The document is an intelligence report from the Commercial Taxes Department of Karnataka regarding M/s. Adarsh Developers. It summarizes an inspection of the dealer's books and records for the years 2009-10, 2010-11, and 2011-12. The inspection found discrepancies in how the dealer accounted for land costs and labor charges deductions under the KVAT Act. Specifically, the dealer was found to have claimed excessive deductions for land costs and included ineligible overhead expenses in labor charges deductions.
The document is an intelligence report from the Commercial Taxes Department of Karnataka regarding M/s. Adarsh Developers. It summarizes an inspection of the dealer's books and records for the years 2009-10, 2010-11, and 2011-12. The inspection found discrepancies in how the dealer accounted for land costs and labor charges deductions under the KVAT Act. Specifically, the dealer was found to have claimed excessive deductions for land costs and included ineligible overhead expenses in labor charges deductions.
The document is an intelligence report from the Commercial Taxes Department of Karnataka regarding M/s. Adarsh Developers. It summarizes an inspection of the dealer's books and records for the years 2009-10, 2010-11, and 2011-12. The inspection found discrepancies in how the dealer accounted for land costs and labor charges deductions under the KVAT Act. Specifically, the dealer was found to have claimed excessive deductions for land costs and included ineligible overhead expenses in labor charges deductions.
No.Adcom.(Enf.)/SZ/AC(Enf.)-12/INS-19/11-12. Office of the Addl.Commissioner of Commercial Taxes, (Enforcement), South Zone, 3 rd Floor, B-Block, VTK-2, Koramangala, Bangalore-560 047, Dated: 06-03-2013 CATEGORY: A INTELLIGENCE REPORT 01 Name & Address of the Dealer M/s. Adarsh Deveopers, No.10, Vittal Mallya Road, Bangalore-560001 02 Registration No. TIN No. 29700345626 / LVO-20 03 Date of Inspection 17-08-2011 04 Assignment No. and Date 981501/ 17-08-2011 04 Nature of Business Development of Projects like Apartment Units, Villas, Service Apartments, Commercial buildings and Hotels. 05 Books of Accounts Verified VAT-100s, Labour Ledger, Purchase Register, Balance Sheet. 06 Name & Designation of the Inspecting Officer T.R. Krishna Kumar, ACCT (Enf.)-12 South Zone, Bangalore. 07 Name & Status of the Person in charge Sri T.R.Sathyanarayana Bhat, AGM-Accounts, 08 Year to which the report relates 2009-10,2010-11 & 2011-12 09 Seized books of accounts -Nil-
Brief Facts of the inspection:
M/s. Adarsh Developers is a Partnership concern engaged in the business of Development of Projects like Apartment Units, Villas, Service Apartments, Commercial building and Hotels. The place of business is situated No.10, Vittal Mallya Road, Bangalore- 560001. The concern is registered under the KVAT Act 2003, bearing TIN-29700345626 and is borne on the files of LVO-56, Bangalore.
As per the assignment issued by the Addl. Commissioner of Commercial Taxes,(Enforcement), South Zone, Bangalore, the place of business situated at the above address was visited for inspection by the Asst. Commr.of Comml.Taxes, (Enforcement)-12, South Zone, Bangalore, on 17-08-2011. Sri T.R.Sathyanarayana Bhat, AGM-Accounts, was present and assisted the inspection proceedings.
At the time of inspection, the following documents were produced for verification:-
Pursuant to the above, a Notice dt: 17-08-2012 was served to the dealer asking to submit the following documents for further verification upto Aug-2012.
1. Purchase Register/month wise, 2. Project wise/ month wise:-Receipts, Labour & like Charges, Exempted Turnover details. 3. Bank Statements, 4. Project details/ Customer details as per the format given.
The dealer in his letter dt: 30-08-2011 had submitted the following documents:-
1. Purchase register along with details of product and Tin wise information. 2. Month wise receipts along with customer, project and other details as per the format.
