(STA No. 2/2011 & C.M No. 9435-9436/2011)
1. This appeal pertains to the tax period 2nd quarter for the
assessment year 2005-2006. For that quarter, the appellant/assessee
had filed its VAT return dated 10.11.2005. As per this return, he had
shown the turn-over in the sum of `15,36,120/-. Notice under Section
59(3) dated 14.12.2005 under Delhi VAT Act was issued to the
appellant/assessee. The assessee filed the reply thereto. Thereafter,
notice of default dated 18.7.2006 under Section 32 of the Delhi VAT
Act was issued creating a demand of tax of `4,52,126 and interest
thereupon in the sum of `67,819/-.
2. We may note in this case that, as per the tax authorities, the
assessee had deducted the tax at source in the sum of `61,30,514/-
and therefore, the work done/turn-over was of the aforesaid amount
and not `15,36,120/- which led to issuance of default assessment
notice. The assessee explained before the VAT Officer that the
assessee was in the business of construction activities on contract
basis and, therefore, as per the provisions of Section 5(2) of the Act, he
had right to disclose the turn-over after excluding the charges towards
labour, services and other like charges. His explanation was that the
charges towards labour, services as well as consumables incurred by
the assessee were deleted from the aforesaid amount of `61,30,514/-
thereby arriving at a turn-over of `15,36,120/- and, therefore, no
default was committed. The figures furnished by the assessee in this
behalf are as under:
The turn-over disclosed in the return is `15,36,120/-, which was
arrived at as under:
3. The Value Added Tax Officer, however, confirmed the aforesaid
demand and interest and also imposed penalty of `6,87,232/- vide
order dated 18.7.2006. Thereafter, the appellant filed the objections
before the Objection Hearing Authority (OHA) on 10.10.2006, which
was also rejected by the OHA vide order dated 22.6.2007. Against
the order of the OHA, the appellant preferred an appeal before the
Appellate Tribunal Value Added Tax, which has also been dismissed
by the Tribunal vide order dated 23.3.2011. Challenging that order,
the present appeal is preferred under Section 81 of the Delhi Value
Added Tax Act, 2004.
4. The aforesaid factors narrated would show that the claim of the
appellant/assessee was that it had incurred the labour/services
expenses to the extent of `28,61,766/- and expenses on account of
consumables in the sum of `17,32,629/-. Insofar as consumable is
concerned, that was surrendered by the appellant even before the
OHA. The question, therefore, which was gone into by the OHA was
as to whether the assessee had, in fact, incurred the aforesaid
expenses on account of labour/services and whether the assessee
had been able to prove the said expenses. The assessee had shown
justification for the aforesaid labour/services expenses by submitting
a note before the OHA (which appears at pages 71 to 74 of the paper
book). In para 9 thereof, the labour/services as per Rule 3(2) are
mentioned. It shows that the appellant had debited the Profit and
Loss Account with expenses on account of wages, salaries and works
expenses, equipment hiring charges, depreciation etc. and this Profit
and Loss Account is the centralized account which relates to all India
operation of the appellant. The total expenditure on account of
wages, salaries and works etc. is `118311570/-. From this
expenditure to Delhi Sales for 2nd quarter is allocated in proportion
arriving at a figure of `23,58,549.55/-. In a similar manner, some of
the other expenditure incurred on account of machinery finance
charges, staff welfare, motor car running & mtc. expenses and motor
car finance charges are proportionally assigned to Delhi Sales and in
this manner, figure of `28,61,765/- is arrived at. This would show
that no specific details in respect of the Delhi Operations/Delhi Sales
were furnished but the expenses were allocated to Delhi Sales in
proportion. That apart, the OHA has come to a specific finding that
the appellant/assessee could not prove the exact expenditure
incurred in respect of Delhi Sales in spite of various opportunities
given to the appellant. For this reason, the Proviso to Section 5 was
applied by the OHA r/w Rule 3 of the Rules thereby granting 25% of
the total value of the contract of civil work as the expenses incurred,
while rejecting the claim for deduction of `28,61,765/- on account of
labour/services under Rule 3(2) of the Rules.
