2006 (2) TMI 619 - HC - VAT and Sales Tax

Summary

Issues:
1. Challenge to correctness of order dated November 28, 2003 passed by Karnataka Appellate Tribunal.
2. Interpretation of turnover tax liability in relation to sub-contractor payments.
3. Analysis of relevant provisions including definitions of "sale," "taxable turnover," "total turnover," and "turnover."
4. Application of section 6B for levy of turnover tax.
5. Consideration of judgments in similar cases for precedent.

The High Court of Karnataka heard a revision petition challenging the Karnataka Appellate Tribunal's order dated November 28, 2003. The petitioner, a public limited company, was awarded a construction contract for an indoor stadium and sub-contracted part of the work, paying Rs. 1,25,30,500 to the sub-contractor. The assessing authority levied turnover tax on this payment, leading to an appeal. The Tribunal ruled the petitioner liable for turnover tax, remanding the matter for further examination. The petitioner contended that no sale occurred with the sub-contractor, thus no turnover tax liability existed under section 6B. The Government Advocate supported the Tribunal's decision.

To determine the turnover tax liability, the Court analyzed key definitions under the Karnataka Sales Tax Act, 1957. Section 2(1)(t) defines "sale" broadly, encompassing property transfer in goods during trade or business activities. Sections 2(1)(u1), (u2), and (v) define "taxable turnover," "total turnover," and "turnover," respectively, clarifying the basis for tax calculation. Section 5B addresses tax on property transfer in works contracts, while Rule 6 outlines determination of total and taxable turnover, including deductions for certain works contracts.

Regarding the levy of turnover tax under section 6B, the Court emphasized that tax is imposed based on taxable turnover at the first sale point. In works contracts, tax applies to property transfer in goods involved in the contract. The Court highlighted that turnover tax is multi-point, applicable to both main contractors and sub-contractors. Citing precedents, the Court affirmed that turnover tax is distinct from sales tax, requiring separate payments from main contractors and sub-contractors.

The Court dismissed the revision petition, upholding the Tribunal's decision. It clarified that the value of work entrusted to a sub-contractor must be considered in the main contractor's total turnover calculation. Even without material supply, payments to sub-contractors constitute a "sale" under the Act, attracting turnover tax under section 6B. Precedents like Rashtriya Ispat Nigam Limited v. State of Karnataka supported this interpretation. Thus, the Court found the authorities' decision legally sound and declined to interfere, ordering each party to bear their own costs.