal, the appellant had only objected to the manner of determination of its turnover under Section 4 (7) (d) of the Act whereas he i.e, the 1st respondent is proposing revision under Section 4 (7) (c) and not under Section 4 (7) (d); consequently the bar created under proviso to sub section (2) of Section 32 does not apply; that the 1st respondent’s orders dt.16- 05-2007 was served on the appellant on 22-05-2007; that the Appellate Deputy Commissioner’s orders dt.08-11-2007 was served on the appellant on 13-11-2007; the proposal to set aside both the orders of the 2nd respondent dt.16-05-2007 and the orders of the Appellate Deputy Commissioner in the proposed revision initiated by the 1st respondent are dropped; however he can still revise the orders of the 3rd respondent as his show cause notice dt.28-05-2012 is within four years time mentioned in sub section (3) of Section 32 from the date of the order dt.17-07-2008 of the 3rd respondent; and that there is only one sale entered into by the appellant as the transaction of construction of bungalow on the developed plots of the contractees falls under Section 4 (7) (c) of the Act. He therefore confirmed all the proposals made in the revision show cause notices dt.28-05-2012. 12. Challenging the same, the present appeals are preferred. Although inadvertently the appellant has mentioned that the appeal is filed under Section 23 of the AP General Sales Tax Act, 1957, they are treated as appeals under Section 35 of the Act and disposed off. 13. The learned counsel for the appellant contended that the 1st respondent has taken up the revision on altogether a new issue and set aside the orders of 2nd respondent; the subject matter of the assessment order of the 2nd respondent, the appeal thereagainst and subsequent revision by the 3rd respondent is different from the subject matter on which the revision was proposed by the 1st respondent; it has to be construed that the 1st respondent is in fact revising the orders of the 2nd respondent and not the orders passed in appeal or orders of the 3rd respondent; that 1st respondent has no jurisdiction to revise orders of 2nd respondent since the time limit of four years prescribed under sub section (3) of Section 32 of the Act has lapsed prior to the issuance of the revision show cause notices dt.21-05-2012 and passing of impugned orders dt.16-07-2012 by the 1st respondent; and that the 1st respondent is not right in applying Section 4 (7) (c) to the transactions entered into by the appellant with its contractees and only Section 4 (7) (d) is attracted as rightly held by the Appellate Deputy Commissioner in his orders dt.08-11- 2007. 14. The learned Special Government Pleader for taxes supported the orders of the 1st respondent and contended that the 1st respondent has only proposed revision of the orders dt.17-07- 2008 of the 3rd respondent; that he did not revise the orders dt.16- 05-2007 of the 2nd respondent; the 1st respondent rightly held that the transactions entered into by the appellant fall under Section 4 (7) (c) and not Section 4 (7) (d) as contended by the appellant; and therefore the appeals should be dismissed. 15. We have noted the contentions of the respective parties. 16. From the facts narrated above, it is clear that the 2nd respondent had passed assessment orders dt.16-05-2007 applying Section 4 (7) (d) of the Act and holding that the subject transactions fall under Section 4 (7) (d) of the Act and levied tax under the said section after deducting CST purchases from the total value of the contract. The Appellate Deputy Commissioner (CT), Secunderabad by orders dt.08-11-2007 allowed the appeal accepting the contention of the appellant that the value of the CST purchases should be first deducted from the 25% value of the contract instead of from 100% of the contract value and remitted the matter to the 2nd respondent with a direction to re- compute the taxable turnover under Section 4 (7) (d). The 3rd respondent, in exercise of his powers under sub-section (2) of Section 32 , passed orders on 17-07-2008 revising the orders of the Appellate Deputy Commissioner (CT), Secunderabad and restoring the orders of the 2nd respondent dt.16-05-2007. He opined that the orders of the 2nd respondent were correct. These orders were challenged by the appellant in T.A.Nos.381 of 2009 and 382 of 2009 before the Sales Tax Appellate Tribunal, Hyderabad. 17. While so, the 1st respondent proposed to exercise revisional jurisdiction under Section 32 of the Act and issued revision show cause notices dt. 21-05-2012. A reading of the said notices indicates that upon further verification of material on record, he came to the prima facie conclusion that the transactions entered into by the appellant with buyers are one of construction of residential apartments; that the appellant first sold the land to the customers by certain agreements and subsequently constructed residential flats by separate construction agreements; and therefore the second agreement of construction falls under Section 4 (7) (c) of the Act and not Section 4 (7) (d) of the Act. This is an altogether new point which had not been raised either by the 2nd respondent, the Appellate Deputy Commissioner or the 3rd respondent, all of whom opined that Section 4 (7) (d) of the Act alone is attracted. Had he not