Gujarat High Court
Bscpl Infrastructure Limited vs State Of Gujarat on 23 February, 2018
Bench: Akil Kureshi, B.N. Karia
C/SCA/13170/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT
AHMEDABAD
SPECIAL CIVIL APPLICATION No. 13170 of 2013
FOR APPROVAL AND SIGNATURE :
HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Mr. JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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BSCPL INFRASTRUCTURE LIMITED....Petitioner(s)
Versus
STATE OF GUJARAT & 4....Respondent(s)
==============================================================
Appearance :
Mr SN SOPARKAR, Sr Advocate with Mr AKSHAY VAKIL, Advocate for
Petitioner
Mr CHINTAN DAVE, AGP for the Respondent(s) No. 1 - 5
==============================================================
CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI
and
HONOURABLE Mr. JUSTICE B.N. KARIA
23rd February 2018
ORAL JUDGMENT (PER : HONOURABLE Mr. JUSTICE AKIL
KURESHI) Page 1 of 20 C/SCA/13170/2013 JUDGMENT Petitioner has challenged a notice dated 1st June 2013 issued by the Commercial Tax Officer, Dahod as also yet another notice dated 8th March 2013 issued by the said officer.
The petition throws up an interesting question in the following factual background :
The petitioner is a company registered under the Companies Act, 1956 and is engaged in the business of execution of works contracts, principally of roads. The petitioner is a registered dealer under the Gujarat Value Added Tax Act, 2003 ["the VAT Act" for short]. The petitioner was awarded contract for 4-laning of NH-59 from Kilometers 129.300 to Kilometers 215.900 which falls within the State of Gujarat. The date of commencement of contract was 1st March 2011 and the date of completion was 31st August 2013. The estimated contract amount was approximately Rs. 600 Crores.
In the execution of such works contract, the Page 2 of 20 C/SCA/13170/2013 JUDGMENT petitioner utilizes cement, steel, sand, grit, etc. The petitioner has set-up a ready-mix concrete plant at Piplod, District Dahod. Cement is purchased by the petitioner from the open market. The petitioner had its own mines taken on lease from where, the petitioner procures black trap which is converted into grit, to be used in construction of road.
Section 14A of the VAT Act permits composition of tax on works contract. It inter alia allows the contractor to apply for composition of tax and if such application is granted; subject to certain conditions, the contractor would pay a lump sum tax on total turnover. The petitioner had applied for such composition for the contracts in question. Such application was also granted by the authority under Order dated 17th March 2011. In the application that the petitioner filed for such purpose, it was not mentioned that the black-trap being mined by the petitioner itself which was eventually used for road construction for converting into grit. The authorities therefore were not aware about such Page 3 of 20 C/SCA/13170/2013 JUDGMENT activity of the petitioner or mode of petitioner's procurement of black-trap.
The VAT authorities conducted inquiry at various places of business between 6th March 2013 to 8th March 2013. During such inquiry, it was not the case of the authorities that the petitioner had not paid composition tax, as prescribed. However, the stand of the Department was that in view of the fact that the petitioner had not paid the tax on grit used for construction of the road, the petitioner had breached the condition of composition of tax. In view of such facts, the competent authority issued show cause notice dated 8th March 2013 in which he asserted that the petitioner had used grit prepared from the black- trap which was mined by the petitioner on which no tax was paid. He was of the opinion that the petitioner had breached the provisions of Rule 28 [6] of the Gujarat Value Added Tax Rules, 2006 ["VAT Rules" for short] and therefore, the petitioner's permission for composition of tax was liable to be cancelled. The Page 4 of 20 C/SCA/13170/2013 JUDGMENT petitioner was called upon to show cause why such action should not be taken. He asked the petitioner to remain present with full information on 12th March 2013.
The petitioner replied to such show cause notice under communication dated 12th March 2013 and contended that no condition of composition was breached, since the petitioner was not liable to pay tax on consumption of grit. The petitioner also prayed for extension of time. The authority issued yet another notice dated 1st June 2013 in which he further elaborated the stand of the Department which had principally two elements - one was that the petitioner's method of procuring the grit was not known to the Department. While filing application for composition, no documents in this respect were produced by the petitioner. Thus, the petitioner had withheld such information from the Department and on the basis of limited information available with the Department, permission for composition was granted. The second Page 5 of 20 C/SCA/13170/2013 JUDGMENT element of the said notice was that in any case since the petitioner had not paid tax on taxable goods, there was breach of Rule 28 [6] of the Rules.
