Ozone Properties Pvt. Limited vs Additional Commissioner of Commercial Taxes

Manjula Chellur J.

The following questions of law are raised in the appeal memo: (i) Whether, in the facts and circumstances of the case, when the appeals before the Karnataka Appellate Tribunal are pending for decision during which time there is already a bar for exercising the power of revision as per section 64(3)(b) of the Karnataka Value Added Tax Act, 2003, will it not amount to a revision proceeding without jurisdiction and also against the settled principles of law?

(ii) Whether, in the facts and circumstances of the case, where 73.55 percent of the built up area in the ST park which is retained by the appellant themselves and capitalised as asset as is evident from audited balance sheet and other documents submitted by the appellant, is it proper on the part of the respondent to remand the matter to the assessing authority?

(iii) Whether, in the facts and circumstances of the case, the transaction between the appellant and the landowners for transfer of 26.45 percent of built up area in ST park in exchange for 73.55 percent undivided interest in the land, as stated in the joint development agreement, is one of the exchange or barter for which no tax is payable in the absence of monetary consideration which is an essential ingredient for the term ''sale'' as held in State of Rajasthan and Another Vs. Rajasthan Chemists Association, can the impugned order holding it as ''sale'' is sustainable in law?

(iv) Whether, in the facts and circumstances of the case, reliance placed by the respondent on the judgment in respect of Dhampur Sugar Mills Ltd. Vs. Commissioner of Trade Tax, U.P., for coming to the conclusion that the instant case covers the said judgment therefore the transaction of the appellant is ''sale'' hence liable to pay the sales tax is sustainable in law?

(v) Alternatively, even in the event the transfer of 26.45 percent of built up area in ST park in exchange for portion of undivided interest in land is held to be ''sale'', whether it would be proper in the facts and circumstances of the case not to allow the deduction of the amounts paid/payable to registered sub-contractors which has been already subjected to tax under the KVAT Act, 2003, as the same would lead to double taxation which is impermissible under the Constitution?

This appeal is filed by the assessee aggrieved by the order of the Tribunal in ZAC-1/BCD-1/SMR-63/2009-10 dated December 18, 2009. The case of the appellant in brief is that he is a property developer and entered into a Joint Development agreement with M/s. Manaylux Engineers Private Limited, M/s. Manay Wires and Metals and M/s. General Construction Company are the owners of the land in question. As a result of such arrangement a software technology park by name "M/s. Ozone Properties Pvt. Limited" has been put up by the appellant-company and in furtherance of the said agreement between the parties after completion of the project, 26.45 percent of the built up area is to be transferred to the land owners in lieu of which they were to transfer 73.55 percent of their undivided interest in the land to the appellant. The built up area of 73.55 percent put up by the appellant remained with the developer-appellant and the same was not transferred till today. It is further the case of the appellant that he has not taken up any construction work and most of the construction work was handed over to sub-contractors who were all registered dealers and they have discharged their tax liability so far as works contracts done by them for the appellant. 2. The inspecting authority who inspected the appellant''s premises on November 28, 2005 also had the benefit of verifying certain records of the transaction but however, it came to the conclusion that the transaction attracts a tax liability under entry 23 of the Sixth Schedule to the KVAT Act, 2003 and accordingly u/s 79 a notice dated August 8, 2007 also came to be issued. This way duly replied by the assessee contending that neither they have sold any property nor received any advance towards future sale of the property, therefore, the agreement or arrangement of exchange between the land owners and themselves will not attract the tax liability.

However, the assessing authority on January 4, 2008, was conferred with the jurisdiction to conduct audit by the Commissioner of Commercial Tax. Reiterating the same objection the appellant replied the same contending that they have given only 26.45 percent of the built up area retaining rest of the built up area without any sale in favour of any one including the owner of the land except exchanging the constructed area with them for the undivided interest in the land belonging to the owners of the property. However, the assessing authority held that in view of 26.45 percent built up area being handed over to the owners of the land and in the light of payment of various amounts amounting to Rs. 45 crores and odd to various sub-contractors it is a deemed sale as the goods in the property have passed onto the owners of the land.

Aggrieved by the same an appeal came to be filed before the Joint Commissioner of Commercial Taxes reiterating the ground of exchange of a portion of the built up area or undivided interest in the land of the owners. The appellate authority held that the transaction in question cannot be termed/deemed as a sale as there is total absence of receipt of money or payment of consideration which is of paramount consideration to arrive at a conclusion whether a particular transaction would amount to sale or not. He further held that entire 73.55 percent built up area retained by the appellant was not at all transferred and it is owned by the appellant and the appellant has not undertaken any construction work by itself but handed over such works to sub-contractors who are registered dealers. Therefore the appellate authority virtually accepted all the contentions of the appellant by its order dated September 2, 2008. He relied upon several judgment of the apex court and distinguished the case law so far as Dhampur Sugar Mills Ltd. Vs. Commissioner of Trade Tax, U.P., which was relied upon by the assessing authority.

