2013 (6) TMI 716 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the case, the Tribunal is legally right in law in holding that the materials which are used in the execution of works contract is liable for exemption under section 3B(2)(c) of the Act? Whether the assessee had converted the materials purchased into mosaic tiles in their own place of business and converted the raw materials purchased into finished product, that is mosaic tile, which is the different product manufactured from out of white cement, red oxide, etc.?

Summary

Issues:
1. Interpretation of exemption under section 3B(2)(c) of the Act for materials used in works contract.
2. Eligibility for deduction under section 3B(2)(b) of the TNGST Act for raw materials used in manufacturing mosaic tiles.
3. Applicability of the decision in Tamil Nadu Mosaic Manufacturers Association v. State of Tamil Nadu to the case.

Issue 1:
The primary issue in this case revolves around the interpretation of exemption under section 3B(2)(c) of the Act for materials used in the execution of a works contract. The assessing officer contended that the materials used by the assessee in the manufacture of mosaic tiles were not used in the same form during the works contract execution, making the finished product a different commercial commodity. The contention was supported by the decision in Tamil Nadu Mosaic Manufacturers Association v. State of Tamil Nadu, which restricted deductions to specific categories related to labor charges and services in works contracts. The Tribunal upheld the assessing officer's view, leading to the dispute.

Issue 2:
The second issue concerns the eligibility of the assessee for deduction under section 3B(2)(b) of the TNGST Act for raw materials purchased from registered dealers for manufacturing mosaic tiles. The assessing officer found that the raw materials were not used in the same form during the works contract execution, resulting in a different commercial commodity. The Appellate Assistant Commissioner partially allowed the appeal, emphasizing the need for considering labor charges incurred during the works contract. The Tribunal, however, after analyzing the separate stock accounts maintained by the assessee, concluded that only non-tax suffered raw materials could be taxed under the Act, setting aside the order based on relief under section 3B(2)(e) of the TNGST Act.

Issue 3:
Lastly, the issue of the applicability of the decision in Tamil Nadu Mosaic Manufacturers Association v. State of Tamil Nadu to the present case was raised. The Tribunal, considering the separate stock accounts maintained by the assessee and the nature of the materials used in manufacturing mosaic tiles, concluded that only raw materials that had not suffered tax could be taxed under the Act. This decision led to the setting aside of the order granting relief under section 3B(2)(e) of the TNGST Act and the corresponding penalty. The High Court ultimately upheld the assessment, setting aside the Tribunal's order and confirming the tax liability while deleting the penalty based on the facts of the case and relevant legal precedents.

In conclusion, the judgment delves into the intricate details of the tax assessment concerning the use of raw materials in works contracts and the eligibility for deductions under the TNGST Act. The interpretation of legal provisions and the application of precedents play a crucial role in determining the tax liability of the assessee in this case.