1999 (12) TMI 846 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to recovery of sales tax at 4% from bills payable under works contract; Interpretation of exemption notification for Tirumala Tirupathi Devasthanams (T.T.D.); Legal liability to deduct tax at source under section 5H of Andhra Pradesh General Sales Tax Act; Tax treatment of materials supplied by T.T.D. for works contract; Clarification on tax deduction for labour component in works contract.

Analysis:
The petitioner contested the deduction of sales tax at 4% from bills payable under a works contract, citing G.O. Ms. No. 314 and a circular by the Chief Engineer of T.T.D. The Court noted the absence of respondents and examined the exemption notification for T.T.D., which exempts sales and purchases of goods. However, it clarified that works contractors utilizing materials in contracts are not entitled to this exemption, as per A.P. Act 18 of 1985. Section 5H mandates tax deduction at source for works contracts benefiting certain entities, requiring remittance to the Government. The circular by T.T.D. wrongly assumed no tax liability due to T.T.D.'s tax-exempt purchases, overlooking taxable sales by contractors to T.T.D. The Court emphasized that unless a clear exemption notification exists, contractors cannot claim benefits, affirming T.T.D.'s legal obligation to deduct tax at source.

The Court highlighted that materials taxable at sale point incur tax liability for contractors, justifying the deduction. It clarified that T.T.D.'s exemption on purchases doesn't extend to sales by contractors, necessitating a clear notification for such exemptions. The judgment emphasized that executive instructions, like the circular, cannot surpass statutory provisions. Notably, the Court exempted materials like cement and steel supplied by T.T.D. for works contracts from tax deduction, as no sale occurs or is tax-exempt. Additionally, it clarified that the labour component in works contracts is not taxable, aligning with the rules governing labour charge deductions.

In conclusion, the Court directed the proper deduction of tax at source from the petitioner's bills for the works contract, emphasizing adherence to the principles outlined. It vacated the interim stay and disposed of the writ petition with the provided clarifications and directions, ensuring compliance with tax deduction requirements and labor component treatment in works contracts.