The Kerala High Court observed the case Union of India and Another v. State of Haryana and Another and ruled that the existence of the taxable event is fundamental to levy the Goods and Services Tax (GST). Thus, the bench set aside the penalty orders.
Entertaining the petition, a division bench of Justice Jayasankaran Nambiar and Justice Mohammed Nias C.P. noted that assessing authorities passing orders in a mechanical manner without showing how the taxable event is attracted in a given case or without giving reasons for denying the claim of an assessee for exemption or deduction.
The appellant, Prodair Air Products Private Limited company, involved in the activity of production and sale of industrial gases such as Hydrogen, Nitrogen and HP Steam. It is a wholly owned subsidiary company of Air Products and Chemicals Inc., USA.
Based on the penalty orders, the appellant’s evaluation under the Kerala Value Added Tax Act, 2005 (KVAT Act) had concluded. The agreement entered into between the appellant and BPCL was interpreted in order to pass the order as one that resulted in a transfer of property in the plant and the specified gases during the execution of a works contract.
The assessing authority, like the intelligence officer imposed the penalty, referred to the proviso to Rule 10 (2) of the KVAT Rules, 2005 which, in the context of determination of taxable turnover in relation to works contracts in which transfer of property takes place not in the form of goods but in some other form.
The Assessing Officer determined that the contract price reported as received by the appellant—the total of the fixed and variable charges—was less than the cost of the plant that was brought to the site.
As a result, the cost of the plant and a portion of gross profit would be considered the taxable turnover for the purposes of levying tax at 14% applicable to works contracts (as opposed to 5% applicable to supply of gases) under the KVAT Act.
The counsel Arvind P Datar, assisted by Adv. N. Prasad, for the appellant asserted that the impugned decisions do not contain the finding that there is a transfer of property involved in the performance of a works contract, and as a result, the present cases do not meet the conditions necessary to invoke Section 6 (1)(f) of the KVAT Act.
Further, submitted that no works contract existed, then the appellant would be entitled to the input credit since the credit was denied solely on the finding that there was a transfer of the plant to BPCL.
According to the division bench, it is proper to highlight that the principle of fairness, considered as an essential aspect of the rule of law in our nation, stipulates that an assessing authority ought to apply its mind to every factor that impacts an assessment and give sufficient indication in the assessment order of having done so.
The bench viewed that where the taxing authority assumed a jurisdiction that it did not have and hence it would be a case of palpable injustice to the appellant herein to force it to adopt the remedies provided by the statute.
Further stated that the profile of an assessing authority can no longer be that of a stern and unreasonable automaton that is programmed solely to collect the tax that the revenue department feels is due from an assessee.
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