Eagle Earth Movers PVT. LTD vs. The State Tax Officer (Works Contract)

Held

The Court held that the 1st respondent's refusal to grant credit for tax deducted at source was factually incorrect and legally unsustainable, given the subsequent statement filed by the 2nd respondent. The 2nd respondent's statement clearly established that KVAT to the tune of Rs. 56,62,162/- was deducted and remitted to the Commercial Taxes Department, Palakkad, Kerala, vide cheque dated 23.05.2016, which was acknowledged. The Court found that the very foundation of the 1st respondent's assessment order, which was based on the premise of non-remittance by the Railway authority, had crumbled. Consequently, the impugned assessment order (Ext.P2) was quashed. The matter was remitted to the 1st respondent for fresh consideration and decision. The 1st respondent was directed to afford the petitioner a reasonable opportunity of being heard and to pass fresh orders, taking into account the factual assertion by the 2nd respondent that the Railway authority had indeed remitted the deducted tax. The Court declared that the petitioner is entitled to get credit for the TDS paid by the 2nd respondent.

Facts

The petitioner, Eagle Earth Movers Pvt. Ltd., is a contractor engaged by the Southern Railway (2nd respondent). The petitioner filed a writ petition challenging an assessment order (Ext.P2) passed by the State Tax Officer (1st respondent). The petitioner's grievance was that the 1st respondent refused to grant credit for tax deducted at source (TDS) by the 2nd respondent, despite the petitioner providing certificates for TDS. The 1st respondent's order was based on the assertion that the Railway authority had not remitted any amounts in favour of the petitioner. The Court directed the 2nd respondent to file a response. The 2nd respondent's statement confirmed that KVAT (Kerala Value Added Tax) to the tune of Rs. 56,62,162/- was deducted for bills paid to the petitioner and remitted via cheque to the Inspecting Assistant Commissioner, Commercial Taxes, Palakkad, Kerala.

Key Issues

1. Whether the 1st respondent was legally justified in refusing to grant credit for tax deducted at source (TDS) by the 2nd respondent, contrary to the petitioner's claim and the subsequent confirmation by the 2nd respondent? Petitioner's arguments: The petitioner contended that the 1st respondent's assessment order (Ext.P2) was arbitrary and legally wrong for refusing to accept credit for TDS. They argued that the deduction of tax at source by the Railway authority should be acknowledged and credited. They relied on the fact that they had submitted Form 20F for claiming tax credit. Revenue's arguments: The 1st respondent's initial stance, as reflected in Ext.P2, was that their records indicated no remittance from the Railway authority in favour of the petitioner. The Government Pleader represented the 1st respondent.