n : [ 17ss ] HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD THURSDAY,THE FIFTEENTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DT. JUSTICE SHAMEEM AKTHER AND THE HONOURABLE SRI JUSTICE E.V. VENUGOPAL Appeal Under Section 23(1) of the APGST Acldated8l07l2008 made in CCTS Ref.No.L.lll (2y 14312007 -1 on the file of the respondent-commissioner of commercial Taxes,Andhra Pradesh , Hyderabad. Preferred against the appeal No.1 3/60/1 992-93 dated 22-2-1994 on the file of the Appellate Deputy Commissione(CT) Panja Gutta Divisional,Hyderabad. Between: M/s Blue Star Limited,207, Sikh Road, Bantia Estate, Secunderabad-Soooo3, rep. by its Branch Mangaer,Mr.V. Vijayaraghavan. ...APPELLANT Vs The Commissioner of Commercial Taxes, Andhra Pradesh, Nampally, Hyderabad. ...RESPONDENT Counsel for the Appellant: Sri. S. DWARAKANATH Counsel for the Respondent:Sri. K. RAJ REDDY, SPL.S.C. FOR COMMERCIAL TAXES The Court made the following: ORDER I I I I SPECIAL APPEAL NO: 4 OF 2008 I THE HON.BLE DT. JUSTICE SHAMEEM AKTHER AND THE HON'BLE SRI JUSTICE E.V.VENUGOPAL SPECIAL APPET\L No.4 of 2OO8 ]UDGMENT: (Per i.lon'l,le Dr.SA,l) This Special Appeal, under Section 23(1) of the APGST Act, has been filed by the appellant, challenging the impugned order, dated 08.07.2008, passed in CCT's Ref.No.L.III(2)/L43/2007-I, by the respondent-Com missioner of Commercial Taxes, Andhra Pradesh, Hyderabad, whereby and whereunder the respondent confirmed the proposed revision under Section 20(1) of the APGST Act, treating the turnovers of Rs.10,79,880/- and Rs.17,79,5621- as deerned sales of goods in the State liab e to tax under APGST Act. 2. Heard Sri S.Dwarakanath, learned counsel for the appellant, Sri K.Raji Reddy, learned Special Standing Counsel for Commercial Taxes appearing for the respondent and perused the record. 3. Several contentions are raised by the appellant before this Court that Findings recorded by the respondent in the lmpugned order are contrary to the documents placed on record. The respondent did not examine the sale transactions in detail in determining the nature of the transactions and the applicability of the APGST Act. The findings recorded by the respondents are perverse I rl I 2 DT.SA,] & EVV,] spr.A.No.4 of 2008 - and not in consonance with the material on record. The respondent did not properly analyse the documents on record to arrive at a decision. Therefore, the impugned order dated 08.07.2008 passed by the respondent, is unsustainable and ultimately, prayed to set aside the same by allowing the appeal, as prayed for. 4. On the other hand, the learned Special Standing Counsel for Commercial Taxes appearing for the respondent supported the impugned order dated 08.07.2008 passed by the respondent. 5. Both the counsel on record brought to the notice of this Court that similar questions emerged for determination in Writ Petition No.11528 of 2013 and batch, wherein a Division Bench of the erstwhile High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh, vrde common order, dated 24.04.2015, was pleased to set aside the assessment orders impugned therein and directed the authorities concerned to re- examine the matter and pass orders afresh, in accordance with law, after giving the petitioners therein a reasonable opportunity of being heard. 6. The facts and circumstances of the case on hand are akin to the facts and circumstances of the above referred W.P.No.1152B of 2013 and batch. 3 Dr.SA,J & EW,l spt.A.No-4 or 2008 7. Accordingly, this Special Appeal is disposed of in terms of the above referred common order, dated 24.04.20L5, passed in Writ Petition No.1l52B of 2013 and batch, by the erstwhile High Court of ludicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh. The impugned order, dated 08.07.2008, passed in CCT'S Ref.No.L.lI(2)/143/2007-1, by the respondent is set aside. Consequently, CCT's Ref.No.L.lll(2)/L43/2007-1, is restored to its file and the respondent is directed to re-examine the subject matter of this appeal and pass orders afresh, in accordance with law, after giving reasonable opportunity of hearing to the appellant herein. As the subject transactions pertains to the Assessment Year 1985-86, the respondent is directed to complere the said exercise within a period of three (03) .nonths from the date of receipt of a copy of this judgment Miscellaneous oetitions, if any, pending in this appeal, shall stand closed. There shall be no order as to costs. To, SD/- B.S.CHIRANJEEVI /'RUE copy// JolH:GlsrRAR SECTION OFFICER 1. The Commissioenr of Communal Taxes ,along with a copy of the common order dated 24-4-2015 in W.P:11528 of 2013 and batch, Hyderabad, Telangana (with records if any) 2. The Appellate Deputy Commissioner(CT) panjaGutta division, Hyd. 3. Two CCs to Sri. K. RAJ REDDY, Spl.SC for C.TIOUI 4. One CC to Sri. S. DWARAKANATH,Advocate[OpUC] 5. Two CD copies 6. One spare copy BM a\ I 7 4.. HIGH COURT DATED:1 510912022 ORDER SPECIAL APPEAL No.4 of 2008 DISPOSING OF THE SPECIAL APPEAL WITHOUT COSTS. \ .1.: . I j(: 21 t?'i lfrn o I .i:::'' { qil s I /,'.. ,'5 i) \r-;; o I G) THE HOIY SRI A AI{D WRIT PEflTIOtr tror.ll528, Lt62g, L2966, t2A66, 144a4, 14sor, r+8r9, r482s, l63ss, zeggz, getoi, gorri ser+a, 39O89 of2Ot3, 5126, 5128, Sl7E,9113, ttSgL, tZO26, MT2Z, 14723,. 