Appearing for the petitioner, learned counsel Shri S.N Soparkar raised following contentions :
[i] The petitioner had applied for composition of tax. In such application, there was no requirement of disclosure that part of the input is manufactured by the petitioner. The authority has therefore wrongly proceeded on the basis that there was failure on the part of the petitioner to disclosed correct facts. [ii] Neither the VAT Act nor the Rules provide that the tax must be paid on the input, even though the taxable event had not occurred. Rule 28 [6] nowhere envisages fulfillment of such a condition. The reasonable construction of the rule would be that the contractor should pay the tax which is due and payable. When no tax is payable, there is no liability of the contractor to pay the same merely because the goods in question Page 6 of 20 C/SCA/13170/2013 JUDGMENT may otherwise be taxable goods.
[iii] Rigid construction of the rule would render it ultra vires the VAT Act.
Counsel for the petitioner relied on the following decisions in support of his contentions : [i] In case of New Delhi Municipal Committee v. Kalu Ram & Anr., reported in AIR 1976 SAC 1637 in which the word "payable" came up for interpretation by the Supreme Court. The issue arose in the background of recovery of rent where the claim had become barred by limitation. In this context, Supreme Court observed that the word "payable" used in the section in the context in which it occurs means "legally recoverable". If the recovery of any amount is barred by the law of limitation, the Estate Officer cannot insist that the said amount was payable. It was observed that, the word 'payable' is somewhat indefinite in import and its meaning must be gathered from the context in which it occurs. 'Payable' generally means that which should be paid.
Page 7 of 20
C/SCA/13170/2013 JUDGMENT In case of Garden Silk Weaving Factory v. Commissioner of Income-Tax, reported in [1995] 213 ITR 10 [Guj.], Division Bench of this Court, relying on the judgment of the Supreme Court in the case of New Delhi Municipal Committee v. Kalu Ram [Supra] observed that in the context of section 273A of the Income-tax Act, the word "payable" would mean that the assessee is liable to pay a particular sum as penalty. Even if the liability to pay penalty is discharged, it would not mean that he is not entitled to get relief under section 273A.
In the case of Commissioner of Wealth Tax v. Arjan Singh, reported in [2002] 255 ITR 517 [Delhi], Division Bench of Delhi High Court in the context of Wealth Tax Act and the Income-tax Act observed that the words "payable" and "chargeable" are not inter- changeable and they carry different meanings. The assets and property may be chargeable to tax but tax may not be payable having regard to the exemption provided for in the Schedule appended to the Act. Page 8 of 20
C/SCA/13170/2013 JUDGMENT In the case of Principal Commissioner of Income Tax, Vadodara-2 vs. M/s. IDMC Ltd [Tax Appeal No. 824 of 2016 :: Decided on 25.01.2017], Division Bench of this Court, referring to various judgments of Supreme Court was of the opinion that the interpretation advanced by the Revenue would lead to an absurd and unjust result and the purpose and object of granting additional depreciation will be frustrated. On the basis of this judgment, counsel had argued that even in the taxing statute, the principle of reasonable construction which will advance the purpose of the statute and not that which will frustrate it would apply.
On the other hand, learned AGP Shri Dave opposing the petition contended that the manner of procurement of some of the inputs by the petitioner was not known to the Department when the application for composition was granted. Admittedly, the black-trap or grit used by the petitioner in execution of the works contract is taxable goods and on such goods, the Page 9 of 20 C/SCA/13170/2013 JUDGMENT petitioner pays no tax. One of the essential conditions of composition of tax is that the contractor must have paid all taxes on its consumption of taxable goods. This basic condition having been breached, the authority was justified in seeking to cancel the permission for composition.
In order to resolve the controversy, we may refer to the provisions applicable. Section 14A of the VAT Act pertains to "Composition of tax on works contract". Relevant provisions of Section 14A reads as under :
"14.A Composition of tax on works contracts :
[1] Notwithstanding anything contained in this Act, the Commissioner may, in such circumstances and subject to such conditions as may be prescribed, permit every dealer referred to in sub-clause [f] of Claus [10] of Section 2 to pay at his option in lieu of the amount of tax leviable from him under this Act in respect of any period, a lump sum tax by way of composition at such rate as may be fixed by the State Government by notification in the Official Gazette having regard to the incidence Page 10 of 20 C/SCA/13170/2013 JUDGMENT of tax on the nature of goods involved in the execution of the total value of the works contract.
