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GOVERNMENT OF KARNATAKA

COMMERCIAL TAXES DEPARTMENT



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:-

1. VAT-100.
2. Labour Ledger,
3. Purchase Register,
4. Balance sheet.

M/s. Adarsh Developers,

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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:-






M/s. Adarsh Developers,

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2009-10
2009-10
Construction
Finance
ELECTRICITY
CHARGES (O)
FUEL
CONSUMPTIO
N (HO)
MAINTEN
ANCE
(AMC'S &
OTHERS)
Transport
ation
Charges
Convey
ance
Charge
s.
Total
Apr-09 11029471 43,933 - 6,666 11,080,070
May-09 10275011 - 2,018 41,751 10,318,780
Jun-09 38951024 53506 10,625 39,015,155
Jul-09 20247669 322704 12,720 20,583,093
Aug-09 40870509 402,064 179,969 28,121 41,480,663
Sep-09 0 482884 429021 176978 1088883
Oct-09 0 113128 183434 139852 0 34825 471239
Nov-09 33292208 33292208
Dec-09 515000 831597 0 51906 1398503
Jan-10 0 88976 10370 99346
Feb-10 13958827 142022 14100849
Mar-10 27289668 142022 27431690
Total 200,360,479
2010-11
10-Apr 32526581

51,783 61,768 40,187 32,680,319
10-May 40185603

253,210 26,793 39,932 40,505,538
10-Jun 32285166

267,936 20,665 39,215 32,612,982
10-Jul 34913026

63,920 6,175 43,530 35,026,651
10-Aug 34890372

180,989 57,374 22,729 35,151,464
10-Sep 35207013

143833 0 21798 35372644
10-Oct 30927979

477768 17855 29481 31453083
10-Nov 35050493

179188 9778 27359 35266818
10-Dec 28180201

342090 54424 113313 28690028
11-Jan 35550215

327031 0 47986 35925232
11-Feb 34495970

365304 0 0 34861274
11-Mar 64748849

426469 1355 63567 65240240

442,786,273
2011-12

ELECTRI
CITY
CHARGE
S (O)
FUEL
CONSUM
PTION
(HO)
INTEREST
PAID A/C
MAINTENA
NCE
(AMC'S &
OTHERS)
Security
Charges.
(HO)
Transport
ation
Charges
Conveya
nce
Charges.
Total
Apr-11 213,077 50,509,427 80,785 39,000 28,743 50,871,032
May-11 205,498 228,172 59,499,626 860,201 350,983 43,784 68,413 61,256,677
Jun-11 213,225 8,790 77392326 200,455 13,331 70,737 77,898,864
Jul-11 180,318 524,004 58,860,945 200,455 132,788 78,359 59,976,869
Total 599,041 974,043 246,262,324 1,341,896 350,983 228,903 246,252 250,003,442
M/s. Adarsh Developers,

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III. Exemption of Subcontractor Turnover:

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

Rs.55,66,59,611-00