15347, 15570, 16902, 20g7t, 2o75A, 2O8OL,'2257+, 26510, 28013, 30173, gO8Z4, Bog/rc, 31326, 37628 of 2Ot4 COMMOI{ ORDER: (pcr Honble Sri Justic. Rame$h Rangonarhan) The petitioners, in this batch of Writ petitions, are dealers carrying on business in the development of immovable prop€rty, and in the sale of residentiai apartments, villas etc. They are aggrieved by thc denial of the benefit of composition under Section 4(7)(d) of the A.P. VAT Act (hereinafter called the'Act") for the conetruction made by them aftcr execution of a registered sale decd whcreby a semi- constructed apartnent/flat was sold to the purchaser. The petitioners, who are developcrs of apartment buildings, villas, houses, commercial complexcs etc, identify and purchase land suitable for construction. Aftcr preparation of lay outs, and a-fter making provision for necessary amenities such as roads, parks, water, electricity, sewerage, heaith club and othcr facilities, they construct houses ald sell them after obtaining neccssary sanctions. It is tleir case that for operariona.l convenience, and to enable the buy€rs to raise loans, the respective plots, with a semi-ftnished structure, are initially sold to buyers with a pre-condition that development would be undertaken only by the petitioncrs in tcrms of the sanctioned plans for such group housing schemes. In some cases only plots are initially sold, and in some others semi- constructed structures are also sold along with the plot or the undivided share of land. Approval is obtained from the concemed ,fl tlorities before commencement of construction, and prior to the I I sa-le of land. The petitioners cxecute a conveyence in favour of the purchaser, either in respect of thc plot of land on which a residential house is to be constructed, or the plot of land with the semi-ftnished structure. Initially an agreement of sale is cntcred into, by the deyelopcr- dealcr with the prospective purchasers, with t}lc pre-condition that the purchasers calnot €nter into a contract, with any other third party, for construction of a residential apsrtment, house, building etc. After execution of the sale deed, anothcr agrccment i8 entcred into- by the peutioner with t,lc purchaser for complction of construction of thc residcntial apartment, buildin8s ctc in accordance with the approved plans and the original documcnt,, Every rcsidential house is predesigned, and is a part of the group housing scheme developed by the developer, and the buyer has no say in the matter. The initial agreement of sale, which tlte developers enter into with prospective buyers for the sa.le of apartments, includes the consideration receivable on the sale of a semi-finished apartrnent, and the cost of construction thereafter. The petitioncrs have all opt€d to pay tsx by way of composition under Section 4(7)(d) and have been paying VAT at 4o/o /5Yo of 25o/o of the total consideration, on these components of thc agreements, at the time of fegiBtration of thc flats or soon thereaftcr. Reference is made by the lcarncd Counsel for t}le pctJtioners mainly to the assessment order under challenge in W.P. No.30173 of 2014. Sri K. Vivek Reddy, Lcamed Counsel for the respondent, would however rely on the assessment order which is the subjcct matter of W.P. No.37528 of 2014. In the assessment order (the validity of which is questioned in W,P. No.30173 of 2014), the Assistant Commissioner, CT-lll, Hyderabad held that the main l{.- t ( ,%'I contractors had entered into a tri-partite agreement witi the land orvners and the prospective buyer (customer) for construction of a residential apartment; they had then register the semi-finishcd apartment in favour of the customcr; ttrey had optcd for composition under Section f)(d) of the Act; any works contract, executed after registration of a semi-constructed apartment in the name of the customer, is a separate works contract (construction agreement) under the Act and the A.P. VAT Rules, 2005 ("Rules'for short); the assessee is, therefore, liable to pay tax on the value of the goods at the time of its incorporation in the course of execution of the works contract, (at the rates applicable to the goods under the Act), under Section 4(7){a) and not under Section 4(71(d); the assessee has not opted for composition undcr Section 4(7)(b) for the constn:ction/ completion/linishing agreement; tiey were, therefore, tiable to be assessed under Section 4(7)(a); they had only peJ.d 4Yo of 25% of the entire sale consideration; they