[2] The provisions of sub-sections [3] and [4] of Section 14 shall apply mutatis mutandis to a dealer who is permitted under sub- section (1) to pay lump sum tax by way of composition."
Under sub-section [1] of Section 14A of the VAT Act, notwithstanding anything contained in the Act, the Commissioner, subject to circumstances and fulfillment of conditions as may be prescribed, would permit a dealer of specific class to pay at his option, in lieu of the amount of tax leviable, a lump sum tax by way of composition at such rates as may be prescribed by the Government. Sub-section [2] of Section 14A refers to provisions contained in Section 14 which would apply mutatis mutandis to a dealer who is permitted the composition of tax. Sub-sections [3] and [4] of Section 14 in turn read as under :
14. Option for payment of lumpsum in lieu of tax on Sales :
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C/SCA/13170/2013 JUDGMENT
[1] xx xx
[2] xx xx
[3] A dealer who is permitted under sub-
section (1) to pay lump sum tax shall not -
(a) be entitled to claim tax credit in respect of tax paid by him on his purchases;
(b) charge any tax under this Act in his sales bill or sales invoices in respect of the sales on which lump sum tax is payable; and
(c) issue tax invoice to any dealer who has purchased the goods from him.
[4] A dealer who is permitted under sub- section [1] to, pay lump sum tax shall be liable to pay tax leviable under sub-section [1], [3] and [6] of Section 9, in addition to the lump sum tax under this section."
Combined reading of relevant portion of Section 14A and sub-section [3] and [4] of Section 14 of the VAT Act would show that a dealer who has been permitted to pay lump sum tax under sub-section [1] of Section 14A would be bound by the conditions contained in sub-section [3] of Section 14. It is not the case of the Department that any of these conditions Page 12 of 20 C/SCA/13170/2013 JUDGMENT have been breached by the petitioner.
Rule 28 of the VAT Rules pertains to application and permission for payment of lump sum tax. Sub-rule [8] of Rule 28 provides a detailed scheme for composition of tax under Section 14A of the Act. We are concerned with Clause [b] (vi-a) of sub-rule 8 of Rule 28 of the Rules.
"28. Application and permission for payment of lump sum tax.
[8] (a) xx xx
(b)The Commissioner shall after making such inquiry as he thinks fit, grant the permission subject to the provisions of the Act, these rules and the conditions specified as follows, namely :
(vi-a) [1] the dealer shall not use the goods in the execution of works contracts covered under the permission to pay lump sum tax, if such goods are -
(i) purchased in the course of inter-
State trade or commerce or imported from outside the territory of India, or
(ii) received from his branch situated outside the State or from his consigning agent outside the State :
[2] If such dealer uses any taxable Page 13 of 20 C/SCA/13170/2013 JUDGMENT goods in the execution of works contract covered under the permission to pay the lump sum tax, such goods ought to have borne the tax payable under the Act."
The Department's opposition flows from this statutory provision. Our attention was drawn to Clause (vi-a) [2] which provides that if the dealer uses taxable goods in the execution of works contract covered under the permission to pay the lump sum tax, such goods ought to have borne the tax payable under the Act. According to the Department, the dealer admittedly uses black-trap and grit prepared from such black-trap which are taxable goods and admittedly no tax has been paid on such goods. According to the Department, therefore, there is a breach of this condition.
The said provision uses the expression "taxable goods" and "tax payable" under the Act. Term "taxable goods" had been defined in Section 2 [29] of the VAT Act as under :
2. [29] "taxable goods" means goods other than those on the sales or purchase Page 14 of 20 C/SCA/13170/2013 JUDGMENT of which no tax is payable under Section
5.
Thus, all goods other than those on the sale or purchase of which no tax is payable under Section 5 would be, for the purpose of the said Act and the Rules, mean "taxable goods". Section 5 of the VAT Act is an exemption provision, and thus, all goods other than those which are exempt from tax are "taxable goods". While we are noting the important relevant provisions of the VAT Act, we may also refer to Section 7 which pertains to levy of tax on turnover of sales and rates of tax.
