2017 (2) TMI 1210 - HC - VAT and Sales Tax

Works contract - disallowance of expenses - labour charges - Rule-9 of the VAT Rules - Held that - Rule-9 regulates determination of turnover in a works contract. It is clear that the amount representing the value of service and labour and profit thereon is liable to be deducted if it is included in the gross amount received in respect of works contract - there is no finding returned in the order to discard the books of account of the assessee, holding that accounts maintained by the dealer are not worthy of credence or that the amount payable towards the labour has not been separately shown. 20% amount towards labour charges could be held admissible for deduction, by virtue of Rule-9(3) of the Rules, in a case where the amount payable towards labour charges are not separately shown or that the accounts maintained by the dealer are not worthy of credence - Since in the facts of the present case this Court finds that the required exercise warranted at the level of the authorities to deal with the liability of the assessee to pay VAT with reference to the provisions contained under Rule-9 of the Rules, have not been under taken, as such, the Tribunal was not justified in rejecting the claim of the assessee. The authorities were not justified in denying the benefit admissible to the assessee under Rule-9(1)(d) of the Rules - revision allowed - decided in favor of assessee.

Summary

Issues:
1. Disallowance of deduction for labour charges in works contract assessment.
2. Interpretation of Rule-9 of The Uttar Pradesh Value Added Tax Rules, 2008 for deduction of labour charges.
3. Inclusion of stone purchase amount in turnover without basis.

Issue 1: Disallowance of Deduction for Labour Charges
The revisionist, a works contractor, challenged the disallowance of deduction for labour charges in the assessment year 2010-2011. The dispute arose from the authorities disallowing the full deduction for labour charges and permitting only a 30% deduction. The contention was based on Rule-9 of The Uttar Pradesh Value Added Tax Rules, 2008, which allows deduction for the value of service, labour, and profit if included in the gross amount received for the works contract.

Issue 2: Interpretation of Rule-9 for Deduction of Labour Charges
The counsel for the assessee argued that the deduction for labour charges should be granted if shown separately in the accounts, as done in this case. It was emphasized that unless specific conditions under sub Rule-(3) of Rule-9 are met, the benefit under Rule 9(1)(d) should not be denied. The court noted that the assessing authority did not provide any justification to discredit the figures disclosed in the books of account by the assessee, which led to the denial of the full deduction for labour charges.

Issue 3: Inclusion of Stone Purchase Amount in Turnover
The assessee disputed the addition of &8377;40,00,000 to its turnover, arguing that the amount was related to stone purchases (Khanda) from previous years and should not be included in the current year's turnover without a valid basis. The court held that without material evidence showing the purchase of stone in the current year, the authorities were not justified in including such an amount in the turnover.

In conclusion, the court found that the authorities did not conduct a proper examination of the assessee's liability to pay VAT in accordance with Rule-9. Therefore, the Tribunal's decision to reject the assessee's claims was deemed unjustified. The court directed the Tribunal to re-examine the matter considering the provisions of Rule-9. The revision was disposed of, emphasizing the importance of adhering to the specific provisions of the VAT rules in determining deductions and turnover.