had, thercby, under-declared VAT; and the value of the construction agrcement was required to be assessed under the regular scheme of taxation i,e the non-composition scheme. -The assessing authority further held that the dealers themselves had admitted that tiey had executed three 6pes of documents i.e, (1) the agreement of sale, (2) the sqle deed for the semi-frnished apartment, and (3) the construction agreement; a fresh agreement, for completion of the pending works of the !lat, was entered into either with, or alter, execution of the sale decd; the construction agreement, cntered into after registration of the scmi- finished apartment in the name of the customer, is a fresh works contract for which the contractor is required to pay tax at the rates, applicable on the value of the goods at the time of incorporation, or w- @ e under the comPosition scheme by frling Form VAT 250 before the assessing authority; as the dealer had failed to submit Form-VAT 250 opting to pay tax undcr Section a(7)(b), and they had not submittcd the detsils to arrive at thc value of the goods at thc time of incorporation, tax had been rightly proposed under the proviso to section 4(7){a) read with Rule 17(1}{g}; in the light of the derision of the advance ruling authority in M/s. Madhu Collections, the transactions relating to incorporation of goods in the worka, in thc courge of execution of a works conttact subsequent to registration of the immovable property ie apartments, residential complexes etc., is taxable under Section 4(71(a) or Section a(7)(b) of the Act, dependrng on whether the contractor had opted for composition; the said ruling squarely applied to the case of ttre assessce-dealer; and reliance placed on the advance ruling, in.Sai Sree Developers hrt. Ltd., was misplaced since the said ding was given at a later point of time. The assessment order dated 06.11.2014, (the validity of which is put in issue in W.P. No.37528 of 20141, was passed by the Commercial Tax Oflicer, Punjagutta. In the said order, the assessing authority held that the words "constmction and selling", as used in Section 4(7)(d), made it clear that the said provision_ was applicable only to transactions where construction and sale takes place; any construction, that takes place subsequent to sale, does not fall within the ambit of Section a(7)(d); it wou.[d, necessarily, fall under Section a(7)(a) if the des.ler has not opted for composition, or under Section a(4(b) if the dealer has opted for composition; incorporation of goods in the course of executjon of the works contract, subsequent to registration of the immovable property in the form of apartments, buildings, residential complexes etc, is taxable under Section 4(7)(a) t I (r) or Section a(7)(b) of the Act depending upon whether or not thc contractor has opted for composition; the objection of the dealer, that all receipts should be taxed under Section a(7)(d), was liable to be rejected; as the dealer had entered into an agreement of sale, the aaounts received/receivable till execution of the sale deed is liablc to tax under Section 4(7)(d); and the contract receipts, after execution of the sale decd, i.e., on the construction agreements, were liable to tax under Section 4(7)(a) of the Act. Elaborate oral submissions were put forth by Dr. S.R.R. Viswanath, Sri V. Bhaskar Reddy, Sri A.V.A. Siva Kartikeya and Sri B.Narayana Reddy lrarned Counsel for the petitioners and Sri K. Vivek Reddy, learned Counsel for t]e respondent. Written submissions have been filed, on behalf of the petitioners, by Dr. S.R.R. Viswanath and Sri V. Bhaskar Reddy, and on behalf of the respondents by Sri K. Vivek Reddy. It is convenient to examine the rival submissions under different heads. I. PRELIMIITARY ISSIJES: A- COITRARY RULINGS OF THE ADVAI{CE RI'LII{G AUTHORITY: lt is contended, on behalf of the petitioners, that the rulings of the Advance Ruling Authority, in Maltas Hill Country tut. Ltd. and Sai Sree Developers (P) Ltd., are directly applicable to thc present facts scenario; it is not even the case of the assessing authority that they werc revoked or cancelled; as long as the said advance rulings subsiet, they are bound to be followed by the department in view of Section 67(4) of the Act; the assessing authorities have mis- conducted themselvea in not following these rulings, and in not even refcrring to them; the Ad!€nce Rulings, in M/s Madhu Collections, Hyderabad and M/s Lumbini Constructions (fl Ltd., have no :itrpllcCuon, and are not consistent with the provisions of the ActFnd rliz.,;,; ,,4 /t\.