THE HONOURABLE SRI JUSTICE GODA RAGHURAM AND THE HONOURABLE SRI JUSTICE RAMESH RANGANATHAN Writ Petition No. 197 of 2010 Dated: 11-2-2010 Between: M/s Kranthi Constructions, rep. by its Managing Partner Sri M.Pratap Reddy …Petitioner and The Government of Andhra Pradesh, rep. by its Secretary, the Commercial Tax Department, Secretariat, Hyderabad and others …Respondents. Order: (Per RR, J) In this writ petition the assessment order passed by the 3rd respondent dated 23-12-2009 for the tax period/assessment years 2005-06, 2006-07 and 2007-08 is under challenge. The petitioner is a partnership firm carrying on the business of executing civil works exclusively for the Government of Andhra Pradesh. They are registered special class contractors for the Irrigation Department of the Government of Andhra Pradesh and an assessee on the rolls of the Commercial Tax Officer, Narayanguda circle with TIN No. 28800103408. The petitioner opted to pay tax by way of composition at the rate of 4% on the total value of the contract under clause (b) of Section 4 (7) of the A.P. VAT Act (for short the “Act”). They have been submitting their tax returns periodically to the Assessing Authority. The 3rd respondent issued notice dated 13-8-2009 directing the petitioner to produce all the VAT records for conducting audit. In reply thereto, the petitioner submitted copies of the profit and loss account for the financial years 2005-06, 2006-07 and 2007-08 on 28-8-2009. The 3rd respondent issued another notice dated 29-8-2009 directing the petitioner to produce all the records maintained under Rule 31 of the AP VAT Rules, 2005 (for short ‘the Rules’) for the period commencing from 1-4-2005 to 31-8-2009. Another notice was issued by the 3rd respondent on 14-9-2009. The petitioner, vide letter dated 22-9-2009, sought one month time to comply with the directions of the 3rd respondent. In the assessment order dated 13-10-2009, the 3rd respondent records that though a show- cause notice was issued on 14-9-2009, a copy of which was served on the petitioner on 18-9-2009 and despite several opportunities and ample time being given, the petitioner failed to respond to the notice and failed to submit their written objections to the show-cause notice. The Assessing Authority opined that he had no other alternative except to pass a final assessment order and, accordingly, the contract value of the various works executed/being executed by the petitioner was taken as the turnover and 4% tax was levied thereupon. Sri S.Ravi, learned Senior Counsel appearing on behalf of the petitioner, would submit that once the dealer seeks composition under Section 4(7)(b) of the Act, he is required to pay tax only at 4% on the total value of the contract executed for the Government. He would submit that Rule 31 which prescribes the records to be maintained by a dealer executing works contracts, envisages that every dealer executing works contracts and opting to pay tax by way of composition should keep separate accounts for each contract specifying the particulars of the names and addresses of the persons for whom he has executed the works contract; maintain records relating to payments received from the contractee; the records of entry of Form VAT 200, and the records of tax collection at source or tax deduction at source made from the payments received on the works contracts. Learned Senior Counsel would also refer to Rule 27 (2) of the Rules to submit that the contractee is liable to deduct tax at source and it is only to the extent of the works executed, and the bills paid, is tax required to be paid and the dealer liable to pay tax on the said turnover. He would submit by way of an illustration that in case the works are required to be completed over a period of five years, accepting the reasoning of the assessing authority would mean that, even on composition, the dealer is required to pay tax at 4% on the contract value even before the contractor has commenced execution of the works contract. Learned Senior Counsel would submit that, a reasonable construction of Section 4(7)(b) r/w Rule 31 would require that the total amount received by the contractor, during a particular tax period, must alone be treated as the turnover on which they are liable to pay tax on composition. He would draw attention of this Court to the Certificate of Deduction of the Tax issued by the Executive Engineer, Irrigation and CAD, JLIP Divn. I, Gadwal, wherein the date of contract and the period of execution is mentioned. Learned Senior Counsel would submit that, since these TDS certificates and the profit and loss account were available with the Assessing Authority, even if the petitioner is held not to have replied to the show-cause notice, the assessing authority should not have levied tax on the contract value and should have taken the quantum of works executed as per the TDS certificates or the profit and loss account submitted by the petitioner. On the other hand Sri P.Balaji Varma, learned Special Standing Counsel for Commercial Taxes, would submit that though the petitioner had submitted his profit and loss account, they had failed to respond to any of the notices issued by the Commercial Tax Officer and, the Assessing Authority was left with no alternative but to proceed with the assessment as per the available record and, since the TDS certificates reflected the contract value, it was taken as the turnover and tax at 4% was levied thereupon. It is evident that the petitioner has been negligent in not responding to several notices issued by the assessing authority. The fact, however, remains that in passing the assessment order, without the petitioner being heard, the Assessing Authority was required to assess the petitioner on the basis of material available on record. It is not in dispute that copies of the TDS certificates and the profit and loss account submitted by the petitioner were available on record. Nothing prevented the Assessing Authority from computing the turnover on the basis of the tax deducted by the Government (as per the TDS certificates) or levy tax on the turnover as reflected in the profit and loss account which are said to tally with the monthly returns submitted by the petitioner. The Assessing Authority could not have taxed the petitioner on the contract value as the TDS certificates clearly show that they relate to a tax period beyond one year and the works are still in the process of execution. We consider it appropriate, in these circumstances, to set aside the assessment order and remand the matter back to the Assessing Authority who shall put the petitioner on notice, give them an opportunity of personal hearing and thereafter pass an order afresh in accordance with law. We make it clear that, in case the petitioner does not respond to the notice or avail the opportunity of personal hearing, it is open to the Assessing Authority to pass an assessment order afresh on the material on record and in accordance with law. For the negligence on the part of the petitioner in failing to respond to several notices issued by the assessing authority we consider it appropriate to direct the petitioner to pay exemplary costs, which are quantified at Rs. 25,000/-, to the 1st respondent within two weeks from today. The writ petition is, accordingly, disposed of. ___________________________ GODA RAGHURAM, J _______________________________ RAMESH RANGANATHAN, J 11th February, 2010. GRR