2008 (11) TMI 627 - HC - VAT and Sales Tax

Provisions of section 27 of the Punjab Value Added Tax Act, 2005 - whether are void in absence of any mechanism to exclude a transaction, which is not exigible to sales tax? Held that - In view of admitted facts, we are of the view that respondent No. 1 cannot make any deduction from the payments to be made to the petitioner. No tax can be collected merely because of agreement between the parties, in absence of tax being leviable under a statutory provision. Judgment relied upon on behalf of the petitioner is clearly applicable and supports the case of the petitioner. In view of admitted facts in the present case, it is not necessary to require the petitioner to resort to the said remedy, which of course is an alternative remedy which the petitioner could have resorted to. Accordingly, we declare that respondent No. 1 is not entitled to make any deduction out of the payments to be made to the petitioner under section 27 of the Act without any transfer of property in goods being involved. The petitioner will be at liberty to take its remedies for refund of the payments already made. If any such application is made, respondent No. 3 will take a decision thereon within one month from the date of receipt thereof.

Summary

Issues:
Declaration of void provisions of section 27 of the Punjab Value Added Tax Act, 2005 and refund of deducted sales tax from labor bills.

Analysis:
The petitioner sought a declaration that section 27 of the Punjab Value Added Tax Act, 2005 was void due to the absence of a mechanism to exclude non-sales tax exigible transactions and requested a refund of the deducted sales tax from their labor bills. The petitioner was awarded a contract by Bharat Sanchar Nigam Limited for various job tasks, including data entry. The petitioner argued that since no transfer or sale of goods occurred during the execution of the contract, no tax liability should arise. They referenced the charging section of the Act, emphasizing that for section 6 to apply, a sale or purchase must occur. Citing a previous judgment, the petitioner contended that if a works contract did not involve the sale of goods, no sales tax could be collected merely on the premise of potential refund in the future.

The respondent's defense was based on the contractual agreement allowing a two percent deduction under section 27 of the Act. However, the court noted that section 27 pertains to property transfer in goods under a works contract, which was not applicable in the present case. The court ruled that the respondent could not make deductions without a statutory provision for tax liability. The petitioner was granted the right to seek remedies for refund of any prior deductions. The State of Punjab highlighted the provision for contractors to apply for a certificate in case of disputes regarding tax deductions, but in this instance, such action was deemed unnecessary due to the clear facts of the case.

Consequently, the court declared that the respondent was not entitled to make deductions under section 27 without the transfer of property in goods. The petitioner was permitted to pursue refund remedies for any prior deductions, with a directive for a timely decision on such applications by the relevant authority. The petition was disposed of accordingly.