[ \ ? these rulings were passed without reference to the earlier Advance Rulings in IYI/S Maytas Hill Country F/t" Ltd'' M/s Manjeera constructions Limited, M/s Sri Sai Builders, M/s My Home etc'' which are in favour of the assessee-dealers. Sri K. Vivek Reddy, I-carned Counsel for the respondents' would fairly state that, as there are conflictiflg Advance Rulings on this issue, this Court should give a quietus to this vexed issue on interpreting the provisions oI Section 4(7)(d) of the Act and the Rules made thereunder. Section 67 of t}le Act relates to clarification and advance rulings. Sub-section (1) thereof enables the Commissioner to constitute a State level Authority for Clarification and Advance Rulings' comprising of three oflicers not below the rank of Joint Commissioner to clarify, in the manner prescribed, any aspect of the implementation of the Act. Section 67(4) makes the orders of the Advance Ruling Authority binding on all ollicers in the commcrcial taxes department other than the Commissioner. The very object of inviting a clarilication from, and a nrling being given by, t}le Advance Ruling Authority is to ensurc uniformity in assessment orders. The Rulings, given by the Advance Ruling Authority, guide all assessing authorities in the State in passing orders of assessment. Conllicting rulings by the Advance Ruling Authority create confusion and result in uncertainty in tax administration. One possible reason for these conflicting rulings is t}Ie absence of a mechanism to bring the earlier rulings to the notice of the Advance Ruling Authority when its clarilication is again sought on the very same issue. That, however, is a matter which the rule making authority and the Commissioncr of Commercia.l Taxes should ponder over. Sulfice it to observe that t]:e intcrpretation placed, on Section 4(7)(d) of the Act arrd the rules made 09 higher than the consideration received or receivable towards the composite value of both land and building, it is the market value ixed for the purpose of stamp duty which is required to be taken as the composite valuc of land and building for determining the tax liability; (vi) exercise of option, to claim the benefit of composition, is subject to such conditions as may be prescribed by way of Rules, which are those stipulated under Rule 17(a); (vii) the dealer, executing a contract for 'constructing and Belling' the specified buildings, is required to register himself as a dea.ler (Rule 17(a)(a)); " (E the dealer is then requircd to notiry t}c prescribed authority in Form VAT 250, before commencement of exccution of thc work, of his intention to avail composition for all the works, relating to the construction and sale of the specified buildings, undertaken by him. (Rulc,17(4Xb)). Form VAT 250 is the application to be submitted by the dealer opting for payment of tax by way of composition. The said Form requires the name and address of the dealer to be furnished; for t}le dealer to state that they were applylng to pay by way of composition, contract wise or for a pcriod as the case may be; and to furnish details of contract for which composition was opted. The Form requires the details to be given in a tabular form containing ttle following particulars viz., (1) serial number; (2) nature of option (Contract wise or for a period); (3) name & address of the other party in the case of option contract-wise; (4) nature of t}re contract/transaction; {5) date of contract/ Pcriod of oPtion; and (6) full value of the contract/ transaction. The note, given below the tsble tlerein, stipulates that the option once made is irrcvocable' ' Tlie Form is required to bc signed by the dcaler who is also required to alfix his stamp and seal' The Authority for Clarification and Adiance Ruling has, under Section 67 of the Act in the case' of' \t/ I t:y; t M/s.Archinova Design tut. Ltd, clarified by order dated 01.07.2005 that, for more than one contract a.lso, a single Form VAT 250 can be lrled by the works contractor optin8 to pay t x under Section 4(7)(d); (x) the.dealer is required to pay tax at the specified rate on t}le higher of (a) the total consideration received or receivable towards cost of land as well as construction or (b) the market value fxed for the purpose of stamp dury (Rule iz(+)(a)); (xi) the deaicr should then enter such details in the montlli return filed, in Form VAT 200, in the month in which the sale is conbluded and registcred. The dealer is requbed to pay the tax due either before thc sub-registrar or along with the retum. The particulars of payment of tax is reguircd to be reported in the relevant columns of the return (Rule 17(4Xe); (xii) the dealer, exercising option under Section 4(7)(d),. is neither eligible for input- tax credit nor to issue tax invoices. (Section 13(5)(a) and Rule 17(a)(f)). Whitc a dealer executing works conttacts, and paying tax under Section a(7)(a), is entitled to claiE input-tax credit, he loses the said benefit on his exercieing the option to pay tax, by way of composition, eitler under clause (b) or (d) of Section 4(7) of the Act. A tax statute should clearly and unambiguously convey three components i.e., the subject of the tax, the