M/S. Dlf Home Developers LTD vs. State Of Kerala

Facts

The petitioners, M/s. DLF Home Developers Limited and M/s. DLF Southern Towns (P) Limited, are engaged in developing residential projects and selling flats. They entered into agreements with customers, stipulating a price that included the value of undivided land share and building. The petitioners engaged sub-contractors for construction, who procured materials and paid VAT. The petitioners supplied major components like steel and cement to these contractors free of cost. Believing they were only selling finished apartments and not liable for works contract tax under the Kerala Value Added Tax (KVAT) Act, they did not charge VAT on customer advances and filed nil returns. The Assessing Authority, however, treated these transactions as works contracts, determined taxable turnover on a best judgment basis, and levied VAT. Appeals to higher authorities, including the Kerala Value Added Tax Appellate Tribunal, did not provide relief, leading to these revision petitions before the High Court.

Held

The Court rejected the petitioners' contention that the KVAT Act lacked a statutory scheme to determine the taxable turnover of a works contract, finding it workable. The Court held that it was incumbent upon the petitioners to declare the total turnover pertaining solely to the works undertaken by them, excluding the component representing the value of the undivided share in the land. If they failed to do so, they had only themselves to blame. However, the Court found merit in the petitioners' contention regarding the arbitrary manner in which the land value was computed for exclusion by the Assessing Authority in O.T.Rev.Nos.105, 106, and 107 of 2019, where a figure of 5% was adopted without justification. For O.T.Rev.No.3 of 2020, the Assessing Authority had adopted a methodology to determine land value appreciation. Consequently, the Court remanded O.T.Rev.Nos.105, 106, and 107 of 2019 to the Appellate Tribunal for a fresh determination of the taxable turnover based on the observations made. For all other purposes, the Tribunal's impugned orders were upheld, and the questions of law were answered against the petitioners and in favour of the Revenue. The Appellate Tribunal was directed to complete the exercise within six months.

Key Issues

1. Whether the Hon'ble Tribunal erred in disregarding the petitioner's contention that the levy of tax on the sale of flats is unenforceable due to the absence of a machinery in the K-VAT Rules to exclude the value of land from the 'taxable turnover'? (Question of law turning on K-VAT Rules). 2. Whether the Hon'ble Tribunal was correct in disregarding the Supreme Court decision in CCE vs. Larsen and Toubro and the Delhi High Court decision in Suresh Kumar Bansal vs Uol, which held that tax cannot be imposed on composite contracts involving the sale of land in the absence of a statutory mechanism to ascertain the measure of tax? (Question of law turning on established precedents). Petitioner's arguments: The petitioners contended that the KVAT Act and Rules lacked a mechanism to segregate the land value from the total consideration, making the tax levy on composite contracts unenforceable, citing Supreme Court and High Court precedents. They argued that the absence of such a mechanism rendered the tax imposition invalid. Revenue's arguments: The judgment does not explicitly record arguments made by the Revenue on these specific issues. However, the Revenue's position, as reflected in the Assessing Authority's actions and the Tribunal's orders, was that the transactions constituted works contracts and were taxable under the KVAT Act.