2009 (6) TMI 953 - HC - VAT and Sales Tax

Non entitlement to payment of tax at compounded rate in respect of works contract executed in the form of supply and installation of kitchen cabinet Held that - Clause (ii) applies in respect of every divisible contract and even where specified goods are locally procured such goods will attract tax at scheduled rate as provided under section 6(1)(e) of the Act and the balance portion of work that is fabrication, supply and installation of kitchen cabinets with top, fittings, partitions, etc., by the appellant will be assessed as works contract. In view of the proposed amendment, and in view of the discussion above, we are of the view that there cannot be any absolute bar against payment of tax at compounded rate on the works executed involving fabrication, supply and installation of kitchen cabinets. While the Commissioner s finding that in respect of supply of specified goods tax is payable at the rate provided in the Schedule is correct, we vacate that part of the order where he says that no compounding is permissible in respect of remaining work relating to fabrication, supply and installation of kitchen cabinets. Appeal partly allowed upholding the impugned order of the Commissioner issued under section 94 of the Act and by directing the assessing officer to consider eligibility for compounding depending upon the nature of contract executed in each case and to make assessment accordingly.

Summary

Issues:
Interpretation of charging section under Kerala Value Added Tax Act for works contract; Permissibility of compounding tax at a compounded rate for works contract involving supply and installation of kitchen cabinets.

Analysis:
The judgment addressed the appeal against the Commissioner of Commercial Taxes' order under the VAT Act, which denied the appellant the right to pay tax at a compounded rate for works contracts involving the supply and installation of kitchen cabinets. The charging section under the Kerala Value Added Tax Act for works contracts is crucial, specifically section 6(1)(e) and (f), which dictate the applicable tax rates based on the form of goods involved in the contract. The Commissioner held that the items supplied in the execution of supply and installation of kitchen cabinets are in the form of goods, attracting tax at the rate provided under specific clauses of the charging section. Additionally, the judgment highlighted the Finance Act, 2009's provision allowing works contractors registered under the CST Act to pay tax at a compounded rate, subject to certain conditions regarding goods brought from outside the State.

The court deliberated on whether the appellant's claim for tax payment at a compounded rate for the entire contract amount was permissible under section 8(a)(i) or (ii). Despite the amendment introduced by the Finance Bill, 2009, the second proviso to section 8(a)(ii) still restricted compounding if goods in the works contract were transferred in the same form. The appellant's counsel argued that the nature of work involved both works contract and supply of goods, emphasizing that certain items supplied were factory-made and attracted tax at the scheduled rate. The judgment acknowledged the divisible nature of the contract, where specified goods attracted tax at the scheduled rate, while the balance of the work, such as fabrication and installation, was considered a works contract assessable at a compounded rate.

The court recognized the correctness of the Commissioner's finding regarding tax payment on specified goods at the scheduled rate but disagreed with the prohibition on compounding for the remaining work related to fabrication, supply, and installation of kitchen cabinets. Consequently, the appeal was partially upheld by directing the assessing officer to determine eligibility for compounding based on the nature of each contract and make assessments accordingly, emphasizing that there should be no absolute bar against paying tax at a compounded rate for works involving the mentioned activities.