State of Andhra Pradesh vs Jayanti Timber Traders

M. Satyanarayana Murthy, J.—The State of Andhra Pradesh filed this Writ Petition against the impugned order passed in T.A. No. 130 of 1997 dated 01-06-2001 by the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad (for short, ''the Tribunal''), wherein the order passed by the Appellate Deputy Commissioner (CT) was set aside exempting the compensation paid towards delay in execution of work from turnover tax. The simple dispute is relating to compensation received from L & T can be included in the turnover of the assessee. The appellant filed copy of reference No. LTOG/CAML/92/2228 dated 25-05-1992 with regard to settlement of extra cost of Rs. 5,50,000/-. Actually, the amount was extracted balance sheet of the appellant and it was included in the turnover and assessed to tax.

Against the assessment order, an appeal was preferred before the Appellate Deputy Commissioner and the same was ended in dismissal.

Aggrieved by the impugned order passed by the Appellate Deputy Commissioner, an appeal was preferred before the tribunal contending that compensation paid for delay in execution of work cannot be included in the turnover and not assessable for tax. The said plea was accepted by the tribunal.

Aggrieved by the said order, the State preferred this appeal on the ground that the amount was received as extra cost not as compensation as per the proceedings issued by M/s. L & T in reference No. LTOG/CAML/92/2228 dated 25-05-1992 and when it is extra cost, it shall be included in the turnover and it is mentioned in trading & profit and loss account and balance sheet for the year 1992-93. When the amount was received towards extra cost, it shall be included in the turnover and the amount is liable for tax and prayed to set aside the impugned order passed by the tribunal.

During the course of argument, learned Special Government Pleader for Sales Tax contended that the amount mentioned in the reference is issued by M/s. L & T is representing extra cost not as compensation. When it is extra cost, the amount is liable for tax as part of turnover of the assessee but this was not considered in proper perspective by the tribunal and prayed to set aside the impugned order whereas learned counsel for the respondent argued totally in support of the order passed by the tribunal.

Considering rival contentions the short point that arises for consideration is:

"Whether the amount of Rs. 7,65,988/- was received as extra cost or as compensation for the delay on the part of L & T in execution of work and if it is towards compensation, can it be included in the turnover of the assessee and liable for tax?"

The main contention of the State is that the amount was received towards variation in cost of fixing teakwood frame, doors and shutters to OMC building at Gachi Bowli in pursuance of the quotations submitted to L & T in November, 1990 but there was delay in execution of work, not due to fault of the assessee but due to delay in completion of civil work of walls to which doors and windows were to be fixed. Thereupon, the assessee claimed compensation due to increase in transportation and labour cost due to devaluation of rupee on account of Gulf War. The State produced the copies of letters addressed to M/s. L & T by the assessee which show that the amount represents extra cost not as compensation.

The tribunal, relying on judgment of this Court in M/s. Kanti Brothers, KNL, Vs. State of Andhra Pradesh 11 APSTJ 201, held that when any amount is received towards compensation, the same is not taxable and disagreed with the decision of this Court in State of Andhra Pradesh Vs. Ranka Cables Private Limited 7 APSTJ 60. The finding of the tribunal is questioned in this Writ Petition on the ground that the amount received by the assessee was only towards extra cost. In the fact, the proceedings issued by L & T in the reference mentioned above is not available on record to find out whether the amount received by the assessee is towards extra cost or towards compensation. However, as seen from the order under challenge, the amount was received towards compensation for delay on the part of L & T in execution of work and even otherwise, there was escalation in cost of transportation and labour due to devaluation of rupee on account of Gulf War. As seen from the order, the goods were getting ready and escalation of price of goods did not arise as the amount related to compensation not due to any other reason other than price variation. If really the amount represents compensation, it shall not be included in the turnover and not liable for tax in view of the judgment in M/s. Kanti Brothers (supra). As seen from the material, it is clear that the assessee got the goods ready i.e. wooden frame, doors, shutters, etc., but fixing of the same was delayed on account of non completion of civil work by M/s. L & T. So, the question of raise in price including transportation etc., would not arise and in such a case, the amount whatever received by the assessee shall be construed as compensation for the delay in execution of work by M/s. L & T. In such a case, the amount paid towards compensation would not form part of the turnover and not liable for tax.

On perusal of the order under challenge passed by the tribunal, it is clear that the amount paid to the assessee was only towards compensation for the reason that the goods were ready at the place of work within the time fixed for fixing wooden frames etc. Thereby, hike in price in transportation etc., would not arise and consequently, the amount whatever paid cannot be treated as escalation of price of goods and at best, it shall be considered as compensation. If it is compensation, it is not labile for tax.

When no material is produced before the tribunal or before this Court by the State to establish that the amount paid was towards extra cost of the goods, the contention of the assessee is liable to be accepted holding that an amount of Rs. 7,65,988/- received by the assessee for delay in execution of work by L & T is only towards compensation which shall not be included in the turnover and not liable for tax.

On re-appreciation of entire material available on record with reference to law, we find that the amount received by the assessee is only towards compensation not the extra cost of goods, thereby it is not liable to be included in the turnover for the assessment year 1992-93 and not liable for tax. Hence, we find no grounds to interfere with the impugned order passed by the tribunal in T.A. No. 130 of 1997 exercising the power of revision under A.P.G.S.T. Act. Accordingly, the point is held in favour of the assessee and against the revision petitioner. In the result, the revision case is dismissed. Pending miscellaneous petitions, if any, shall stand dismissed in consequence. No order as to costs.