Sub-section [1] of Section 7 provides that subject to provisions of the Act, there would be levied a tax on the turnover of sales of goods specified in Schedule II or Schedule III at the rate set out against each of the said schedules. Sub-section [1A] of Section 7 of the Act pertains to levy of additional tax on turnover of sales of goods. Section 7 of the VAT Act, which is a charging provision thus makes sale of goods a taxing event. Page 15 of 20
C/SCA/13170/2013 JUDGMENT Relevance of this observation would be discussed later. Reverting back to the interpretation of sub-rule [8] of Rule 28 of the VAT Rules, we may recall a crucial condition which the Department claims breach of is, if a dealer who is granted permission to composition of tax uses any taxable goods in execution of the works contract, such goods should have borne tax payable under the Act. In this context, we need to appreciate and apply the two terms viz., "taxable goods" and "tax payable under the Act". A literal reading of this provision may lead to a situation where as in the case on hand a dealer uses goods which otherwise as per the definition of the term, can be categorized as taxable goods. The dealer, however, does not pay tax because he is not required to pay tax, and therefore, he would not have fulfilled the said condition of bearing the tax payable on use of taxable goods. However, we do not think this interpretation is either correct or reasonable or in any manner brings out the true legislative intent. In plain terms, what the legislature Page 16 of 20 C/SCA/13170/2013 JUDGMENT desired by framing the said provision is that a dealer who has been granted permission for composition of tax must have paid tax; as prescribed, upon consumption of taxable goods. This does not however mean that the dealer has to pay tax - whether such liability under the Act has arisen or not. It is in this context, we may understand the term "tax payable under the Act." When the taxing event is sale of goods and such event has not arisen, there would be no question of tax becoming payable under the Act. This itself would be sufficient to dislodge Department's objection. We may, however, go a step further. The term "taxable goods" cannot be seen in isolation by reading the definition contained in Section 229 of the VAT Act. A commodity would become taxable goods when taxable event arises. Merely because upon sale of such goods, tax is prescribed which is not exempt under Section 5 of the VAT Act, and therefore, is "taxable goods" would not for the purpose of relevant portion of Rule 28 [8] of the Rules become "taxable Page 17 of 20 C/SCA/13170/2013 JUDGMENT goods". The term "taxable goods" and "tax payable"
under the Act have to be harmoniously construed. Only reconciliation possible is that the dealer is expected to pay tax when taxing event arises and not otherwise.
The issue can be looked from a different angle. While we do so, we may record that the Department has raised an erroneous objection that the petitioner had failed to disclose its modus of obtaining black-trap or grit, while applying for composition. Neither the Act nor the Rules require any such declaration. The petitioner cannot be expected to make declaration which was not called for. In this context, the question arises what would have happened had the petitioner made such a declaration while applying for composition or the Department was aware of the petitioner's modus, while dealing with such an application. Would the authority be justified in rejecting such an application ? In our opinion, the answer has to be in the negative since there is no provision under the Act or the Rules which debars a dealer from using self- Page 18 of 20
C/SCA/13170/2013 JUDGMENT manufactured inputs in execution of the works contract.
The issue can be looked at from yet another angle. Even if the petitioner wanted to pay tax on such goods, there is no provision under the Act under which the petitioner could do so. Since the petitioner had not purchased the goods from market but had self- manufactured it from the mines taken on lease, there was no occasion to pay the tax. The Department obviously cannot argue that in such a situation, the petitioner cannot avail of composition facility at all. This would indirectly disqualify a contractor who uses self- manufactured products for home consumption in the course of execution of works contracts from claiming composition of tax. There is no condition which will render any such contractor ineligible for composition scheme. Interpretation of the said rule, as advanced by the Department would bring about a situation where such a contractor would be rendered totally ineligible to apply for composition. Such an interpretation cannot be accepted. This would amount to sub-rule [8] of Rule 28 Page 19 of 20 C/SCA/13170/2013 JUDGMENT virtually governing the eligibility conditions for composition of tax which conditions are prescribed in Section 14A of the Act. Rule 28 [8] of the VAT Rules being a piece of subordinate legislation must yield to the provisions contained in the Act.
In the result, impugned notices are set-aside. Petition is allowed and disposed of accordingly.
[Akil Kureshi, J.] [B.N Karia, J.] Prakash Page 20 of 20