1996 (10) TMI 465 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of section 17(6) of the Karnataka Sales Tax Act, 1957 regarding tax liability for works contracts.

Analysis:
The judgment in question deals with the interpretation of section 17(6) of the Karnataka Sales Tax Act, 1957, specifically focusing on whether dealers are liable to pay tax based on the total turnover relating to the transfer of property in goods involved in works contracts or on the entire consideration of the works contract. The petitioners, who are civil contractors, had opted to pay taxes under section 17(6) instead of section 5-B of the Act. The assessing officers levied tax at 2% on the entire value of the works undertaken by the petitioners, contrary to restricting it to the value of goods involved in the contract.

The expression "transfer of property in goods involved in the execution of works contract" is crucial and has been interpreted in reference to clause (29-A) of article 366 of the Constitution of India. The Supreme Court's ruling in Builders Association of India v. Union of India clarified that the emphasis is on the transfer of property in goods, not on the amount paid for the execution of the works contract. The judgment emphasized that the tax on the transfer of property in goods involved in works contracts is subject to the same discipline as any levy under entry 54 of the State List.

The court held that based on the law laid down by the Supreme Court, the revenue cannot interpret "total turnover" in section 17(6) as the total turnover relating to the value of the works contract. Such an interpretation does not align with established rules of statutory construction. Consequently, the petitioners were deemed liable to pay tax at 2% on the total turnover relating to the transfer of property in goods involved in the execution of works contracts, not on the entire value of the contract. The impugned assessment orders were quashed, allowing the assessing officers to issue fresh assessment orders in line with the clarified interpretation and other relevant contractual provisions.

In conclusion, the writ petitions were allowed without costs, affirming the petitioners' tax liability based on the total turnover relating to the transfer of property in goods in works contracts, as per section 17(6) of the Act.