2011 (8) TMI 998 - HC - VAT and Sales Tax

Whether the assessee is a private limited company engaged in the business of civil works contract and are also developers of properties? Held that - In this case, admittedly, the assessee is a private limited company carrying on business of civil works contract and also development of properties. It is not in dispute that the taxable goods were purchased from unregistered dealers for development of their own property. That development of their own property is done in the course of business and therefore, section 3(2) is attracted. Hence, the order passed by the Tribunal cannot be sustained. Accordingly, we pass the following order The STRP is allowed. The impugned order passed by the Appellate Tribunal is hereby set aside. The orders passed by the assessing authority as well as the Appellate Commissioner are restored.

Summary

Issues:
1. Interpretation of section 3(2) of the Karnataka Value Added Tax Act, 2003 regarding liability to pay purchase tax.
2. Determining whether purchases made by an assessee for their own construction of flats are exempt from tax.
3. Assessing whether a private limited company engaged in civil works contract and property development is liable to pay tax under section 3(2) of the Act for purchases from unregistered dealers.

Analysis:
1. The judgment revolves around the interpretation of section 3(2) of the Karnataka Value Added Tax Act, 2003, focusing on the liability of registered dealers to pay purchase tax when purchasing taxable goods from unregistered dealers for business use. The court clarified that if a registered dealer uses taxable goods for personal consumption, no tax liability arises. However, if the same goods are used in the course of business, the dealer is liable to pay purchase tax.

2. The case involved purchases made by an assessee, a private limited company engaged in civil works contract and property development, for their own construction of flats. The Tribunal initially held that since the purchases were solely for the construction of flats exempt from tax, the assessee was not liable to pay tax under section 3(2) of the Act. However, the court disagreed, stating that the construction of their own property is part of the assessee's business activities, thereby attracting tax liability under the Act.

3. The court examined whether the private limited company, acting as both a civil works contractor and property developer, was obligated to pay tax for purchases from unregistered dealers. The company argued that tax was paid for works contracts and purchases for own consumption were exempt. Conversely, the Revenue contended that the company's construction activities fell within the course of business, making them liable for tax under section 3(2) of the Act. Ultimately, the court sided with the Revenue, overturning the Tribunal's decision and upholding the tax liability for purchases made by the company.

In conclusion, the High Court of Karnataka interpreted section 3(2) of the Act to establish the tax liability of registered dealers for purchases from unregistered dealers used in the course of business. The judgment clarified that purchases made by a private limited company for their own property development activities are subject to tax under the Act, emphasizing the distinction between personal consumption and business use in determining tax obligations.