Doctrine of Partial Merger again upheld by Hon’ble Haryana Tax Tribunal

Puneet Agrawal (Partner, ALA Legal) &
Gaurav Gupta ( Associate, ALA Legal)

In a much needed relief to assessees engaged in construction business, the Hon’ble Haryana Tax Tribunal has held that cost of consumables such as fuels used in hot mix plant for the purpose of execution of works contract, is liable to be deducted from the taxable turnover. The said view emerged based on the Supreme Court Judgment in the case of Gannon Dunkerely and Rule 25(2) read with Rule 25(3) of the Haryana Value Added Tax Rules.

Further, the Hon’ble Tribunal has held that once issue regarding taxability of bitumen has attained finality in the assessment order and appeal preferred by Assessee is on other issues, then the period of limitation for Department to revise the issue of rate of tax on bitumen, would start from the date of assessment order and not from the appellate or remand order.

Issue of Limitation

1. The instant case arose out of appeal filed by the Appellant before the Hon’ble Haryana Tax Tribunal challenging the impugned order dated 07.08.2015 passed by the Ld. Joint Excise and Taxation Commissioner (Range)-Cum- Revisional Authority, Hisar. The impugned order was passed with the finding that the turnover of sale of bitumen along with other materials is liable to be assessed at general rate of tax.

2. The Revisional order was passed by the JETC under provisions of Section 34 of the Haryana Value Added Tax Act. The said provision, as it stood for the relevant Assessment Year 2008-09 stipulated the limitation period of three (3) years for passing revisional order.

3. In the instant case, the original assessment order was passed on 07.06.2011 whereby bitumen had been taxed at the rate of 4%. The Appellant preferred appeal before the Appellate Authority who vide order dated 20.04.2012 remanded the matter on specific issues namely, regarding various deductions, input tax credit on account of material supplied by the govt, concessional rate of tax on sales to Panchayati Raj institutions etc. Consequently, remand order dated 18.04.2014 came to be passed by the AO on those specific issues.

4. The said remand order however, left undisturbed the original assessment order on the issues concerning rate of tax in respect of bitumen, which stood decided in favour of the Appellant.

5. Thus, it was the contention of the Appellant that in respect of other issues untouched by the remand order, the original assessment order stood as it is and bound the Department and the assessee. The original assessment order, which were not touched by the Remand order could have been altered only by revising the original assessment order dated 07.06.2011.

6. Thus, it was contended before the Hon’ble Tribunal that since the impugned revisional order seeks to revise the said revisional order, which was silent on the issue concerning rate of tax in respect of bitumen,the said order is bad insofar as the Revisional Authority could have revised only the original assessment order and the limitation period for revising the order expired on 13.06.2014. The Remand order cannot be seen as a substitute for the original assessment order, and therefore, can give no ground to the Revisional Authority to revise issues which have already attained finality vide the original assessment order.

Findings of Hon’ble Tribunal

7. Hon’ble Tribunal held that the revision order on the issue of rate of tax on bitumen is barred by limitation. It was observed that with respect to the issue of tax rate on bitumen, the said issue had attained finality vide original order dated 07.06.2011 as the Appellant had not agitated the issue of tax rate on bitumen before the Appellate Authority. Furthermore, on perusal of appellate order dated 20.04.2012, Hon’ble Tribunal observed that the original assessment order was set aside only on the issues which had been agitated by the Assessee in first appeal and that entire assessment order dated 07.06.2011 had not been set aside. Consequently, the revision order which seeks to revise inter alia the issue of tax rate on bitumen vide order dated 07.08.2015 is time barred under the provisions of Second Proviso to Section 34(1).

Issue of disallowing deduction for fuel

8. The Appellant placed reliance on the judgment of Hon’ble Supreme Court in the case of State of Orissa v. Maharaja Sh. B.P. Singh Deo (1971) 3 SCC 52 to contend that the Revisional Authority has not recorded any reasons, rationale or basis for arriving at the figure of Rs. 2 crore to disallow the deduction of said amount.

9. Reliance was placed on Gannon Dunkerley (1993) 88 STC 204 (SC) as well on Rule 25(2), to submit that cost of consumbales such as water, electricity, fuels etc. used in the execution of works contract has to be allowed as deduction for determining taxable turnover.

Findings of Hon’ble Tribunal

10. On the issue of disallowing deduction to the extent of Rs. 2 crore on account of fuel, it was observed that the said issue pertains to revision of subsequent order dated 18.04.2014, and hence was within time.

11. The Hon’ble Tribunal held that there is no reason, rationale or basis in the impugned revisional order for arriving at the said amount except mentioning that the same has been disallowed on pro rata basis. It was further observed that no data or calculation has been given in this regard to arrive at the said amount. Consequently, the Hon’ble Tribunal set aside the disallowance of deduction on the issue of quantum of deduction.

12. On the merits also, the Hon’ble Tribunal while relying on Gannon Dunkerley and Rule 25(2), held that cost of consumables such as fuels used in hot mix plant and machinery has to be allowed as deduction for determining taxable turnover. It was further held that fuel was consumed and was not transferred to the contractee. Consequently, it was held that cost of fuels, etc. that was consumed even in hot mix plant and machinery is required to be allowed as admissible deduction as per the case of Gannon Dunkerley as well as Rule 25(2) of the HVAT Rules.

Conclusion

The above order comes as a major relief to Assessee. The question of limitation raises vital issue of Jurisdiction of the Department to proceed against an assessee. Further, this order also gives findings where AO arrive at quantum of deduction without any basis or rationale. On the issue of deduction on account of cost of consumable such as fuel, the present order has reiterated the settled principle of law laid down in Gannon Dunkerley.