2016 (8) TMI 1188 - HC - VAT and Sales Tax

Levy of penalty u/s 8D(6) of the 1948 Act - Breach of the provisions of Section 8D of the U.P. Trade Tax Act, 1948 - scope of works contract - failure to deduct tax in respect of a works contract - whether the contract in question was essentially one of providing labour and service and not a works contract? - the respondents have while passing the orders impugned herein noted that the contractor engaged by the revisionist utilized stone ballast, bajri and other articles in order to construct platforms as also to strengthen the trenches created. It is on this strength that they came to conclude that the contract in question was a works contract. Held that - The payment terms were in no manner connected to the cost that may have been incurred by the contractor for the purpose of engaging men and labour. The contract was a composite contract, which entailed the laying of cables after undertaking civil works which have been detailed above. The contract cannot be read as one which was confined to the provision of labour. On an overall conspectus of the facts it is clear that the contract in question was not merely one for supply of labour and service as is sought to be contended and portrayed but clearly fell in the species of a works contract as defined by Section 2(m) of the 1948 Act. Subsection (2) of Section 3F makes a provision for the identification of items which are liable to be included or excluded while computing the net turnover which is liable to be taxed in respect of a works contract. This Court however, finds that neither before the authorities below nor even before this Court has the revisionist furnished any details in respect of the taxable turnover liable to be computed in accordance with the provisions of Section 3F (2)(b). In absence of the said material and as a consequence of the failure of the revisionist to provide such details, the learned Standing Counsel has rightly contended that the respondents committed no illegality in levying penalty upon the revisionist. The provisions of Section 3F deal with the computation and determination of net turnover of the works contractor. The identification of the valuable consideration paid in respect of a transfer of property in goods in the execution of a works contract is an exercise which was liable to be undertaken during the course of assessment of the works contractor. At this stage and in the absence of any material before this Court, no exercise of bifurcation can possibly be undertaken - This Court, therefore, finds no material or ground to interfere with the imposition of penalty or to upset the decisions rendered by the authorities below. Revision dismissed.

Summary

Issues Involved:
1. Validity of the action taken under Section 8D of the U.P. Trade Tax Act, 1948.
2. Nature of the contract: whether it was a works contract or job work.
3. Justification of the penalty imposed under Section 8D(6) of the 1948 Act.
4. Applicability of Section 3F (2)(b) regarding the computation of the taxable turnover.

Detailed Analysis:

1. Validity of the Action Taken Under Section 8D:
The primary issue revolves around the validity of the action taken against the revisionist for not deducting tax under Section 8D of the U.P. Trade Tax Act, 1948. The revisionist was held liable to pay a penalty for failing to deduct tax in respect of a works contract awarded for laying underground cables. The court examined whether the contract in question fell within the definition of a "works contract" under the 1948 Act.

2. Nature of the Contract:
The revisionist argued that the contract was for job work and not a works contract. The contract involved laying underground cables, with materials supplied by the revisionist, and included activities such as road cutting, digging trenches, and restoring roads. The court noted that the contract required the contractor to undertake civil works, which involved the transfer of property in goods, such as stone ballast and bajri, used in the execution of the contract. The court concluded that the contract was a composite contract involving both the supply of goods and services, thus falling within the definition of a "works contract" as per Section 2(m) of the 1948 Act.

3. Justification of the Penalty Imposed:
The court examined the provisions of Section 8D(6), which mandates the imposition of a penalty for failure to deduct tax from payments made to a contractor. The court emphasized that the penalty is automatically attracted upon failure to deduct tax, irrespective of the intent or any design to evade tax. In this case, the revisionist admitted to not deducting tax, thereby attracting the penalty provisions of Section 8D(6). The court found that the imposition of the penalty was justified and a necessary corollary of the failure to deduct tax.

4. Applicability of Section 3F (2)(b):
The revisionist contended that the penalty should be restricted to the value of goods transferred in the execution of the works contract, as per Section 3F (2)(b). However, the court noted that the revisionist did not provide any details or evidence regarding the bifurcation of taxable turnover as required under Section 3F (2)(b). The court held that the identification of the taxable turnover was an exercise to be undertaken during the assessment of the works contractor, and in the absence of such details, the authorities did not commit any illegality in levying the penalty.

Conclusion:
The court dismissed the revisions, upholding the orders of the assessing authority and the first appellate authority. The court concluded that the contract in question was a works contract, and the revisionist's failure to deduct tax attracted the penalty provisions of Section 8D(6). The court also found no grounds to interfere with the imposition of the penalty or the decisions rendered by the authorities below.