person who is liable to pay the t8x and the rate at which the tax is to be paid. lf there is any ambiguity regarding any of these ingredients, in a taxation statute, then there is no tax in law. lt is then for the legislature to do the needful in the matter. (MethurerD Agnrrerl y. Stete of 'M.P.s). Should a construction which renders Section a(7)(d) unworkable, and its applicstion uncertain, be accepted? Startling and unforeseen consequences would ensue if this Court were to accept t}re submissions urged on behalf of the revenue that (l) there is a change .el s AIR 2000 sc r09 o l9 in thc identity of the puchascr of thc aPartment on a sale deed being execut d in his favour; (2) the construction made by the developer, after an agreement of sale is entered into but prifi to execution of the sale deed, is the construction made for a prospective buyer; (3) any construction made by the developer, aJter execution of t}te sale deed, is a construction undertaken by him for the owner of dre building; and, (4) while construction undertaken by the developer for a prospcctive buyer (with whom an agrcement for construction and sale of the apartment is entered into| falls vrithin the ambit of Section 4(7)(d), the construction made after a sale deed is executcd does not. A residential apartment/commercial complex, or a group housing scheme, consists of several units (ie llats or individual houses/villas/ shops). Rule 17(a)p) requircs the dealer to exercise the option for composition, under Section a(7)(d) of the Act, before commencement of eonstrucdon. At that Etage the devclopcr may have entercd into agreemcnts with prospective brryers of some of, and not all, the flats/units. The developcr would, ordinarily, still proceed wit}I construction as he could identiry and entcr into agrcements with prospective buyers, of the remaihing units/flats, later. In such an event would tlte construction, made prior to a.ny agreement being entered into with a prospcctive buyer, fall outside the ambit of a 'works contract", as the developer is constructing the flat/unit himself, and not for a prospective buyer or t}le owner of the flat? lf tl.c construction undertaken, after an agreement is entered into with the prospective buyer but before execution of a sale deed, would alone fall within the ambit of Section a(7)(d), how should the construction made by a developer, prior to entering into an agreement with a prospective buyer, be tr€ated? Should it be held that euch a construction is not a works contract as it has ,ot t"it' \t/, @ le o undertaken either for a prospective buyer or the ownerp In cases where an agreement is entered into with a prospective buyer after commencement of construction, the consideration payable by ttre prosp€ctive buyer would also include t}te consid.eration for pre- agreement construction. Would it then mean that the consideration received, for the pre-agreement construction, is not liable. to tax under the Act? A registered deed may be executed and registered by the developer for the sale of a semi-constructed Btructure, in favour of different puichasers of residential apartrnents, houses, buildings or commercial complexes, at different stages of construction. While a sale deed may be exccuted for one of the flats after 1070 of the construction is completed, a sale deed may b€ executed for another after 90% of the construction is completed. As the option, for composition both under clauses {b) and (d) of Section 4(7), must be exercised before commencement of construction, t}re developer would not know, when he submits Form-VAT 250, of the stage when he would be required to execute and register a sale deed. If the interpretation placed on Section 4(7)(d), on behalf of the revenue, is accepted, the developer would not.know whether or not it is beneficial for him to exercise the option for composition as his Uability to pay tax under Section 4(7Xd) would be contingcnt on the uncertain future event of execution and registration of sale deeds for dilferent Ilats at diffcrent stages of constmction. As noted hereinabove Section 4(7) relatcs to levy of tax on works contracts. While the normal mode of levy of tax, on dcalers executing words contracts, is under Section 4(7Xa), clauses (b) and (d) provide for rwo dillerent schemes of composition. Clauses (a), (b) pnd (d) oi Sectron 4{7) are in Oe alternative, and a dealer caflnot be t li ) 21 subjected to tax on the executjon of a works contract parfly under onc and partly under another clausc of Scction 4(7)' Classification of dealers executing works contracts, under clauses (b) and (d) of Section 4(7), is based on the nature of business the dealer is engaged in; and does not change mercly becausc a conveyance deed is executcd and registered for the salc of a semi-finished structure' As long as it is the same contractor who executes the works for the same purchascr,