On perusal of the same, the following discrepancies have been noticed in accounting them under KVAT Act, 2003
I. Land Cost The VAT-100s filed by the dealer during the tax period under consideration, it is seen that the dealer is indicating the value of total Turnover & Taxable Turnover based on their own calculation rather than taking Gross receipts and availing out of them valid deductions like Cost of land, Labour & like charges, Sub-contractors Turnover & taxes collected, which is as per KVAT Act & Rules. During the tax periods under consideration for which VAT-100s are filed, the Taxable Turnover declared, purchases & input availed there are imbalances. Such as purchases of building materials are in Crores of Rupees, where as the taxable Turnover shown is in Lakhs of Rupees. Therefore the VAT-100 filed are to be summarily rejected as Rule (3) of KVAT Rules has been clearly violated.
The dealer has claimed deduction under land cost (cost of land) out of the receipts from prospective buyers. The quantum of such deduction is to the tune of 75 % to 80% of Gross receipts in each tax period. The agreements to sell entered into with the prospective buyers do not separately indicate the value of undivided portion of land sold to prospective buyers with the villa or flats claimed & hence the valuation under land cost arrived by the dealer is not in consonance with law. In the absence of such values towards undivided portion of land or land cost is to be calculated as per the circulars instruction No-12 dated: 07-12-2009 issued by the Commissioner of Commercial Taxes (K).
In each of the projects undertaken by the dealer during the periods of inspection i.e. Adarsh Rhythm, Adarsh Esplanade, Adarsh Palm Retreat, Adarsh Serenity share of undivided share of Land sold to each customer is taken in sft and the same is valued as per the guideline value specified by the Sub-Registrar of respective area during the respective periods. The Land Cost deduction is calculated proportionately to the receipts from each period in question i.e. 2009-10 to 2011-12 (Upto August 2011). Accordingly the available deduction under Land Cost is allowed and the excess availed by the dealer is treated as taxable turnover as under:-
M/s. Adarsh Developers,
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Sl. NO Name of the project. Address Sub Reg JDN Cost /Sq Ft. in Rs. During 2009-10 to 2011-12 (Upto Aug12) 1 Adarsh Rhythm No-71, Panduranga Nagar, Off: Bannergatta Road, Behind Fortis Hospital, Bangalore-76 Bommanahalli 1300 2 Adarsh Esplanade 25 th Cross, 12 th A Main, HSR Lay out 7 th Sector, Bangalore-102 Bommanahalli 3000 3 Adash Palm Retreat (Next to Intel) Deverabesanahalli, Bellandur Post, Bangalore-103 Varthur 400 4 Adarsh Serenity Kannamangala Village( Next to Sobha Amethyst) Bangalore-67 Devanahalli 600
On the basis of the above sub-Registrar guideline market value, the computation of land cost is arrived as under:-
Period Gross Contract receipts Exemption on Land Cost Availed by the dealer Land Cost as per Sub-Reg Market Value Excess exemption availed on land Cost to be Disallowable 2009-10
1,799,352,281 1,211,576,790
123,821,401 1,087,755,389 2010-11
2,212,400,878 1,914,144,422
139,602,495 1,774,541,927 2011-12
1,174,914,445 1,040,941,158
74,137,101 966,804,057 Total (A)
5,186,667,604 4,166,662,370
337,560,998 3,829,101,372
II. Labour Charges Claims
The dealer has claimed Labour & like charges as expenses while executing works contract. On verification of such claims it is observed that the dealer has made excess claims on account of certain expenses like Bank Interest charges, Transportation & Conveyance, Office Maintenance, AMC, security charges, fuel consumption, electrical charges, which are incurred at their Head Office / Admin Office. As per the order rendered by Honble Supreme Court in the case of M/s. Gannon Dunkerly V/s State of Rajastan & others (1992) Reported in 88 STC clearly states that overhead expenses/ establishment expenses /administration expenses & financial expenses relating to the supply of Labour & services will be eligible for labor & like charges out of the Total Turnover. The Apex court has clearly stated that exemption under such charges have to be apportioned between Turnover of supply of labour & services & Turnover of works contract. The same has not been adhered to by the dealer while claiming deduction under labour & like charges as expenses under the said head. Therefore, the said deductions are restricted to 30% of the total expenses. The computation is as under:-
Dealer has claimed deductions on account of Sub-contractor Turnover. However, the detail of such Turnover having been accounted for VAT by such Sub-contractors is not forthcoming.
As per Rule 3(2) (i-1): All amounts paid (or payable) to sub-contractors as the consideration for execution of works contract whether wholly or partly. Provided that, no such deductions shall be allowed unless the dealer claiming deduction produces document in proof that the sub-contract is a registered dealer liable to pay tax under the Act and that the Turnover of such amounts is included in the return filed by such Sub-Contractor.
