Telangana High Court Quashes VAT Assessment Against Works Contractor, Upholds Composition Scheme Benefits

July 13, 2026 : The Telangana High Court has set aside a VAT assessment order of Rs. 28.09 lakh against an electrical works contractor, holding that a best judgment assessment cannot be sustained when the assessing authority ignores the statutory composition scheme and fails to consider the records maintained in accordance with law.

A Division Bench comprising Justices P. Sam Koshy and Nandikonda Narsing Rao allowed the writ petition filed by Chaitanya Enterprises, observing that the assessing authority failed to examine the documents submitted by the contractor despite its compliance with the composition scheme under Section 4(7)(b) of the Andhra Pradesh Value Added Tax Act, 2005.

The Court held that once a works contractor opts for the composition scheme and maintains the records prescribed under Rule 31(2) of the Andhra Pradesh VAT Rules, the assessing authority is duty-bound to consider those records before making a best judgment assessment. Ignoring the statutory records and passing an assessment order without examining the dealer’s objections renders the order legally unsustainable.

Chaitanya Enterprises, engaged in electrical contracting works including the erection of high-tension lines and substations, had opted to pay tax under the composition scheme. The contractee deducted tax at source, deposited it with the Commercial Tax Department, issued Form-501 tax deduction certificates, and the petitioner regularly filed monthly VAT returns.

Despite this, the Commercial Tax Department initiated proceedings alleging that the contractor had failed to produce books of account during an audit and issued a best judgment assessment demanding an additional Rs. 28.09 lakh in VAT.

The petitioner argued that dealers opting for the composition scheme are not required to maintain regular books of account and had complied with all statutory record-keeping requirements by producing tax deduction certificates, VAT returns, and other prescribed documents.

Accepting the contention, the High Court found that the assessing officer neither considered the documents placed on record nor dealt with the objections raised by the petitioner. The Bench described the assessment order as a non-speaking order passed in violation of the principles of natural justice and the statutory framework governing composition scheme assessments.

Holding the assessment to be contrary to law, the Court quashed the order dated 6 July 2009, allowed the writ petition, and directed that there would be no order as to costs.