By TIOL News Service

CUTTACK, APRIL 25, 2019: THE issue at hand before Larger Bench of the Sales Tax Tribunal in this case is - Whether the act of the AO in dropping re-assessment under the Central Sales Tax Act & subsequent re-assessment under the Orissa Sales Tax Act is tenable. NO is the verdict. The Tribunal also held that re-assessment is unsustainable where the requisite material was produced before the AO in regular assessment & the AO infers escapement of turnover from taxation based on wrong interpretation of legal provisions.

Facts of the case

THE assessee company is a leading private enterprise engaged in power generation & development of infrastructure. During the relevant AY, the assessee executed works contract based on agreements entered into between itself and other contractees, for supply of goods on sale and for erection/service work. Assessment was originally completed u/s 12(4) of the Orissa Sales Tax Act (OST Act) and u/s 12(5) of the Central Sales Tax(O) Rules. Later, upon receipt of objection from the Audit team, the CST assessment was re-opened u/r 10 of the CST(O) Rules. While the assessee filed its explanations, it also carried the matter before the Apex Court, challenging such re-assessment. The Revenue then furnished a statement on oath, stating to have dropped the re-assessment proceedings u/r 10 of the CST(O) Rules.

Later, the Revenue later re-opened the assessment under the OST Act, based on the same Audit report, as per Section 12(8) of the OST Act. The AO noted that the agreements between the assessee & the contractees, though being two-fold and involving service contract as well as erection contract, were interlinked. It was noted that the responsibilities of the contractor in both contracts remained joint. The AO then considered the claim of transit sale. It was observed that the assessee received orders from the contractee, then placed orders for the same with its outstate selling dealers, who manufactured the goods & sold them to the assessee. The assessee then sold these goods to the contractees. Hence the sale by the outstate dealer to the assessee was covered u/s 3(a) of the CST whereas the second sale to the ultimate buyer was treated as inter-State sale under OST. Hence the assessee's claim of transit sale u/s 3(b) r/w Section 6(2) of the CST were rejected & tax liability was calculated at about Rs 15.58 lakhs, with 10% surcharge as well as penalty of about Rs 1.99 crores. The total tax payable about Rs 3.70 crores. As the assessee had been assessed to pay tax of about Rs 25.21 lakhs on regular assessment, demand was raised for the balance amount of about Rs 3.45 crores. On appeal, the Commissioner of Sales Tax (Appeals) sustained the same.

On appeal, the Tribunal held that,

++ here, there was CST assessment reopened on the basis of A.G. (Audit) with the allegation that, the dealer's claim of subsequent sale as transit sale is not sustainable and then, in a later period the assessing authority dropped the proceeding with a view that, the reassessment should be done under OST Act. It is not understood why the reassessment under CST(O) Rules was dropped or not maintainable. when the dealer dropped the CST reassessment, it has deemed to have accepted the statutory declaration forms against the claim of CST sale, in that event, reopening as per sec.12(8) of the OST Act is not sustainable; the authority was not sure which assessment was to open on the basis of AG report. Acceptance of declaration forms under one act and rejection under another act amounts to gross illegality. It is not made clear why the disputed question could not have decided in the CST reassessment. However, once there is a CST assessment and the question of exemption the assessing authority could successfully had decided if the sale was covered u/s.3(b) read with sec.6(2) sale supported by the declaration form "C" and "E-1". Assessment under OST act should be consequential to assessment under CST act and rejection of claim of transit sale by not accepting declaration forms;

++ the peculiarity is, CST reassessment was open but later closed with a finding that the reassessment under OST Act would be done. This is not only an irregularity but also an illegality going to the root of the case. The order in CST assessment and the order in OST reassessment are contradictory and as well as mutually destructive to each other here, in the case in hand in particular. So, we are unable to accept the method, procedure adopted by the taxing authority and in view of the illegality and irregularity as committed by dropping the CST reassessment, it is believed that, the reassessment u/s.12(8) of the OST Act cannot stand in law.

(See 2019-TIOL-01-TRIBUNAL-ODISHA-CT-LB)