The appellant in spite of getting monitory benefit after the order of the appellate authority, went before the Tribunal by filing STA No. 1310 of 2008 contending that on the alternative pleadings made by the appellant in the grounds of appeal submitted along with the appeal petition, the first appellate authority has not recorded any finding of such alternative pleadings and therefore he sought for consideration of such alternative pleading made by the appellant. The entire grounds of appeal would only refer to alternative pleas raised by the appellant and it does not reveal the details of the alternative plea. However, learned counsel for the appellant Mr. Kamath brings to our notice that it was on the issue of turnover made by the assessing authority based on the market value taken by the assessing authority alternative pleas were raised before the first appellate authority which were not at all considered by the first appellate authority. However, he submits that he would be withdrawing the said appeal before the Tribunal.

Subsequently, the revisional authority under suo motu revisional powers issued a show-cause notice to the present appellant proposing reversing the opinion of the first appellate'' authority and asking an explanation from the appellant-assessee why that portion of the built up area handed over to the owners cannot be termed as a deemed sale. He also refers to the proportionate cost of built up area by taking into account the total cost of the construction put up by the appellant. Once again the appellant reiterated his defence that there was no element of sale in the entire transaction between him and the landowners except getting the project of construction completed with the help of sub-contractors who are registered dealers, no other activity whatsoever was done by the present appellant. Therefore the question of any works contract being executed by the appellant does not arise and so also there is no deemed sale as the registered dealers who did the sub-contract work must have paid the respective tax at the relevant point of time. However, the revisional authority has not accepted the defence raised by the appellant and based on the plea that there is no sale of constructed area retained by the builder to any buyer, held that there must be an opportunity to the assessee to put forth all the books of accounts and other evidence that would be necessary to arrive at such conclusion based on the factual material to be furnished by the assessee. He left open levy of penalty and interest to the assessing authority as the assessing authority was asked to re-examine the matter and to take appropriate decision in the light of the observations made by the revisional authority.

During the course of submissions the appellant has produced copy of the exchange deed that came to be registered on December 18, 2009 between the developer and the landowners. Apparently and admittedly this document was not the subject-matter of scrutiny by any of the authorities referred to above. In all probability this exchange deed must have come subsequent to SMR proceedings. Therefore, there was no occasion for the appellant to place these documents before any of the authorities. He has also given us the list of the sub-contractors who are said to have executed various parts of the construction and it comes to about Rs. 44,89,32,098. Similarly he has given the details of the payment made to various sub-contractors. After the perusal of the entire list we note that some of the works contract were done by persons who were not registered dealers as no registration number is furnished to us in these details. The first appellate authority mainly relied upon the decision in the case of Commissioner of Income Tax, Hyderabad Vs. Motors and General Stores (P.) Ltd., wherein it was held that if the consideration is not money but some other valuable consideration, or exchange or barter, then it was not a sale. Based upon this principle the first appellate authority held that levy of tax can only be paid on the, actual amount of sale price received or receivable by the solitary tax under the Act and to constitute a transaction of sale simpliciter of goods for the purpose of the Act, the transaction should have all the ingredients of sale as specified u/s 4 of the Sale of Goods Act, 1930, which includes a price in money paid or promised mutually agreed upon by the buyer and seller. According to the first appellate authority the transaction involves the undertaking by the appellant-builder or developer for exchange of 26.45 percent built up area in the property for 73.55 percent undivided interest in the land does not amount to sale. Therefore, he set aside the levy of tax on the assumed value as it is illegal. The revisional authority has not at all gone into this aspect of the matter and it proceeded to decide the case of placing reliance on Dhampur Sugar Mills Ltd. Vs. Commissioner of Trade Tax, U.P.,

Now ultimately the revisional authority has directed the assessing authority to verify the books of account and other material which would be placed on record by the assessee. In order to ascertain what exactly the nature of transaction that was entered into between the parties, by virtue of exchange deed which came into existence in December 2009 it would be more clear for the authorities concerned to know whether the document of exchange amounts only exchange of nature put forth by the learned counsel for the appellant or terms of exchange deed amount to something else which would attract the ingredients of transaction of sale. Subsequent to amendment to article 366 by insertion of clause (29A), the authorities have to consider the material with reference to clause (29A) of article 366 of the Constitution because deemed sale is introduced by virtue of this provision. Therefore by looking to the terms of the exchange deed and also other material including the large payments made to the registered dealers by the appellant whether it amounts to a sale or deemed sale as contemplated under clause (29A) of article 366 of the Constitution or it remains only an exchange of built up area for undivided interest in the land handed over to the developer the authorities concerned will have to examine the same and also they have to see and examine whether the "works contract" as contended by the appellant was executed by registered dealers or whether the construction was taken up by the appellant himself and therefore element of sale is involved by virtue of deemed sale. Hence, the order of remand made by the revisional authority is affirmed.

With these observations we dispose of the present appeal remanding the matter to the assessing authority. Both the parties are at liberty to raise all contentions raised before us. The assessing authority shall not be persuaded by any of the observations made by us and it shall refer to and shall take into consideration all the contentious that would be put forth before it by the parties in question. As the matter is not considered on merits and as, we are remanding the matter back to the assessing authority the question of answering the questions of law would not arise. Ordered accordingly.