The Telangana High Court (Hyderabad Bench) has that where a works contractor has opted for composition under Section 4(7)(b) of the Andhra Pradesh VAT Act, 2005, has complied with the applicable statutory requirements, and has furnished the records required under the scheme, the assessing authority must consider that material and cannot sustain a best judgment assessment through a non-speaking order merely on the ground of non-production of books, without dealing with the dealer’s specific legal and factual objections. A non-reasoned order passed in disregard of the composition scheme and the dealer’s replies is bad in law.
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The Division Bench comprising Justice P. Sam Koshy and Justice Nandikonda Narsing Rao examined Section 4(7) of the Andhra Pradesh VAT Act, 2005, and noted in particular that clause (b) allows a dealer executing a works contract to opt to pay tax by way of composition on the total amount received or receivable towards execution of the works contract, instead of paying tax under clause (a). The Court held that, on the facts of the case, once the petitioner had opted for the composition scheme under Section 4(7)(b), had complied with the applicable rule requirements, and had submitted all documents that were required to be maintained, the assessing authority was bound to consider those materials before passing an adverse order.
The Court found that respondent No.2 had failed to consider the documents and explanations furnished by the petitioner and had passed the order without reasons or discussion on the objections specifically raised in reply to the show cause notices. It therefore treated the impugned assessment order as a non-reasoned order. The High Court further held that the impugned order was vitiated not only because it lacked reasons, but also because it was in violation of Section 4(7)(b) in the circumstances of the case. In substance, the Court accepted the petitioner’s case that the authority could not simply ignore the composition option and the documents placed on record and straightaway sustain a best judgment levy on that basis.
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Briefly, the petition challenged the order dated July 06, 2009 passed in Form 305, by which the department levied tax for the period from September 2005 to February 2008 on a best judgment assessment basis. The petitioner argued that it had already discharged its tax liability under the composition scheme and that the impugned order was illegal, arbitrary, without jurisdiction, and contrary to the Act and principles of natural justice.
The petitioner is a proprietary concern engaged in electrical contract works such as erection of high-tension electrical lines and establishment of sub-stations, and it is an assessee on the rolls of the Commercial Tax Officer. For the relevant period, the petitioner stated that it had executed certain electrical works contracts and had opted to pay tax under the composition scheme under Section 4(7)(b) of the Andhra Pradesh VAT Act, 2005. According to the petitioner, the department had instructed respondent No.4 to deduct tax at 4% from the bills payable to the petitioner, and respondent No.4 deducted and remitted the same and issued tax collection at source certificates in Form 501.
Despite this, respondent No.2 issued a notice in Form 305A on Sep 19, 2008 proposing to levy tax of Rs. 28 lakhs for the period between September 2005 and February 2008 on the ground that the petitioner had failed to produce books of account. In reply dated Nov 05, 2008, the petitioner informed the authority that it had opted under Section 4(7)(b), had regularly filed monthly returns, had not claimed input tax credit, and had already furnished Form 501 certificates, and therefore requested that the proceedings be dropped. A second notice dated Nov 14, 2008 was then issued proposing confirmation of the levy. The petitioner again replied, reiterated its stand regarding the composition option under Section 4(7)(b), and submitted the available records including tax collection certificates, monthly returns in Form 200, and consolidated yearly statements.
The petitioner’s grievance was that, ignoring these replies and records, respondent No.2 passed the impugned order confirming tax of Rs. 28 lakhs without giving any reasons on the petitioner’s contentions. The petitioner specifically argued that once it had opted under Section 4(7)(b), it was not required to maintain the books of account in the manner assumed by the department, and under Rule 38(2), only limited records such as payments received, Form VAT 200 entries, and TCS/TDS records were required to be maintained. The petitioner also stated that it had only one contract with respondent No.4 during the relevant period, that all payments came from that contract alone, and that tax at 4% had already been deducted at source on those payments. On that basis, it contended that the best judgment assessment was unsustainable.
On the other hand, the State argued that the writ petition itself was not maintainable because an appellate remedy was available. It further submitted that during an audit conducted on 23.08.2008, books of account were not produced, and from the available material it appeared that the petitioner had purchased certain electronic goods from outside the State by issuing two C Forms. According to the department, it therefore became necessary to verify whether the petitioner’s composition claim was legally valid, and because the petitioner did not cooperate by producing books of account, the authority proceeded with best judgment assessment.