5. The Tribunal again went into these issues minutely and also took
into consideration the order of the OHA and summed up the position
in the following manner;
"15. It is significant to note that the appellant has not alleged
in this appeal that the Ld. Ward VATO did not correctly submit his
report dated 05.6.2007 to the Ld. OHA. Thus, it is clear that the
appellant had merely filed some figures before the Ward VATO
which clearly shows that the appellant did not avail the
opportunity of establishing it's claim for deduction of
Rs.28,61,765/- on account of labour, services and works
expenses under rule 3(2) on the basis of the books of accounts.
When appellant was claiming deduction of Rs.28,61,765/- on
account of labour, services and works expenses under rule 3(2)
from the GTO then it was for the appellant to establish such a
claim on the basis of the books of accounts and on the basis of
actual expenses so as to be out of the sweep of the proviso to
rule 3(2). Even otherwise it was within the specific knowledge of
the appellant as to what were the actual expenses on account of
labour, services and works expenses for execution of work
pertaining to this contract and the claim of the appellant can not
be allowed merely on the basis of presumption to be drawn from
the audited accounts as alleged in the grounds of appeal.
Moreover, as per proviso to Rule 3(2) presumption arises in
favour of the revenue if the appellant does not corroborate the
claim in respect of the labour, services and works expenses
stated to have been incurred for the works executed, on the
basis of the books of accounts. Thus on the basis of this
presumption appellant can claim only 25% of the total value of
the contract of civil work establishing facts corroborated by the
books of accounts supporting the claim of the appellant for
deduction of the amount claimed as expenses incurred towards
labour, services and works expenses. Thus when appellant could
not substantiate its claim of deduction of the labour, services and
works expenses on the basis of the books of accounts then the
appellant can claim deduction only as per the table to the
proviso to Rule 3(2).
16. It is to be noted that the bank statement filed by the
appellant during hearing before the Ld. OHA only showed
withdrawal of cash from the bank. It was for the appellant to
establish that the cash so withdrawn from the bank was spent
towards labour, services and works expenses for which it had
claimed deduction of Rs.28,61,765/- under Rule 3(2) and that the
proviso to Rule 3(2) of the Rules was not applicable. It is not the
case of the appellant that it did establish that all the cash
withdrawals were spent towards labour, services and works
expenses for executing this very work contract to qualify for
deduction under rule 3(2)".
6. The aforesaid findings are findings of facts arrived at by the OHA
as well as the Tribunal holding that the appellant/assessee has not
been able to substantiate its claim towards labour, services and
works expenses on the basis of books of accounts which was a reason
for applying the percentage prescribed in the table to Proviso to Rule
3(2) of the 25% of the total value of the contract of civil work. These
are pure findings of facts. We do not find any perversity herein.
7. There is no merit in the appeal and the same is accordingly
dismissed alongwith pending applications.
STA No. 3/2011 & C.M. No. 9437-9437/2011
8. Admit.
The following substantial questions of law arise for consideration;
(1) Whether the Tribunal VAT is correct in observing that the
appellant has become liable for action of penalty under Section
86 (10)(b) of DVAT Act 2004 automatically if the claim of
deductions under rule 3(2) of DVAT Rule are denied for which
the appellant has recorded the claim in the books of accounts.
(2) Whether the penalty become automatic under Section 86 (12)
of the DVAT Act, 2004 where there is no tax deficiency at the
time of filing of return with its proper claims as per Rule 3(2) of
the DVAT Rules without showing any deliberate action on the
part of the appellant.
9. With the consent of the parties, the matter is heard finally at
this stage.
10. This appeal is preferred against the penalty of `6,87,232/-
imposed by the Value Added Tax Officer, which is confirmed by the
Tribunal in appeal. The penalty was imposed under two provisions of
Delhi VAT Act, namely, Section 86(10) and Section 86(12) thereof.
