IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM WEDNESDAY, THE 22ND DECEMBER 2010 / 1ST POUSHA 1932 WP(C).No. 37712 of 2010(I) --------------------------------------- PETITIONER(S): ---------------------- M/S.SKYLINE BUILDERS, RAJAJI ROAD, ERNAKULAM-682 035, REPRESENTED BY ASSISTANT GENERAL MANAGER-OPERATIONS-THOMAS MATHEW BY ADV. SRI.V.V.ASOKAN SRI.R.JAIKRISHNA SMT.M.RAMANYA GAYATHRI RESPONDENT(S): ------------------------- 1. COMMERCIAL TAX OFFICER, (WC & LT), OFFICE OF THE DEPUTY COMMISSIONER, ERNAKULAM, PIN. 682 015. 2. DEPUTY COMMISSIONER (APPEALS), ERNAKULAM.682 015. 3. INSPECTING ASSISTANT COMMISSIONER (RECOVERY), COMMERCIAL TAXES DEPARTMENT, KOCHI-30. BY GOVT. PLEADER SRI.C.K.GOVINDAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 22/12/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: tss C.K.ABDUL REHIM, J. ------------------------------------------- W.P.(C).No.37712 of 2010 ------------------------------------------- Dated this the 22nd day of December, 2010 J U D G M E N T ---------------------- Challenge in this writ petition is against Ext.P4 interim order issued by the statutory appellate authority, the 2nd respondent herein. The said interim order was issued on a stay petition filed along with a first appeal which was filed against Ext.P2 order of assessment completed with respect to the quarter ending on 31.12.2007 (for the period from October 2007 to December 2007). By the impugned order, interim stay was granted till the disposal of the appeal, subject to condition of the petitioner remitting 40% of the total amount due as per the demand and also on furnishing Security Bond for the balance amount. 2. The issue involved in the appeal mainly pertains to dispute regarding rate of tax payable with respect to the declared goods transferred in execution of works contract undertaken by the petitioner. By virtue of amendments brought to Section 6(1)(f) of the Kerala Value Added Tax Act, W.P.(C).37712/10-L -2- 2003 (KVAT Act) rate of tax applicable with respect to the goods incorporated in the work is fixed at 12.5%. But with respect to the declared goods falling under Section 14 of the Central Sales Tax Act, Section 15 of that Act prescribes certain restrictions for levy of tax by the State Government. The Hon'ble Supreme Court in the decision in Gannon Dunkerley and Co. Vs. State of Rajasthan ((1993) 88 STC 204 (SC)) held that while it is permissible for the State to levy a uniform rate of tax for all the goods transferred in execution of the works contract, it is subject to certain restrictions imposed under Section 15 of the CST Act, where declared goods are involved in the execution of such works contract. In the Finance Bill of the State Government for the year 2006, Section 6(1)(f) of the KVAT Act was substituted fixing rate of tax applicable to transfer of goods involved in execution of works contract, as 12.5% where the transfer is not in the form of goods but in other forms and when the transfer is in the form of goods then the rate under the respective schedules. The above said provisions, which took effect from 1.7.2006, was subject matter of challenge before this court in a series of writ petitions. On 23.11.2009 this court disposed of a batch of writ petitions, through the decision reported in 2010 W.P.(C).37712/10-L -3- (1) KLT 816, wherein it is declared that the liability to pay tax on the declared goods involved in works contract, is only at the rate of 4%. 3. In the case of the petitioner, they have remitted tax with respect to the quarters ending in June 2007 and September 2007 at the rate of 12.5% with respect to the entire turnover, without any segregation regarding the declared goods. But for the subsequent quarters, i.e. the quarters ending in December 2007 and March 2008, the petitioner had filed return reckoning the rate of tax with respect to 'Steel' (declared goods) used in the works contract, at the rate of 4% and for the rest of the turnover at the rate of 12.5%. Annual return was also filed wherein the petitioner had re-worked the quantum of tax payable for the quarters ending in June and September 2007, adopting rate of tax at 4% for the turnover of Steel and for the balance turnover at 12.5%. Accordingly the excess remittance made with respect to the turnover of Steel, for the quarters ending in June and September 2007, was set off against the liability due for the subsequent quarters. Ext.P1 and P1(a) are the annual returns filed along with the Audit Report submitted in Form No.13, containing reconciliation statements. According to the W.P.