2013 (6) TMI 670 - HC - VAT and Sales Tax

Levy of tax on the estimated sale value of shutters - assessing officer rejected the contention of the assessee that the shutters came into existence only in the course of execution of the works contract - assessee contends that being an indivisible works contract and that the shutters came into existence only by way of accretion at the work site, there could be no liability to tax - Held that - Court straight away reject the contention of the assessee by following the decision of this court reported in 2001 (9) TMI 1114 - MADRAS HIGH COURT (Apparels and Handloom Exporters Association v. State of Tamil Nadu), which was also considered by us in other previous cases also. Thus when the nature of execution of the work demanded that the assessee took the material to the site of the customer and executed the work, it does not mean that there was no sale of the shutters. Similar issue was also considered by the apex court in the decision reported in 2005 (2) TMI 519 - SUPREME COURT OF INDIA (State of Andhra Pradesh v. Kone Elevators (India) Ltd.). - Decided against assessee.

Summary

Issues:
1. Levy of tax on the estimated sale value of shutters made from locally purchased materials.
2. Tax liability at the time of transfer of property in goods, specifically shutters used in a works contract.
3. Interpretation of section 3B of the Tamil Nadu General Sales Tax Act regarding the levy of tax on property transfer.
4. Whether shutters made from iron and steel items in a works contract are subject to tax.

Analysis:
The case involved a civil contractor who entered into a works contract for the rehabilitation of distributaries and sluices. The main contention was the levy of tax on the shutters manufactured using materials purchased from registered dealers. The assessee argued that the shutters emerged as an intermediate product during the execution of the works contract and should not be taxed. However, the assessing officer disagreed and brought the value of shutters under tax assessment, including levying a penalty under section 12(3)(b) of the Tamil Nadu General Sales Tax Act.

The assessee appealed the decision, stating that the shutters were a result of accretion at the work site and should not be subject to tax. The Appellate Assistant Commissioner upheld the tax liability but allowed the appeal on the penalty. Subsequently, both the assessee and the Revenue appealed to the Tamil Nadu Sales Tax Appellate Tribunal. The Tribunal dismissed the assessee's appeal but remanded the Revenue's appeal on penalty back to the Assessing Officer for verification of tax deducted at source.

In the High Court's judgment, the court rejected the assessee's contention by citing previous decisions and established legal principles. The court emphasized that the nature of execution of the work, involving taking materials to the customer's site and executing the work, did not exempt the sale of shutters from tax liability. The court referenced relevant precedents, including decisions from the Madras High Court and the Supreme Court, to support its ruling.

Ultimately, the High Court upheld the Tribunal's order, confirming the tax liability on the shutters and dismissing the assessee's tax case. The court concluded that based on the legal principles and precedents cited, there was no basis to exempt the shutters from tax, and therefore, the appeal was rejected with no costs awarded.