2009 (12) TMI 871 - HC - VAT and Sales Tax

Whether driving of bore-well is civil construction work entitling the petitioner to pay tax at compounded rate at two per cent under section 7(7) of the Kerala General Sales Tax Act, 1963? Held that - The provisions of tax on works contract cannot be applied to bore-wells in the same way it applies to other wells. A well is normally constructed by digging and removing earth to sufficient depth for collection of water. Digging and removing of earth does not involve supply of any materials and so much so, the digging of well as such does not involve any tax on works contract. If the materials supplied are not civil construction materials such as PVC pipes, GI pipes and installation of motor, etc., then rate of tax at compounded rate under section 7(7) is not applicable. On the other hand, if the construction of bore-well involves construction of any room above it or a motor house or the like, the same should be treated as civil construction work on which tax liability could be settled at the compounded rate under section 7(7) of the Act. Since none of the authorities below has considered the above aspects of the matter, which will be clear from the copies of contract, work bills issued by the petitioner and payments approved by the water authority and awarders we allow the revisions by setting aside the order of the Tribunal and remand the matter to the assessing officer for recomputation of liability after verifying the contract.

Summary

Issues:
Whether driving of bore-well constitutes civil construction work entitling the petitioner to pay tax at a compounded rate under section 7(7) of the Kerala General Sales Tax Act, 1963.

Analysis:
The court deliberated on the question of whether driving a bore-well should be considered as civil construction work for tax purposes. Initially, the definition of "civil construction work" did not include the construction of a well, but a later amendment broadened the scope to include various civil works, including well construction. A previous decision by the court clarified that this amendment was meant to be clarificatory, extending the definition retroactively. The petitioner argued that since the construction of a well is now classified as civil construction work, and the purpose of a bore-well is similar to that of a well, they should be eligible to pay tax at a compounded rate for bore-well construction.

The court observed that the tax on works contract cannot be directly applied to bore-wells in the same manner as to other wells. The process of digging and removing earth for a well does not involve the supply of materials, thus not attracting tax on works contract. Similarly, driving a bore-well, which is a mechanical process, does not involve the supply of goods either. The key difference between a regular well and a bore-well lies in dimensions and depth. While construction activities involving materials and installations like protective walls or motors attract tax liability, the mere act of driving a bore-well does not inherently involve tax on works contract.

In cases where a bore-well construction contract includes the supply of casing, motor, or other construction activities like pump houses, tax liability should be determined based on the nature of work done. If the materials supplied are not typical civil construction materials, then the compounded tax rate under section 7(7) may not be applicable. However, if the construction involves additional structures like rooms or motor houses, it should be treated as civil construction work subject to tax at the compounded rate.

Consequently, the court set aside the Tribunal's order and remanded the matter to the assessing officer for a reassessment of tax liability based on the specific details of the contract and work done. The assessing officer was instructed to verify reimbursements made by the water authority to the petitioner and to forfeit any excess tax collected or reimbursed in accordance with the law. The petitioner was directed to provide necessary documentation for the reassessment process.