(C).37712/10-L -4- petitioner, the annual return was accepted by the assessing authority and the assessment with respect to the year 2007-'08 was presumed as completed, because no action was initiated as contemplated either under Section 24 or under Section 25 of the KVAT Act. 4. But controversy sustains with respect to Ext.P2 assessment, which was completed with respect to the quarters ending in December 2007. The petitioner had preferred statutory appeal along with stay petition as evidenced from Ext.P3 and P3(a). The impugned order (Ext.P4) is issued on the stay petition filed as stated above. It is further stated that, revenue recovery steps were initiated on the basis of Ext.P5 demand notice, for realisation of the amounts covered under Ext.P2 assessment. Through Ext.P6 notice further demand was made on the basis of disposal of the writ petition which was pending before this court. 5. According to the petitioner, the insistence for remittance of 40% stipulated in Ext.P4 is highly illegal, erroneous and incorrect. It is stated that while hearing the stay petition, it was apprised before the 2nd respondent that the annual return with respect to the year in question has already W.P.(C).37712/10-L -5- been filed and as such Ext.P2 assessment has become redundant. Ext.P2 order, according to the petitioner, was only a provisional assessment completed with respect to a particular quarter and it does not survive as on the close of assessment year, particularly when annual return was filed and remittance of tax was effected on the basis of amended Section 6 of the KVAT Act. Further contention of the petitioner is that they are liable to pay tax only at the rate of 4% with respect to Steel, which is a declared good, under the provisions of the CST Act, for the whole assessment year. Under such circumstances the petitioner seeks to quash Ext.P4. 6. On a perusal of Ext.P4 it is evident that the 2nd respondent had illustrated contentions of the petitioner to the effect that the assessing authority ought to have levied tax only at 4% on the declared goods. The appellate authority specifically found that the assessing authority had adopted uniform rate of 12.5% on all items of goods. While considering such contentions the appellate authority found that the petitioner is having interstate purchase of declared goods and the rate of tax applicable is 4%. But observing that, sustainability of such contentions can be ascertained only after detailed verification of W.P.(C).37712/10-L -6- Books of Accounts and other documents, the appellate authority found that a prima facie case has been established for granting conditional stay and under such circumstances the appellate authority insisted for payment of 40% of the amount due. 7. According to the petitioner, if the dispute regarding rate of tax is reconciled, there will not be any further liability. Hence the petitioner seeks interference with respect to the impugned interim order. It is evident that inspite of specific contention raised by the petitioner, the appellate authority had not gone deep into merits of such contentions. It is not reflected in the interim order that any specific reason was mentioned for insisting payment of 40%. It is pertinent to note that in a recent decision of a Division Bench of this court in Supreme Electrical Engg. (P) Ltd. Vs. Commercial Tax Officer (2008 (3) KLT 805) it is observed that while granting interim stay the appellate authority are bound to mention reasons for imposing conditions and as to why the appellant is not entitled for an absolute stay. On an appreciation of Ext.P4 order, I am not satisfied that the appellate authority had properly applied its mind with respect to the contentions raised regarding rate of tax applicable with respect to declared goods transferred in execution of the works W.P.(C).37712/10-L -7- contract. No advertence is seen made with respect to the turnover of such goods in relation to the total tax liability. Under such circumstances I am of the view that the matter requires reconsideration at the hands of the 2nd respondent. 8. In the result the writ petition is allowed and Ext.P4 is hereby quashed. The 2nd respondent is directed to restore Ext.P3 (a) stay petition on its files and to pass fresh orders, after affording an opportunity of hearing to the petitioner, taking note of the contentions raised and the observations made as above. Fresh orders in this regard shall be issued, as early as possible, at any rate within a period of one month from the date of receipt of a copy of this judgment. The writ petition is disposed of with the above observations. C.K.ABDUL REHIM, JUDGE. okb