Document Fragment View

Matching Fragments

Does the 'first proviso' to Section 8 (a) (ii) of the KVAT Act (stipulating compounding rate of tax as '4%' of the whole contract amount in the case of works contract covered by Section 8 (a) (ii) of the Act, if the work contract is awarded by the Government of Kerala, Kerala Water Authority or Local Authorities, drawing a distinction from the main provision i.e. 8 (a) (ii) where the rate of tax to be satisfied by the work contractors doing 'private works' with a taxable rate of only '3 %') is based on any reasonable classification, forms the legal point to be sorted out in these writ petitions. The factual dispute is with regard to the notices issued, proposing to effect fresh assessments under Section 25(1) of the KVAT Act and the orders passed thereunder or the proceedings proposing to impose penalty under Section 67 (1) of the Act or the orders passed in this regard, as raised in some of the cases. The facts and figures are W.P.(C) No. 32537 of 2010 and connected cases referred to as given in W.P(C) No. 32537 of 2010, treating the same as the lead case for convenience of reference.

2. Case of the petitioner is that, it is a partnership firm engaged in the business of executing civil works and was a registered dealer under the KGST Act from 1993. It is continuing as a registered dealer under the KVAT Act. Most of the works being undertaken are construction of roads and bridges for the State of Kerala, allegedly by way of sub-contract under the principal contractor to whom the work has been awarded by the State of Kerala or the Departments as above.

3. By virtue of the enabling provision, particularly under Section 8 of the KVAT Act, for payment of tax at compounded rate, instead of undergoing the ordeal of normal course and proceedings under Section 6 of the KVAT Act, the petitioner opted to satisfy tax at the compounded rate. Exts. P1 and P2 are the orders passed by the second respondent permitting to pay compounded tax under Section 8 (a) [at 3 % + Cess] and the petitioner satisfied the tax accordingly.

5. While so, the petitioner was served with Ext. P5 notice dated 15.09.2010 under Section 25(1) of the KVAT Act pointing out that, quarterly return for the quarter ended 31.03.2010 was not acceptable as correct and complete, for the reason that the petitioner was liable to pay tax @ '4 %' for contract receipts, thus calling for objection, if any. Meanwhile, the petitioner was served with Ext. P4 revised permission to compound the tax under Section W.P.(C) No. 32537 of 2010 and connected cases 8(a) (ii) in respect of the year 2010 - '11, wherein rate of tax was split up, showing '4 %' + Cess in respect of the works awarded by the Government, Water Authority and the Government Local Body and @ '3%' in respect of the other one. Then the petitioner was served with Ext. P6 notice dated 22.09.2010 demanding the balance tax payable, working out the figures, reckoning the rate as 4%, instead of 3%, and the CESS. Since the grievance projected before the concerned Minister by way of Ext. P7 dated 15.10.2010 was not acted upon, the petitioner rushed to this Court apprehending coercive steps, mainly seeking for a declaration that the 'first proviso' to Section 8 (a) (ii) is illegal and ultravires to Article 14 of the Constitution of India; praying for other incidental reliefs as well; including to set aside the impugned notices/orders/proceedings. Almost similar pleadings and prayers have been raised by the petitioners in the other cases as well.

6. The respondents have filed a counter affidavit seeking to sustain the course and proceedings, contending inter alia, that the differential treatment in the case of the contractors like the petitioners, is on the basis of a conscious exercise. It is conceded that the rate of tax was reduced in the case of 'private contractors' W.P.(C) No. 32537 of 2010 and connected cases under Section 8 (a) (ii) (other than those in the first proviso), who are required to satisfy only '3 %' of the contract amount, as specified therein. The rate in the case of such contractors was actually much on the higher side, earlier. It was after considering the grievance projected by the Contractors' Association and others concerned, referring to the recession in the field of operation, particularly, in relation to flat construction and the adverse circumstances prevailing, that the Government thought it fit to reduce the rate in their case, bringing it down to '3%'. The factual position/sequence of events in this regard is discernible from the Budget Speech 2008-09 [(2008) 16 KTR]. It is also stated that the contractor who has opted for payment of tax on the compounded rate cannot challenge it thereafter; since there is no compulsion upon the contractor to opt for this method of taxation under Section 8 (a) of the Act, which is only a simplified procedure to meet the tax obligation and not a charging provision by itself. It is further pointed out that, on coming across the mistake in Ext. P2 compounding order, it was sought to be rectified by the second respondent, by issuing notice dated 30.08.2010 under Section 66 of the KVAT Act and accordingly, Ext. P4 rectified order was passed, W.P.(C) No. 32537 of 2010 and connected cases followed by demand. The mistake came to the notice of the authorities concerned only on verification of records and as such, the respondents are justified in proceeding with further steps for realization of the differential amount.