2015 (7) TMI 1081 - HC - VAT and Sales Tax

Seeking directions for not making flat deductions at source of value added tax at the rate of 4% from the bills of the petitioners relating to execution of the works contract as such action is contrary to the provisions of proviso to sub-section(2) of Section 41 of the Bihar Value Added Tax Act, 2005 as also the proviso to sub-rule(2) of Rule 29 of the Bihar Value Added Tax Rules, 2005. Held that - it is the obligation of the authorities to comply with the provisions of the Act and the Rules. If the Act and the Rules provide that deduction shall not be made with regard to certain items, it is not permissible for the person making the deduction of tax at source to continue to make deduction of the entire amount from the bills without giving the benefit as provided under the Rules. The same in fact is in the form of injunction and violation of the same is legally impermissible. The deducting authorities are, accordingly, directed to strictly comply with the provisions of Section 41 of the Bihar VAT Act and Rule 29 of the Bihar VAT Rules in the matter of making deduction and wherever the details are provided to them by the petitioners-contractors or are available to them then they shall be obliged not to make deduction with regard to the heads mentioned therein and the TDS shall be deducted only with respect to the remaining part of the bills. Any attempt by the tax authorities to compel full tax deduction at source is to be condemned. The provisions of law must be strictly followed by the authorities concerned. In case the authorities making the deduction of tax have not given the benefit to the petitioners, on the basis of details provided by them, then they shall ensure that not only such deduction are made in all future bills but also even with regard to the past bills if they failed to give the benefit of such deduction under Section 41 of the Act and Rule 29 of the Rules then the amount shall be adjusted in the future bills. - Petition disposed of

Summary

Issues:
- Dispute over the deduction of value-added tax at source from bills related to works contract under Bihar Value Added Tax Act, 2005 and Bihar Value Added Tax Rules, 2005.
- Refusal by tax authorities to fix a specific rate of tax deduction at source.
- Allegations of unjustified and illegal deductions by tax authorities including IRCON International Ltd.
- Non-compliance with the provisions of Section 41 of the Bihar VAT Act and Rule 29 of the Bihar VAT Rules by the deducting authorities.
- Continuation of full deductions by State authorities despite interim court order.
- Direction sought for strict compliance with the law by the tax authorities.

Detailed Analysis:

The petitioners sought direction against the respondents to refrain from making flat deductions at source of value-added tax at a rate of 4% from bills related to works contract, citing contravention of specific provisions of the Bihar Value Added Tax Act and Rules. During the hearing, a suggestion was made to fix the rate of tax deduction to simplify the process for contractors, but the tax authorities refused, citing the validity of the relevant provisions based on a previous judgment. The petitioners argued that tax deducting authorities, including IRCON International Ltd., should strictly adhere to the rules and not make unjustified deductions based on different categories, as currently being done.

The counsel for IRCON International Ltd. expressed concerns over threats by tax officials to proceed against them if full deductions were not made. However, the court emphasized the obligation of authorities to comply with the law, stating that if certain items are exempt from deduction as per the rules, then the deducting authorities must follow these guidelines. The court directed strict compliance with Section 41 of the Bihar VAT Act and Rule 29 of the Bihar VAT Rules, emphasizing that deductions should only be made on the remaining amount after excluding the exempted heads.

Despite an interim order prohibiting deductions without providing benefit to the petitioners, the State authorities continued full deductions. The court ordered that if authorities failed to provide the benefit of deductions based on details provided, adjustments should be made in future bills. The judgment concluded by disposing of the writ applications with directions for strict adherence to the law by the tax authorities, condemning any attempts to compel full tax deduction at source and emphasizing the importance of following legal provisions diligently.