2002 (8) TMI 812 - HC - VAT and Sales Tax

Issues Involved:
1. Addition of the entire turnover of the overseas part of the contract to the gross turnover.
2. Disallowance of the claim of deduction for the value of design and engineering.
3. Disallowance of the deduction claimed for the turnover of work executed through sub-contractors.

Detailed Analysis:

1. Addition of the entire turnover of the overseas part of the contract to the gross turnover:
The petitioner, a company incorporated in Korea, entered into a contract with M/s. Numaligarh Refinery Limited for the execution of a Co-generation plant in Assam. The contract included both indigenous and overseas supplies and services, later amalgamated into a single contract. The petitioner registered under the Assam General Sales Tax Act, 1993, and filed its return for the financial year 1995-96. The assessment order dated March 21, 1997, added the entire turnover relating to overseas supplies and services amounting to Rs. 3,74,97,667 to the gross turnover. The court referred to Article 286 of the Constitution, which restricts the state's power to tax sales and purchases in the course of import/export. Citing the Supreme Court's decision in Ben Gorm Nilgiri Plantations Co., the court emphasized the need for an integral connection between the sale and the import/export. Since the goods were imported by Numaligarh Refinery Limited under its own importer code, the court concluded that the addition of Rs. 3,74,97,667 to the gross turnover was illegal and unauthorized.

2. Disallowance of the claim of deduction for the value of design and engineering:
The petitioner claimed a deduction of Rs. 36,49,000 for the value of design and engineering, which was disallowed by the assessing officer. The officer's conclusion was based on the definition of "works contract" under section 2(38) of the Act. However, the court noted that only the value of goods used in the works contract is taxable, not the entire turnover. Citing the Supreme Court's decision in Gannon Dunkerley & Co. v. State of Rajasthan, the court highlighted that the value of goods involved in the execution of a works contract must exclude charges for labor and services, including design and engineering fees. Therefore, the court found the disallowance of the deduction for design and engineering incorrect.

3. Disallowance of the deduction claimed for the turnover of work executed through sub-contractors:
The assessment order added Rs. 63,36,094 to the gross turnover by disallowing the deduction claimed for work executed through sub-contractors. The petitioner argued that tax was deducted at source from the sub-contractors' bills and deposited in the government treasury. The assessing officer relied on an explanation to section 2(38) of the Act and a communication from the sub-contractor to conclude that the principal contractor was liable for the tax. The court referred to rule 14(1)(c) of the Assam General Sales Tax Rules, 1993, which allows deduction of turnover related to sub-contractors upon proof of tax payment by the sub-contractors. The court found that the assessing authority did not properly examine the issue and directed the authority to redetermine the matter in accordance with the court's judgment.

Conclusion:
The writ petition was allowed to the extent indicated. The assessing officer was directed to correct the assessment order in light of the court's directions and redetermine the petitioner's entitlement to deductions for the value of the turnover related to sub-contractors.

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