Therefore, as per Rule 3 of the KVAT Rule,2005, such Turnover claimed as Sub- contractor Turnover on which the dealer has claimed exemption needs to be disallowed.
IV. Purchases from Bogus Dealers
Further as per the investigation carried out by the Officers of the department, M/s. Haifa Trading Co, Bangalore, (TIN-29040596928), M/s. Pioneer Sales & Suppliers, Bangalore (TIN 29620594281) and M/s. Golden Enterprises, Bangalore (TIN 29180605193) are Bogus dealers indulging in bill trading. Thus, the input tax credit claimed by the above dealers on account of purchases made for the tax period during the following year is inadmissible. The details are as under:-
Period Name of the bogus dealer Purchase Turnover(in Rs. Ineligible Input Tax amount (in Rs.) 2011-12 Haifa Trading Co 50,30,520-00 2,51,526-00 2011-12 Pioneer Sales & Supplier 25,02,666-00 1,25,133-00
2011-12 Golden Enterprises 78,93,645-00 3,94,682-00 Total 1,54,26,831-00 7,71,341-00
Computation of Balance Tax Payable
Period Turnover of Ineligible Land Cost Turnover of In eligible Labour charges portion (70%) Turnover of Purchases from Bogus Dealers Total Taxable T. O Rate of tax Balance Tax to be paid by the dealer 2009-10 1,087,755,389 838657 1,088,594,046 12.50% 136,074,256 2010-11 1,774,541,927 309950391 2,084,492,318 13.50% 281,406,463 2011-12 966,804,057 175002409 1,54,26,831 1,149,339,652 14% 160,907,551 Total 3,829,101,373 485791457 1,54,26,831 4,322,426,016 578,388,270
In corporating above an endorsement was issued dated: 3-11-2012 and the same was served on the dealer on 6-11-2012. The dealer after obtaining extension of time has filed reply dated: 17-01-2013 contesting the above proposals. Dealer has enclosed copies of the valuation report of a Charted Engineer and Approved Valuer to claim that the rates /values taken for the undivided share of land in each of the project is correct and therefore what has M/s. Adarsh Developers,
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been claimed in the VAT-100 returns may be accepted. Further the dealer has also stated in the reply that profit on sale of the land and construction activity has been separately disclosed to the Income Tax and applicable taxes have been discharged. Dealer has also submitted the revised working of Labour and Like Charges wherein the dealer has partially accepted that excess claim has been made in VAT-100 as under:-
Year Excess claim in VAT-100 in Rs. 2009-10 28,85,386-00 2010-11 1,23,48,635-00 2011-12 14,02,04,429-00
Further the DAR of the dealer was present on18-2-2013 and reiterated that the deduction on amount of Land Cost allowed as per this office endorsement dt:3-11-2012 is very low @ less than 10% as against the usual norm of 20% to 40% given for JDA projects & therefore to accept the VAT returns filed by the dealer.
The dealers objections are not supported any documentary evidences, hence by rejecting the reply of the dealer, the computation of the turnover and taxes are as under:- FINAL REPORT
The information as above is forwarded to your office for taking necessary action at your end. The receipt of which may please be acknowledged. The result of action taken in this regard may please be intimated to this office.
Assistant Commissioner of Commercial Taxes (Enf)-12, S.Z, Bangalore. To, The Joint Commissioner of Commercial Taxes, (Admn), D.V.O.-01, VTK-1, Gandhi Nagar, Bangalore-560009. Copy for information to: 1) The Asst. Commissioner of Commercial Taxes, LVO-20, Vishveshwaraiah Tower, Dr.Ambedker Road, Bangalore. 2) Office copy. Sl. No Issue Tax Involved (In Rs.) 1 On account of Ineligible ITC on purchases of Iron & Steel from the Bogus Dealers Rs. 7,71,341-00
2 On account of excess claim of exempted TO with respect to Land Cost
Rs.57,83,88,270-00 Total
Rs.57,91,59,611-00
Less:-Paid Cheque No.833521/30-3-2012 Rs.2500000-00 Reversal of Input tax in the month Aug-2011 Rs.20000000-00 Rs. 2,25,00,000-00 Balance Tax payable