IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM THURSDAY, THE 22ND JANUARY 2009 / 2ND MAGHA 1930 WA.No. 1023 of 2008() --------------------- AGAINST THE JUDGEMENT/ORDER IN WPC.8360/2008 Dated 19/03/2008 .................... APPELLANT(S): PETITIONER ------------------------ GAMMON INDIA LIMITED, GAMMON HOUSE VEER SARVARKAR MARG, PRABHADEVI, MUMBAI 400 025 BY ADV. SRI. N. VENKATARAMAN SR. COUNSEL & BY ADV. SRI.A.KUMAR RESPONDENT(S): --------------- 1. STATE OF KERALA REPRESENTED BY THE SECRETARY, TAXES DEPARTMENT GOVT. OF KERALA, GOVT.SECRETARIAT, TRIVANDRUM 2. COMMERCIAL TAX OFFICER (WC & LT), MATTANCHERRY, ERNAKULAM 3. GREATER COCHIN DEVELOPMENT AUTHORITY ERNAKULAM 4. COCHIN BRIDGE INFRASTRUCTURE COMPANY LIMITED, NEW MATTANCHERRY BRIDGE, THOPPUMPADY ERNAKULAM, KERALA ADV. SRI.N.NANDAKUMARA MENON, SENIOR ADVOCATE FOR R3 R1 AND R2 BY GOVERNMENT PLEADER SRI. VINOD CHANDRAN SRI.JOSE JOSEPH FOR R4 SRI.M.K.THANKAPPAN,SC,GCDA,GREATER COCH FOR R3 THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 22/01/2009, ALONG WITH WPC 28084 OF 2008 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR & C. K. ABDUL REHIM, JJ. -------------------------------------------- W.A. No. 1023 OF 2008 & W.P.C. NO. 28084 OF 2008 -------------------------------------------- Dated this the 22nd day of January, 2009 C.R. JUDGMENT Ramachandran Nair,J. Both the Writ Appeal and Writ Petition filed by the same company pertain to sales tax liability for a bridge constructed under the Build, Operate and Transfer (BOT) scheme. The bridge is across the backwaters connecting Willingdon Island to the main land. The first contract was between Greater Cochin Development Authority and the appellant/petitioner herein. However, later a subsidiary company of the appellant/petitioner by name Cochin Bridge Infrastructure Co. Ltd., CBICL, was brought in and a tripartite agreement was executed among GCDA, petitioner and CBICL providing for construction of the bridge, operation of the bridge by CBICL and transfer the same after 19 years of use by them. CBICL thereafter awarded the construction contract to the petitioner for Rs. 2,215 lakhs. Construction of the bridge commenced in the year 1999-2000, and according to the petitioner, 2 petitioner filed compounding application for payment of tax under Section 7(7) of the Kerala General Sales Tax Act, 1963, hereinafter called KGST Act. However, the application was not processed in time and no orders were issued. Even though orders on compounding application was issued in 2004 while completing the assessment, the Deputy Commissioner of Commercial Taxes, in exercise of power under Section 35 set aside the order on the compounding application. WPC 28084 of 2008 is filed for a declaration that the order issued on compounding application cannot be interfered with by the Deputy Commissioner under suo motu revisional powers. In substance, petitioner prays for a declaration that they are entitled to remit tax in terms of the compounding application on the contract amount referred in the construction agreement. The challenge in WPC 8360 of 2008 was against the regular assessment completed for the assessment year 2001-02, the year in which the construction of the bridge was completed. The learned single Judge, without deciding the case on merits, closed WPC leaving freedom to the petitioner to pursue statutory remedy before the appellate authority. It is against this 3 judgment of the learned single Judge that Writ Appeal 1023 of 2008 is filed by the petitioner. 2. We have heard Sri. N. Venkataraman, counsel appearing for the appellant/petitioner, Special Government Pleader appearing for the State and standing counsel appearing for GCDA. 3. Even though sales tax assessment in the normal course should be contested in appeal, as held by the learned single Judge, we feel assessment in this case calls for interference because it is totally without jurisdiction. In the first place, turnover of construction of the bridge is estimated based on toll collections for 19 years which is impermissible under the statute and so much so assessment is without jurisdiction. Secondly, the case is quite unique in nature because construction contract, the turnover stated therein, with reference to which compounding application is stated to have been filed and accepted by the Officer, is between related parties the contents of which need not be accepted by the department as real. What attracts sales tax liability is on the transfer of property involved in the construction of the bridge, which is works contract assessable under 4 Section 5(1)(iv) of the KGST Act. If the consideration of contract shown in the contract is not acceptable to the assessing officer, he can give reasons for the same and estimate the turnover. However, it would not be permissible for the assessing officer to estimate toll collections and treat it as turnover for construction of the bridge and so much so the orders impugned in WPC 8360 of 2008 have to be cancelled. The contention of the petitioner that contract amount referred to in the construction agreement between itself and it's subsidiary company namely CBICL should be assessed is also not acceptable because the awarder of the contract is GCDA for which the bridge is constructed. The contract between petitioner and it's subsidiary company is only an internal arrangement between them and it is upto them to fix the price of the contract suitable to parties. However, there would be no difficulty for the assessing officer to estimate the value of materials involved in the execution of contract, because similar bridges were constructed near the very same bridge in the past as well as later. In fact details of other bridges constructed in the area could be collected from PWD, CPWD, or Port Trust, as the case may be and value of the 5 bridge for assessment could be determined after giving opportunity to the petitioner and after calling for particulars available with them. 4. We therefore allow W.A.No. 1023 of 2008 by vacating the judgment of the learned single Judge and by vacating the impugned assessment orders issued by the assessing officer with direction to the assessing officer to assess the value of materials involved in the construction of the bridge with reference to the original contract, design and technical details and after collecting rates and tariff from PWD, CPWD, Port Trust, etc. Petitioner is also given freedom to furnish materials on which they rely on for estimation of value of materials supplied in the execution of work. 5. In view of our above finding, we have to necessarily hold that compounding made with reference to the contract amount covered by the contract between the petitioner and subsidiary company is also not tenable. Since payment of tax under compounding is only in terms of the procedure prescribed under the Rules which provide for filing of application for compounding in advance, orders thereon within the year itself, and payment of tax in terms of the demand issued in Form 6 No.22, which have not been complied with, petitioner is not entitled to payment of tax at compounded rate. Further as already found, what is assessable is not the contract amount covered by the agreement between the petitioner and it's subsidiary company, but it will be the actual value of the goods transferred in the execution of work under the contract between the awarder namely GCDA and the petitioner. If any assessment pending is completed, the same will stand set aside. WPC 28084 of 2008 is dismissed in terms of the judgment in WA No.1023 of 2008. (C.N.RAMACHANDRAN NAIR) Judge. (C.K. ABDUL REHIM) Judge. kk 7