2012 (7) TMI 855 - HC - VAT and Sales Tax

Tax on escaped turnover - Held that - When once the assessee opted for composition under section 17(6), the tax is payable on the total turnover and the total turnover includes consideration under both the agreements and therefore the revisional authority was justified in levying tax on the escaped turnover on the consideration mentioned in the subsequent agreement. It is in accordance with law. In that view of the matter, the order passed by the KAT is erroneous and contrary to the statutory provisions and also the law laid down by this court. Appeal is allowed. The order passed by the KAT which is impugned in this revisional petition, is hereby set aside. The order of the revisional authority is restored.

Issues Involved:
1. Revision petition against the order passed by the Karnataka Appellate Tribunal (KAT) regarding assessment orders under the Karnataka Sales Tax Act, 1957 for specific years.
2. Interpretation of composition scheme under section 17(6) of the KST Act, 1957 for works contract payments.
3. Determination of tax liability on additional financial compensation received for compression of the erection period under a subsequent contract.
4. Assessment of whether the subsequent contract involving hire charges for machinery and tools constitutes a works contract under section 17(6) of the Act.

Analysis:
1. The State filed a revision petition against the KAT's decision setting aside the revisional authority's order revising assessment orders under the Karnataka Sales Tax Act for specific years. The case involved a works contract for the Alamatti Dam, where additional financial compensation was paid for compressing the erection period. The revisional authority held the payment was part of the works contract and ordered it to be taxed. The Tribunal disagreed, stating that payments for machinery hire were not part of the works contract involving transfer of property in goods, thus setting aside the revisional authority's order.

2. The crux of the issue revolved around the interpretation of the composition scheme under section 17(6) of the KST Act for works contract payments. The assessing authority accepted the assessee's claim of non-liability to tax on the additional financial compensation. However, the revisional authority disagreed, stating that the payment for compression of the erection period was part of the works contract and should be taxed. The Tribunal emphasized that for a contract to attract section 17(6), it must involve the transfer of property in goods, which was not the case for the hire charges paid for machinery.

3. The Tribunal's decision hinged on whether the additional financial compensation for compression of the erection period constituted consideration for the works contract. The Tribunal found that the hire charges for machinery and tools were not payments for the execution of works contracts involving the transfer of property in goods. The Revenue contended that both contracts were for the execution of the same work and thus the total consideration, including hire charges, should be taxed. The Tribunal disagreed, emphasizing the distinction between payments for labor and services versus payments for works contracts involving goods transfer.

4. The crux of the matter was whether the subsequent contract for machinery hire constituted an independent contract or was part of the original works contract. The Tribunal held that the hire charges for machinery and tools did not fall under the purview of section 17(6) as they were not payments for the execution of works contracts involving the transfer of property in goods. The court upheld the revisional authority's decision to levy tax on the escaped turnover based on the consideration mentioned in the subsequent agreement, emphasizing that the total turnover for tax purposes included payments under both contracts.

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