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2010 (7) TMI 913 - HC - VAT and Sales TaxPenalty and interest levied after disallowing the labour charges to an extent of 30 per cent granted by the original authority Held that - The appeal is partly allowed. The order of the Additional Commissioner of Commercial Taxes in revision to the extent of disallowing 30 per cent deduction is hereby set aside. It is held that, the tax is payable under section 3(2) of the Act. In so far as the contention that, no tax is payable for work such as stone cutting and landscaping, where there is no sale of goods, which is also included in the aforesaid amount of ₹ 79,57,344 is concerned, it is a matter to be enquired into by the audit officer and therefore the audit officer is directed to give an opportunity to the assessee, after hearing him, and then to pass appropriate orders, adjudicating the expenditure of liability of the assessee under section 3(2) of the Act.
Issues Involved:
1. Applicability of Section 3(2) of the KVAT Act. 2. Entitlement to 30% deduction towards labor charges. 3. Tax liability for works involving no sale of goods. 4. Entitlement to deduction of input tax from output tax. 5. Procedural aspects regarding audit officer's inquiry. Issue-Wise Detailed Analysis: 1. Applicability of Section 3(2) of the KVAT Act: The court examined whether the case falls under Section 3(2) of the Karnataka Value Added Tax Act, 2003. The assessee argued that the tax should be levied under Section 3(1) as they paid tax inclusive of the tax payable for the purchase of goods when selling the flats. However, the court clarified that Section 3(2) applies when a registered dealer purchases taxable goods from an unregistered dealer for use in the course of business. The court held that the assessee's transactions with unregistered sub-contractors fall under Section 3(2) because the sub-contractors did not collect tax, making the assessee liable for purchase tax. 2. Entitlement to 30% Deduction Towards Labor Charges: The court addressed the Additional Commissioner of Commercial Taxes' decision to disallow the 30% deduction for labor charges. The assessee claimed this deduction under Rule 3 of the KVAT Rules, which allows for deductions of actual labor charges or a standard deduction of 30% for civil works. The court held that the assessee is entitled to this deduction even if the labor charges were incurred by unregistered sub-contractors. The court set aside the Additional Commissioner's order disallowing the 30% deduction. 3. Tax Liability for Works Involving No Sale of Goods: The court considered the assessee's argument that certain works such as stone cutting and landscaping, which do not involve the sale of goods, should not be taxed. The court directed the audit officer to investigate and determine the amounts paid for such works, which should be excluded from the taxable amount of Rs. 79,57,344 paid to the sub-contractors. 4. Entitlement to Deduction of Input Tax from Output Tax: The court discussed the conditions under which a registered dealer can claim a deduction of input tax from output tax. It emphasized that the input tax must be paid first before claiming such a deduction. The court rejected the assessee's argument for a book adjustment, stating that the law requires actual payment of input tax before any deduction from output tax can be made. 5. Procedural Aspects Regarding Audit Officer's Inquiry: The court directed the audit officer to give the assessee an opportunity to present evidence regarding the amounts paid for non-taxable works like stone cutting and landscaping. The audit officer is to pass appropriate orders after hearing the assessee, ensuring a fair inquiry into the expenditure and tax liability under Section 3(2) of the Act. Court's Order: 1. The appeal is partly allowed. 2. The order of the Additional Commissioner of Commercial Taxes disallowing the 30% deduction is set aside. 3. It is affirmed that tax is payable under Section 3(2) of the Act. 4. The audit officer is directed to investigate and adjudicate the tax liability for works involving no sale of goods after hearing the assessee. 5. No costs are awarded.
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