1997 (9) TMI 563 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of section 17(6) of the Karnataka Sales Tax Act, 1957 regarding deduction of labour charges in works contract assessments.

Analysis:
The appeals were filed against an order pertaining to three assessment periods under the Karnataka Sales Tax Act. The appellant, a partnership firm engaged in civil works, sought deduction of labour charges in the assessment. The assessing officer disallowed the deduction, leading to an appeal where some deduction was allowed by the Additional Joint Commissioner of Commercial Taxes. However, the Additional Commissioner of Commercial Taxes, using revisional powers under section 22-A, set aside the appellate order, stating that no deduction for labour charges could be given under section 17(6) of the Act prior to its amendment by Karnataka Act 7 of 1997.

The crux of the issue lies in the interpretation of section 17(6) of the Act, which provides for composition tax in works contracts. The section was amended retroactively from April 1, 1988, specifying that tax must be paid on the total consideration received for works contracts executed. However, for periods before this amendment, tax was payable only on the total turnover related to the transfer of property in goods involved in the works contract. The interpretation of the term "total turnover" was crucial in determining the tax liability of the appellants.

The judgment referred to the interpretation of the term "total turnover" in light of constitutional provisions and Supreme Court decisions. It highlighted that tax on works contracts involves the transfer of property in goods, emphasizing the importance of this transfer in determining tax liability. The judgment emphasized that the tax should be levied on the turnover related to the transfer of property in goods, not on the entire value of the works contract. This interpretation was supported by the Supreme Court's position on the matter.

Ultimately, the impugned revisional order was set aside for the assessment periods in question, and the appeals were allowed. The appellants were held liable to pay tax at the rate of 2 per cent on the total turnover related to the transfer of property in goods involved in the execution of works contracts. The judgment concluded by stating that there would be no order as to costs, and the appeals were allowed.