Insofar as, penalty under Section 86(10) is concerned, it is to the
tune of `4,52,126/- and the penalty imposed under Section 86(12) is
to the tune of `2,35,106/-. Section 86(10) of the Act reads as under:
"86(10) Any person who,-
(a) Furnishes a return furnished under this Act any
matter or thing without which the return is false,
misleading or deceptive in a material particular;
(b) Omits from a return furnished under this Act any
matter or thing without which the return is false,
misleading or deceptive in a material particular;
Shall be liable to pay, by way of penalty a sum of ten
thousand rupess or the amount of the tax deficiency,
whichever is the greater".
11. It is clear from the above that such a penalty can be imposed
only when it is established that return furnished by the assessee is
false, misleading or deceptive in a material particular or the
assessee omits from a return furnished under this Act any matter or
thing without which the return is false, misleading or deceptive in a
material particular
12. As noted from the facts above, the assessee had filed the
return in accordance with Section 5(2) of the Act as it is engaged in
the business of construction activities on contract basis. As per this
provision, it was permissible for the assessee to disclose the net
turn-over after excluding the charges towards labour, services and
other like charges subject to such conditions as may be prescribed.
It is because of this reason that the assessee had shown a turn-over
of `15,36,120/- after deducted labour/services charges as well as
other like charges. Though there is an omission in not showing the
gross turn-over, the fact remains that when default assessment
notice was issued to the assessee, he explained the expenses
incurred on the aforesaid accounts.
13. It is also noted above that the assessee had maintained the
centralized books of accounts, particularly, Profit and Loss Account,
which the assessee is supposed to do as per the normal accounting
practice. The assessee had allocated proportionate expenses to
Delhi Sales incurred on account of labour/services. It is a different
thing that such an approach on the part of the assessee was not
accepted by the OHA or the Tribunal. It can safely be inferred that
the aforesaid approach of the assessee was bonafide. It cannot be
said that the return filed by the assessee was false, misleading and
deceptive in material particular. The claim was bonafide may be
the assessee was not able to prove the same, even otherwise, we
find that it was an arguable case. For this reason, we are of the
opinion that provision to sub-Section 10 of Section 86 could not be
invoked in a matter like this. This condition stipulated therein is not
satisfied and we, thus, decide the question of law no.1 in favour of
the assessee and delete the penalty imposed under Section 86(10)
of the Act.
14. Insofar as the penalty imposed under Section 86(12) of the Act
is concerned, it is rightly argued by learned counsel for the
respondent that the same is compensatory in nature as it
recompenses the Department for the tax deficiency. Section 86(12)
reads as under:
"86(12) Where a tax deficiency arises in relation to a
person, the person shall be liable to pay, by way of
penalty, a sum equal to one per cent of the tax deficiency
per week or a sum equal to rupess one hundred per
week., whichever is higher, for the period of default".
15. Tax deficiency is defined in sub Section 1 of Section 86 in the
following manner;
"86(1) Penalties - In this section "tax deficiency" means
the difference between the tax properly payable by the
person in accordance with the provisions of this Act and the
amount of tax paid by the person in respect of a tax
period".
16. Since there was a tax deficiency and the penalty is imposed
strictly in accordance with the criteria laid down in sub-Section 12,
learned counsel appearing for the appellant has argued that the
appellant had paid the tax as per the return and therefore, there
was no "tax deficiency". This is clearly a misconceived argument.
17. As noted above, tax deficiency is the difference between the
tax which is found payble in accordance with the provisions of the
Act and the amount of tax which was paid by the assessee in
respect of a tax period. Admittedly, in this case, the tax paid at the
time of filing of return was less than the tax which is found properly
payable as per the provisions of the Act. The moment these
conditions are satisfied, tax deficiency would arise as per the
definition thereof contained in sub Section 1 of Section 86.
18. While ascertaining whether there is a tax deficiency or not,
the question of bonafide on the part of the assessee is completely
alien and irrelevant. Once the tax deficiency is found, sub Section
12 thereof comes into play, as per which, the penalty is leviable on
the said amount of tax deficiency. Question of law no. 2 is thus
decided in favour of the Revenue and against the assessee thereby
maintaining the penalty under Section 86(12) of the Act.
19. The appeal stands dismissed in the aforesaid
circumstances alongwith pending applications.
(A.K. SIKRI)
JUDGE
(M.L. MEHTA)
JUDGE
May 12, 2011.
KA