Read Time: 09 minutes

Synopsis

The Supreme Court has on February 22, 2024 said avoidance of tax is neither illegal nor equivalent to tax evasion and, it is very natural for a party in a contract to complete the process to avoid an additional tax burden.

A bench of Justices Aniruddha Bose and Sanjay Kumar set aside an order by the National Consumer Disputes Redressal Commission and allowed a consumer complaint filed by appellant Venkataraman Krishnamurthy and another for refund of over Rs 2.25 Cr with simple interest of 12 % per annum for delay in delivery of flat in Mumbai by respondent Lodha Crown Buildmart Pvt Ltd.

The bench said the fact that the appellants were anxious to avoid the additional tax liability, owing to the introduction of the Goods and Service Tax regime, cannot be held against them or be imputed to them as an underhand motive for backing out of the Agreement. 

"Avoidance of tax is neither illegal nor equivalent to tax evasion and, therefore, the urgency shown by the appellants in trying to complete the process quickly so as to avoid an additional tax burden was natural. Further, it cannot be presumed that the appellants, who were willing to spend over Rs 7.5 Crore for the apartment, would back out at the eleventh hour only because the tax component was increasing by Rs 40 lakh or so," the bench said.

In the case, the bench found that the NCDRC noted that there was ‘some delay’ in handing over of possession of the apartment by the respondent-company, but opined that it was not ‘unreasonable’, whereby the appellants could cancel the agreement and seek a refund.

The NCDRC further opined that in the event they wish to seek a refund, the respondent-company was entitled to deduction/forfeiture of the earnest money as per the provisions of the Agreement, it noted.

"Once the parties committed themselves to a written contract, whereby they reduced the terms and conditions agreed upon by them to writing, the same would be binding upon them. In the event such a written contract provided for the consequences that are to follow in the event of breach of the conditions by one or the other of the parties thereto, such consequences must necessarily follow and if resisted, they would be legally enforceable," the bench said.

In the case on hand, the agreement stipulated the date of delivery of possession of the apartment for fit outs with a grace period of one year. So, the date for delivery of possession of the apartment for fit outs, with the grace period, was June 30, 2017. Admittedly, the respondent-company did not offer delivery of possession of the apartment for fit outs by that date, the bench noted.

"It was not open to the NCDRC to apply its own standards and conclude that, though there was delay in handing over possession of the apartment, such delay was not unreasonable enough to warrant cancellation of the Agreement. It was not for the NCDRC to rewrite the terms and conditions of the contract between the parties and apply its own subjective criteria to determine the course of action to be adopted by either of them," the bench said.

The company claimed the appellants had agreed to change of terms in view of correspondence exchanged between them.

The court, however, said, "Mere exchange of correspondence between the parties prior to expiry of the grace period, when the appellants were not even seized of all the facts, cannot be held against them by treating it as an act in acceptance of or acquiescence with the change impliedly suggested by the respondent-company," the bench said.

On the analysis of the facts of the case, the bench said, "We have no hesitation in holding that the NCDRC overstepped its power and jurisdiction in ignoring the binding covenants in the Agreement and in introducing its own logic and rationale to decide as to what the future course of action of the parties and more particularly, the appellants, should be."

As appellants did not choose to act upon the belated offer by the company, the bench ordered to refund the deposited money.