AP High Court Sets Aside VAT Orders On ISRO's Satish Dhawan Space Centre, Flags National Interest

The Andhra Pradesh High Court on 22 June set aside VAT assessment orders passed against Satish Dhawan Space Centre SHAR, a unit of the Indian Space Research Organisation, holding that an improper tax burden on an institution engaged in critical space programmes could adversely affect national interest.

A Division Bench of Justices R. Raghunandan Rao and T. C. D. Sekhar allowed the writ petition, set aside the assessment orders, and remanded the matter to the assessing authority for fresh adjudication after granting adequate opportunity to the Space Centre. The judges held:

“This Court could also not ignore the fact that the petitioner is involved in crucial Space Programmes, which are for the benefit of the Nation and any exaction of tax from such an institution would also damage the interests of the Nation.”

The dispute arose from VAT assessments for the financial years 2007-08 to 2011-12 relating to works contracts awarded by the Space Centre in connection with the manufacture of rockets and missiles.

The Commercial Tax Officer had passed “best judgment assessment” orders in August 2012 on the ground that no response had been received to notices issued during the assessment proceedings. In computing liability, the authorities relied on tax deducted at source on works contracts, treated the deductions as representing 4% of turnover, applied a 70:30 split between goods and services, and levied tax at 12.5%.

The Space Centre challenged the assessments, contending that the applicable rate was 4% and that supplies were made on a cost-recovery basis. It further argued that the notices were not properly served, depriving it of an effective opportunity to present its case before the assessing authority.

The State opposed the challenge, submitting that the Space Centre had failed to respond to statutory notices and had approached an incorrect forum instead of availing appellate remedies. It also raised an objection of delay, noting that the assessment orders were passed in 2012.

The Court held that although the Space Centre had approached the wrong forum, it had still attempted to seek relief, and it found that doubts existed regarding proper service of notices prior to passing the assessment orders.

The Bench further observed that the petitioner's involvement in critical space programmes required consideration of the broader public interest implications while examining the tax demand.

Accordingly, the High Court set aside the assessment orders and remitted the matter for fresh adjudication, directing the assessing authority to complete the exercise within three months after affording due opportunity to the Space Centre.

For Petitioner: Alekhya Tadasina, Central Government Counsel

For Respondent: S.A.V. Sai Kumar, Assistant Government Pleader for Commercial Taxes,