2010 (3) TMI 1001 - HC - VAT and Sales Tax

Whether section 9B of the M.P. Commercial Tax Act, 1994 is applicable to the works contract? Held that - In view of the provisions of section 2(t)(ii) read with section 9B of the Act circular cannot override the statutory provision nor interpretation made contrary to intentment of the statutory provision can be said to be binding. Even determination of rate of tax cannot be said to be binding overlooking the factual matrix and legal aspects. In the instant case, the circular of the Commissioner was rightly not relied upon before the assessing authority as well as in the course of revision. In our opinion, circular does not lay down the correct position and is of no utility to buttress the submission raised by the petitioners in view of provision 2(t)(ii) read with section 9B of the Act.

Issues:
1. Applicability of section 9B of the M.P. Commercial Tax Act, 1994 to works contract and determination of commercial tax mode.

Analysis:
The petitioners raised the issue of whether section 9B of the M.P. Commercial Tax Act, 1994 is applicable to works contracts and how commercial tax should be determined. They argued that VAT should not be levied on materials consumed in the works contract, as the goods are not resold in the same form. The assessing officer imposed VAT under section 9B on all materials, including cement, used in the works contract. The petitioners contended that the goods lose their original identity when used in the works contract and therefore should not be subject to VAT under section 9B. They also argued that labor expenses should not be considered as part of the contractual transfer price. The revision against the assessment order was dismissed, leading to the filing of writ petitions challenging the assessment order and revision decision.

2. Interpretation of the definition of "sale" and application of section 9B of the Act.

The court analyzed the definition of "sale" under section 2(t)(ii) of the Act, which includes the transfer of property in goods "whether as goods or in some other form" involved in the execution of a works contract. Section 9B of the Act provides for the levy of tax in special circumstances, depending on the turnover of the dealer. The court found that if there is a transfer of goods in any form during the works contract, it constitutes a resale, and tax must be paid under section 9B. The court rejected the argument that goods not used in the same form do not amount to resale, concluding that tax was rightly levied under section 9B.

3. Validity of circular issued by the Commissioner and its impact on tax liability.

The petitioners relied on a circular issued by the Commissioner stating that goods used in the works contract do not constitute resale under section 9B. However, the court held that the circular cannot override statutory provisions and is not binding on the court. The court emphasized that interpretations contrary to statutory intent cannot be considered binding. The court cited a previous apex court decision to support the non-binding nature of circulars issued by tax authorities.

4. Relevance of other legal precedents and their applicability to the present case.

The court examined various legal precedents cited by the petitioners, including decisions of the apex court in Gannon Dunkerley & Co. v. State of Rajasthan and Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax, U.P. The court found that these decisions did not support the petitioners' arguments regarding the applicability of section 9B and the determination of tax liability in the works contract context. The court concluded that the writ petitions lacked merit and dismissed them, with each party bearing their own costs.

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