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2025 DIGILAW 88 (AP)

K. C. P. Builders v. Commercial Tax Officer-II

2025-01-10

DHIRAJ SINGH THAKUR, R.RAGHUNANDAN RAO

body2025
ORDER : R.Raghunandan Rao, J. Heard Mr. G. Narendra Chetty, learned counsel for the petitioner and the learned Government Pleader for Commercial Taxes, appearing for the respondent. 2. The petitioner is a dealer, registered under the A.P.G.S.T Act, 1957. It was involved in the execution of works Contacts, which was taxable under Section 5-F of the A.P.G.S.T Act 1957, for the assessment year 2002-2003. The works contracts executed by a registered dealer was taxable @8% under Section 5-F of the A.P.G.S.T Act, to the extent of the sale of goods involved in the works contract. However, under Section 5-G of the A.P.G.S.T Act read with the relevant rules, a dealer who was taxable under Section 5-F of the A.P.G.S.T Act could seek composition of the payment of tax by making an application for grant of a certificate. Upon issuance of such a certificate, in Form L1 the dealer was entitled to pay tax, by way of compensation @ 4% of the total turnover of the dealer obtained for execution of such works contact. A second proviso, to Section 5-G, also permitted dealers executing works contract for construction of apartments and buildings to pay composition @ Rs.4/- per square foot of constructed area. 3. In the present case, the petitioner applied for permission for composition under section 5-G of A.P.G.S.T Act. A Certificate, in Form L1, was also issued to the petitioner for the year 2002-2003. It may also be noticed that such a certificate was valid only for a period of one year. The petitioner did not file monthly returns, as required under the provisions of APGST Act for the period April, 2002 to November, 2002 and all the returns, for this period was filed in December, 2002. Subsequently, the last return for March, 2003, which should have been filed by 07.04.2003 was filed on 10.04.2003. The petitioner, declared construction of 1,03,352 sq. feet for the period 2002-2003 and sought to pay tax @ Rs.4/- per sq. foot of the declared built up area. The Assessing Authority issued a show cause notice, dated 06.07.2004, accepting the turnovers furnished by the petitioner, but proposed to adopt 1,04,814 sq. feet as the built up area. This was accepted by the petitioner who did not file any objections. foot of the declared built up area. The Assessing Authority issued a show cause notice, dated 06.07.2004, accepting the turnovers furnished by the petitioner, but proposed to adopt 1,04,814 sq. feet as the built up area. This was accepted by the petitioner who did not file any objections. The Assessing Authority, however issued two show cause notices, dated 21.09.2004, proposing to cancel the L1 certificate issued in favour of the petitioner on the ground that the monthly returns for the months of April 2002 to November 2002 were filed in one go, on 13.12.2002, and that the returns for the month of March, 2003 was filed on 10.04.2003 while it should have been filed on 07.04.2003 and the same amounted to contravention of the provisions of the Act. The second show cause notice proposed to levy tax @ 8%, on the turnover of the petitioner, under Section 5-F instead of Section 5-G of the A.P.G.S.T Act. 4. The petitioner filed its objections to these show cause notices. The primary objection of the petitioner was that the late filing of the monthly returns for the period April, 2002 to November, 2002 did not prejudice the interests of the revenue as these returns were filed as NIL returns. The petitioners also contended that the delay in filing the return for the month of March, 2003 was only three days and that the entire tax payable had already been paid even before the issuance of the notices. The petitioner contended that in such circumstances, cancellation of L1 certificate would not be in accord with the provisions of the A.P.G.S.T Act. The petitioner also contended that the tax payable by the petitioner had been deposited with the department, directly by its contractees, well within time and that the payment was in fact advance payment of tax. Apart from this, the petitioner also requested their Assessing Authority to give relief under Rule 6 of the A.P.G.S.T Rules in as much as it had maintained its books of accounts and the tax, even if it is leviable under Section 5-F, would have to be calculated on the turnover relating to the sale of goods alone. 5. Apart from this, the petitioner also requested their Assessing Authority to give relief under Rule 6 of the A.P.G.S.T Rules in as much as it had maintained its books of accounts and the tax, even if it is leviable under Section 5-F, would have to be calculated on the turnover relating to the sale of goods alone. 5. The Assessing Authority after considering these objections, cancelled the L1 certificate issued in favour of the petitioner on the ground that the delay in filing of the returns was sufficient to cancel the L1 certificate and calculated the tax payable on the turnover of the petitioner @ 8%, after granting a standard deduction of 35% from the total turnover. The deduction of 35% was given on the ground that the books of account had not been placed before the Assessing Authority and consequently standard deduction permissible under the Rules was being given. 