2009 (3) TMI 943 - HC - VAT and Sales Tax

Whether fabrication and installation of rolling shutters is a works contract? - whether the appellant s claim of rate of tax under section 8(a) is tenable or not? Held that - We are in complete agreement with the Commissioner s finding that the item supplied is in the form in which it is fabricated, i.e., as rolling shutter and the contract for installation which is only fixation of the same is only an incidental work, the cost of which is insignificant when compared to the value of the rolling shutter, i.e., cost of the materials and the fabrication cost to make the product namely, rolling shutter. In other words, first rolling shutter is fabricated as a product, though against specific order, and thereafter it is transferred by fixation in the customer s premises making it operational or functional as a rolling shutter. We are of the view that the ratio of decision of the Supreme Court in Kone Elevators case 2005 (2) TMI 519 - SUPREME COURT OF INDIA applies squarely to the facts of the appellant s case. We, therefore, uphold the order of the Commissioner and dismiss the appeal.

Summary

Issues:
- Interpretation of works contract under the Kerala Value Added Tax Act, 2003
- Applicability of tax rate for fabrication and installation of rolling shutters
- Analysis of section 6(1)(e) and section 8(a) of the KVAT Act

Interpretation of Works Contract:
The appeal involved an association engaged in fabrication, supply, and installation of rolling shutters claiming the work as a works contract for tax purposes under section 8(a)(i) of the KVAT Act. The Commissioner, however, clarified that fabrication and installation of rolling shutters are taxable under section 6(1)(e) read with section 6(1)(d) at a rate of 12.5%. The appellant argued that the transaction constituted a works contract, citing a decision of the Madras High Court. On the other hand, the Government Pleader relied on Supreme Court decisions to assert that fabrication and installation of rolling shutters amount to the sale of goods, attracting a 12.5% tax rate.

Applicability of Tax Rate for Fabrication and Installation:
The Commissioner acknowledged that the fabrication and installation of rolling shutters constituted a works contract but determined the tax rate as 12.5% based on sections 6(1)(e) and 6(1)(d) of the Act. The question at hand was whether the appellant's claim for a tax rate under section 8(a) was valid. Section 8 of the KVAT Act provides for payment of tax at compounded rates for works contracts. However, the second proviso to section 8(a)(ii) excludes works contracts involving the transfer of materials in the form of goods from the compounding provisions. As the rolling shutter involved in the contract was considered goods, dealers were not entitled to the compounding scheme's tax rate.

Analysis of Section 6(1)(e) and Section 8(a) of the KVAT Act:
The High Court upheld the Commissioner's order, ruling that the rolling shutter, fabricated as a product against specific orders, and subsequently installed, constituted a sale of goods. The installation was deemed incidental, with the rolling shutter being the primary product. Drawing parallels with Supreme Court decisions, the Court concluded that the rolling shutter, with minimal additional components, fell under the definition of goods. Therefore, the appellant's claim for a compounded tax rate under section 8(a) was denied, and the appeal was dismissed based on the interpretation of the KVAT Act and relevant legal precedents.