2011 (4) TMI 1246 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the case, the respondent is legally justified in considering that the order dated September 13, 2007, passed by the appellate authority as in annexure E is erroneous and prejudicial to the interest of the Revenue and warranting revision under section 22A(1) of the Act? Whether the appellant that has purchased machinery spares from outside the State and used the same in the execution of works contract of asphalting of road is eligible or otherwise for composition assessment under section 17(6) of the Act? Held that - It is not the requirement of law that in the course of using such goods, the title to the goods should be transferred to the customer. In the nature of things, when machinery is purchased or received from outside the State for the purpose of using them in the execution of the works contract, neither title in the machinery will pass on to the customer nor that machinery will be used as raw material in the works to be carried out. It is a tool which is used to execute the contract. Therefore, the intention of the Legislature is very clear, unambiguous and it does not require any interpretation at all. In that view of the matter, the order passed by the revisional authority is patently erroneous, contrary to the statutory provisions and cannot be substained. Therefore the substantial questions of law is answered in favour of the assessee and against the Revenue. Appeals are allowed.

Summary

Issues Involved:
1. Legality of the revisional authority's decision to consider the appellate order as erroneous and prejudicial to the interest of the Revenue.
2. Eligibility for composition assessment under section 17(6) of the Karnataka Sales Tax Act, 1957, for dealers who purchase machinery spares from outside the State and use them in the execution of works contracts.

Detailed Analysis:

Issue 1: Legality of the Revisional Authority's Decision
The primary question was whether the revisional authority was justified in considering the appellate order dated September 13, 2007, as erroneous and prejudicial to the interest of the Revenue, thereby warranting revision under section 22A(1) of the Karnataka Sales Tax Act, 1957. The revisional authority had set aside the appellate authority's order, arguing that the goods purchased from outside the State were spare parts and accessories of road equipment, which could not be used in the execution of civil works contracts resulting in the transfer of property in goods. This interpretation was deemed incorrect by the court, which held that the revisional authority had attempted to rewrite the statutory provisions, thus making the revisional authority's order patently erroneous and unsustainable.

Issue 2: Eligibility for Composition Assessment
The second issue was whether the dealers, who purchased machinery spares from outside the State and used them in the execution of works contracts, were eligible for composition assessment under section 17(6) of the Act. The court clarified that section 17(7) of the Act stipulates that the benefit of composition tax under section 17(6) is not available to a dealer who purchases or receives goods from outside the State for use in the execution of works contracts. The court emphasized that the statutory provision does not require the goods to be transferred to the customer; it only requires that the goods be used in the execution of the works contract. The court held that the revisional authority's interpretation, which required the transfer of property in goods to the customer, was incorrect. The intention of the Legislature was clear and unambiguous, and the revisional authority's order was contrary to statutory provisions.

Conclusion:
The court allowed the appeals, set aside the orders passed by the revisional authority, and restored the order passed by the appellate authority. The court concluded that the revisional authority's orders were patently erroneous and not sustainable, thus answering the substantial questions of law in favor of the assessees and against the Revenue.