2009 (11) TMI 864 - HC - VAT and Sales Tax

Whether in spite of the statutory provisions under the KST Act and Rules, 1957 and judicial pronouncements that there is only one sale and turnover involved in the works contract executed by a subcontractor directly to the employer/contractee, the Karnataka Appellate Tribunal was right in having held that in respect of the payments made by the petitioner to the sub-contractors, besides the sub-contractors, the petitioner is also liable to pay turnover tax at three per cent prescribed under section 6B of the Karnataka Sales Tax Act, 1957? Whether the Karnataka Appellate Tribunal was right in having held that the petitioner is not eligible for deduction under rule 6(4)(n)(iii) of the KST Rules, 1957 on the payments made to sub-contractors merely because the petitioner could not produce proof that the sub-contractors had declared the turnovers corre sponding to such payments in the monthly statements/annual returns filed by them, when the petitioner had furnished proof that the subcontractors were dealers registered under the KST Act, 1957 which was substantial compliance with the rule to entitle to the petitioner to the deduction claimed? Whether the Karnataka Appellate Tribunal was right in having held that the petitioner was liable to pay purchase tax under section 6 of the KST Act, 1957 on the purchases of sand and jelly in spite of the fact that the dealers who sold the sand and jelly to the petitioner had attained total turnovers exceeding ₹ 2,00,000 in the year and therefore were liable to registration and payment of tax? Held that - The Tribunal was in error in holding that the payments made by the petitioner to the sub-contractors would come within the purview of turnover and liable to pay turnover tax of three per cent under section 6B of the Act. Accordingly, we answer the question of law framed hereinabove one and two in favour of the revision petitioner and against the Revenue on the facts of this case only. Insofar as question No. 3 which is formulated hereinabove, the authorities have considered the submissions and also the material placed by the revision petitioner and have come to a conclusion that the petitioner is liable to pay purchase tax and we do not see any grounds to deviate from the said view taken by the authorities. Accordingly, we confirm the said view and answer question No. 3 in favour of the Revenue and against the assessee. Appeal allowed in part.

Summary

Issues:
1. Levy of turnover tax on payments made to sub-contractors under section 6B of the Karnataka Sales Tax Act, 1957.
2. Eligibility for deduction under rule 6(4)(n)(iii) of the KST Rules, 1957 on payments made to sub-contractors.
3. Liability to pay purchase tax under section 6 of the KST Act, 1957 on purchases of sand and jelly.

Issue 1: The main issue in this case is whether the payments made by the petitioner to the sub-contractors would attract a levy of turnover tax under section 6B of the Karnataka Sales Tax Act, 1957. The assessing authority had exempted a turnover of Rs. 15,90,40,822 from tax under section 5B but levied tax at three per cent on the works executed by the sub-contractor under section 6B. The petitioner contended that there was no transfer of property in goods and hence section 6B was not applicable. The High Court held that the amount paid to the sub-contractor should not have been included in the total turnover of the contractor, as it was exempted under section 5B. The Court emphasized that double taxation should be avoided and directed the authorities to examine the turnover of the sub-contractor to determine if section 6B applies.

Issue 2: The second issue pertains to the eligibility of the petitioner for deduction under rule 6(4)(n)(iii) of the KST Rules, 1957 on payments made to sub-contractors. The petitioner argued that being registered dealers under the KST Act, 1957 was substantial compliance with the rule. The High Court did not find merit in this argument and upheld the Tribunal's decision that the petitioner was not eligible for the deduction due to the lack of proof regarding turnovers declared by the sub-contractors.

Issue 3: The final issue concerns the liability of the petitioner to pay purchase tax under section 6 of the KST Act, 1957 on purchases of sand and jelly. The authorities had concluded that the petitioner was liable for purchase tax, which the High Court upheld after considering the submissions and material placed before them. Therefore, the Court answered this question in favor of the Revenue and against the assessee.

In conclusion, the High Court allowed the revision petition in part, ruling in favor of the petitioner on issues 1 and 2 regarding turnover tax on payments to sub-contractors but confirming the liability for purchase tax on sand and jelly purchases under issue 3. The authorities were directed to examine the turnover of the sub-contractors to determine the applicability of section 6B and levy turnover tax accordingly.