2008 (3) TMI 650 - HC - VAT and Sales Tax

Summary

Issues:
Recovery of value added tax on labour charges in works contract under Bihar Value Added Tax Act, 2005.

Analysis:
The judgment by the Patna High Court addressed the issue of the recoverability of value added tax in relation to labour charges in works contracts under the Bihar Value Added Tax Act, 2005. The court highlighted that Section 41 of the Act imposes an obligation on the purchaser to recover advance value added tax from the consideration payable for the transfer of property in goods, excluding labour charges. Rule 29 of the Bihar Value Added Tax Rules, 2005 explicitly states that no deduction shall be made on account of labour charges for the execution of works contracts.

The case involved a writ petitioner who had entered into a works contract with a respondent, raising composite bills that did not differentiate between the consideration for the transfer of property in goods and the labour charges for the contract execution. Consequently, the respondent started recovering advance value added tax from payments made for some bills, including labour charges, which was not permissible under the law.

The court directed the petitioner to re-submit bills segregating the consideration for the transfer of property in goods and the labour charges due, in accordance with Rule 29 of the VAT Rules. The respondent was instructed to make payments based on the segregated amounts and deduct advance value added tax only on the consideration for the transfer of property in goods. The petitioner was granted the right to seek adjustment or refund for bills that had already been paid with deducted tax.

In conclusion, the judgment clarified the application of value added tax in works contracts, emphasizing the exclusion of labour charges from tax recovery and outlining the proper billing and payment procedures to comply with the Bihar Value Added Tax Act and Rules.