raised this new issue and had he confined himself to the correctness or otherwise of the orders of the 3rd respondent dt.17-07-2008, he could be presumed to be rightly exercising the powers of revision under sub section (1) of Section 32 of the Act. But from the language used in the show cause notices, it is clear that the 1st respondent is in fact attempting to reopen assessments which had attained finality and re-assess the appellant on the above ground by changing the basis for assessment from Section 4 (7) (d) to Section 4 (7) (c) ; under guise of exercise of revisional jurisdiction under Section 32 purporting to revise the orders of the 3rd respondent dt.17-07- 2008. He is thus interfering with the orders of assessment dt.16- 05-2007 passed by the 2nd respondent and not merely revising the orders dt.17-07-2008 of the 3rd respondent. 18. Sub-section (3) of Section 32 of the Act provides that a revision of an order of assessment can be done under sub sections (1) and (2) thereof only within a period of four years from the date of which the order was served on the dealer. Admittedly the orders of assessment dt.16-05-2007 of the 2nd respondent were served on the appellant on 22-05-2007. Therefore the revised show cause notices dt.21-05-2012 issued by the 1st respondent are issued almost five years after the order of assessments was served on the appellant. It is therefore barred by the law of limitation prescribed in sub-section (3) of Section 32 of the Act. 19. In HYDERABAD INSULATED WIRES (P) LTD v. COMMISSIONER OF COMMERCIAL TAXES, HYDERABAD[1], a Division Bench of this Court held that it is impermissible to levy additional tax under Section 5-A of the GST Act in exercise of revisional powers by the Commissioner when such levy of additional tax was not all proposed by the Deputy Commissioner in the revision notice issued to the assessee; that the illegality, if any, in not imposing additional tax attaches to the original assessment order; if at all, the assessment order had to be revised on the ground that there was failure on the part of the assessing authority to subject the turnover to additional tax under Section 5-A; but, for the obvious reason that the period of limitation prescribed for revising the said assessment order expired long back, the Commissioner had rightly not taken steps for revising the original assessment order; that the Commissioner cannot exercise the powers of reassessment or revision in the year 1989 in respect of the assessment made in the year 1983; and it is incomprehensible as to how the Commissioner could levy additional tax by revising the Deputy Commissioner’s order dropping the proposed revision in respect of surcharge. It held that the proposal to levy additional tax under Section 5-A is beyond the power and jurisdiction of the Commissioner. 20. I n COMMISSIONER OF INCOME TAX V. ALAGENDRAN FINANCE LTD [2], the Commissioner of Income Tax, while exercising revisional powers under Section 263 of the Income Tax Act, 1961, reopened on 29.3.2004, the orders of assessment dated 27.2.1997, 12.5.1997 and 30.3.1998 for assessment years 1994-95, 1995-96, 1996-97 only in relation to the issue of “lease equalization fund” which was not subject of the re-assessment proceedings dated 28.3.2002 ( in respect of some other issues ). The Supreme Court held that, in respect of the issue of “lease equalization fund”, the period of limitation provided for under sub-section (2) of section 263 of the Act would begin to run from the date of orders of the assessment and not from the order of re-assessment dated 28.3.2002 and the revisional jurisdiction, invoked by the Commissioner of Income Tax was beyond the period of two years ( at that time ) from the end of the financial year in which the order sought to be revised was passed, and was wholly without jurisdiction and a nullity. 21. Recently, in Spl.A.No.2 of 2010, this Court had passed orders dt.13.2.2013 taking the view that clause (1) of Section 20 of the AP General Sales Tax Act, 1957 (which is in pari materia with Section 32 of the Act) authorizes the respondent to revise the revisional orders passed by any subordinate officer under sub section (2) of Section 20, but it does not authorize the Commissioner to decide the correctness of the order of assessment i.e. permit him to do a re-assessment beyond the period of limitation of four years prescribed therein on new grounds. 22. We are therefore of the view that the proposal of the 1st respondent in his show cause notices dt.21-05-2012 and the consequential orders dt.16-07-2012 are wholly without jurisdiction and barred by limitation prescribed under sub section (3) of Section 32 of the Act as the 1st respondent clearly intended to re- assess the appellant for the assessment years 2005-06 and 2006-07, thereby interfering with the orders of assessment dt.16- 05-2007 of the 2nd respondent while purporting to revise the orders dt.17-07-2008 of the 3rd respondent. 23. Therefore the Special Appeals are allowed; the revisional orders dt.16-07-2012 of the 1st respondent and the consequential demand notices dt.04-09-2012 are also set aside. No costs. ____________________________ JUSTICE GODA RAGHURAM ___________________________________ JUSTICE M.S.RAMACHANDRA RAO February 25, 2013. KVR [1] (1991) 80 STC 99(AP) [2] 2007 (293) ITR 1(SC) "