6. Aggrieved by this assessment order, the petitioner had approached this Court, by way of the present writ petition. The petitioner apart from assailing the impugned assessment order, dated 20.03.2006, has also chosen to challenge Rule 6-B(2)(iii) of the A.P.G.S.T Act on the ground that the same is contrary under Section 5-G of the A.P.G.S.T Act. Section 5-G of the A.P.G.S.T Act reads as follows: 5G. Composition of tax payable under Section 5F. (1) Subject to such conditions and in such circumstances as may be prescribed if a dealer, who executes any works contract other than the category of contracts notified by the Government under sub-section (2), so opts, the assessing authority of the area may accept, in lieu of the amount of tax payable by him under the Act during the year, by way of composition, an amount at the rate of four paise on every rupee of the total amount paid or payable to the dealer towards execution of the works contract: Provided that no tax shall be payable under this section on the turnover relating to the amounts paid to a subcontractor as consideration for the execution of the works contract whether wholly or partly subject to the production of proof that such sub-contractor is a registered dealer liable to tax under the Act and that the turnover of such amounts is included in the return of the turnover filed by such sub-contractor. Provided further that if a dealer who executes a works contract of construction of apartments or buildings, so opts, the assessing authority of the area may accept, by way of composition an amount calculated at the rate of rupees 4/- (Rupees four only) per square foot of the constructed area. (2) The Government may notify from time to time the category of works contract for which the scheme of payment of tax by composition under sub-section (1) does not apply. (3) Every dealer who elects to pay tax under sub-section (1) shall apply in the prescribed form to the assessing authority to be permitted to pay the amount of tax under sub-section (1), and on being so permitted, in the prescribed form, he shall pay tax as specified under Section 13 and 15 of the Act. (4)[ Nothing contained in sub-section (1) shall apply to a dealer, who purchases or receives goods from outside , the State for the purpose of using such goods in the execution of works contract.] [Added by Act No. 25 of 2002, dated 21.12.2002.] Rule 6-B(2)(iii) of the A.P.G.S.T Rules reads as follows: Rule 6-B: Composition of tax in the case of dealers executing works contracts: (2) (iii) The assessing authority may cancel such permission in the following cases: (a) If the dealer fails to pay tax in any month within the time specified and, or; (b) If it appears to assessing authority that the dealer has suppressed whole or part of turnover in the return filed by him or; the return filed by the dealer appears to be made there under; (c) If the dealer contravenes any provisions of the Act or the Rules made there under. 7. Sri Narendra Chetty, the learned counsel appearing for the petitioner submits that Rule 6-B (2) (iii) is ultra vires the provisions of Section 5G of the APGST Act, as the facility given by this section cannot be withdrawn by a rule, which is a subordinate legislation. He would also submit that, the assessing authority could not have cancelled the L1 certificate, issued in favour of the petitioner, in a combined order containing the order of assessment as well the order of cancellation. 8. The impugned order contains an order of assessment as well as an order of cancellation of the L1 certificate. The learned counsel contends that this is not permissible. 8. The impugned order contains an order of assessment as well as an order of cancellation of the L1 certificate. The learned counsel contends that this is not permissible. However, he has not placed any provisions of law, which prohibits the passing of such a combined order. It must be noted that this order has been passed, after the petitioner was put on notice about the proposal to cancel the L1 certificate and also the proposal to tax the turnover under section 5F of the Act. In such a situation we do not find any reason to hold the impugned order invalid, merely because it is a combined order. 9. Rule 6-B(2)(iii) provides for cancellation of the permission granted for composition of tax, under Section 5-G, if there has been suppression of turnover by the dealer or the dealer fails to pay tax within the specified time or if the dealer contravenes any provision or any of the Rules. This Court does not find any reason to hold that these provisions are in violation of Section 5-G. A perusal of Section 5-G would show that the said provision itself provides that such composition would be granted subject to such conditions as may be prescribed. In this case, the prescription of such conditions is set out in Rule 6-B(2)(iii). The provision of Section 5-G itself empowers the rule making authority to stipulate conditions for grant of composition. In such circumstances, it cannot be said that the conditions stipulated under Rule 6-B(2)(iii) are in any manner ultra vires of Section 5-G of the A.P.G.S.T Act. 10. The impugned assessment order states that the permission for composition, granted under the Form L1 certificate, is being cancelled for contravention of Rule 6-B(2)(iii), because of the late filing of the monthly returns for the period April 2002 to November, 2002 and the late filing of the return, by three days, for the month of March, 2003. As can be seen from the facts, there was no prejudice to the revenue of the State, on account of the late filing of any of these returns. The cancellation of L1 certificate, thus appear to be disproportionate to the contribution of the Act or Rules, however, it would be appropriate that this issue is considered again by the Assessing Authority. 11. Accordingly, the challenge to Rule 6-B(2)(iii) is dismissed. The cancellation of L1 certificate, thus appear to be disproportionate to the contribution of the Act or Rules, however, it would be appropriate that this issue is considered again by the Assessing Authority. 11. Accordingly, the challenge to Rule 6-B(2)(iii) is dismissed. However, the impugned Assessment Order dated 20.03.2006 passed by the Commercial Tax Officer-II, Proddatur for the year 2002-2003 is set-aside. Consequently, the L1 certificate issued in favour of the petitioner would revive. It is left open to the Assessing Officer, to consider the question of whether the L1 certificate issued in favour of the petitioner, should be terminated and whether such termination is proportionate to the infraction of the Rules. The Assessing Officer after arriving at a conclusion on this issue shall pass appropriate orders on the question of cancellation of the L1 certificate as well as the tax payable by the petitioner. 12. Accordingly, this Writ Petition is disposed of. There shall be no order as to costs. As a sequel, pending miscellaneous petitions, if any, shall stand closed.