2011 (2) TMI 1324 - HC - VAT and Sales Tax

Clarification issued by the prescribed authority under section 94 of the Kerala Value Added Tax Act, 2003 challenged Held that - It is for the appellants to remit the tax with interest on the entire amount collected under the building agreement in terms of the KVAT Act provisions within a period of three weeks from date of receipt of copy of this judgment. There will be direction to the assessing officer to withhold penalty proceedings for two months from now and thereafter consider penalty by taking into account payment of tax and interest as above. Even though counsel for the appellants stated that they are not directly executing contracts and they are engaging sub-contractors who are registered and remitting tax, we are not dealing with tax liability of the appellants in relation to sub-contractors which is a matter to be considered in the course of making assessment by making appropriate claims of exclusions, rebates or set-off applicable in respect of sub-contracts.

Summary

Issues:
Challenging clarification under section 94 of the Kerala Value Added Tax Act, 2003; Liability to pay VAT on works contract; Validity of amendment to the Kerala Stamp Act regarding payment of stamp duty; Rebate of VAT paid under the Act while paying stamp duty; Interpretation of notification SRO No. 676/2007 under the Kerala Stamp Act; Practical difficulties in implementing the notification; Determining tax liability under the VAT Act for works contract.

Analysis:

The judgment by the High Court of Kerala involved appeals by builders-cum-developers challenging a clarification issued under section 94 of the Kerala Value Added Tax Act, 2003. The builders had been paying sales tax on works contract under specific sections of the Act. The issue arose due to amendments to the Kerala Stamp Act, which now required payment of stamp duty on property development agreements at rates applicable to conveyance, including the value of the building constructed. The builders contended that paying full stamp duty exempted them from VAT liability. However, the prescribed authority rejected this argument, leading to the appeals under section 62(1) of the Act.

The court examined the implications of the amendments to the Stamp Act and the notification SRO No. 676/2007, which provided for a rebate of VAT paid under the Act while paying stamp duty. The builders argued that if full stamp duty was paid, no sales tax was due. The court acknowledged practical difficulties in implementing the notification but emphasized that VAT should be paid regularly, with a rebate claimed on stamp duty at the time of executing sale deeds. The judgment directed the Government to issue orders for Sales Tax Officers to determine tax liability for works contracts, grant waivers based on full stamp duty payment, and recover only the balance sales tax.

The court upheld the validity of the clarification subject to the Government's issuance of appropriate notifications to ensure fair treatment for those paying stamp duty in advance. The judgment required the appellants to remit tax with interest within three weeks and withheld penalty proceedings for two months, considering the tax and interest payment. The court also noted that the tax liability of the appellants concerning sub-contractors would be addressed during assessments.

In conclusion, the judgment provided a detailed analysis of the interplay between VAT, stamp duty, and works contracts, aiming to resolve practical difficulties and ensure equitable treatment for builders and developers under the relevant statutes.