2009 (6) TMI 960 - HC - VAT and Sales Tax

Depreciation in the computation of taxable turnover for works contract of the respondent for the year 1997-98 - Held that - In the absence of any specific provision in section 5C depreciation on machinery or tools is not eligible for any deduction in the computation of taxable turnover on works contract. Besides this charges for obtaining on hire or otherwise in sub-clause (c)(ii) can only mean charges paid for obtaining machinery or tools under any other arrangement other than hire. In other words if the charges are paid on any other terms i.e. other than on hire arrangement for availing of the facility of machinery and tools then only such charges are eligible for deduction which certainly does not include depreciation because notional expenditure in the form of amortisation of cost of machinery and tools owned by the contractor is not visualised in section 5C(1)(c)(ii) of the Act. Sales tax revision allowed.

Summary

Issues:
1. Entitlement to deduction towards depreciation in the computation of taxable turnover for works contract under section 5C(1)(c)(ii) of the Act.

Analysis:
The case involved a revision petition challenging an appellate order granting deduction towards depreciation in the computation of taxable turnover for a works contract. The respondent, engaged in metal fabrication work, claimed various deductions under section 5C but did not claim any amount towards depreciation initially. The Tribunal allowed the depreciation claim under the word "otherwise" in the section, leading to the State filing a revision petition contending that the Tribunal should not entertain new claims not raised earlier.

The Court noted that the respondent's claim of depreciation was raised for the first time before the Tribunal in the second appeal, which should not have been entertained. Despite this, the Court proceeded to consider the eligibility for the claim. The Government Pleader argued that the clause in question does not provide for deduction of depreciation but only covers charges for obtaining machinery on hire or otherwise. The respondent relied on various judgments for a purposive interpretation of the term "otherwise" to include depreciation.

The Court observed that there was no specific provision for deduction of depreciation in the section. While the respondent argued that depreciation should be covered under the term "otherwise," the Court held that depreciation is not an allowable deduction in the computation of taxable turnover for works contract. The Court reasoned that depreciation has a specific meaning and is not similar to charges incurred by a contractor for machinery. The absence of specific provisions for depreciation in the section led the Court to conclude that depreciation on machinery is not eligible for deduction in the taxable turnover calculation.

In conclusion, the Court held that the respondent is not entitled to any deduction for depreciation on machinery in the computation of taxable turnover for works contract. The sales tax revision case was allowed by reversing the Tribunal's order and restoring the assessment confirmed in the first appeal.