2008 (1) TMI 604 - SC - VAT and Sales Tax

Whether the Karnataka Appellate Tribunal was right in concluding that the amendment to section 17(7) of the KST Act effective from April 1 2002 would apply to agreements entered into prior to April 1 2002? Whether the Karnataka Appellate Tribunal was right in holding that even transfers to stock would be hit by the amendment to section 17(7) of the Karnataka Sales Tax Act effective April 1 2002? Held that - Appeal dismissed. In view of the restriction imposed under the amended provision the assessing authority could not have permitted the appellant- company to elect to pay the tax under section 17(6) of the Act since admittedly the appellant received the goods by way of stock transfers from outside the State for the purpose of using such goods in the execution of works contract. Therefore the first question of law raised by the appellant has been rightly answered against the assessee. The language used in sub-section (7) of section 17 is very clear. The expression receives would encompass receipt in any manner. Receipt by branch transfer is covered by the said expression. The High Court was therefore justified in dismissing the revision petition. No scope for taking a different view in view of the clear language of sub-section (7) of section 17 as amended with effect from April 1 2002.

Summary

Issues:
Challenge to judgment of Karnataka High Court dismissing revision petition under section 23(1) of Karnataka Sales Tax Act, 1957 for assessment year 2002-03. Interpretation of section 17(7) of the Act regarding composition benefit for dealers receiving goods from outside the State for works contract execution.

Analysis:
The appellant, a limited company, challenged the order of the Karnataka Appellate Tribunal confirming provisional assessment orders for May, June, July, and September 2002. The appellant received goods from its head office in Gujarat for works contract in Karnataka. The dispute arose due to the denial of composition benefit under section 17(6) of the Act following an amendment to sub-section (7) of section 17 in 2002.

The High Court considered the amended provision of section 17(7) which restricts composition benefit for dealers receiving goods from outside the State for works contract execution. The Tribunal and High Court upheld the applicability of this provision to the appellant's case. The appellant argued against the retrospective application of the amendment and the inclusion of stock transfers under the provision.

The legislative intent behind the amendment was to limit composition benefit for dealers liable to tax under section 5B of the Act. Rule 8B of the Karnataka Sales Tax Rules outlines the procedure for composition of tax for dealers executing works contracts. The appellant's failure to submit the application within 120 days from the start of the assessment year led to the denial of composition benefit under section 17(6).

The language of section 17(7) is clear in disentitling dealers receiving goods from outside the State for works contract execution from composition benefit under section 17(6). The term "receives" encompasses all forms of receipt, including branch transfers. The High Court's dismissal of the revision petition was upheld, emphasizing the unambiguous language of the amended provision.

In conclusion, the appeals challenging the High Court's judgment were dismissed, with no order as to costs. The judgment affirms the strict interpretation of section 17(7) regarding composition benefit for dealers receiving goods from outside the State for works contract execution.